Simply put, capital gains tax is the tax paid on the profit you make on disposing of an asset. Therefore, capital gains tax is paid on the capital gain made.
How do I calculate my capital gain?
The amount you earned from disposing of an asset, less the base cost, is the capital gain. A capital loss is the amount by which the base cost of an asset exceeds the proceeds.
What is the base cost?
Base cost is the amount you paid for the asset, plus the expenditure you have incurred. The following are examples of items to be included when calculating your base cost:
– The costs you incurred to acquire the asset
– In the event of immovable property, the following may be included: Transfer duties, professional fees of, inter alia, the attorneys, the surveyor and the auctioneer.
– Costs of improvements, alterations and refurbishments to the asset. Invoices and quotations must be produced to prove this.
– Advertising costs
– Valuation costs
– Agent’s commission
Payment of capital gains tax
Capital gains tax is not paid separately from income tax. A portion of your capital gains, less your capital losses for the year, is included in your taxable income and is payable according to the normal income tax tables.
A natural person, in other words an individual, receives a R30 000 rebate on his capital gains tax. The first R30 000 realised on the disposal of assets per annum will be exempt for the purposes of capital gains tax. This is called the exclusion and also applies to losses. In other words, if you suffered a loss of less than R30 000, it will not be taken into account for purposes of capital gains tax. In the year in which a taxpayer dies, an annual exclusion of R300 000 is applicable. This means that the estate of the taxpayer may have assets without any tax being involved, unless there is a profit exceeding R300 000.
33,3% of the capital gains obtained by disposing of property will be included in your taxable income for the year in which the property was disposed of. Where property is owned by a company or close corporation or an ordinary trust, 66,6% of the capital gains is included in the taxable income.
How do I calculate my capital gains tax?
- Determine the proceeds on disposing of the asset.
- Deduct the base cost from the proceeds to calculate the capital gain or loss.
- Calculate the total of the capital gains and losses.
- Add any losses carried over from the previous year to the current year’s losses.
- Deduct the total of all the losses from the capital gains.
- Apply the R30 000 annual exclusion.
- Apply the inclusion rate of 33,3% (in the event of individuals).
- This is the amount to be included in calculating your tax liability.
- Determine your tax liability by using the applicable marginal rate.