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Capital Gains Tax and Primary Residences

Capital gains tax – the calculation of the profit on the sale of a capital asset and the inclusion of this profit at a certain percentage in one’s taxable income – came into effect on 1 October 2001. Until March 2012 the inclusion rate for an individual was 25%. On 1 March 2012 it increased to 33.3%.

Individuals in a high income tax bracket will therefore pay more tax on the sale of their capital assets.

The calculation of the capital profit or loss is based on the difference between the selling price and the base cost of the asset. The base cost consists of the following:

  • acquiring cost, and
  • improvement costs.

If the asset was acquired before 1 October 2001, the capital growth from date of acquisition to 1 October 2001 will not be subject to capital gains tax. Only the growth between 1 October 2001 and the date of sale will be taxed.

If a house is registered in the name of an individual or a special trust and this house is used by the registered owner as his/her primary residence, the profit on the sale of this property will first be subject to an exclusion of R2 million. Only the remainder of the profit will be included in the taxpayer’s taxable income at an inclusion rate of 33.3%. Should the taxpayer purchase a second property (B) and let his first property (A), he will still receive the exclusion on the sale of A in relation to the time this property was his/her primary residence.

It is very important to carefully consider the type of entity in which one registers one’s home. The exclusion of R2 million can only be used once and only if one’s primary residence is registered in one’s name. Rather speak to a professional tax consultant regarding the best possible tax scenario when purchasing a house.

For more information call Alro de Swardt of Tenk Loubser & Associates at 021 82 0382 /