Capital Gains Tax for you as a Homeowner...
Category Apple Property News
DO I HAVE TO
REGISTER FOR CGT?
No ... CGT forms part of the income tax collection
ASSET- DEFINITION
An asset is widely defined and includes property of whatever nature. CGT applies to all assets disposed of after 1 October 2001
DISPOSAL- DEFINIT ION
Examples of events that are disposals -Sale, Donation, Death, Cessation or Loss or destruction
BASE COST
The determination of the base cost of an asset depends on WHEN it was acquired -
1.The base cost of an asset acquired after 1 October 2001
Some of the main costs that qualify to be part of the base cost of an asset include -
1.) the costs of acquisition or
creation of the asset;
2.) the cost of valuing the asset
3.) amounts incurred for the acquisition or disposal of the asset, namely -
• the remuneration of a surveyor, valuer, auctioneer, accountant, broker, agent, consultant
• transfer costs;
• securities transfer tax or transfer duty or value-added tax or donation tax advertising costs and moving costs;
cost of establishing, maintaining or defending a legal title to or right in the asset;
cost of effecting an improvement to or enhancement of the value of the asset. E.g. if a car port was erected at a cost of R20 000
Holding costs
Holding costs generally do not form part of the base cost. Thus, expenditure on repairs, maintenance, protection, insurance, rates and taxes is excluded. Borrowing costs are also excluded.
2. Assets acquired before 1 October 2001
You need to determine a value for the asset as at that date. You may use one of the following 3 methods:
a.) 20% x (proceeds - allowable
expenditure incurred on or after 1 October 2001 ). This method would be used when no records have been kept and no valuation was obtained at 1 October 2001.
b.) Market value of the asset as at 1 October 2001. You must have valued your asset before 30 September 2004.
c.) Time-apportionment base cost method. This is a method of calculating the value of the asset based on how long you have owned it before and after 1 October 2001.
The calculation is done as follows:
Original cost+ r (proceeds - original cost} x Number of years held before
1/10/2001
Number of years held before 1/10/2001 + number of years held on or after
1/10/2001]
Annual exclusion
For each year of assessment an annual amount of the capital gains is excluded forCGT.
Annual exclusion R 30 000(2015)
Annual exclusion increase in year of
death R 300 000
Exclusions
Capital gains and losses on the disposal
of specified assets are excluded from CGT:
Personal-use assets, such as a motor vehicle, a caravan, artwork, stamp collection, furniture and household appliances
Boats not exceeding ten meters in length and aircraft having an empty mass of 450 kilograms
Payments from pension, provident and retirement annuity funds Proceeds from an endowment policy or life insurance policy
Compensation for personal injury or illness
Donation or bequest of an asset to an approved public benefit organization
Disposal of an interest of at least 10% in a foreign company
An award for land restitution under the Restitution of Land Rights Act 22 of 1994
the small business asset exclusion (limited to R1 ,8 million during a person's lifetime); and the primary residence exclusion
(limited to R2 million per primary residence)
Prizes or winnings from gambling, games or competitions which are authorised by, and conducted under, the laws of South Africa, for example, the National Lottery
Primary residence
Most primary residences will not be subject to CGT because the first R2 million of any capital gain or loss on the sale Is disregarded for CGT purposes.
What is a "primary residence"?
A home that is :
owned by a natural person (not a trust, company or close corporation);
and the owner or spouse of the owner must ordinarily reside in the home as his or her main residence and must use the home mainly for domestic purposes.
When will the sale of a primary residence be subject to CGT?
A capital gain or loss will not be fully excluded in the following circumstances:
• If the capital gain on the sale of a primary residence exceeds R2 million, the portion of the capital gain that exceeds R2 million will be subject to CGT.
The capital gain or loss attributable to the portion of a property that exceeds two hectares is subject to CGT.
> The primary residence exclusion does not apply to the portion of a capital gain or loss that relates to any part of the primary residence that is used for the purposes of trade. E.g. if you use your study as an office for business purposes or if you let the residence.
Deemed domestic usage despite letting
You will be treated as having used your primary residence for domestic purposes despite letting it for a rental if -
• you were absent from the residence for a continuous period not exceeding five years;
• you or your spouse resided in the residence as a primary residence for a continuous period of at least one year before and after the letting period;
• you were temporarily absent from South Africa during the letting period (for example, you worked overseas); or you were employed or carried on business more than 250 km from your primary residence.
What happens if you and your spouse hold a primary residence jointly?
The primary residence exclusion of R2 million is divided according to the interest each of you hold in the primary residence. E.g., if you and your spouse have an equal interest in your primary residence, you will each qualify for a primary residence exclusion of R1 million.
You will also each be entitled to the annual exclusion .
Author: DVP " DE VILLIERS & PHEIFFER"
