What is Capital Gains Tax
Capital gains tax (CGT) is not a separate tax but forms part of income tax. A capital gain arises when you dispose of an asset on or after 1 October 2001 for proceeds that exceed its base cost.
The relevant legislation is contained in the Eighth Schedule to the Income Tax Act 58 of 1962.
The government taxes capital gains at a lower effective tax rate than ordinary income. After 1 October 2001, we do not take into account CGT capital gains and losses. Certain assets do not attract CGT, and we disregard specific capital gains and losses.
Frequently asked questions
Who must pay capital gains tax
CGT applies to individuals, trusts and companies.
A resident, as defined in the Income Tax Act 58 of 1962, is liable for CGT on assets located both in and outside South Africa.
A non-resident is liable to CGT only on immovable property in South Africa or assets of a “permanent establishment” (branch) in South Africa. Certain indirect interests in immovable property such as shares in a property company are deemed to be immovable property.
Some persons such as retirement funds are fully exempt from CGT. Public benefit organisations may be fully or partially exempt.
A withholding tax applies to non-resident sellers of immovable property (section 35A). The amount withheld by the buyer serves as an advance payment towards the seller’s final income tax liability.
How do I calculate the capital gains tax
Sum of capital gains and capital losses during the year of assessment Less: Annual exclusion = Aggregate capital gain or aggregate capital loss Less / add: Assessed capital loss brought forward from previous year of assessment = Net capital gain or assessed capital loss Multiply a net capital gain by the inclusion rate.
What is the base cost for capital gains tax
Definition of Base Cost
Base cost means the cost of an asset against which any proceeds (the price) upon disposal (sale) are compared in order to determine whether a capital gain (a profit) or loss has been realized.
What is the 20% rule for capital gains tax
In terms of the same, 20% of the capital gain is effectively exempted from capital gains tax. Accordingly 20% of the proceeds is considered as the value of the property as at the 1st of October 2001 and the capital gains tax is then calculated on the remaining 80%.
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