Individuals who are residents for the purpose of the CGT Act (Capital Gains Tax), are liable for CGT on the disposal of South African and foreign assets. In addition, non-residents who dispose of immovable property or other assets of a permanent nature in South Africa are liable for CGT as well.
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:
Please note: The above actions are not a complete list of what constitutes a disposal. Please contact your tax adviser for more detailed information.
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:
It is also useful to know in which circumstances, upon disposal of a primary residence, a capital profit/loss, or a portion thereof, will be taxable for purposes of CGT. If any one of the following circumstances are present the capital profit/loss, or a prorata portion thereof, will be taxable for CGT 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:
Please note: The above-mentioned circumstances is 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:
– a sole proprietor or partner or has held 10% or more of the shares in the small business for five years or more, and
– is at least 55 years old, and
– suffers from ill-health or infirmity, or is deceased.
d.) Disposal of assets in a registered micro business, provided that the assets were used for business purposes
e.) Receiving lump sum payments from certain approved retirement funds
f.) Receiving the proceeds from certain endowment or life insurance policies
g.) Compensation received for personal illness or injury
h.) Winnings and prizes from certain games and competitions e.g. Lotto winnings
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 us for professional assistance and advice.
This article is a general information sheet and should not be used or relied on as 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 financial adviser for specific and detailed advice.