Basic Guide to Capital Gains Tax and Selling of Property in South Africa

Basic Guide to Capital Gains Tax and Selling of Property in South Africa

There are only two things certain in life: death and taxes. In this case, we will be talking about a tax on the resale of fixed assets, also known as Capital Gains Tax, or CGT.

The first confusion usually occurs when certain sums one needs to declare on the annual income tax return are deemed to be capital versus revenue. 

Was a property bought with the intention to generate profit (which would be regarded as revenue), or was the intention to buy it as a financial investment, in which case it would be seen as capital? Hence, the importance of keeping proof of one's objective when buying property to avoid paying normal revenue tax. 

A higher-than-average turnover of such property transactions would classify that investor's profits as revenue, and subsequently would be subject to revenue tax instead of CGT.

Most of us buying property for personal longer-term (capital) growth will face CGT one day upon selling the asset, whereby the first R2,000,000 profit on the primary residence will be exempt from CGT. 

Following a few valuable CGT pointers:

1 - When did CGT come into effect?

Only from 1 October 2001 onward (also known as the 'valuation date') will there be CGT liable. In other words, any property sold in South Africa will have the CGT calculated based on the value of that particular property as of 1 October 2001, and the gains made from that date, up to the date of sale. 

2 - Who has to pay CGT?

Any taxpayer (which can be an individual, trust, company or close corporation) will need to pay tax on the profits made when selling a fixed asset.

A resident of South Africa will be responsible to pay CGT on property located both overseas as well as in South Africa. A non-resident will only be liable for CGT on the fixed assets in South Africa. 

On a side note, receiving any rental income from a property is regarded as revenue, and as such is not subject to CGT but needs to be declared on one's annual income tax return.

3 - When should CGT be paid?

This is pretty straightforward: any CGT will be payable upon receiving your income tax assessment (referred to as IT34), whereby any registered taxpayer in South Africa declares all the capital gains (and losses) on the return of income.

As mentioned earlier in this article, make sure to keep the necessary proof to defend one's position in terms of capital vs. revenue. Sometimes these documents will be needed many years later.

Purchasing property from a non-resident seller might require filling out some extra documentation, specifically NR02 and IRP6(3), with the seller's income tax reference number and withhold the amount of tax cited in section 35A(1). The former two documents must then be submitted together with the payment to SARS.

Sometimes the non-resident seller might be entitled to get a lower (or even zero) rate of CGT under section 35A(2), depending on certain facts (i.e. person is fully exempt from CGT, person might have a lower level of taxable income, or the property sold at a loss).

In Conclusion

The above article covered a quick, high-level overview of what to expect regarding Capital Gains Tax. Obviously, every person will have his/her own unique situation which will require the help of a professional advisor to make sure all calculations are done correctly and all regulations have been complied with.