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Before you calculate your Capital Gains Tax, you first need to understand these five key CGT concepts so you don't get it wrong

by , 08 January 2015
You have to pay tax on any capital gains you make. This normally includes the profit you make on any kind of capital asset such as a rental property.

You have to work out what your profit is and then work out that tax amount from that.

But to do this, you have to understand the five key concepts the make up Capital Gains Tax (CGT). Otherwise, you may leave out an important factor in your CGT calculations.

Today I'm going to show you what these five concepts are...


These are the five key concepts behind Capital Gains Tax

1. Assets
The type of asset affects how much CGT you'll pay or whether you have to pay it at all. 
Here are six assets you have to pay CGT on: 
1. The main residence owned by a company, close corporation or Trust, other than a special Trust;
2. Holiday homes or second homes and properties let to tenants;
3. A boat longer than 10m;
4. Caravans;
5. An aircraft, the empty mass of which exceeds 450kg; and
6. Shares, unit trusts and private investments, and second-hand policies.
There are three other assets you must pay CGT on. You can find them in the Practical Tax Loose Leaf Service
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2. Disposal
How you dispose of an asset affects your CGT liability too. SARS sees the following actions as 'disposal of an asset':
- Sale; 
- Donation; 
- Expropriation; 
- Conversion; 
- Grant;
- Cession; 
- Exchange; and
- Any other alienation or transfer of ownership of an asset.
3. Proceeds
This is any amount you get as a result of the disposal of an asset. For example, the profit you made from selling a painting.
4. Base cost
This is what you actually spent on the asset when you bought it. For example, when you buy a house, the base cost is the cost price of the house plus associated costs, like transfer fees or attorney's fees. 
The base cost also includes any costs you paid to improve the asset. This only applies if those improvements still exist when you dispose of the asset and you haven't claimed these expenses as tax deductions.
5. Valuation date
Capital Gains Tax came into effect on 1 October 2001. This is the valuation date and that means if you use the base cost of the asset from October 2001, it will affect your CGT liability. 
The most important thing to remember when using these five concepts to work out your CGT is you must minus your base cost from your proceeds. 
This will give you the amount you must pay CGT on. Then you must apply the SARS CGT rate of 33.3% for the year. 
Now that you understand the five key concepts of Capital Gains Tax, check out the Practical Tax Loose Leaf Service to find out how to calculate your CGT correctly. 

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Before you calculate your Capital Gains Tax, you first need to understand these five key CGT concepts so you don't get it wrong
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