d i v idua ls

TAX- In
GAI NS
AP I TAL
C
 Capital Gains Tax - CGT

Learning Outcomes

1. Determine the amounts which are subject to CGT;

and

2. Calculate the taxable capital gain/ loss to be

included in/ offset against taxable income for
Individuals and Companies.
 Disposal of an asset

Revenue in nature Capital in nature

Apply Eighth
Apply principal Act Schedule

Calculate proceeds
Include proceeds in (exclude any
gross income gross income
amounts)

Deduct expenditure
allowed Deduct base cost
CGT Introduction
• Capital gains tax (CGT) is triggered when there is a
disposal of a capital asset.
• CGT came into effect from 1 October 2001- therefore is
applicable to all disposals/ sales of capital assets made
after this date.
• The basic principle is that if a capital asset is sold at a
profit, the profit is subject to CGT.
• CGT is not a separate tax from normal Income Tax.
Only a portion of a person’s capital gain is included in
his taxable income and then subject to normal tax.
Asset is defined in the Income Tax Act as:
Property of whatever nature (movable or immovable).
Tangible and intangible assets.

Including any coin made mainly from gold or

platinum.

Including rights or interests in such property.

• For there to be a Capital Gain, there must be:

The sale/disposal of a Capital Asset.

• In order to determine whether the asset sold was

capital or revenue in nature, you must look at the
intention behind why you held the asset.
Disposals include the following:

Sale of an asset,

Donation of an asset, or

Scrapping, loss or destruction of an asset

 Basic Principles of CGT:
The sale of an asset can be at a profit or loss!

Loss:
Profit:
If sold at a loss – the loss can
If capital asset is sold at be set off against other capital
a profit – the profit is profits or carried forward to
subject to CGT. next year if no profits in current
year.
 Who would be liable for CGT?

Residents Non-residents:
Capital gains made on sale Capital gains made on sale
of capital assets owned and of capital assets
sold anywhere in the ( fixed property)
world. situated in SA only.
 How is CGT calculated?

In terms of the 8th schedule of the Income Tax Act.

Basic calculation of a taxable capital gain:

Proceeds from sale of capital asset xx

Less : Base cost of asset (xx)
Capital Gain xx
 Basic Framework of CGT calculation for an
Individual
Proceed from sale of capital asset xx
Less : Base cost of asset (xx)
= Capital Gain/Loss xx
Add :Other Capital Gains/Losses during the year xx
= Sum of all Capital Gains/Losses xx
Less : Annual exclusion (individuals only) (R40 000)
= Aggregate Capital Gain/Loss xx

Less: Assessed capital loss b/f from prior year (xx)

= Net Capital Gain/Loss xx
Taxable Capital Gain (40% of net capital gain)
 Annual exclusion:

This reduces the amount of the sum of Capital

Gain/ Loss calculated.

Applicable to Individuals and Trusts only!

Not applicable to companies.

Amounts to R40 000 in a normal year.

In the year a person dies: R300 000.
Examples to illustrate annual exclusion- Individuals only!!!!!!
R R R

Total Capital Gains 150 000 180 000 170 000

Total Capital Losses 65 000 225 000 165 000

Sum of all Capital Gains & 85 000 (45 000) 5000

Losses
Less Annual exclusion (limited (40 000) 40 000 (5000)
to R 40 000)
Net capital gain/ 45 000 (5000) 0
(Loss)

Annual Annual Limit the

Exclusion exclusion annual
reduces gain reduces losses exclusion.
Can not be
used to
create a loss
 Example 1 of CGT calculation- Individual
(pg 655 in Textbook)

Mr. A pays tax on the maximum tax rate of 45%. He sold

land, which had cost him R200 000 in 2019, for R600 000 in
February 2023. He also sold shares that cost him R100 000
in 2017, for R140 000 in February 2023.

Required: Calculate the net capital gain for his 2023 tax year
of assessment.
Example of CGT calculation- Individual

Proceeds on sale of land 600 000

Less Base Cost of land (200 000)
Capital Gain 400 000

Proceeds on sale of shares 140 000

Less Base Cos of shares (100 000)
Capital Gain 40 000
Sum of capital gains 440 000
Less Annual Exclusion (40 000) – only for individuals
Aggregate capital gain 400 000
Less Assessed loss previous year (0)
Net Capital gain 400 000
Deemed disposals and acquisitions
Certain events are treated as disposals or acquisitions

• Deemed disposals are events where there is no actual

disposal but it is treated like a disposal happened.
• Deemed acquisition means that no actual purchase
happened, but it is treated like a purchase of a capital
asset. A base cost is set for the taxpayer on that date,
to be used later when the asset is disposed of.
Deemed disposals and acquisitions

When deemed disposals or deemed acquisitions occur:

• The person is deemed to have disposed of the asset for
proceeds = market value of the asset (deemed
disposal).

• The person is deemed to have acquired the asset for

base cost = market value of the asset (deemed
acquisition).
Examples of events deemed to be disposals/
acquisitions- Individuals
1. Ceasing to be a SA resident
When a person ceases to be a resident, all his assets
are deemed to be disposed of.
Events deemed to be disposals/ acquisitions

2. Disposal of personal use assets

When a person disposes of a personal use asset –
there is no capital gains effect.
• If a personal use asset becomes a business asset, it
is then subject to CGT (deemed acquisition).
• The MV of the asset just becomes the base cost of
the asset for when it is disposed off at a later time.
• If a business asset becomes a personal use asset –
deemed to have sold/disposed of the asset at MV.
PERSONAL USE ASSET:
It is assets held by a natural person used mainly
for purposes other than carrying on a trade.
Events deemed to be disposals/ acquisitions

3. Disposal to a Deceased Estate

When a person dies, all capital assets that they owned
at the time of death is deemed to be disposed to a
deceased estate.
• The proceeds at time of deemed disposal to the estate
is the Market Value of the assets at the time of death.
• The Market value at time of death will also form the
base cost for the estate.
• These capital assets will then be disposed of to the
heirs/ beneficiaries from the deceased estate.
Deemed Transactions Example 1

Mr X, a non-resident buys shares in a South African

company for R1,8 million on 1 January 2017. On 1 January
2019 Mr X became a resident of South Africa. At that date,
the shares had a market value of 2,2 million. On 15
January 2023, Mr X sold these shares for R 2,8 million.

Required: Calculate his capital gain/loss on the sale of

shares.
Deemed Transactions Examples 1

Proceeds on sale of shares: R2 800 000

Less Base Cost (R2 200 000)
Capital Gain R600 000
Deemed Transactions Example 2

Mr F owns his own business. He bought a car for R150 000

in 2018 and used it for private purposes at this time. On 1
March 2019, the market value of the car was R105 000. On
this date he decided to use the car in his business for
deliveries only. He then sold the car for R112 000 on 1
February 2023.

Required: Calculate his capital gain/loss, if applicable, on

the sale of the car.
Deemed Transactions Examples 2

From 2018 till 1 March 2019, the car was a personal-use

asset.
On 1 March 2019, the car became a business asset.
A base cost was determined to be R105 000.
On 1 Feb 2023, he sold a business asset, therefore CGT is
applicable.
Proceeds on sale of car: R112 000
Less Base Cost (R105 000)
Capital Gain R7 000
Specific EXCLUSIONS From CGT

• Primary residence (Up to R2mil excluded)

• Personal use assets
• Retirement benefits
• Compensation for personal injury
• Gambling, games, competitions
• Donations to PBO’s
• Assets used to produce exempt income
PRIMARY RESIDENCE

• Sale of a SA resident’s home

• Up to R 2 million gain/loss - excluded

NB: Seller must have used the residence as a primary

residence.
May not have used the residence for business purposes.
Personal use assets

Assets used mainly for purposes other than that of

carrying on a trade, e.g. private motor vehicle, personal
jewellery, private art collection, personal furniture.
(businesses can’t hold personal use assets)

Assets Excluded from being Person-Use Assets:

• Gold or platinum coins
• Immovable property
• Aircraft exceeding 450 kg
• Boat exceeding 10m
Personal-use assets

Loss Limitation Rules for Assets Excluded from being

Personal-Use Assets

• If a loss is made on the sale of an asset that was

excluded from being a personal use asset, then that loss
is disregarded.
• Example: loss made on sale of boat exceeding 10m.