Capital Gains Tax

Capital Gains Tax (CGT) was introduced in South Africa with effect from 1 October 2001 (referred to as the “valuation date”) and applies to the disposal of an asset on or after that date.

All capital gains and capital losses made on the disposal of assets are subject to CGT unless excluded by specific provisions. The Eighth Schedule to the Income Tax Act, 1962 (the Act) contains the CGT provisions which determine a taxable capital gain or assessed capital loss.
Section 26A of the Act provides that a taxable capital gain must be included in your taxable income. CGT is therefore not a separate tax but forms part of your income tax and annual tax return.

The Eighth Schedule provides for four key definitions (Asset, Disposal, Proceeds and Base Cost) which form the basics in determining a capital gain or loss.

Asset: Includes property of whatever nature and any right to, or interest in, such property. CGT applies to all assets disposed of on or after 1 October 2001 (valuation date), regardless of whether the asset was acquired before, on, or after that date. Only the capital gain or loss attributable to the period on or after 1 October 2001 must be brought to account for CGT purposes.

Disposal: The following are some examples of events that are disposals: Sale of an asset, Donation of an asset, Death, Cessation of residence, Loss or destruction of an asset.

Proceeds: The amount received by or accrued to the seller on disposal of the asset constitutes the proceeds. Assets disposed of by donation, for a consideration not measurable in money, or to a connected person at a non-arm’s-length price are treated as being disposed of for an amount received or accrued equal to the market value of the asset. The proceeds will also be equal to market value if a person dies, ceases to be a resident or is subject to a number of other deemed disposal events. Amounts included in income such as a recoupment of capital allowances are excluded from proceeds.

Base Cost: This is the determination of the base cost of an asset depends on whether it was acquired on or after 1 October 2001; before 1 October 2001; by donation, for a consideration not measurable in money or from a connected person at a non-arm’s length price; or in consequence of a deemed disposal event such as death, cessation of residence or conversion of a capital asset to trading stock.

SARS issued a Guide to Capital Gains Tax and may be accessed via this link: Guide.

This article is provided for information only and does not constitute the provision of professional advice of any kind.

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