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Published on: 19/07/2006 | Written by Steve Paul

CAPITAL GAINS TAX

Purchasers, Sellers and Estate Agents should keep abreast of legislation and changes to legislation which affect property transactions to ensure that they are fully informed when dealing with property transactions. Questions like "Should I be purchasing property in the name of my family trust or in my own name " and "What will the effects of Capital Gains Tax be if I sell?" arise frequently and should be answered before a property deal is concluded

Another consideration is capital gains tax (CGT). Again, rates differ for individuals, trusts, Close Corporations and Companies.

If a property is owned by an individual or a special trust, 25% of the capital gain made on disposal of the property must be included in their taxable income in the year of assessment in which the property is disposed of. The present maximum rate income tax is 40% and therefore individuals will pay a maximum of 10% of the capital gain.

If a property is owned by a company, a close corporation or an ordinary trust, 50% of the capital gain must be included in their taxable income.

The income tax rate for a company or close corporation is 29% and these entities will therefore pay 14.5% of the capital gain in CGT.

The income tax for trusts is 40%, therefore they will pay 20% of the capital gain.

The primary residence abatement of R1 Million (in other words the first R1 million of gain) is only applicable in respect of one's primary residence if that residence is registered in one's own name and does not apply to a primary residence which is registered in the name of a trust, close corporation or company.

However, it should be noted that properties registered in the names of individuals are treated as having been disposed of on the death of the individual, thus triggering CGT on death, whereas properties registered in trusts remain unaffected for CGT purpose by an individual's death.

EXAMPLE

Mr. Jones purchased a home in his own name in 1985 for R300 000.00. The house was valued at R900 000.00 on 1 October 2001 and he subsequently sold the house for R3 000 000.00 in 2006.

The house was his Primary Residence. What is his taxable gain which must be included in his tax assessment for the current year?

Answer: R3 000 000.00 (Selling Price) R9 000 000.00 (base cost) + R2 100 000.00 (Gain)

Answer: R3 000 000.00 (Selling Price) R9 000 000.00 (base cost) + R2 100 000.00 (Gain)

Answer: R3 000 000.00 (Selling Price) R9 000 000.00 (base cost) + R2 100 000.00 (Gain)

                               Gross capital gain R2 100 000.00

                               Gross capital gain R2 100 000.00

                               Gross capital gain R2 100 000.00

Less Primary residence rebate R1 500 000.00 this rebate is not afforded to CC'S.

Trust & companies

Sub-total R600 000.00

Less Annual rebate R12 500.00

Nett gain r 587 500.00

Inclusion rate         x25% in the case of Ccs, trust & companies

Taxable Capital Gain R 146 875.00  -amount to be included in Mr. Jones's taxable income




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