As a South African taxpayer, understanding the various taxes that you are required to pay is crucial. One of these taxes is Capital Gains Tax (CGT). CGT is a tax that is levied on the profit that you make when you dispose of an asset.
This tax is applicable to all taxpayers in South Africa, including individuals, companies, and trusts. In this article, we will explore what CGT is, why it was introduced, and how it is calculated.
What is Capital Gains Tax?
Capital Gains Tax is a tax that is levied on the profit that you make when you dispose of an asset. The profit that you make is calculated by deducting the base cost of the asset from the selling price of the asset.
The base cost of the asset is the price that you paid for the asset plus any expenses that you incurred to acquire or improve the asset.
The Capital Gains Tax rate that you are required to pay in South Africa depends on your income tax bracket. The current CGT rates for individuals and special trusts are as follows:
- If you earn up to R87,300 per year, you do not have to pay any Capital Gains Tax.
- If you earn between R87,301 and R365,000 per year, you will be taxed at a rate of 18% on your capital gains.
- If you earn more than R365,000 per year, you will be taxed at a rate of 40% on your capital gains.
The CGT rates for companies and other trusts are different and are subject to change. It is important to consult with a tax professional to ensure that you are paying the correct amount of Capital Gains Tax.
Why was Capital Gains Tax Introduced?
Capital Gains Tax was introduced in South Africa in 2001. The main purpose of this tax was to create a more equitable tax system by ensuring that all taxpayers pay their fair share of taxes.
Prior to the introduction of CGT, taxpayers were able to sell their assets without paying any tax on the profits that they made.
All taxpayers in South Africa are required to pay Capital Gains Tax. This includes individuals, companies, and trusts.
Most assets are subject to Capital Gains Tax, some of these are: property (including your primary residence), shares, bonds, Krugerrands and other gold coins, collectible items (such as art, stamps, and antiques)
How is Capital Gains Tax Calculated?
Capital Gains Tax is calculated by deducting the base cost of the asset from the selling price of the asset.
The base cost of the asset includes the purchase price of the asset plus any expenses that were incurred to acquire or improve the asset. The resulting amount is your profit, which is then subject to Capital Gains Tax.
Capital Gains Tax Calculator
Calculating Capital Gains Tax can be a complicated process, especially if you have multiple assets that are subject to CGT.
Fortunately, there are many online calculators that can help you determine how much Capital Gains Tax you owe.
These calculators take into account the base cost of the asset, the selling price of the asset, and the applicable tax rates.
There are certain exemptions and deductions that can be applied to Capital Gains Tax. For example, if you sell your primary residence, you may be able to claim a primary residence exclusion.
Additionally, if you sell an asset that has been held for more than three years, you may be entitled to a reduction in the Capital Gains Tax rate.