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.