Minimise your capital gains tax

Many homeowners, although aware of the fact that they are likely to pay capital gains tax (CGT) on the profit made when a property is sold – as CGT was legislated in 2001 – they might not be aware of the ways in which the tax liability can be reduced, says Laurence van Blerck, agent at Knight Frank Residential SA.

“With the rising transaction costs of selling and buying property, higher interest rates and increasing costs of moving, it is in sellers’ interest to try and save wherever possible. The property selling price is usually very clear but the costs that are allowed to be deducted from the selling price (reducing the CGT amount) are not as obvious,” says van Blerck.

“The first thing to remember is that all the tax allowable costs should be deducted from the selling price to establish the true capital gain. These costs will include the original amount paid for the property, transfer duty, the valuation fee, attorney and surveyor fees including VAT, costs of improvements, agent’s commission on the sale and other costs incurred in the sale. Rates, taxes, insurance and bond interest cannot be included in this amount.

“Sellers must distinguish between repairs and improvements on the property, as these are often lumped together and should preferably be quoted on and invoiced separately.”

Something to bear in mind, he says, is that repairs are jobs that maintain the condition of the property, such as painting the walls, sanding and treating fascia boards, replacing roof tiles. Improvements are items that enhance the property, and are often luxury items, such as new kitchen countertops or bathroom fittings.

“The onus is on the taxpayer to produce records of any and all of the above that will affect the CGT liability, so it is advisable to keep a file from the day the property is bought, where all the crucial documents concerning the home will be kept.

“In addition to filing paperwork on all improvements and repairs, the owners should have ‘before’ and ‘after’ photos as proof of work done as these provide extra evidence. They are date stamped in the metadata and will show well enough when and where work was done on the home.

“General household documents that should be kept in a homeowner’s file include: the title deed to the property, mortgage bond documents, insurance policies, drawings, copies of any building works invoices and guarantees from suppliers, and photos.

“SARS is not out to get you when it comes to charging tax amounts, but correct amounts will be calculated and as long as you have proof of what should be deducted, these will be taken into account,” says van Blerck.

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