Fixed properties owned by the South African taxpayer are usually long term investments. In these circumstances the proceeds received from the sale of fixed property comprise capital receipts which are currently exempt from taxation.
As part of the ongoing program of tax reform in South Africa, Capital Gains Tax ("CGT") was implemented on 1 October 2001.
Who will pay CGT (Capital Gains Tax)?
- South African resident taxpayers will be liable for CGT on any gain made from the sale of their world-wide assets
- Non-South African resident taxpayers will be liable for CGT on any gain made from the sale of the following assets situated in South Africa:
o Immovable property and any interest in or right to that immovable property; and/or
o Assets of a permanent establishment, branch or agency situated in South Africa.
When is CGT levied?
CGT will be levied on disposal of an affected asset. "Disposal" will occur where an asset is sold, donated, scrapped, exchanged, cancelled, lost, destroyed or redeemed, as well as where:
- An interest in an asset of a trust is vested in a beneficiary;
- An asset is distributed by a company to a shareholder; or
- An option is granted in respect of an asset.
Are there any exclusions from CGT ?
It would seem that the fiscus does not want to recover CGT from an individual’s personal assets and residence. In addition to a basic annual Primary exclusion of R12 500, the inclusions and exemptions from CGT can be summarised as follows: Exclude
- Capital gains realised from the sale of an individual’s primary residence.
- Capital gains from the sale on an individual’s motor vehicle (if not used for business purposes), personal effects, jewellery, small craft and light aircraft.
- Proceeds from pension, provident, retirement annuity funds and life insurance policies (excluding second-hand policies).
- Winnings from lotteries, casinos, prizes etc (if not a professional gambler).
- Capital gains (not exceeding R500 000) from sale of business pending retirement.
- Capital gains realised from the sale of an individual’s second home or holiday home.
- Capital gains from the sale of share, unit trusts, other private investments, second-hand policies and Krugerrands.
- Capital gains from sale of business.
Note: The primary residence exclusion is of particular relevance to the individual taxpayer and the following concepts within the legislation should be noted:
- The exclusion is limited to the first one and a half million rand of capital gain from the sale of a primary residence.
- A taxpayer may only own one primary residence and must reside in the residence.
- Under certain circumstances the taxpayer may leave the primary residence prior to sale thereof without losing the concession.
- The exclusion is extended to a special purpose trust (i.e. for the use of a mentally or physically handicapped person).
- The primary residence exclusion will be apportioned up for periods where it is not used as a primary residence or used by the taxpayer for purposes of trade.
What is the effect of CGT on the sale of a primary residence registered in the joint names of husband and wife?
As both would be considered to be taxpayers, the husband and wife could each benefit from their respective one and a half million rand abatement on their share of the capital gain. They would both have to live in the property, however, a husband and a wife could not have two primary residences.