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Capital gains tax (CGT)

 

This tax can be very complicated, and is often open to personal interpretation. The main object of CGT is to tax any gains made by the sale of capital goods.

 

By the above it should be clear that you can only incur capital gains if you actually sell something. Therefore you can buy as many shares, for example, as you wish but you will only pay tax on those shares if you actually sell them.

 

So what goods are considered capital goods then? Well, essentially any asset that you buy that could be used to earn an income, such as shares, property, unit trusts. There are some exceptions such as the first R1.5 million profit on your primary residence is excluded. Most personal assets such as your motor vehicle are also excluded.

 

Your capital gain is calculated as follows: Proceeds from sale less your base cost. For example if you sell a share for R30 000 and it cost you R10 000 to buy, then your capital gain would be R20 000.

 

There is also an annual exclusion of R 17 500 for the 2011 tax year, so in the above example you would only have a gain of R2 500. This amount of R2 500 is then included into your taxable income at a rate of of 25%. So in the end only R625 is taxable.

 

If however you make a business of buying and selling shares you may however be classified as a trader. Then the above calculations for CGT do not apply to you, as then your full profit will be taxed at your tax rate. If a share is held for at least 3 years, then it is deemed to be a capital gain.

 

For more information on CGT please download this document