How much Capital Gain Tax should you pay when you sell your property?
CAPITAL GAINS TAX
Capital Gains Tax forms part of income tax and arises when there is a disposal of an asset, which includes property. Although not all assets attract Capital Gains Tax, capital gains are taxed at a lower rate than ordinary income. Capital gains and losses before 1 October 2001 are not taken into account.
This regulation of SARS is contained in the Eight Schedule to the Income Tax Act 58 of 1962.
WHO IS IT FOR?
Capital Gains Tax applies to individuals, companies, close corporations and trusts. There are certain persons that are fully exempt from Capital Gains Tax, such as retirement funds and public benefit organizations.
A resident of South Africa is liable for Capital Gains Tax on immovable property that is located in and outside of South Africa. A resident is a person who is ordinarily resident in South Africa.
A non-resident (or foreigner) of South Africa is liable for Capital Gains Tax on immovable property or shares in immovable property located inside of South Africa. A non-resident for tax purposes is a person who is not ordinarily resident in the Republic of South Africa, or does not meet the physical presence test.
PRIMARY RESIDENCE EXCLUSION:
The capital gains and losses on the disposal of a primary residence are excluded, limited to R2 million. A taxpayer who used the property as a primary residence is allowed to exclude the first R2 million of gain realised.
If there is any part of your residential home that is used for business, such as a study or if you rent out the residence, the primary residence exclusion does not apply to that portion of a capital gain or loss. There is no exclusion or exemption on the capital gain that results from the sale of a second property.
A primary residence must be a place of residence that is used by a natural person that owns an interest in the residence. The natural person or a spouse of that person must ordinarily reside in the home and must use it mainly for domestic purposes.
THE MAXIMUM EFFECTIVE TAX RATE TO BE APPLIED TO THE GROSS CAPITAL GAIN REALIZED:
- Individual: Gains <R1.5m = 16.4%
- Individual: Gains >R1.5m = 18%
- Entity: 22.40%
- Trusts: 36%