No one likes a surprise from the Taxman, because we know it is hardly ever good. The year we’ve made a profit should be one for celebrating, not for sharing with SARS. Understanding Capital Gains Tax (CGT) and how it works is key to saving pennies when you are looking to sell an asset or investment.
So, if you are looking to do just that, we understand you may be worried about the Capital Gains Tax you are most likely liable for. We’ve put together some information to help you understand the CGT procedure:
What is Capital Gains Tax?
CGT is the tax an individual, group, or business has to pay to SARS if they sell property at a higher price than the original price that it was sold to them for or if they withdraw shares, ETF, or unit trusts after there was growth in the investment. You are also liable due to death, the sale of an asset, a donation, cessation of property, or damage or loss of an asset.
How is the tax calculated?
The tax is calculated on the profit you make and not the amount you sold the investment for. The rate of tax that you will pay is based on your tax bracket in the year of selling the asset. As an individual taxpayer, the bright side is that you have R40,000 per tax year that is exempt from CGT. This means that if your profit is lower than R40 000, you won’t have to pay CGT in that tax year.
If you are a South African tax resident, you are liable for CGT on assets located in and outside South Africa. Non-residents are generally only liable for CGT on immovable property in South Africa.
What to know when disposing of assets:
Are you planning on relocating abroad, but need to dispose of your assets first? Make sure your tax for the year is managed effectively. Can you streamline your other South African-based income by either breaking it up over multiple periods or reducing your earnings in SA for that tax year?
Disposing of foreign asset
First, find out if there is a foreign exchange profit or loss on the asset’s original price. In other words, calculate your capital gain in the foreign currency and then convert the amount to the current exchange rate.
CGT on South African property:
Whether you are a SA tax resident or not, you must pay tax in SA on any South African property sold.
This, of course, is the place you reside in for most of the year – either alone or with your family. Again, there’s a little bit of good news. The first R2 million capital gain or loss is exempt from tax if the property you’re selling has been your primary residence since the time of purchase until the sale is made.
Non-South African tax resident
Non-South African residents must either pay a withholding tax, which is 7.5% of the total selling price, or the actual tax amount. Generally, the actual tax amount is less than the withholding tax. Although paying the actual amount seems like a good option, it can be problematic for foreigners who don’t have a South African bank account. Why? Because it means that they have to be paid directly offshore, and this can be a painful process. Another option is for the non-South African tax resident to ask for a tax directive upfront. This is an official instruction from SARS to deduct tax at a set amount – but this also has its problems. The process can take up to 21 working days, and your attorney has to pay SARS within 10 working days from the date of the transfer.
Consider the experts
When selling a property, many people leave the nitty-gritty to their lawyers, who are then left to deal with tax affairs too. However, a lawyer won’t necessarily know what can be deducted for tax purposes or may not even know how to make a correct application with SARS.
That’s why a good capital gains tax specialist accountant is your best bet. At Dirmeik Consulting, we have an extensive understanding of the tax laws and can give the correct and up to date advice on all your Capital Gains tax matters.
We can advise on all South African tax matters, tax implications and will endeavour to create the most cost-effective solution for you and your business. Get in touch with us on our website.