Capital Gains Tax & Your Primary Residence

Capital gains tax is a tax levied on the profit made on the sales of any property sold. The tax is levied on the difference between the amount the asset was sold minus the original cost of the property and the cost of any improvement made on it. It was introduced to South Africa in October 2001.

Who Pays it?

Everybody resident of the country must pay the tax on all property sold irrespective of the property's location i.e. both properties inside and outside South Africa are taxable. Furthermore, non South African residents that have private assets or businesses in the country are liable to be taxed.

The Details

Each year while you are filing the year's income tax return, the capital gains on all the properties sold including your primary residence will be filed as part of the taxable income. The capital gain is calculated by subtracting the base cost of the property in question from the property's sale price. It should be noted that the property's base cost is not just the original price that you paid to get it. It also includes all other costs that you may have incurred on it such as improvement costs, stamp duty, charges paid to your attorney or estate agent etc.

The South African Capital Gains Tax, CGT, has a few additional rules that apply to the administration of the tax. For example, the first 10,000 rand of your capital gain is excluded from your taxable amount if you are considered as an individual for tax purposes by the South African Revenue Service. Your capital gain less the capital loss gives you your total gain. So, any gain made after the first 10,000 is then taxed at 25% for a primary residence only. On the other hand, a tax of 50% of the total gain will be exerted on a property that is not a primary residence These regulations are applied yearly to the income tax return.

Properties Exempted from the Capital Gains Tax

Under the administration of the tax in South Africa, almost all assets are considered taxable. However, a few of them are exempted. An example is a property that is being occupied by the owner. Other conditions need to be met though. For example, the property's worth should not be more than R1, 000,000 and it should not have more than 2 hectares of adjacent land to the residence. Other assets exempted are personal belongings, earnings from gambling, private automobiles, retirement benefits and annuities etc.

How to Calculate Your Assets

The base cost of your property can be computed using two methods. These are the valuation and time apportionment methods. For the valuation method, the property's value as at October 2001 must be known. For the second method, the capital gain on the property is calculated back in time from the time it was initially purchased to the time it was sold. After this, the gain that occurs after October 2001 is then factored out. This second method is a little bit more complicated to understand and compute.