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CAPITAL GAINS TAX PAYABLE & PROPERTY VALUATIONS

IN SOUTH AFRICA

South African residents are required to pay Capital Gains Tax (CGT) as from 1 October 2001 on the disposal of any asset, subject to limited exceptions.

Non Residents are only required to pay CGT on the disposal of the following:

  • Immovable property situated in South Africa, including any right or interest in immovable property. Such right or interest includes an interest of 20% or more in a company where 80% or more of the value of the net assets of the company is attributable, directly or indirectly, to immovable property in South Africa; and/ or
  • Any asset of a permanent establishment of a non-resident through which trade is carried on in South Africa.

Property Valuation Methods used to determine the Capital Gain.

  1. The Standard Method – for properties acquired before or after 1 October 2001 :
    CGT is calculated on the difference between the selling price and the purchase price. In addition, transfer costs on the purchase, estate agents commission on the sale, and documented  capital (not maintenance) improvements to the property can be deducted from the capital gain. Capital improvements would include- erecting a garage or extra room but exclude maintenance items such repainting or repairing a roof or other items deemed expenses for income tax such as bond interest, rates and taxes etc.
  2. Time Apportionment Method (no valuation) – for properties acquired before1 October 2001 :
    The Capital Gain is calculated as per 1 above. The capital gain is pro-rated according to the number of years the property was owned before and after1 October 2001, with a maximum of 20 years before 1 October 2001 being taken into account. For example if a property was owned for 1 year before 1 October 2001 and 3 years after, the capital gain would be 75% of the profit.
  3. The 80/20 Method (no valuation/ no records) – for properties acquired before 1 October 2001 :
    If the Seller does not have any records of acquiring the property, Sars will deem 20% of the capital gain to be the base cost of acquiring the property as at 1 October 2001.
  4. The Valuation Method – for properties acquired before 1 October 2001 and valued before 30 September 2004 :
    The Capital Gain would be the difference between the selling price and the valid valuation of the property as at 1 October 2001. In addition, transfer costs on the purchase, estate agents commission on the sale, and documented capital improvements to the property after 1 October 2001 can be deducted from the capital gain. Capital improvements before 1 October 2001 may not be deducted as these would have been taken into account in the valuation of the property as at 1 October 2001.

Within the aforesaid legal requirements, the Seller is entitled to elect which Method to use to determine the Capital Gain and to calculate the Tax payable on the Capital Gain.

The various categories for payment of CGT are as follows:
Natural persons:
CGT for natural persons is calculated by adding 25% of the capital gain (or profit) to the individuals income for that year and deducting the annual rebate and thereafter taxing that income at the individuals marginal rate of income tax. In South Africa the maximum marginal income tax rate is currently 40%.
The capital gain is calculated and disclosed in the individual’s income tax return for the tax year during which the asset is sold. Therefore, if not already registered, a non resident would have to register as a South African taxpayer in order to submit an income tax return reflecting the capital gain for the payment of CGT.
Trusts:
If an asset is held by a Trust, such Trust pays CGT on 50% of the capital gain (or profit) at the marginal tax rate of 40%.
Companies and Close Corporations:
If an asset is held by a Company or Close Corporation, it pays CGT on 50% of the capital gain (or profit) at a marginal rate of 28%.
Rebates:
South African residents are exempt from paying CGT on the first R2 million profit made on disposal of their primary residence. Non-residents do not qualify for this exemption unless they satisfy SARS that their primary residence is in South Africa.

Parkin AttorneysProperty Law Specialists in Cape Town

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