CAPITAL GAINS TAX IN RELATION TO PROPERTY
AT WHAT RATE IS CAPITAL GAINS CALCULATED?
Individuals and Special Trusts : 18%
Other Trust : 36%
When immovable property is disposed of, the seller becomes liable for the payment of capital gains tax (CGT) on any profit made in respect of that property after 1 October 2001, which is the date on which this tax was first introduced in South Africa.
If a capital loss is made on disposal of the property, it may be offset against any capital gains made in that year of assessment and, if no capital gains have been made, the loss may be carried forward to subsequent years of assessment, but will be reduced in each year carried forward by the annual exclusion. For individuals, the first R40 000 of their capital gain or loss will be exempt and thus disregarded. This figure increases to R300 000 in the year in which an individual dies.
THE INCOME-TAX ACT:
In order to facilitate collection of CGT from non-residents, our Income Tax Act requires a buyer, who is purchasing property from a non-resident, to withhold a certain percentage of the purchase price and to pay this percentage to SARS on registration of transfer. Important to note is that the legislation places an obligation on the estate agent and/or conveyancer to disclose this payment responsibility to the buyer and to withhold the funds.
HOW MUCH MUST BE PAID?
If the sales price exceeds R2 million: 7.5% must be withheld
If the seller is a natural person and a tax nonresident; 10% must be withheld
If the seller is a nonresident company or close corporation; 15% must be withheld if the seller is a non-resident trust.
ARE NONRESIDENTS ALSO LIABLE TO PAY CGT?
Yes. Non-residents are liable for the payment of CGT on the profit realized from the disposal of any immovable property owned by them in South Africa, or on the disposal of an interest of at least 20% in the share capital of a company where 80% or more of the net asset value of the company is attributable to immovable property.
If the amount withheld exceeds the non-resident’s CGT liability, the balance will be returned to the non-resident by SARS, but only upon an assessment raised by SARS indicating a refund following the non-resident filing a tax return with SARS. This tax return can only be filed when the filing season opens, which is 4 months after the end of the tax year of the year within which the property had been disposed of. It must be noted that no interest will run on this refund to be made by SARS. Non-resident sellers can apply to SARS for a CGT directive, prior to the registration of the transfer, in which case payment of the amount shown on the directive, and not the percentages shown above, is made to SARS, eliminating the delay of waiting on the refund and ensuring that the seller receives a greater portion of the proceeds sooner. Our specialist in-house non-resident department can assist you in obtaining the aforementioned tax directive.
HOW IS PROFIT CALCULATED?
A capital gain is calculated by deducting the base cost from the proceeds on disposal of the property. Disposal includes a sale, donation, exchange, vesting of the property in a beneficiary of a trust, or emigration.
All records must be kept for a period of 4 years from the date of submission of the income tax return for the year in which the capital gain or loss is reflected. If no return is lodged, the records must be kept for 5 years from the date of disposal of the property. If an objection or an appeal against a CGT assessment is lodged, all records must be kept for the above periods and thereafter until the assessment is finalized.
HOW IS PROFIT CALCULATED IF THE PROPERTY WAS ACQUIRED PRIOR TO 1 OCTOBER 2001?
A capital gain is calculated by deducting the base cost from the proceeds on the disposal of the property. Disposal includes a sale, donation, exchange, vesting of the property in a beneficiary of a trust, or emigration.
If the property was acquired before 1 October 2001, the following methods of valuing the property at that date may be used:
1. A fair market value of the property as at 1 October 2001, i.e. the price obtainable on a sale between a willing buyer and a willing seller at arm’s length in an open market. The valuation must have been carried out within 3 years from the effective date (i.e. before 30 September 2004), but the property must have been valued according to its condition and in terms of the prevailing economic and market conditions as at 1 October 2001. This valuation must also have been submitted to SARS. If no valuation was obtained before 30 September 2004, this method may not be used.
2. The time-apportionment base cost, i.e. the percentage of the total gain that was made after 1 October 2001 3. Where no fair market valuation was submitted and no accurate records maintained, the value as at 1 October 2001 will be deemed to be 20% of the proceeds on disposal.
IF THE PROPERTY IS BEING SOLD AS A PRIMARY RESIDENCE, IS CGT APPLICABLE?
Yes. However, there is a primary residence exemption which applies only in cases where the primary residence is registered in the name of an individual or in the name of a special trust. In such a case, upon disposal of a primary residence (on the part of the land not exceeding 2 hectares), any capital gain or loss up to R2 million can be excluded. This will not apply to properties registered in the name of a company, close corporation, or trust. A person who does not ordinarily reside in South Africa cannot have a primary residence in South Africa and this exemption usually does not apply in the event of a non-resident disposing of his or her property.