Capital Gains Tax

CAPITAL GAINS TAX

We have had many requests for information regarding Capital Gains Tax on properties and as the extended date of the 30th September 2004 has lapsed, what does this mean to someone who has not had their property valued?

Firstly the valuation applies to properties owned before 1 October 2001 (the valuation date). The value of the properties bought after this date will simply be the purchase price plus the transfer costs plus all the costs related to improvements of the property – all documents relating to theses costs must be kept to validate the claim.

The BASE COST as defined by SARS which would be deducted from the sale price along with any selling expenses like advertising and sales commissions, can be achieved in one of three ways:

1:  20% of the sale value.

2:  Market valuation as at the 1st October 2001.

3:  Time appointment method (probably the best method producing the highest BASE COST).

The calculation is:

Original Cost + (gain x period before valuation date / period held before and after valuation)

Example: If you bought your property 10 years ago for R 300 000 and sold it now for R 1,500 000 then the calculation of the base cost would be

R 300 000 + (R 1,200 000 x 7/10) = R300 000 + 840 000 = R 1,140 000.

At this point this would generate a taxable gain of R 360 000.

If this is your primary residence then you would deduct the

R 1, 000 000  exclusion plus the annual R 10 000 exclusion and there would be no tax payable.

If this is not your primary residence then R 360 000 less annual exclusion of R 10 000 leaves R 350 000 taxable gain of which in turn if taxed worst case scenario of 40% marginal rate would result in a real tax charge of R 35 000.  IF this property was company owned then the rate of 50% would apply (R 180 000) at rate of 30% = R 54 000 payable.