What you need to know about Capital Gains Tax

Capital Gains Tax was first introduced in 2001 (Taxation Laws Amendment Act) and is a tax imposed on the disposal of an asset which amount forms part of a seller's annual taxable income. It is most commonly brought into effect during the selling of a property - primary or otherwise - when the selling price exceeds the price the property was originally purchased for.

In respect of individuals, 40% of the capital gain is added to a seller's annual income tax and taxed at their normal rate. The Tax Act does however provide a R2-million exemption in respect of a primary residence being sold and as such if one sells their primary residence and the profit is R2-million or less they will not be required to pay Capital Gains tax. Any gain in excess of the R2-million will be subject to Capital Gains Tax.

It is important to note that a property owned by a company or trust which is used as a primary residence by a shareholder or beneficiary would not benefit from the R2-million exemption.

If one is selling a secondary property - investment / holiday home, for example - the exemption no longer applies and the full gain will be taxed. This should be taken into account when considering the selling price of a property.

There are also ways in which to reduce the calculation of one's Capital Gain. For example, costs incurred with regard to renovations, estate agent's commission and transfer duty paid, will all be deducted from the Seller's gain. If one purchased their primary residence for R2-million and spent R500 000 on renovations before eventually selling the property for R4.5-million, the R500 000 will be deducted from the profit. In essence, the profit would only be R2-million which is the exemption amount and as such no Capital Gains Tax would be payable.
 

Selling a property when residing outside of South Africa:
Whilst there is no restriction on ownership of property in South Africa by a non-resident, they are bound by Section 35A of the Income Tax Act No.58 of 1962, which states that when a foreigner sells a property in SA, the purchaser is required to withhold a percentage of the purchaser price: 7.5% if the Seller is a natural person, 10% if the Seller is a company, and 15% if the Seller is a Trust.

"The amount is withheld in order to avoid the full funds being taken out of the country without Capital Gains Tax being paid by the seller and is an advance in respect of the seller's tax" says Danielle Abrahamson of Katz Abrahamson Attorneys. "One can apply to SARS for a tax directive in this regard and have the amount reduced before it becomes due. A non-resident is never eligible for the R2 000 000.00 exemption in respect of Capital Gains Tax as this is only applicable to one's primary residence."

"When taking the proceeds of the sale out of South Africa the Seller must be able to show the flow of the foreign funds and have a Deal Receipt from when the property was first purchased and the funds brought into the country."

Managing Director of The Agency Property Group, Kyle Leigh, says it is very important for people to understand the tax implications of emigrating.

"There are a number of people who are planning to emigrate and don't fully understand the tax implications of ceasing to be a tax resident in South Africa. There could be significant implications on your Capital Gains Tax on your primary residence should you only sell your property after you emigrate and it is therefore always advisable to speak to your personal accountant or seek professional assistance when considering emigration''.