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South Africa Issues Revised CGT Guide

by Lorys Charalambous,, Cyprus

26 December 2014

The South African Revenue Service (SARS) has issued a revised version of its Comprehensive Guide to Capital Gains Tax (CGT), so as to provide an update on various changes since the guide was last published in 2011.

The guide work reflects the tax code as at December 12, 2013. Since the release of the previous version of the guide, there have, in fact been three annual Taxation Laws Amendment Acts, as well as the promulgation of the Tax Administration Act (TAA) and changes to the inclusion rates and exclusion thresholds.

The guide gives indications as to the determination of what should be taxed as "income" or as "capital." It points out that, with CGT being regarded as a tax on income, the distinction is important because of the lower rate of tax attributable to capital gains. Furthermore, losses of a revenue nature can usually be set off against both income and capital gains, while capital losses may only be set off against capital gains.

At the time of its introduction in October 2001, it is explained that CGT was incorporated into South Africa's Income Tax Act (ITA). This approach had administrative advantages since the existing provisions and procedures of the ITA were then available for CGT collection. Since October 1, 2012, many of these administrative provisions have been moved to the TAA.

The tax code's CGT provisions are contained in the Eighth Schedule of the ITA. Aggregate capital gains are reduced by an "annual exclusion," which has been increased to ZAR30,000 (USD2,575) since 2013, having been ZAR17,500 when the guide was last published, and only ZAR10,000 in 2006 or earlier.

A taxpayer's net capital gain for the current year of assessment is multiplied by an inclusion rate to arrive at the person's taxable capital gain which must be included in taxable income for the year of assessment. An individual's inclusion, statutory and effective CGT rates for the 2014 year of assessment (commencing on March 1, 2013) are 33.3 percent, 0-40 percent, and 0-13.32 percent, respectively.

The effective CGT rate on a capital gain (ignoring exclusions) for a taxpayer is therefore determined by multiplying the inclusion rate by the statutory rate. For example, an individual in the top tax bracket would pay CGT at the effective rate of 40 percent × 33.3 percent = 13.32 percent, while the effective CGT rate for a company is 18.65 percent (66.6 percent × 28 percent).

In view of the substantial number of changes that have been made to the guide, SARS has considered it appropriate to publish the updated version as a draft, for public comment by May 31, 2015.

TAGS: capital gains tax (CGT) | South Africa | compliance | Capital Gains | tax | tax compliance | tax rates | Africa | Tax

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