Capital Gains Tax (CGT) is one of the most complicated types of tax. There are so many factors that affect it, it's often difficult to get right.
This means you either pay SARS too much, or land up with a fine for not paying enough.
Today I'm going to take some of the complications out of your CGT calculations.
All you have to do, is follow these three steps...
You'll never get your Capital Gains Tax wrong again with these three steps
Step 1: Calculate the base cost of the asset
You'll only pay tax on a portion of the profit you make and not on the total earnings from the sale.
This means you can deduct the cost of the asset (the base cost) from the proceeds of the sale. This is the amount you paid when you first bought it, plus any money you put in it for improvements or renovations.
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Step 2: Calculate your average capital gain
Your capital gain is the profit you make over and above the profits of a sale (Paragraphs 3, 20 and 35 of the Eighth Schedule).
A capital loss on the other hand, is when you sell an asset for less than its base costs (Paragraph 4 of the Eighth Schedule).
You calculate the capital gain or loss separately for each asset you dispose of during a tax year.
Add these amounts together before you deduct your annual exclusion (R30 000).
Your average capital gain is your capital gains for the tax year, subtract the sum of your:
• Capital losses for the year; and
• Annual exclusion for the year,
So, for example, if you sold your business premises and made a R1.1 million capital gains. You also sold your company's additional storage property and made a capital loss of R780 000.
To work out your average capital gain, subtract the loss from the gain: R1.1 million – R780 000 = R320 000.
Then you minus your annual exclusion: R320 000 – R30 000 = R290 000.
Therefore, R290 000 is your average capital gain for the year.
Step 3: Deduct any capital losses you carried forward from last year
Deduct any assessed capital losses you brought forward from last year's assessment. You'll only have these if you didn't claim them against last year's capital gain.
This way, you can offset any capital gains in the current tax year and shrink your CGT
These three steps give you the total taxable capital gains you have to pay tax on. But there are two more steps you need to take to reach your final tax amount. You can find out what they are in Capital Gains Tax 101
By following these steps you can guarantee your Capital Gains Tax calculations will always be right. This way, you'll never pay too much or get a fine for paying too little.