Capital gains tax: What property owners should know

We simplify the legal jargon and answer some of the essential questions around capital gains tax and when and why it is applicable to homeowners.

• CGT applies to all assets disposed of on or after 1 October 2001.
• Capital gains and losses on the disposal of a primary residence are excluded, limited to R2 million.
• To calculate your capital gains, subtract the base cost of your property from the value at which you sold it.

If you're considering selling your home, you should be aware of the tax implications. Capital gains tax, for example, comes into effect on the sale of an asset that is disposed of on or after 1 October 2001, including property. Here's a rundown of how and when it applies.

What is capital gains tax?

Capital gains tax is a tax on the difference between the price an asset was purchased for and the amount for which it was sold. So if you're a property seller, you can find out what your capital gains are, by subtracting the base cost of the property (which includes incurred costs such as renovations, transfer costs and attorney fees) from the amount you sold it for.

Bear in mind that capital gains tax is not a separate tax, but rather forms part of your income tax, and becomes payable when you receive your income tax assessment.

What homeowners need to know about capital gains tax

Capital gains on a primary residence (the residence in which the home seller lives) are excluded up to a rate of R2 000 000. If you and your spouse own a primary residence together, the exclusion of R2 000 000 is split between the two of you, so you each qualify for an exclusion of R1 000 000.

What property investors need to know about capital gains tax

Capital gains tax on a second property in South Africa would still qualify for an exclusion rate of R40 000. If the property owner rented the property out, but also lived in it for a period of time, the capital gains tax will apply to the period for which the property was let out, while the period in which it formed a primary residence will be subject to the R2 000 000 exclusion rate.

What is the capital gains tax rate?

In South Africa, capital gains tax does not have a flat rate. A portion of your capital gain gets added to your income for that year, and you are taxed in the appropriate tax bracket. The rate can range from 7.2% to 18% depending on your tax bracket.

Acquiring assets

It's important to keep a record of costs incurred when acquiring an asset, as they may only come into effect further down the line, when you decide to part with