Immovable Property Subject To CGT

CGT is payable on disposal of immovable property to the extent that the capital gains arise after 1 October 2001. Persons are subject to CGT on the following immovable property:

• Residents: On all assets (including immovable) disposed of including overseas assets.
• Non-residents: are subject to CGT on immovable property or any right or interest in a property situated in South Africa and any asset of a permanent establishment through which a trade is carried on in South Africa (SA).

Note: Any right or interest in a property includes a direct or indirect interest of at least 20% held alone or together with any connected person in the equity share capital of a company, where at least 80% of the value of the net assets of the company is, at the time of the disposal, attributable to immovable property in South Africa.

CGT Calculation And Inclusion Rates

The capital gain or loss is the difference between the proceeds on disposal and the base cost of the property.

Events that trigger a disposal include a sale, donation, exchange, loss, death, vesting of property in a beneficiary of a trust and emigration.

Proceeds are equal to the amount received by the taxpayer in respect of the disposal.

The base cost is calculated as follows for property bought after 1 October 2001:

• The purchase price; plus
• Allowable capital expenditure.

The base cost is calculated as follows for a property bought before 1 October 2001:

• The valuation date value of the property on 1 October 2001; plus
• Allowable capital expenditure incurred after 1 October 2001.

The valuation date value is calculated as follows:

• The market value on 1/10/2001 as determined by a valuation; or
• 20% of the proceeds after deducting the allowable capital expenditure incurred after
  valuation date; or
• The time apportioned base cost, as determined by a formula.

Allowable capital expenditure includes the following:

• The cost of acquiring, creating or improving the asset (excluding any borrowing costs).
• The cost for valuation of the property for CGT purposes.
• Cost incurred in respect of disposal of the property (including sales commission, advertising, valuation costs, accounting and legal costs, removal cost etc.).

A capital gain or loss is calculated separately in respect of each asset disposed.

Once determined, gains or losses are combined for that year of assessment and if it is:

• An assessed capital loss, it is carried forward to the following year; or
• A net capital gain, it is multiplied by the inclusion rate and included in taxable income.
• Annual exclusion of R40 000 capital gain or capital loss is granted to individuals and special trusts.
• Instead of the annual exclusion, the exclusion granted to individuals is R300 000 for the year of death.

The inclusion rates are as follows:

Primary Residence Exclusion

When a primary residence is disposed of capital gains up to R2 million is exempt from CGT.
The following are the main provisions relating to primary residences:

• The exemption is applicable to natural persons and special trusts.
• Only one residence at a time may be a primary residence of a person.
• The exemption is applicable if a person merely has an interest in the residence. As a result a share in a share block company and a usufruct may qualify (subject to further provisions).
• If the residence is held by more than one person as a primary residence an apportionment of the R2 million must be made in relation to their interest.
• An apportionment of the profit must be done if the person used the house as a primary residence for only part of the time it was owned. If a person was absent from the residence for less than 2 years as a result of the residence being offered for sale and vacated due to the intended acquisition of a new primary residence, the residence being erected on land acquired, the residence being accidently rendered uninhabitable or the death of that person, it will not be seen as an absence from the residence.
• When the residence is used partially for residential and partially for business purposes an apportionment must be done.
• If a person is absent from his residence for a continuous period of 5 years or less and lets the premises during this time, the absence will be ignored if the person stayed in the residence for a period of at least one year before and after the period it was let, no other residence was treated as a primary residence during this period and the person was absent from the residence due to being absent from South Africa or was employed or engaged in a business in South Africa at a location more than 250 kilometers from the residence.
• Where the residence is more than 2 hectares in size, the exemption only applies to the gain made on the residence and 2 hectares, provided that the land is used mainly for domestic or private purposes together with the residence and the land is disposed of at the same time and to the same person who buys the residence (this land could be unconsolidated and next to the residence to qualify).

Withholding Tax On Acquisition Of Property From Non-Resident

The purchaser must withhold CGT on the purchase price where assets are purchased from a non-resident except where the amount payable by the purchaser is less than R2 million. The amount withheld is an advance tax in respect of the sellers’ liability for CGT. This withholding tax is not a final tax and is merely a prepayment of the expected CGT.

If the purchaser is a resident withholding tax must be paid within 14 days from the date on which the seller was paid and if the purchaser is a non-resident, within 28 days.

The following withholding tax rates are applicable and are based on the proceeds on disposal:

The seller may apply to SARS for a directive in order to reduce the amount to be withheld.