Capital Gains Tax (CGT)

Entity Inclusion rate Effective rate of tax
Individuals, Special Trusts and
Testamentary Trusts set up for the benefit of minor children
33.3% 13.65%
All other Trusts 66.6% 27.31%
Companies and CCs 66.6% 18.65%
Individual Policyholder Fund 25% 7.5%
Company Policyholder Fund 50% 14%
Corporate Fund 50% 14%
Untaxed Policyholder Fund 0 0

Unit Trusts (CIS)    : The unit holder is taxable

Retirement Funds   : Not Taxable

The effective rate applicable to the four funds is calculated by multiplying the inclusion rate applicable to each fund by the tax rate of that particular fund.

For individuals and special trusts, there is a R30 000 exemption per annum and for natural persons in the year of death R300 000

Excluded : A primary residence, owned by a natural person or a special trust, used for domestic residential purposes, where proceeds do not exceed R2 mil. Where proceeds exceed R2 mil the exclusion is R2 mil of the calculated capital gain.

Calculation of base cost for CGT

Base cost properties acquired after 1 October 2001 is the cost of acquiring such property.

Methods to determine the base cost of an asset acquired before 1 October 2001:

  1. Time-based apportionment
  2. Market value (can be used only if the property was valued by 1 October 2001)
  3. 20% rule

1. What is the time apportionment method?

If the taxpayer does not choose to use the market value of the asset at 1 October 2001 as the value of that asset, or if they have not valued the property by 1 October 2001, they must use the time apportionment method of calculating the base cost of the asset.

This method requires that the person must know when the asset was bought and how much it cost.

It is also necessary to know how much was spent on improving the asset over the period it was held and when the expenditure was incurred before or after 1 October 2001.

The legislation then provides a formula to be used in calculating the base cost. It is therefore important that one keeps proper records to enable the formula to be applied. It is suggested that taxpayers seek professional advice in determining the base cost value if this method is used.

2. Market value

Type of asset Market value
Financial instrument listed on a recognised exchange Average of listed buying and selling prices at close of business on last trading day before disposal.
Long-term insurance policy Greater of:
  • Surrender value; or
  • Insurer's fair market value (assume policy runs to maturity).
Unit trusts and property unit trust Management company's repurchase
Foreign unit trust interest Management company's repurchase price or, if not available, selling price based on a willing buyer, willing seller acting at arm's length in the open market.
Fiduciary,usufructuary and other The present value of future benefits discounted at 12% p.a. over the life expectancy of a person entitled to the asset or lesser period of enjoyment. Commissioner may approve less than 12% where justified.
Property subject to fiduciary, usufructuary and other like interests Market value of full ownership, less value of fideicommissum or usufruct, etc. as determined above.
Immovable farming property

Land Bank value (defined in the Estate Duty Act). Effective 1 February 2006, fair market value (as defined in the Estate Duty Act) in relation to immovable property on which a bona fide farming undertaking is being carried on in the Republic, is the amount determined by reducing the price dealing at arm's length in an open market by 30%;
Price based on a willing buyer, willing seller at arm's length in the open market.

On disposal by death, donation or non-arm's length transaction, only the Land Bank value may be used.

Any other asset Price based on a willing buyer, willing seller at arm's length in the open market.
Unlisted shares Price based on a willing buyer, willing seller at arm's length in the open market, ignoring any:
  • Restrictions on transferability
  • Stipulated method of valuation

If the shareholder is entitled to a greater share of assets on winding up, the value must not be less than the amount the shareholder would have received had the company been wound up.

3. 20% Rule

20% of proceeds on disposal of asset