The basic definition of Capital Gains Tax is a tax on the growth in value of investments incurred when individuals and corporations sell those investments. – Investopedia.
It applies to when the capital gains are realized meaning this tax cannot apply to an unsold investment.
In South Africa, a capital gain arises when you dispose of an asset for proceeds that exceed its base cost.
What is the base cost in South Africa?
For any assets acquired after 1 October 2001 in South Africa, the base cost is the cost incurred acquiring and improving the asset.
For any assets acquired and held before 1 October 2001, the base cost is the value of the asset on that date (1 October 2001), plus any further qualifying costs incurred on or after that date.
That means, if you bought an asset in 1995 for R10 000, but its value in October 2001 was R20 000, then you calculate the base cost using the R20 000.
The value of an asset on this specific date is referred to as the ‘valuation date value’.
Why October 1, 2001?
Well, that’s the date South Africa’s Taxation Laws Amendment Act came into force. It is the law that deals with the taxation of capital gains in the country.
You can read it here – Taxation Laws Amendment Act 2001
So to recap, this is what’s is included in the base cost.
/ Acquisition cost if it happened after October 2001. (If prior, then the value on that date).
/ Incidental costs of acquisition and disposal
/ Cost of improvements or enhancements
/ The remuneration of a surveyor, valuer, auctioneer, accountant, broker, agent, consultant or legal advisor, for services rendered
/ Transfer costs
/ Stamp Duty, Transfer Duty, Securities Transfer Tax or similar duty or tax
/ Advertising costs to find a seller or to find a buyer
/ The cost of moving the asset from one location to another
/ The cost of installing an asset, including the cost of foundations and supporting structures
/ A portion of donations tax paid according to a formula
/ Value-added tax not allowed as an input deduction (section 23C)
/ Capital costs of establishing, maintaining or defending title or right to an asset
/ One third of the interest incurred in acquiring listed shares or unit trusts
Remember, you want to pay as little tax as legally possible. So ensure you compute all your expenses acquiring, installing, maintaining and transferring the property.
How much is the capital gains tax in South Africa
Once you’ve understood the basic definition and what’s included in the calculation of the base cost, you should be able to calculate your capital gains tax.
But unlike in other countries, capital gains are not taxed separately in South Africa.
Asset disposal price – base cost = capital gain
For example. If you bought an asset for R100 000, then spent an extra R100 000 improving it, securing it, in lawyer fees, surveyor fees, transfer fees etc., then your base cost is R200 000.
If you sell the same asset for R250 000, your capital gain is 250 000 – 200 000 = R50 000
If you incur more costs selling the asset, e.g. lawyer fee, transportation fee, broker fee, advertising etc. this is treated as part of the base cost and is therefore deductible from the capital gain.
Once you calculate your capital gain, you’ll be happy to note that the government is not interested in taxing all of it. As of 2020, only 40% of an individual’s net capital gain is taxed.
The percentage was lower in previous years, and can be reviewed any time.
Once you calculate 40% of your capital gain, add it to the rest of your taxable income, and it is this final total that will determine how much tax you will pay.
In simple words, capital gains are taxed alongside your other income, not separately.
40% of your capital gain + other taxable income = Total taxable income
Your final income will determine which tax bracket you fall in.
Tax rates (year of assessment ending 28 February 2021)
|Taxable Income||Rates of tax|
|1 – 205 900||18% of taxable income|
|205 901 – 321 600||37 062 + 26% of taxable income above 205 900|
|321 601 – 445 100||67 144 + 31% of taxable income above 321 600|
|445 101 – 584 200||105 429 + 36% of taxable income above 445 100|
|584 201 – 744 800||155 505 + 39% of taxable income above 584 200|
|744 801 – 1 577 300||218 139 + 41% of taxable income above 744 800|
|1 577 301 and above||559 464 + 45% of taxable income above 1 577 300|
Assets that are exempt from capital gains tax in South Africa
These specific assets are exempt from Capital Gains Tax (CGT)
• Personal-use assets, which include personal belongings such as a motor vehicle, a caravan, artwork, stamp collection, furniture and household appliances and other assets used mainly (that is, more than 50%) for a non-trade purpose. This provision excludes: amongst others, immovable property and financial instruments such as shares, participatory interests in collective investment schemes and cryptocurrency.
• Boats not exceeding ten metres in length and aircraft having an empty mass of 450 kilograms or less which are personal-use assets.
• Lump sum payments from pension, pension preservation, provident, provident preservation and retirement annuity funds (approved retirement funds)
• Proceeds from an endowment policy or life insurance policy (but not if it is a second-hand policy or a foreign policy)
• Compensation for personal injury or illness.
• Prizes or winnings from gambling, games or competitions which are authorized by, and conducted under, the laws of South Africa, for example, the National Lottery.
• Donation or bequest of an asset to an approved public benefit organization.
• Disposal of an interest of at least 10% in a foreign company.
• Receipt of certain land restitution claims.
• A tax-free investment under section 12.
• Small business asset exclusion (limited to R1,8 million during a person’s lifetime)
• Primary residence exclusion (limited to R2 million per primary residence)
* A home is only considered ‘Primary Residence’ if: it 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.
Is cryptocurrency subject to capital gains tax in South Africa
Cryptocurrencies like Bitcoin and Ethereum are not exempt from capital gains tax.
In fact, they are specifically listed as an exception of personal-use assets that are subject to capital gains tax. So, if you were one of those who reaped big on Bitcoin soaring prices, be sure to include the gains as part of your income.
However, this may be different from one person to another, based on the facts of the case.
This is how SARS puts it:
Transactions or speculation in cryptocurrency is subject to the general principles of South African tax law and taxed accordingly. We are unable to give you advice however, depending on the facts and circumstances of a case, capital gains tax or normal tax may apply.