Capital Gains Tax .... not as deadly as it sounds ...

Capital Gains Tax

" ... not as deadly as it sounds..."

Capital Gains Tax ("CGT") is not a separate tax such as Value Added Tax or Transfer Duty.

The 'gain' is added to your annual income in the year the CGT event takes place, thus increasing your taxable income, along with, your payable income tax.

The calculation of the net capital gain for income tax purposes can be complex.

Simply put, if you sell your house it would be the difference between the costs of acquiring the house and the selling price.

Selling Price - Costs = Capital Gain.

Costs would include the purchase price, transfer, improvements, maintenance costs and so on.

On top of this, an initial amount (it changes from time to time*) of the capital gain is exempt from CGT in the case where a natural person sells his or her 'primary residence.' *  This current exemption is R2, 000, 000. If you and your spouse own a joint bond, the exclusion of R2, 000, 000 is split between the two of you, so you each qualify for an exclusion of R1, 000, 000.

A percentage* of the net capital gain is then added to the taxpayer's taxable income.  This current percentage is 40%.

A practical example:

If the capital gain of an individual selling his or her primary residence is R3,000,000, the first R2,000,000 is exempted from CGT and only R1,000,000 is regarded as Capital Gain.

40% of this R1,000,000 would be taxable - therefore the individual would be taxed on R400,000 in his or her income tax.

As in most tax matters, there are many conditions, exceptions, and qualifying rules.

It is suggested that you consult an attorney or tax expert if you have any doubts.

Ready to buy or sell property? Contact us today at www.threepercent.com / info@threepercent.com

Lawyers selling property, it makes sense. 

*Please consult your attorney or tax advisor to determine how much these amounts are as they change from time to time.