Taxation Chapter 3 (Lecture 3)

Taxation

• Personal taxation• Company taxation• Capital gains tax • Other taxes• Double taxation

• South African taxation

SOUTH AFRICAN TAXATION

What kinds of tax do we payoAir passenger taxoCapital gains tax (CGT)oDiamond export levyoDonations taxoEstate dutyoExcise dutyo Income taxo Pay as you earn (PAYE)o Provisional taxoRetirement funds tax (RFT)oSkills development levy

(SDL)

oStamp dutyoTransfer dutyoUncertified securities taxoUnemployment insurance

fundoValue Added Tax (VAT)oOther taxes

2. Capital Gains Tax (CGT)Capital Gains Tax (CGT) was introduced in October 2001. It forms part of the income tax system and the capital gains made on the disposal of assets are included in the taxable income.

Applicable legislation• Capital Gains Tax (CGT) legislation is contained in the Eighth

Schedule to the Income Tax Act, 1962.• It was introduced by the

Taxation Laws Amendment Act, 2001 that was promulgated on 20 June 2001.

• Since then, it has been substantially amended.

2. Capital Gains Tax (CGT)• Since CGT forms part of your income tax you must declare your capital gains /

losses• Annual exclusion for natural person is R30 000 after 1 March 2012 (Natural person

in the year of death R300 000)• Assets excluded:

Most personal belongings such as motor vehicles, caravan, furniture, artwork etc. Boats not exceeding 10 metre in length Aircraft having an empty mass of 450 kilograms or less which are personal-use

asset Lump sum payments from pension, pension preservation, provident, provident

preservation and retirement annuity funds (approved retirement funds) Proceeds from an endowment policy or life insurance policy (but not if it is a

second hand policy or a foreign policy) Compensation for personal injury or illness Prizes / winnings from gambling, games or competitions which are authorised by,

and conducted under, the laws of South Africa, for example the National Lottery

2. Capital Gains Tax (CGT)

• What is meant by a capital gain or capital loss?CAPITAL GAIN = PROCEEDS OF SALE EXCEEDS THE BASE COST OF ASSET

Base cost = what you paid for the asset + the expenditure directly related to the acquisition of disposal of the asset• Costs forming part of the base cost of an asset:• Expenses to acquire the asset• Transfer costs, stamp duty, securities transfer tax, transfer

duty• Advertising cost to find a buyer or seller• Cost of improvements to an asset

2. Capital Gains Tax (CGT)

• Costs forming part of the base cost of an asset (continue..):• Cost of obtaining a valuation of an asset for the purpose of

obtaining a capital gain or loss upon its disposal• Costs directly related to the acquisition, creation or

disposal of an asset, for example, fees paid to a surveyor, auctioneer, accountant, broker, agent, consultant or legal advisor for services rendered

• VAT paid and not claimed or refunded on an asset• Cost of establishing, maintaining or defending a legal title

to or right in an asset• Cost of moving an asset from one location to another for

purposes of acquiring or disposing of it

2. Capital Gains Tax (CGT)• What portion of capital gain is subject to

tax? Individual or a special trust, 33.3% of net capital gain Company, closed corporation or trust, 66.6% of net

capital gain  Gain Inclusion

rateIncluded

gainTax rate CGT on

Gain

Individual R100 33.3% R33.30 40% R13.32

Company R100 66.6% R66.60 28% R18.65

2. Capital Gains Tax (CGT)• Taxation of gains on long-term equity

investments With effect from 1 October 2007 all shares disposed

of, having been held for a period of three years, will be subject to CGT.

• What is a primary residence? Must be owned by a natural person (not a company,

closed corporation or trust) Owner or his spouse must reside in the home as his or

her main residence and must use the home mainly for domestic purposes

2. Capital Gains Tax (CGT)

• When will the sale of a primary residence be subject to CGT? If the capital gain on the sale exceeds R2 million (therefore if

proceeds do not exceed R2 million - no CGT) Similar if you have capital loss in excess of R2 million only the

portion in excess of R2 million will be allowed as capital loss A further restriction is that the maximum area of land on

which the primary residence is located is limited to 2 hectares. Where the land area exceeds this limit, the exclusion needs to be apportioned.

The exclusion does not apply to the portion of capital gain or loss that relates to any part of the residence that is used for the purposes of trade