The taxman has backed off a little on capital gains tax (CGT): The first R10 000 you make in profit from selling an asset in any tax year will be exempt from this tax.
In the original proposals on CGT published with the Budget in February this year, only R1 000 would have been exempt when the new tax took effect on April 1 next year. This has now been raised to R10 000 in the first draft version of the CGT legislation published this week for comment from the public.
At the same time, the taxman has indicated that he has the super-rich in his sights. People who make more than R1 million in profit on the sale of their houses, or whose properties are bigger than two hectares, will not escape CGT.
The increase in the CGT exemption to R10 000 will significantly ease the burden on most taxpayers, who from April will be paying tax on the disposal of all assets, from shares and unit trusts to holiday homes and gold coins.
Only the house in which you live (provided you do not make more than R1 million on its sale), and a few other assets, such as lump sums from endowment policies, will escape the tax.
The new tax is not designed to raise huge amounts of money - estimates are that it will probably not bring in more than R100 million a year initially and not more than R900 million once it is fully up and running - but to plug holes in the tax system.
Currently, because there is no tax on capital gains, profits from share or unit trust sales, for instance, are only taxed if they are considered to be income.
This encourages taxpayers to convert taxable income into tax-free capital gains.
From April, all capital gains or losses made on the disposal of capital assets will be subject to CGT unless specifically excluded. But if you bought the asset before April 1 2001 and you sell it after that date, you will only be taxed on the capital gain which took place after April 1.
Individuals will be taxed on 25 percent of the gain only.
If you buy and sell an asset after the kick-in date, the capital gain or loss will, broadly speaking, be the difference bet-ween the price you paid for it and the price for which you sell it.
But for assets bought before April 1 2001 and sold after this date, the valuation process is more complex.
For shares, bonds and other securities traded on markets, the valuation basis will be the average closing value of the asset for the five trading days before the valuation date.
For other assets, you can choose either to have your assets valued at April 1 2001, or use a "time-based apportionment" method. This means looking at the total capital gain from when you bought the asset to when you sold it and then working out how much of the gain took place after April 1 2001. You will only pay tax on this portion.
For instance, if you bought a second house 10 years ago for R250 000 and sell it in five years' time for R850 000, the house has gained R600 000 in value over 15 years. To work out the gain in the last five years (one third of the period), you divide the total gain by one third.
If you choose instead to have your assets valued from April 1, you will be given two years (the original proposal was six months) to have this valuation performed by a sworn appraiser. There are fewer than 2 000 sworn appraisers and this option may be expensive.
Remember that whatever method you chose it is up to you to prove the base cost of your asset.
Keep records relating to the house you live in, even though it is probably not subject to CGT. You never know, it might become a secondary residence in future.
If you have not kept records, go to your stockbroker (in the case of shares), your attorney or estate agent (in the case of property) to get copies. If you have made improvements to your property, get a copy of the invoice from the builder. And make a point of keeping records from now on.
Keep a note of:
* The date you acquire an asset;
* What you pay for it and what you spend on it later;
* The date you dispose of it; and
* The money you make from selling it.
Documents to hold on to are contracts of purchase and sale, market valuations, invoices and receipts for services.
When you sell an asset and declare this in your income tax return, you must keep records relating to your ownership and all the costs of the asset for four years after the South African Revenue Service acknowledges receipt of your tax return.
If you do not have to send in a tax return, and you sold an asset for more than R10 000, you must keep records for five years from the time you sold it. If you inherit an asset, it is vital to keep records. The executor of the will which makes you an heir must give you certified copies of all the records relating to the cost of the asset.
In some instances your life will be made easier. For example, unit trust funds will supply you with the required information on your annual statements.
CGT will form a part of normal income tax and your net gains or losses will be included in your normal tax return and taxed at your normal rate.
Commenting on the draft legislation released this week, Matthew Lester, the professor of taxation studies at Rhodes University who specialises in CGT, says the draft still does not take into account the probability that part of the gains you will make will come from the effect of inflation.
In other words, you will be paying CGT on inflation, which is not really a capital gain.
DEFINITION
A capital gain takes place when you make a profit on the sale of an asset such as shares or unit trusts, a house, Kruger rands or even a boat. For example, if you bought a share for R100 and sold it six months later for R200 you would have made a R100 capital gain.
WHAT'S IN
* Shares;
* Unit trusts;
* Land;
* Houses you do not live in;
* Cars, boats, caravans;
* Plant and machinery;
* Kruger rands;
* Mineral rights; and
* All other assets except those specifically excluded.
WHAT'S OUT
* Lump sums from pension, provident or retirement annuity funds;
* Lump sums from endowments;
* Compensation for injury or illness;
* Lottery winnings, winnings from competitions;
* Winnings from betting;
* Gains made when you convert foreign currency back into rands after a trip abroad;
* Capital gains or losses on the sale of the property where you live (unless you make more than R1 million or it is bigger than two hectares);
* Capital gains or losses on the sale of your private car; and
* Your clothes, jewellery, stamp collection, paintings and other items commonly found in a house.
HEALTH WARNING
You will not be able to escape capital gains tax by:
* Donating an asset to a minor child; capital gains can be attributed to you;
* Claiming a capital loss if it arises from your own use of the asset. For instance, you cannot claim a loss if you buy a pleasure boat, use it for a while and then sell it at a loss;
* Claiming a capital loss if it can be shown that you manipulated your assets to avoid tax; or
* Claiming full capital losses if you sell shares or other assets in your portfolio just before the end of the assessment year with a view to making a loss.