Capital Gains Tax (CGT)
EFFECTIVE DATE
The proposed effective date for the implementation of Capital Gains Tax (CGT) is 1 October 2001
CGT APPLIES TO
a residents worldwide assets
a non-residents immovable property or assets of a permanent establishment in the Republic
DISPOSALS
CGT is triggered on disposals of an asset
Important disposals include
A donation
Abandonment scrapping loss etc
Vesting of an interest in an asset of a trust in the beneficiary
Distribution of an asset by a company to a shareholder
Granting of an option
Deemed disposals include
Death of a resident
Termination of South African residency
A change in the use of assets
The transfer of an asset by a permanent establishment
Disposals exclude
The transfer of an asset as security or for release of a debt
Issue or grant of an option of a share debenture or unit trust
Loans credit security and release of debt
Vesting distribution by a trust
Change of trustees
CALCULATION OF A CAPITAL GAIN LOSS
A capital gain or loss is determined as follows
Proceeds xxx
Less Base cost (xx)
Capital gain loss xx
BASE COST
Expenditure included in the base cost
Cost of acquisition transfer stamp and similar costs
Remuneration of advisors and consultants
Costs of moving an asset and improvement costs
Expenditure excluded from the base cost
Expenses deductible for income tax purposes
Interest paid raising fees and recoverable expenses
Methods for calculating the base cost
One of the following
Time apportionment base-cost –
Example
If an asset cost R350 000 on 1 October 1998 and was sold on 1 October 2003 for R650 000 and CGT was implemented on 1 October 2002 assuming that the market value of the asset was R550 000 on 1 October 2001
Base cost expenditure R350 000
Market value at valuation date R550 000
Capital Gain 100 000
The market value of R550 000 at valuation date exceeds both the time apportionment base cost and 20 of the proceeds and thus should be chosen for the base cost. Consequently the taxable capital gain amounts to R100 000 – R650 000 less R100 000. The time apportionment base cost in the above example amounts to R530 066.
Market value
General – arms length market price
Shares the average of the last price quoted for five days of trading preceding the valuation date
Long term insurance policy – surrender value
20 of the proceeds
PROCEEDS
The total amount received or accrued from the disposal
Excluded
Amounts included in gross income for income tax purposes
Amounts repaid or repayable or a reduction in the sale price
Specific transactions
Connected Persons – market value
Deceased Persons – at the market value on the date of death
Deceased estates – the disposal is deemed to be at the base cost
Foreign currency – at the ruling exchange rate on the date of accrual
INCLUSION RATES AND EFFECTIVE RATES
Inclusion rate Effective rate
Individuals and special trusts 25 10.5
Companies 50 15
Trusts 50 20
Unit Trusts the unit holder is taxable
Retirement funds are not taxable
EXCLUSIONS AND REBATES
Rebate – natural persons and special trusts R10 000 annually – R50 000 in the case of death in the first year
Exclusions
A primary residence used for domestic or private residential purposes by a natural person or a special trust – R1 million
Personal use assets not used for the carrying on of a trade
Lump sums from insurance and retirement benefits (second hand policies not covered)
Small business assets – exclusion limited to R500 000
Requirements
Gross asset value – less than R5 million
Should be sole proprietor for at least five years 55 years old suffer from ill health and be infirm or deceased
Compensation prizes and gains on foreign currency acquired for personal expenditure
Donations to certain PBOs
ROLLOVER RELIEF
Normally any gain is disregarded until disposal of the replacement asset
Certain involuntary disposals and the replacement of qualifying business assets
Transfer of assets between spouses
Transfer of business to a company
