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  You could benefit immensely by understanding CGT (Capital Gains Tax) and also using these hints to ensure you remember everything when the time comes to move into your new home.

Building - About CGT & Moving Tips

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CGT & Moving Tips

Our focus is the provision of a total service to you - from inception to successful completion of your building project. We have your interests at heart, and you'll benefit from our knowledge and expert advice.

This page covers two points:

Capital Gains Tax (CGT)

Help On Your Moving Schedule

Capital Gains Tax (CGT)

Capital Gains Tax (CGT) was introduced in South Africa by Trevor Manuel (Minister of Finance) in his budget speech on 23 February 2000. This brought South Africa in line with international practice (most first world countries such as USA, Canada, UK and Australia have a CGT tax), and will help to widen the tax net in South Africa and hopefully give scope to reducing the burden of personal income taxes.

Let's take a look at some facts concerning CGT.

Who will have to pay CGT?

  • Any natural person - such as individuals and special trusts;

  • Any legal entity including companies, close corporations and trusts; and

  • South African residents who make a profit, or loss, when selling property of a capital nature.

What exactly does CGT mean for you as a homeowner?

In a nutshell it means that taxpayers, including individuals, trusts, companies and close corporations, will be taxed on the profit they make when they sell an asset or property of a capital nature. It is therefore, basically a tax on the resale of assets. In most cases, it will not affect one's primary residence, provided the property is smaller than two hectares and the profit to be made is less than R1 million. However, homeowners will be liable for CGT on second properties or holiday homes that are not occupied as a primary residence. It also affects all properties registered in the names of close corporations, trusts and companies.

How is a capital gain/loss determined?

It is the difference between the "base cost" of the asset and the amount for which it is sold.

How is the "base cost" of the asset determined?

The base cost is the expenditure made to own the asset; and includes the cost of any improvements that are made to it and any other costs directly brought about by the acquisition or sale of the asset. Put another way, the base cost is the actual capital cost, plus the cost of getting the asset: for example: agent's commission, legal fees, conveyancer fees, and the cost of improving the asset. This base cost does not however include any expenditure that may be claimed as an income tax deduction or any borrowing costs (interest on loans) or repairs.

The taxpayer must be able to prove the base cost if no record exists. It is therefore crucial for owners to keep records of any capital asset they have bought including what they spent on improving the asset. (This element of CGT has sparked a certain amount of controversy because it is felt that the effects of inflation on an asset's base cost have not been taken into account. In South Africa this ratio is high and it is felt that increases in value could often be attributed to inflation and not to real increases in value.)

What is excluded from the base cost?

  • The effects of inflation;

  • The cost of upkeep of the asset (maintenance and repairs, and insurance premium); and

  • The devaluation of the asset caused by using it: for example, the wear and tear on a motor vehicle.

For what period does CGT apply?

CGT only applies to gains that accrue after the effective date, being 1 October 2001. Put another way, CGT only applies to gains attributable to the period from 1 October 2001 on, in cases where assets were owned before that date and parted with after that date.

There were two alternative methods of determining the value of the asset as at 1 October 2001:

  • Having the asset valued on 1 October 2001. Taxpayers had two years to do this. If you have not yet had this done, we suggest that you contact a professional property valuer or associated valuer (there are some links further down)

  • Time apportionment - calculate the asset's value taking into account the entire time that the asset was owned. For example, if you bought a holiday house ten years ago for R350 000 and sell it in another five years' time for R950 000 the house has gained R600 000 in value in those 15 years. The gain attributable to the last five years is therefore a third of this R600 000.

What is excluded in Capital Gains Tax?

  • Primary residences owned in the name of an individual

  • Individual's private motor vehicle (if not used for business).

  • Personal belongings (art, antiques, clothing, stamp collection) and jewelry.

  • Proceeds from pension, provident, retirement annuity funds and life insurance policies.

  • Winnings from lotteries, casinos and prizes (if not a professional gambler).

  • Compensation for injury, illness and defamation.

  • Profit (not more than R500 000) from the sale of a small business, pending retirement if: o the taxpayer is older than 55 years; 0 assets have been held longer than 15 years.

  • Gains made when changing foreign currency back into Rands after a trip overseas.

What is included in Capital Gains Tax?

  • Primary residences owned in the name of a company, close corporation or trust.

  • Individual holiday homes or second homes and properties let to tenants.

  • Boats, aircraft and caravans.

  • Shares, unit trusts and private investments, and second-hand policies.

  • Krugerrands or other silver or gold minted coins

  • Sale of business.

  • All other assets, except those specifically excluded.

What percentage of CGT is payable?

For legal persons, 50% of the net profit will attract CGT and for natural persons the amount is 25%. This portion of the net gain will in turn be taxed at the taxpayer's marginal tax rate. As an effective tax rate this means that individual taxpayers will pay a maximum effective rate of 10.5% and corporate taxpayers a maximum of 15%. Example for natural persons:

  • Natural person's maximum marginal tax rate is 42%

  • Assuming the aggregate capital gain for the year of assessment is R25 000. 25% of R25 000 is R6 250, which in turn is taxed at 42% - therefore R2 625 is payable. The R2 625 as a percentage of the original profit made is 10.5%.

Will there be any exemption?

Individuals and special trusts will not have to pay CGT on the first R10 000 of capital gains per year.

How will SARS find out about profits made?

The SARS's new computer software, the New Income Tax System (NITS), will interface with systems in the Deeds Registry, Motor Vehicle Registry, Johannesburg Stock Exchange (JSE) and financial institutions.

For more tax related information contact your local SARS office, visit http://www.sars.gov.za or consult a tax advisor.

The South African Institute of Valuers can be contacted on (021) 762 3313 (Cape Town branch & General Secretary's Office), Gauteng branch on (012) 342-7574, Kwazulu Natal branch on (031) 309-7431 or at www.saiv.org.za or you can visit www.valuer.co.za for a link to the South African Council for Valuers, as well as other valuation firms.

Moving Schedule

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Although every family's schedule for a move will be different, much of the hassle can be taken out of moving day by planning your move. Take a look at these tips: 

Minus 6 Weeks:

  • Make a list of needed address changes - tick off as you notify the various parties. For instance, you must cancel deliveries of newspapers, magazines, and milk and bread - or arrange for them to be transferred to your new address.

  • Start a file of vital papers and reminders.

  • Start getting quotes from moving companies.

Minus 5 Weeks:

  • Select your moving company and confirm date and time. Discuss the cost of the move. You need to establish whether it includes boxes and packing, and insurance if anything is damaged or misplaced? (Insurance cover is normally an optional extra.)

  • Decide who is going to pack - the professionals or family. Paid packers may come the day before the move.

  • Start sorting. Decide what to move, what to sell, give away or discard. This is a good time to clear out items that are no longer used and perhaps do a donated to a charity. Start packing the items that you don't use often. It is easier to pack one room at a time. For instance, you can start do-it yourself packing of seldom-used dishes, glassware, books, out of season clothes, workshop, garage, garden tools, and any hobby equipment. You can hire packing boxes if they are not supplied by the removal company.

  • Sketch a floor plan of new home reflecting where your furniture must go, so that you can show the movers exactly where to put your items - this will save you having to move it yourself later. 

  • Also mark and list your boxes to show where they must go, so they can be put there directly.

  • ALL boxes that contain breakables should be marked "Fragile".

  • Do not stock up on frozen foods, as you need to defrost your fridge and freezer for the move.

Minus 4 Weeks:

  • Take care of legal contracts, including credit cards, bank and charge accounts;

  • Utilities and telephone services, membership in social, athletic and religious organizations, etc;

  • Start thinking about informing the municipality of your move so that they can take a final meter reading - they can be very, very slow these days, so don't delay to much on this one.

  • Insurance: home-owner - make sure that the household insurance for your old house is cancelled, and that your new house is covered. Also, motor vehicle, medical, life and disability insurance;

  • Employment agreements: wills, trusts, other legal or financial matters, safe deposit boxes and leased items and services.

  • Make sure your employer has new address.

  • Get letter of reference to establish credit in new location.

Minus 3 Weeks:

  • Arrange for children's medical/dental records, birth certificates and school transfer.

  • Ask doctor and dentist to recommend colleagues in the new area.

  • Get copies of prescriptions from doctor for new pharmacist or optometrist.

  • Talk with veterinarian about moving pets - get records.

  • Pick up anything repaired or serviced.

Minus 2 Weeks:

  • Check change of address list. Have you notified everyone? 

  • Collect children's games, activities for the trip

  • Start packing often-used belongings.

  • Plan farewell parties and visits for this weekend

Minus 1 Week:

  • Return any borrowed items; like library books, and so on.

  • Collect anything borrowed by friends and neighbours.

  • Cancel newspaper delivery.

  • Plan meals and snacks to minimize shopping.

  • Have ready-made meals available for moving day. 

  • Consider having your children go to friends for the moving day.

  • Arrange to have utilities switched on at new house. Arrange for the connection of electricity, telephone and other services in advance, so that when you move in everything is connected. Arrange for the final reading of your electricity, telephone and other services.

  • Empty petrol from lawnmower and other equipment.

  • Pack everything in kitchen that can be done without.

Minus 1 Day:

  • Empty, defrost and clean refrigerator. 

  • Empty safe.

  • Make arrangement to pay movers (personal cheques may not be accepted).

  • Finish packing suitcases with personal belongings.

  • Finish packing kitchen items.

  • Pack a CARE carton with essentials (like a kettle, coffee, coffee pot, some food to snack on, cups, plates, matches, toiletries, canned and dry food, can opener, light bulbs, black bags, saucepan, toilet paper, screwdriver and candles, etc) to be loaded last and unloaded first.

D Day:

  • On the day of the move, turn off all electrical appliances and take note of any readings.

  • Be available to movers for questions and suggestions.

  • Mark the boxes as they pack (coloured stickers are ideal for room placement in your new home).

  • Check inventory carefully.

  • Keep any valuables, cash and the keys to the new house on you.

  • Give movers map to new home.

  • Empty garbage.

  • Give new owner your new address to redirect mail.

  • Lock up and leave keys, remote, etc, at designated place.

Moving In:

  • Be at new home ahead of movers.

  • When movers arrive, open the CARE box and start feeling at home.

  • As movers unload, direct placements. Give them your floor sketch plan if they are competent.

  • Check items off inventory list.

  • Check exterior of cartons for damage before signing the receipt.

  • Make sure that when you move in, you have all the relevant emergency telephone numbers for your new area.

  • Enjoy!

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Only once in a long, long while will you find as much support as we offer. If you've been wondering about all or some of the above points, we sincerely hope that this page will help you. 

If you need any more information, please feel free to contact us at any time.

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And while we actually don't deal in land, you could do well in contacting us if you should have some land for sale - we may just have a prospective client looking for land.

Our expert advice is only a phone call, fax or e-mail away

Tel: (011) 453 4401             Cell: 084 303 8179            Fax: 086 640 4667

E-mail: info@building-sa.co.za

 

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