What happens when you sell an asset?
When you sell or dispose of an asset, you either realise a profit or a loss from the exchange. When you realise a profit, you are subject to pay capital gains tax (CGT) on that realised profit.
Are all assets subject to CGT?
Not all assets are subject to CGT. Capital assets that are purchased, with the intention to generate income, will be subject to CGT; whereas personal used assets are not subject to CGT.
How does CGT work?
Capital gains are calculated on the proceeds from disposal of an asset, less the base cost of the asset.
The proceeds are any form of remuneration that was received from the disposal or exchange for the asset. The base cost is the accumulation of expenses which were incurred for the asset. Costs that can be included are: purchase price, capitalised/ improvement costs, transfer costs, valuation costs, and installation costs.
If your base cost exceeds your proceeds, you realise a capital loss, but this will not reduce your taxable income and will be carried forward to the next year of assessment to reduce the aggregate capital gains of that year of assessment.
Once a natural person has calculated their aggregate capital gains, they are subject to a R40 000 exemption (R300 000 for a deceased estate) to reduce their assessed capital gain. Also note that the first R40 000 of this capital loss will not be carried forward but added back.
Only 40% (for natural persons and special trusts) of the total capital gains will be included in the taxable income, and the remaining amount will be excluded.
The inclusion rate for all other entities is 80%.
The primary residence exemption
The first R2 million of any capital gain or loss on the disposal of a primary residence of a natural person is excluded from CGT calculation.
Only one resident can qualify for the exemption and it must be the residence in which the person normally resides and can be any structure (boat, caravan, etc.).
What is a deemed disposal?
When a taxpayer emigrates or if the nature of the asset changes, the taxpayer is deemed to have disposed of the asset(s). All assets will be deemed as being disposed of at market value and will be subject to CGT.