Our question and answer column on capital gains tax two weeks ago, explained the concession to taxpayers who want to transfer ownership of their property from a trust into their own name in order to avoid capital gains tax. But readers have asked for more clarity on this issue and also whether capital gains will be added to income for tax purposes.
Question:
John Wilson would like to know what dates apply to this concession and how to apply for it. Paula Cohen says she made enquiries at her bank and a couple of attorneys, and was told that this has not yet been promulgated into law and cannot be done as yet without incurring registration costs.
Answer:
The South African Revenue Service (SARS) says one of the conditions that must be satisfied before the exemption from transfer duty applies, is that you must acquire your primary residence between the date the Taxation Laws Amendment Act 2001 is promulgated and September 30, 2002. SARS says the Taxation Laws Amendment Bill will be promulgated as an Act of Parliament in the Government Gazette during the course of the coming week. Thus the window of opportunity for transferring primary residences out of companies, close corporations and trusts will open in the coming week, and will close on September 30, 2002. SARS will also release a brochure with regard to these transfers in the coming week. This brochure will be available on SARS Online ( www.sars.gov.za) and from SARS offices.
Question:
Will the taxable portion of a capital gain be added to taxpayers' existing income, thereby increasing taxable income, or will it be taxed at the existing marginal rate, Tony de Wijn wants to know. He gives the example of a taxpayer (under the age of 65) who earns a salary of R50 000 a year with no deductions. The taxpayer's marginal rate will be 26 percent and the tax due will be R9 960 before rebates. De Wijn asks if a person made a taxable gain (the gain less the R10 000 exemption and then multiplied by 25 percent) of R100 000, how will this R100 000 be taxed. Will the taxable amount of R100 000 be added to the existing R50 000 to make a taxable income of R150 000, where the marginal rate will be 40 percent and the tax due will be R46 660 before rebates? Or will the existing R50 000 taxable income be taxed at 26 percent and the taxable gain of R100 000 also be taxed at 26 percent, where the total tax due will then be R9 960 + R26 000 = R35 960 before rebates?
Answer:
SARS says the first option is correct - that the taxable gain will be added to your income. SARS says if the R10 000 annual exclusion and 25-percent inclusion rate are taken into account, the taxpayer will therefore have paid tax of R36 700 on a capital gain of R410 000.
If there are capital gains tax issues you are unsure of, send your questions to us and we will publish the replies from the South African Revenue Services. Send your questions to Personal Finance, PO Box 56, Cape Town, 8000 or fax (021) 488 4119 or e-mail [email protected]