Capital Gains Tax on Property in Hout Bay South Africa |
| Date Added: March 10, 2009 02:46:56 PM |
| Author: |
| Category: Hout Bay Property |
| The seller of a property in South Africa will have to give consideration to the matter of payment of Capital Gains Tax. Prior to the 1st October 2001 there were certain profits which foreigners and South African citizens and residents could make without being required to pay any form of tax thereon in the RSA. These profits were termed "capital gains" and arose from profits made on the sale of assets [including property] where the seller concerned had not acquired the property with the view to speculating on the potential resale of the property for profit.
Since the 1st October 2001 however the situation has changed and the laws of the RSA now stipulate that tax will be payable on such previously exempted profit which tax is known as Capital Gains Tax. The tax applies to the property of all South African citizens and permanent residents wheresoever such property may exist [i.e. here or abroad] and furthermore to property owned by foreigners [i.e. non citizens / residents] which property is situate within the RSA. The law which created the new Capital Gains Tax provided for certain exclusions from the tax [i.e. it allowed for capital gains which would otherwise be taxed to be tax free], the most important of which, for purposes of this commentary relates to property which constitute the taxpayers primary residence. As long as the taxpayer is a human being [not a corporate body such as a close corporation, company or trust] the first R1.5 million capital gain [profit] made by that taxpayer on the sale of the property will be exempt from the tax. The gain made by a taxpayer is determined by the difference between the "base cost" of the property and the selling price. "Base cost" however includes more than just the original purchase price of the property. One is also allowed to include in base cost the original costs of taking transfer of the property, the costs of selling the property [i.e. agent's commission] and the costs incurred in improving the property over the years. The taxpayer is not however permitted to include any interest paid on a mortgage bond, repairs and maintenance to the property, insurance premiums and rates and taxes. The Capital Gains Tax would be triggered in most instances by the sale of the property [i.e. the date of conclusive sale and not transfer]. The property would however be deemed to have been sold [even though not really sold at all] in certain circumstances which include a resident ceasing to be a resident [i.e. deciding to emigrate from South Africa] and the death of a taxpayer, unless in the latter case the property is left to the surviving spouse of the taxpayer in which case the death of the taxpayer is for Capital Gains Tax purposes ignored. As the Capital Gains Tax is not intended to affect gains made before the 1st October 2001, all taxpayers were offered an opportunity to have all properties owned by them as of that date valued for purposes of calculating future capital gains based on that valuation as the deemed purchase price of the property. The law does provide other ways of dealing with such properties but the generally accepted opinion is that taxpayers would have been well advised to have adopted this "valuation" method. Valuations should have been effected within a limited period from the 1st October 2001 failing which this more preferable method would not be available. The time period has since elapsed and tax payers who did not obtain a valuation will be obliged to adopt one of the other two valuation models. As a rule of thumb the effective tax payable in terms of the Capital Gains Tax in respect of persons amounts to approximately 10.5% of the gain, in respect of companies and close corporations about 15% of the gain and in respect of trusts about 21% of the gain. |