CAPITAL GAINS TAX

TO ALL ESTEEMED BUSINESS PARTNERS

Number

26/2016
Capital gains tax came into effect on 1 October 2001 and in respect to the sale of property, capital gains tax will be imposed on any capital gain realized with regard to property being sold.
 
The capital gain or part thereof will be included in the tax payers taxable income for a given tax year. In the context of the sale of a house, the capital gain will be the difference between the selling price and the amount paid when the property was bought.  For purposes of the calculation of capital gains tax, it is important to determine if the house being sold is a primary home.
 
The income Tax Act 58 of 1962 defines a “primary home” as a home:
  • In which a natural personor a special trust holds an interest; and
  • In which that person or a beneficiary of that special trust, or a spouse of that person or beneficiary usually lived in as his/her main home and which was mainly used for domestic purposes. 

In the establishment of the base cost of an asset the Income Tax Act provides the following guidelines and determines that base cost is any cost directly incurred:
  • For the acquisition of an asset;
    » Direct costs towards the acquisition and sale of an asset, for example
    • advertising costs for the sale or buying of the property
    • conveyancer costs, transfer duty, or similar tax; and
    • paying of surveyor, legal adviser, bookkeeper etc. for service rendered;
  • Costs for appraisal of the asset to determine the capital gains or losses;
  • Improvements of an asset; for example extensions and improvements that are still visible at the time of sale of the property; and
  • Tax added on value- where it is raised but not recovered as input tax for purposes of added value.
The inclusion rate for a natural person or special trust is calculated at 33% per year during the year of assessment. There are also certain annual exclusions of a natural person or special trust. If the person dies in the year of assessment the annual exclusion is R300 000, 00 and the exclusion for a natural person or special trust per year is R30 000, 00.
 
Important furthermore is the exclusion of the first R2 000 000, 00 capital gain on a primary home of capital gains tax. Where part of the primary property is used for business purposes that part of the property will, however, be subject to capital gains tax.
 
If a second home, holiday home or timeshare is sold for profit, the R2 000 000, 00 exclusion is not applicable because it will then not qualify as a primary home.

For any queries please contact our property law division at the details below:

Allen West
Tel: 012 425 3549
awest@macrobert.co.za

Daleen Loubser
Tel: 012 425 3489
dloubser@macrobert.co.za

Disclaimer: This newsflash is for general information only and should not be used as legal or professional advice. No liability can be accepted for any errors or omissions, nor for any loss or damage arising from reliance and any information therein