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What is CGT - Capital Gains Tax?
CAPITAL GAINS TAX (CGT)

Implementation date

This latest form of taxation takes effect on 1 October 2001.

What is taxed?

CGT will be levied on all capital gain (profit) realised at the disposal of a capital asset (any asset not taxed in the normal course of business operations). Examples of such assets are – land (including rights in land), mineral rights, plant and machinery, motor vehicles, caravans, boats, shares, kruger rands, trademarks, etc.


EXEMPTIONS

The following assets are excluded from CGT:

• owner occupied residences (only natural persons)
• private motor vehicles – not used for business purposes (only natural persons personal belongings and effects – clothing, jewelry, furniture, collectables (art, antiques, stamps, etc.)
• lump sum benefits from life annuity policies
• compensation for personal injury, illness, defamation
• betting and lottery prizes

The first R1 000-00 is also exempt in respect of natural persons.


TAX RATE

Only 25% of the Capital Gain in the case of natural persons and 50% of the Capital Gain in the case of legal persons (Companies, Close Corporations and Trusts) are taxable at the marginal income tax rate payable by the taxpayer.

The effective tax rate payable in respect of Capital Gain will be as follows:

* Natural persons 25% of 42% = 10,5%

* Legal persons 50% of 30% = 15%


DETERMINATION OF CAPITAL GAINS

CGT only applies to gains accruing after 1/10/2001 and is applicable to the difference between the proceeds of the assets (at date of its disposal) and the “base cost” thereof. The base cost is the original purchase price plus improvements and costs connected to the selling the asset. Costs such as interest repayments, rates and taxes, repairs and insurance premiums are not part of the “base costs”. Certain CGT losses may be offset against future CGT profits.


DETERMINATION OF CAPITAL GAINS

CGT only applies to gains accruing after 1/10/2001 and is applicable to the difference between the proceeds of the assets (at date of its disposal) and the “base cost” thereof. The base cost is the original purchase price plus improvements and costs connected to the selling the asset. Costs such as interest repayments, rates and taxes, repairs and insurance premiums are not part of the “base costs”. Certain CGT losses may be offset against future CGT profits.


WHEN IS CGT PAYABLE

The tax is triggered when an asset changes ownership (CGT event) – this includes a sale, donation, changing of trust beneficiaries, ect. In certain instances the CGT liability is deferred (rolled over) until a subsequent CGT event. This is applicable to the exchange of assets, donations, and transfer between owners, re-investments, and inheritance.


ASSETS AQUIRED BEFORE 1/10/2001 – ELECTION BY OWNER

In respect of all assets owned at 1/10/2001 (excluding shares) an owner has the choice to have his assets revalued or to make the time-based apportionment applicable. This election must take place within 6 months reckoned from 1/10/2001.


WHAT IS THE NETT RESULT

• Private individuals will pay CGT on all assets )excluding personal home ect) from 1/10/2001 at an effective rate of 10,5% of the capital gain whilst legal persons, Companies, Close Corporations and Trusts will pay an effective rate of 15% of the capital gains

• Valuations must be done on 1/10/2001
Proper records are to be kept of all capital expenditure and initial costs expended in acquiring the property

• Trusts can still perform an important function in estate planning as estate duties are 25% compared to the 15% applicable in respect of CGT. This over and above other benefits emanating from structured trust.

It is advisable that expert advice be obtained as the CGT must still be finalised and certain aspects are bound to change.

Article by: Menlyn Properties - www.menprop.com