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Selling company assets because you're downsizing? Here's how to correctly calculate your Capital Gains Tax

by , 23 January 2015
Many businesses are struggling because of the tight economy. If your company's in the same boat, you may need to downsize just so you can keep running.

In this case, you're probably thinking of selling company assets you don't need anymore, such as spare computers or desks.

Now when you sell these items, you have to pay Capital Gains Tax (CGT), just like any other capital asset.

But do you know how to work this out correctly?

If you don't, you could pay SARS way too much money or not pay it enough and face serious fines.

To help you avoid this, I'm going to show you how to work out your CGT correctly...

 

Here's how to work out your Capital Gains Tax correctly when you sell business assets

 
When you sell business assets, you have to pay Capital Gains Tax on any profit you make, regardless of the reason for the sale. 
 
So let's say you sell:
 
- Four computers (current value of R5 000 each) for R5 500 each.
- Eight desks (current value of R2 500 each) for R3 000 each.
- One printer (current value of R3 000) for R4 000.
 
The total revenue from the sale is R50 000. To work out the profits from the sale, deduct the base cost of each asset: R50 000 – R43 000
 
This means your profit is R7 000. 
 
The next step is to apply the inclusion rate to your profit.
 
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Apply the SARS CGT inclusion rate to work out your tax liability

 
The SARS inclusion rate for business CGT is 66.6%. This is the percentage of your profits that SARS will actually tax
 
So 66.6% x R7 000 = R4 662
 
Don't stop there. Next you have to apply the effective CGT rate of 18.6% to work out your actual tax
 
18.6% x R4 662 = R867
 
Therefore, R867 is the final CGT liability you must pay. 
 
Here's why you need to follow this process when you sell of several company assets
 
When you submit your tax return and include your CGT on it, you put it in as a total anyway. This is your total capital gains for the year.
 
Because of that, it's easier to total your capital gains on the total sale of your company assets than to work on each separate amount. 
 
There you have it. Make sure you follow this process so you can work out your Capital Gains Tax if you're selling your company assets to downsize. If you don't, you might have the extra expense of SARS penalties to deal with when you're trying to cut down on expenses. 
 
To find out more about how to work out your company's Capital Gains Tax, check out Capital Gains Tax 101
 


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