DO I HAVE TO PAY CGT WHEN I SELL MY THINGS?

Individuals who are residents for the purpose of the Income Tax Act, 58 of 1962, are liable for CGT (capital gains tax) on the disposal of South African and foreign assets. In addition, non-residents who dispose of immovable property in South Africa are liable for CGT as well.

What is a disposal of an asset?

As a disposal is the event that can trigger a taxpayer’s liability for CGT, it is important to know what type of transactions SARS will view as a disposal. The following actions are considered to be a disposal for CGT purposes:

1. Selling of an asset
2. Donating an asset
3. Destruction, scrapping or loss of an asset
4. Abandonment of an asset
5. Change in the use of an asset

Please note: The above actions are not a complete list of what constitutes a disposal. Please contact your tax adviser for more detailed information.

What is excluded from CGT?

The rule of thumb is that if an asset is disposed of it will be subject to CGT, except if the capital gain/loss is specifically excluded. A capital gain/loss on any of the following disposals will not trigger CGT:

a)Disposal of a primary residence

The capital profit/loss on the disposal of a primary residence will not be taxable for CGT purposes if all the following requirements are met:

1. The proceeds are not more than R2 000 000;
2. It is owned by a natural person (not by a company, close corporation or trust);
3. The owner or his/her spouse normally lives in the house as their main residence; and
4. More than 50% of the house is used for private purposes.

b)Disposal of personal use assets

The disposal of personal use assets which are owned by a natural person and not used for trade purposes, will not give rise to a liability for CGT. Some examples of personal use assets which are excluded for the purpose of calculating a potential CGT liability, are the following:

1. Personal belongings used more than 50% for personal purposes, for example a car, a caravan, an art collection or household furniture.
2. The capital gain/loss on the disposal of a boat up to a maximum length of ten metres and which was used for private/personal purposes.
3. Aircraft with an empty weight of 450 kilograms or less.

Please note: The above-mentioned circumstances are not a complete list of exclusions on the disposal of personal use assets. Please contact your tax adviser for more detailed information.

c)Disposal of an interest in a small business

The exemption of the capital gain/loss is limited to R1 800 000 if:

1. The gross asset value of the small business is less than R10 000 000, and
2. The individual is: a sole proprietor or partner or has held 10% or more of the shares in the small business for five years or more, and
3. is at least 55 years’ old
4. suffers from ill-health or infirmity, or deceased

Although the above exclusions are very specific, it is still possible to plan a transaction in such a way that will minimise the taxpayer’s liability for CGT. If you need more information on this topic, please do not hesitate to contact your financial advisor.

References:

• www.sars.gov.za
• Sage Pastel Tax Guide 2013/2014

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)