Belinda Beresford
The introduction of a new form of tax is always a worrying prospect – the thought of paying more money to the revenue service is not appealing. And the introduction of capital gains tax (CGT) is no exception.
The government introduced the tax to close a tax loophole – people have been converting income into capital gain in an attempt to enjoy the tax-free benefits of capital increases. It is an equalisation move, since CGT is likely to affect only the wealthier members of society.
Currently, South Africans pay tax on income, such as interest or rent from a house, but do not pay tax on capital profits such as gains from selling the same house. The CGT will change this so that tax is paid on the capital benefits, although there will be some exemptions.
The good news is these exemptions include your personal house, car and most personal belongings, as well as winning the jackpot on the new national lottery.
Any South African citizen or resident is liable for CGT, and the government has planned a number of ”anti-avoidance” measures. Emigrating will not let you escape, according to a tax official.
The first R1 000 of any capital gain will be exempt from tax. After that 25% of any additional capital benefit will be taxed at the taxpayer’s marginal rate of interest. An example: if you made a capital gain of R2 000 on the sale of shares, half of that amount would be exempt from CGT. You would pay tax on 25% of the remaining gain – that is, R250. If your marginal rate of tax was 42%, you would pay R250 x 42% or R105 in CGT.
Companies would be liable for CGT on 50% of any capital gains at the normal company tax rate of 30%.
So how do you plan for CGT? Perhaps by buying a bigger house.
Taxpayers will also be able to deduct ”base costs” from any capital gain. For example, you cannot claim back the cost of repairs on a holiday home in the Cape, although you can claim back the cost of putting in a swimming pool since that would be adding to the asset.
Sometimes CGT can be deferred; for example, when property is transferred as part of a divorce agreement or as part of an inheritance from a deceased estate.
If an asset is acquired before the effective date of CGT and is disposed of afterwards, the tax is only liable on the gains made after CGT came into force. This can either be calculated using a ”time-based apportionment basis” or you can have your assets valued at the date at which the tax came into effect. The government has invited comment on the proposed CGT – you can e-mail [email protected] or [email protected]. CGT is due to take effect on April 1 2001.