The ins and outs of capital gains tax

Although it does not apply to every property sale, it is important for property buyers and sellers to be aware of the implications of Capital Gains Tax (CGT) and how it could affect them in their future property transactions, says Adrian Goslett, CEO of RE/MAX of Southern Africa.

Implemented on the 1 October 2001 as part of an ongoing tax reform programme in South Africa, CGT is tax payable by the seller of an asset or fixed property on the profit made from the transaction. The tax applies to all individual South African resident taxpayers, companies, close corporations and trusts, and it includes any capital sales made from the sale of their world-wide assets. Non-South African resident taxpayers who sell immovable property in South Africa are also liable to pay CGT.

According to Goslett there are certain exclusions applicable to CGT, for example, if an individual sells their primary residence they will need to make more than R2 million profit on the sale before CGT is applicable. At the recent 2012 Budget speech it was announced that this exemption amount would change from its original threshold of R1,5 million to R2 million on all primary residences sold from 1 March 2012. This means that for any primary residence sold for R2 million or more, the first R2 million would not be subject to taxation.

A primary residence is defined as a property that is owned by a natural person, must be the main residence of the individual and must predominantly be used for domestic purposes. However, the exemption will be apportioned for periods where the property is not used as a primary residence or it is used for business purposes. Under certain circumstances the seller may leave the primary residence prior to the sale without losing concession, and the exclusion is extended to a special purpose trust.

Goslett says that in the case where a primary residence is registered in the joint names of a husband and wife, they would each benefit from their respective R2 million abatement on their share of the capital gain as both are considered to be taxpayers. “However,” says Goslett, “both parties would have to reside in the property and a husband and a wife could not have two primary residences.”

He notes that no exemption will apply on capital gain realised from the sale of an individual’s second home or holiday home.

To calculate the capital gain of a transaction, sellers need to deduct the price of the property sold from the base cost of the property. The base cost is calculated by adding the original price paid for the property and the costs for buying and selling the property such as estate agent's commission, attorney fees and other fees for other professionals such as electrical and plumbing inspectors. The cost of any renovations which qualify as improvements to the property can also be included; however, costs of routine maintenance may not.

SARS will then calculate the CGT to be paid based on the net profit realised. The capital gain amount will then be added to the individual's income and taxed according to the tax brackets. The CGT becomes payable when the individual’s income tax return is submitted at the end of the financial year during which the property was sold.

“In certain circumstances property tax can become complicated, and if unsure it is always advisable that buyers and sellers seek the expert services of a tax consultant or property lawyer who can offer guidance through the process,” Goslett concludes.

  Comment on this Article

  Please login to post comments

Post to my facebook wall
Characters remaining

    Latest Property News
    • 20 Jun 2018
      Buying or selling real estate isn’t as easy as it is portrayed sometimes, especially if there is a death of a party during the transaction which can make it awkward, tricky and inconvenient.
    • 20 Jun 2018
      With interest rates remaining at historic lows and banks continuing to compete for mortgage finance business, first-time buyers with funds at their disposal are currently well-placed to gain that initial foothold on the property ladder, particularly in the light of the slightly lower growth rates currently experienced in residential property values.
    • 20 Jun 2018
      The average size of bond granted in SA has grown 7,7% in the past 12 months to R934 000, according to BetterBond, the country’s biggest bond originator.
    • 19 Jun 2018
      In the current market, letting out a property can be a good option as rental demand remains strong, especially in the northern suburbs of Johannesburg. This is according to Chris Renecle, MD of Renprop. However he says that before homeowners let their property out, there are five key points they should make sure are covered before they market the property for rent and sign any lease agreements.
    • 19 Jun 2018
      The Capetonian dream is to live by the ocean with the iconic mountain making an appearance somewhere in the horizon. But, that dream comes with a hefty price tag that many simply cannot afford. But, should you venture some kilometres out of the city centre, entirely new realms of beachside bliss await you …
    • 19 Jun 2018
      Douw Steyn, one of the richest men in the country, recently allowed a rare glimpse into his Fourways Palazzo when it was featured on the SABC lifestyle programme Top Billing - and it is beyond your wildest dreams!
    • 18 Jun 2018
      Many home sellers are motivated to appoint estate agents because they know that the agency will carry the costs of advertising and marketing their property.
    • 18 Jun 2018
      When a property is sold when it has a tenant in occupation, the questions often raised are: “What happens to the tenant if the landlord sells the property?”, and what rights the tenant will have with regards to cancelling the lease or enforcing it, says Sunell Afrika, rentals manager for
    Subscribe to the MyProperty Newsletter

    Last Name  
    Email Address  
    Email Frequency
    Share this Page

    For Sale Property
    Rental Property
    More Options
    Connect with us