Here’s a clear, concise explanation of Capital Gains Tax (CGT) in South Africa, including when and how it applies:
What is Capital Gains Tax (CGT)?
CGT is a tax on the profit (capital gain) made when you sell an asset that increased in value. It’s not a separate tax but forms part of your income tax.
When Does CGT Apply?
You’ll owe CGT when you dispose of an asset, including:
• Selling property (e.g., a house, rental property, land).
• Selling shares, cryptocurrencies, or investments.
• Gifting or transferring assets (even for free).
• Swapping assets (e.g., trading a car for property).
Exceptions (No CGT):
• Your primary home (if sold for ≤ R2 million profit).
• Personal items (e.g., furniture, cars).
• Assets inherited by a surviving spouse.
How is CGT Calculated?
1. Determine the Capital Gain:
o Selling Price – Base Cost (purchase price + improvements + fees) = Capital Gain.
2. Apply Inclusion Rates:
o Individuals: 40% of the gain is taxable.
o Companies/Trusts: 80% of the gain is taxable.
3. Add to Your Taxable Income:
o The taxable portion is added to your annual income and taxed at your marginal rate.
Example:
You sell a rental property for R3 million (bought for R2 million + R200k improvements).
• Capital Gain: R3m – R2.2m = R800k.
• Taxable Portion (40%): R800k × 40% = R320k.
• If your tax rate is 36%, you’d pay: R320k × 36% = R115,200 CGT.
When to Pay CGT?
• Individuals: Declare in your annual tax return (due by October–January).
• Companies/Trusts: Paid as part of provisional tax.
Key Deadlines
• Property Sales: Submit a Capital Gains Tax Declaration (SARS form CGT) within 21 days of sale if not registered for provisional tax.
Tips to Reduce CGT
• Primary Residence Exclusion: Use the R2 million exclusion if applicable.
• Offset Losses: Deduct capital losses from gains in the same year.
• Delay Sales: Spread sales across tax years to lower marginal rates.
Pro Tip: Always keep records of purchase receipts, improvements, and sale documents for 5+ years!