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Five easy steps to calculating your company's Capital Gains Liability

by , 08 August 2014
Capital Gains Tax (CGT) is the scary tax that turns your nice healthy profits into pennies. The only thing worse than paying CGT though, is getting it wrong and paying extra penalties.

That's why it's so important to work out your CGT liability correctly.

This sounds terrifying because if you leave off one cent, SARS might think you're trying to cheat it. But it doesn't have to be so scary. Not if you follow these five steps to working out your CGT liability correctly...

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Correctly work out your Capital Gains Tax liability using these five steps

Step #1: Calculate the base costs of the asset 
When you sell an asset, you pay Capital Gains Tax on the profit you make and NOT oh the total earnings you got from the sale.
So always deduct the cost of the asset (its base cost) from the proceeds you got from the sale.
Step #2: Calculate your aggregate capital gain or loss
You'll calculate your capital gains and losses for each asset you dispose of during your tax year. You must add these amounts together (all profits together and all losses together) before you deduct them from your annual exclusion.
Step #3: Calculate your net gain or loss
Deduct any capital losses you brought forward from the previous year. This way you can offset any capital gains in the current tax year and shrink your CGT bill.
Step #4: Apply the inclusion rate to your net gain/loss to determine how much of your total gain SARS will tax
SARS doesn't tax your total gain, only a portion of it. Calculate this portion by applying the inclusion rate to your net gain/loss.
SARS sets this rate and it's 66.6% for companies for the 2014 tax year.
Step #5: Calculate how much you'll owe SARS by applying the effective CGT rate to your included amount
Now that you know how much of your capital gain SARS will tax, you need to work out how much that tax is. Do this by applying the CGT rate that SARS has set. This depends on the amount SARS will tax each year, so check out SARS.gov.za to find out how to do this.
There you have it! It's easy to work out your CGT bill if you use these five steps.
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