UPDATE
REAL ESTATE
SPRING 2008
CAPITAL GAINS TAX AND IMMOVABLE
PROPERTY
What you need to know
residence, only the building and surrounding ground of up to two
hectares is subject to this exemption. Where the extent of the
On 1 October 2001 (the effective date), South Africa's tax
property exceeds two hectares, the proceeds received will have to
jurisprudence finally joined countries such as Australia, Canada
be apportioned accordingly. It is interesting to note that in some
and the United Kingdom with the implementation of a Capital
instances, a primary residence retains its definition as such for a
Gains Tax (CGT) regime.
period of time despite the fact that an individual who owns or
jointly owns property together with their spouse does not reside
Prior to the effective date, no tax whatsoever was levied on the
therein, for example in the case where that individual has to seek
profit realised on the disposal of immovable property unless the
employment away from the primary residence. A secondary
taxpayer concerned was engaged in a scheme of profit-making,
residence (for example a holiday house) does not qualify for this
whose intention it was to acquire and hold such property as trading
exemption.
stock as opposed to a capital investment.
The R1.5 million/ two hectares exemption does not apply to
Under the CGT regime, all capital gains received on the disposal
companies, close corporations or trusts owning immovable property.
of capital assets will, unless specifically excluded, be subject to
CGT. The calculation of this taxation is effectively restricted to
How is CGT calculated?
that portion of the taxpayer's capital gain that accrues to him
between the effective date and the date of disposal.
A CGT liability applies to any natural person, company, close
corporation or trust resident in South Africa who disposes of
immovable property situated both in and outside South Africa as
well as to non-residents who dispose of immovable property, or
a interest in immovable property, situated in South Africa.
Primary residence exclusion
There is an exemption in respect of property registered in the name
Natural persons will be taxed to the extent of 25% of their net
capital gain (capital gains less capital losses) after deducting an
annual exclusion amount of R16 000 from the capital gain. The
taxable capital gain is added to the person's taxable income for the
year and a natural person will therefore be taxed at their normal
marginal tax rate. Thus in effect, a natural person will be taxed
at a maximum of 10% of their capital gain. If the taxpayer is a
company or close corporation, 50% of the gain will be taxed at the
current company rate of 28%, making the maximum percentage
paid by a company or close corporation, 14% of the gain. The
effective rate of tax to be paid by a trust, which is not a special
trust, is 20%.
of a natural person which is used as a primary residence. The first
R1.5 million of the gain is excluded from the CGT regime. This
exemption only applies to natural persons generating a capital
profit upon disposal of their primary residence and to the extent
that the property in question does not exceed two hectares.
Therefore, in the case of larger properties used as a primary
EVERYTHING MATTERS
A taxpayer is entitled to offset non personal-use capital losses
incurred against capital gains accrued. Thus a capital loss incurred
on the sale of a share can be offset against a capital gain realised
on the sale of property. If this results in an assessed capital loss,
the loss is carried forward to the next tax year.
A capital gain is in effect the difference between the base cost of
A taxpayer was entitled to have conducted a valuation of
an asset and the proceeds received on disposal thereof. The base
his/her property and it was not obligatory to have obtained
cost of immovable property includes inter alia the sum of
the valuation from a sworn appraiser or estate agent. It was
expenditure actually incurred in respect of improvements (as long
therefore important, if you elected to value your property, to
as those improvements are still evidenced in the property at the
have recorded and retained all documentation and evidence
date of disposal) and incidental costs of acquisition (transfer costs,
substantiating your valuation. This would have included
advertising costs, commission and moving costs). These amounts
comparable sales data and visual material indicating the
would include VAT not allowed as an input credit for VAT
condition of your property as at the effective date.
purposes.
3
In respect of assets owned prior to 1 October 2001, the base cost
will be calculated using one of the following three methods:
1
The time-based apportionment method, which is a calculation
Where proof of the base cost is unavailable, then in respect
of properties acquired before the effective date, 20% of the
price on disposal will be deemed to be the base cost. Needless
to say, this is an undesirable situation, yet still avoidable if
the valuation route is opted for.
enabling the taxpayer to determine that portion of the gain
which is subject to taxation. For example, the taxpayer
Non-resident persons
purchased a secondary residence five years before the effective
date at R200 000. Ten years after the effective date, the
taxpayer disposes of the property for R500 000 (without
making any improvements to the property) making a profit
of R300 000. The taxpayer is only taxed on that portion of
the gain, which takes place after the effective date.
The calculation of the capital gain is determined as follows:
10
Taxable gain = 15 x 300 = 200
2
2 l
Should the taxpayer have elected the market valuation method,
such valuation should have been completed by 30 September
2004. Only in instances where the value of the asset exceeded
R10 million was it necessary to have submitted the valuation
to SARS together with the taxpayer's first tax return after
30 September 2004. In other cases the valuation must be
submitted to the SARS together with the tax return applicable
to the year in which the asset was disposed of, reflecting the
disposal of such asset. The taxpayer is not bound to use the
valuation method should, at the time of disposal, the taxpayer
consider it more CGT efficient to use any of the other methods.
Real Estate Newsletter Spring 2008
Non-residents who dispose of immovable property, or an interest
in immovable property situated in South Africa, will be liable to
pay CGT. With effect 1 September 2007, the purchaser of
immovable property is required to withhold a portion of the purchase
price in respect of the disposal by non-resident sellers of their
immovable property. However, the withholding tax requirement
only applies if the total consideration payable by the purchaser to
the seller (or an agent of the seller) exceeds an amount of R2 million.
The rates of tax applicable are 5% of the purchase price if the seller
is a natural person, 7.5% if the seller is a company and, 10% if the
seller is a trust.
The amount withheld is an advance payment in respect of the
seller's CGT liability and the seller may apply to SARS for a
directive to reduce the amount to be withheld. Where the purchaser
knows or should reasonably have known that the seller is not a
resident, the purchaser will be personally liable for any amount
which ought to have been withheld. Where an agent or conveyancer
entitled to payment in respect of services rendered knows, or should
reasonably have known that the seller is not a resident and failed
to notify the purchaser in writing of such fact, such agent or
conveyancer may be held jointly and severally liable for an amount
equal to their commission or professional fee, as the case may be.
Deceased persons
A deceased person is treated as having disposed of his/her
immovable property other than assets transferred to the surviving
spouse of that person at the valuation thereof at the date of death.
Thus, where a deceased bequeaths property to an heir other than
his/her surviving spouse, the capital gain on the immovable property
will be taxed as part of the deceased's estate as if it had been sold
to the heir. An exclusion of R120 000 is available on death.
CONTACT US
For further information please contact a member of our
Real Estate or Tax practice:
REAL ESTATE PRACTICE
Hugh Jackson
Where property is transferred to a spouse as a result of death, sale,
donation or in consequence of a divorce order, then that spouse
will receive a CGT roll-over relief as the spouse is considered to
have acquired the property at the original base cost i.e. the value
at which his/her spouse acquired the property initially. Sellers or
estates of sellers transferring property to their spouses would not
be liable to pay CGT. The transferee spouse would however be
liable to pay CGT on the disposal of the property subsequent
thereto.
Record keeping
It is evident that CGT calls upon owners of immovable property
to keep a diligent record of all documentation motivating their
valuation and/ or costs which may be included in the calculation
of their base costs. It is therefore important to retain deeds of
sale, invoices and receipts associated with expenses incurred in
improving the property or legal costs paid to acquire the asset.
Furthermore, once you have disposed of your immovable property,
the taxpayer is legally required to retain all documentation relating
to the asset for four years after the SARS acknowledges receipt of
the taxpayer's tax return reflecting the disposal of the asset, or for
five years after the date of disposal if no tax return has been
submitted to SARS.
National Practice Head; Director
Johannesburg (Protea Place)
T +27 (0)11 290 7085
E [email protected]
Attie Pretorius
National Practice Head; Director
Johannesburg (Sandown Valley Crescent)
T +27 (0)11 286 1107
E [email protected]
Alex Abercrombie
Regional Practice Head; Director
Cape Town (Long Street)
T +27 (0)21 405 6175
E [email protected]
Andrew Heiberg
Regional Practice Head; Director
Cape Town (Buitengracht Street)
T +27 (0)21 481 6317
E [email protected]
Dennis Cavernelis
Director
Cape Town (Long Street)
T +27 (0)21 405 6179
E [email protected]
Michael Collins
Director
Cape Town (Buitengracht Street)
T +27 (0)21 481 6401
E [email protected]
Lucia Erasmus
Director
Johannesburg (Protea Place)
T +27 (0)11 290 7082
E [email protected]
Simóne Franks
Director
Claremont
T +27 (0)21 670 7462
E [email protected]
3 l
Real Estate Newsletter Spring 2008
CONTACT US
Daniël Fÿfer
Quintin du Plessis
Director
Cape Town (Long Street)
T +27 (0)21 405 6084
E [email protected]
Senior Associate
Johannesburg (Protea Place)
T +27 (0)11 290 7205
E [email protected]
John Gomes
Muhammad Ziyaad Gattoo
Director
Cape Town (Buitengracht Street)
T +27 (0)21 481 6412
E [email protected]
Senior Associate
Johannesburg (Sandown Valley Crescent)
T +27 (0)11 286 1445
E [email protected]
Rekha Jaga
Simone Immelman
Director
Cape Town (Buitengracht Street)
T +27 (0)21 481 6382
E [email protected]
Senior Associate
Cape Town (Long Street)
T +27 (0)21 405 6078
E [email protected]
Rob Jarvis
Tina Kalideen
Director
Johannesburg (Protea Place)
T +27 (0)11 290 7079
E [email protected]
Johan Kotze
Senior Associate
Johannesburg (Sandown Valley Crescent)
T +27 (0)11 286 1347
E [email protected]
Director
Johannesburg (Sandown Valley Crescent)
T +27 (0)11 286 1379
E [email protected]
Fred Kolbe
Mbongeni Sasekile
Director
Johannesburg (Protea Place)
T +27 (0)11 290 7078
E [email protected]
Senior Associate
Cape Town (Long Street)
T +27 (0)21 405 6153
E [email protected]
Len Kruger
Muriel Serfontein
Director
Johannesburg (Sandown Valley Crescent)
T +27 (0)11 286 1127
E [email protected]
Senior Associate
Johannesburg (Sandown Valley Crescent)
T +27 (0)11 286 1172
E [email protected]
Fiona McKend
Colleen Smith-Bekwa
Director
Cape Town (Long Street)
T +27 (0)21 405 6041
E [email protected]
Senior Associate
Johannesburg (Protea Place)
T +27 (0)11 290 7152
E [email protected]
Raymond Scott
Director
Cape Town (Long Street)
T +27 (0)21 405 6031
E [email protected]
John Webber
Director
Johannesburg (Sandown Valley Crescent)
T +27 (0)11 286 1133
E [email protected]
4 l
Patrick McGurk
National Practice Head; Director
Cape Town (Buitengracht Street)
T +27 (0)21 481 6322
E [email protected]
Justin Liebenberg
Regional Practice Head; Director
Johannesburg (Protea Place)
T +27 (0)11 290 6514
E [email protected]
Freek van Rooyen
Director
Johannesburg (Sandown Valley Crescent)
T +27 (0)11 286 1175
E [email protected]
Ide Louw
Senior Tax Manager
Cape Town (Buitengracht Street)
T +27 (0)21 481 6336
E [email protected]
Leon Rood
Senior Tax Manager
Johannesburg (Sandown Valley Crescent)
T +27 (0)11 286 1285
E [email protected]
Matthys Seyffert
Consultant
Cape Town (Buitengracht Street)
T +27 (0)21 481 6410
E [email protected]
Anthonie Troskie
Consultant
Claremont
T +27 (0)21 670 7464
E [email protected]
Carla Batt
Carol Wiggett
Senior Associate
Cape Town (Buitengracht Street)
T +27 (0)21 481 6345
E [email protected]
Consultant
Claremont
T +27 (0)21 670 7474
E [email protected]
Real Estate Newsletter Spring 2008
CLIFFE DEKKER HOFMEYR TAX (PTY) LTD
Mariëtte Cruywagen
Tax Manager
Cape Town (Buitengracht Street)
T +27 (0)21 481 6328
E [email protected]
Ruaan van Eeden
Tax Manager
Johannesburg (Sandown Valley Crescent)
T +27 (0)11 290 7139
E [email protected]
CONTACT US
This newsletter is published for general
information and is not intended
as legal advice. As every situation
depends on its own facts and
circumstances, professional advice
should be sought.
©2008. For permission to
reproduce a publication, please
contact our marketing team on
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EVERYTHING MATTERS
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