You do not have to employ a professional valuer to value your property for capital gains tax (CGT): you can use an estate agent's valuation or even do it yourself.
If you are confident that you can value your property correctly, you can do it yourself, Kosie Louw, general manager of law administration at the South African Revenue Service (SARS), told Parliament's finance committee this week.
You will have to value - or have valued - your property if you want to keep your options open about which method you use to declare capital gains on an asset you sell.
Only capital gains made after the tax is implemented will be taxed. So if you already own an asset - a holiday house for instance - you must have a value for it as of the day when the tax is implemented (currently set for April 1 this year).
You can use one of three methods to do this:
Market valuation
Market valuation involves getting a valuation on your house as at April 1. Then when you sell it, you calculate the difference between the buying and the selling price, deduct the costs of acquisition and disposal (transfer duties and the like) and also deduct any improvements - not repairs - you have made to the house. (You cannot deduct the interest on your home loan.) The result is the capital gain, which you must add to any other capital gains you have made in that year for tax purposes.
You have two years to get a valuation for your house as at April 1. Louw says SARS does not intend to force taxpayers to use professional valuers. Estate agents' valuations or even your own valuation will do - but remember that SARS retains the right to challenge and reject your valuation, so you must be sure you can defend it if you have to.
Time apportionment
If you choose the time apportionment method, the base cost of your house is the price at which you acquired it (or, if it was left to you in a will, the market value of the house at that time). Now you must calculate what proportion of the capital gain falls after the implementation date of the tax.
For instance, if you acquired the house in April 1980, and you sell it in April 2002, only one year out of the 22 years you owned the house will be relevant and you will divide the total capital gain by 22 to work out how much of it is liable for capital gains tax.
The 20 percent rule
If you have no records at all of the acquisition of your asset, you can choose the "20 percent rule" and claim that 20 percent of the capital gain took place after the date of implementation of the tax.
Louw says this is an option for taxpayers and will not be forced on them by SARS.
Once you have calculated the capital gain, you must add it to all other capital gains or losses you made during the year. From the total gain, you can deduct R10 000. The result is your aggregate capital gain or loss. You can deduct any previous assessed capital loss from this. One quarter of the resulting amount is taxable. This will be added to your income and taxed at your marginal rate.
SARS has decided to exempt capital gains of up to R10 000 from tax because it is not worthwhile for the tax service to spend time and money chasing up small gains. But by the same token, if you make a capital loss of less than R10 000 then you will not be able to offset it against a capital gain.
And remember, capital losses can only be offset against capital gains, not against other forms of revenue you earned during the year. You will not be able to claim a capital loss if it arises from your use of the asset. For instance, if you buy a boat, use it and sell it later at a lower price, you will not be able to claim the difference between the buying and the selling price as a capital loss.
Listed assets such as shares will be valued at the average closing price of the asset for the five trading days before the day on which you acquired them. If you own shares now and you sell them after April 1 - or whenever capital gains tax kicks in - you will only pay tax on the profit you make after April 1.
The base cost of your shares would be the average closing price of that share on the JSE Securities Exchange over the five trading days before April 1.
The same applies to unit trusts.
SARS has decided to tax capital gains on unit trusts in your hands as a unit trust investor rather than tax them in the unit trust company. Your unit trust company will be expected to keep records of the capital gains made by each investor and supply you with a document which you can use to fill in your income tax form.
IN AND OUT
INCLUDED for capital gains tax are profits made from the disposal of:
* your holiday house;
* your shares;
* your unit trusts;
* your Krugerrands; and
* your boats and aircraft.
EXCLUDED are profits made from the disposal of:
* the house where you live (unless you make more than R1 million from it);
* your clothes, jewellery, stamps, antiques, art works or other personal effects;
* lump sums from your pension, provident or retirement annuity funds
* lump sums from endowments; and
* your winnings on the national lottery, the races or the casino.
ESTATE DUTY
Estate duty and donation tax rates are to be reduced to take into account the introduction of capital gains tax (CGT). This is because capital gains made on an asset which you have inherited or which has been donated to you will now be taxed. SARS's Kosie Louw says a cut in tax rates has been chosen rather than a rebate, though no decision has yet been taken on the size of the cut. "But CGT is not a substitute for estate duty," he cautions. "Estate duty taxes the full value of an asset and CGT only taxes the gain. So we can't abolish estate duty completely."
WHO TO CONTACT
If you want to contact a professional valuer, you can approach the SA Institute of Valuers at telephone (021) 762 3313, fax (021) 762 2329
or e-mail [email protected]
See also Manuel may delay gains tax