Capital gains tax (CGT) is not a separate tax but forms part of income tax. A capital gain arises when you dispose of an asset on or after 1 October 2001 for proceeds that exceed its base cost.
The relevant legislation is contained in the Eighth Schedule to the Income Tax Act 58 of 1962.
Capital gains are taxed at a lower effective tax rate than ordinary income. Pre- 1 October 2001 CGT capital gains and losses are not taken into account. Not all assets attract CGT and certain capital gains and losses are disregarded.
A withholding tax applies to non-resident sellers of immovable property (section 35A). The amount withheld by the buyer serves as an advance payment towards the seller’s final income tax liability.
Who is it for?
CGT applies to individuals, trusts and companies.
A resident, as defined in the Income Tax Act 58 of 1962, is liable for CGT on assets located both in and outside South Africa.
A non-resident is liable to CGT only on immovable property in South Africa or assets of a “permanent establishment” (branch) in South Africa. Certain indirect interests in immovable property such as shares in a property company are deemed to be immovable property.
Some persons such as retirement funds are fully exempt from CGT. Public benefit organisations may be fully or partially exempt.
Estate duty is levied in terms of the Estate Duty Act, 1955, Act 45 of 1955 (the Act) and constitutes a tax which has been levied at a rate of 20% on deceased estates. Under current legislation it is levied on the “dutiable amount of the estate” exceeding R3 500 000.
The dutiable amount of a deceased estate represents the sum of all property of the deceased and property which is deemed to be property of the deceased as at date of death, less all deductions provided for in section 4 and 4A of the Act.
In general the executor of the deceased estate is liable to pay the estate duty. However, as the estate also comprises property deemed to be property of the deceased of which the proceeds are not for the benefit of the estate as such, the Act specifies that the pro rata estate duty payable upon deemed property is payable by the beneficiary thereof.
When is estate duty payable:
• If the estate duty assessment is issued within 1 year after date of death, the estate duty must be paid within 30 days from the date of assessment.
• If the estate duty assessment is not issued within the 1 year period, payment must be made within 1 year after date of death to avoid the accumulation of interest.