https://www.polity.org.za
Deepening Democracy through Access to Information
Home / Legal Briefs / Other Briefs RSS ← Back
Close

Email this article

separate emails by commas, maximum limit of 4 addresses

Sponsored by

Close

Embed Video

Must I pay capital gains tax if I sell my house?

Must I pay capital gains tax if I sell my house?

21st August 2015

SAVE THIS ARTICLE      EMAIL THIS ARTICLE

Font size: -+

“I bought my house, which I’ve always lived in, in 2000 for about R1-million, and on my auditor’s advice had it appraised in October 2001 for R1,1-million. Over the years I had about R200 000 worth of improvements done to the house. I maintained the house well and recently put it up for sale to move to a smaller townhouse. I now received an offer of R3.7-milliion for the house. However I understand that I might have to pay capital gains tax on the sale, and am worried about how much that may be?”

To answer your questions we’ll need to make one or two assumptions. I thus assume that you are a South African citizen and also that the house is your primary home. Both these facts are important for capital gains tax.

Advertisement

In effect capital gains tax is income tax that has to be paid on capital gains made. Capital gains tax came into effect on 1 October 2001, and it is therefore good that you have an appraisal of your property for this date. That will help to determine the base cost of the property.

Income tax is applicable to the disposal (removal, alienation and sale) of assets on or after 1 October 2001, and any capital gain that is realised through such disposal of assets will be subject to income tax, unless it’s specifically excluded.  

Advertisement

With respect to the sale of property, capital gains tax wiill be imposed on any capital gains realised with regards to property being sold. Part of the capital gains are included in the tax payer’s taxable income for that tax year. In the context of the sale of a house, the capital gains will then be the difference between the yield  (the amount gained by the sale of the property) and the base cost (the amount paid when the property was bought.) 

As mentioned, the use of a house as the primary home is also important. The Income Tax Act defines a ‘primary home’ as a home -
i)   In which a natural person or a special trust holds an interest; and 
ii)   In which that person or a beneficiary of that special trust, or a spouse of that person or beneficiary usually lived in as his/her main home and it was mainly used for domestic purposes.

In the ascertion of the base cost of an assest the Income Tax Act provides the following guidelines and determines that base cost is any cost directly incurred:

  • For the acquisition of an asset;
    • Direct costs towards the acquisition and sale of an asset, for example -
      • Paying of a surveyor, legal advisor, bookkeper etc. for services rendered;
      • Transport costs, transfer dues, or similar tax; and
      • Advertising costs for the sale or buying of the property.
  • Costs for appraisal of the asset to determine the capital gains or losses;
  • Improvements of an asset; for example extensions and improvements that are still visible at the time of the sale of the property; and
  • Tax on added value – where it is raised but not recovered as input tax for purposes of added value.

The inclusion tariff  (rate) for a natural person or special trust is calculated at 33.3% per year during the year of assessment. There are also certain annual exclusions of a natural person or special trust. If the person dies in the year of assessment the annual exclusion is R300,000.00 and the exclusion for a natural person or special trust per year is R30,000.00. 

Important futhermore is the exclusion of the first R2,000.000.00 capital gains on a primary home of tax on capital gains. Where a part of the primary property is used for business purposes that part of the property will however be subject to tax on capital gains. If a second home, holiday home or timeshare is sold for profit, the R2,000,000.00 exclusion is not applicable because it will then not qualify as a primary home.

So, to determine if you will have to pay any capital gains tax, one will have to do the following calculations:

Base cost of the primary property: 

Base cost of the primary property:  
Appraisal on 1 October 2001 R1,100,000.00
Appraisal fee charged by the valuator R4,000.00
Improvements R200,000.00
  R1,304,000.00
Capital gains calculations:  
Yield R3,700,000.00
Minus Base Cost (R1,304,000.00)
Gains R2,396,000.00
Minus Primary home exclusion (R2,000,000.00)
Capital gains R396,000.00
   
Taxable capital gains calculations:  
Capital gains R396,000.00
Minus annual exclusion (R30,000.00)
Nett capital gains R366,000.00
   
Taxable capital gains at 33.3% per year on R366,000.00 R121,878.00

The above is a basic calculation that indicated that capital gains tax might possibly be payable. Because these calculations can become quite complex, we’ll strongly advise that a tax specialist is consulted to assist you with more detailed calculations, seeing as circumstances can differ substantially from case to case.

Written by Tertia Botha
Associate, Phatshoane Henney Attorneys
Conveyancing Department

EMAIL THIS ARTICLE      SAVE THIS ARTICLE

To subscribe email subscriptions@creamermedia.co.za or click here
To advertise email advertising@creamermedia.co.za or click here

Comment Guidelines

About

Polity.org.za is a product of Creamer Media.
www.creamermedia.co.za

Other Creamer Media Products include:
Engineering News
Mining Weekly
Research Channel Africa

Read more

Subscriptions

We offer a variety of subscriptions to our Magazine, Website, PDF Reports and our photo library.

Subscriptions are available via the Creamer Media Store.

View store

Advertise

Advertising on Polity.org.za is an effective way to build and consolidate a company's profile among clients and prospective clients. Email advertising@creamermedia.co.za

View options
Free daily email newsletter Register Now