If you own your business premises, it's a capital asset. You use it indirectly to run your business and make a profit.
But let's say you sell your business premises so you can move and you make a profit on it.
You might think this is a stroke of luck and it will help you set up your new offices.
Not so fast.
You still have to pay SARS part of those profits.
SARS taxes any profit you make when you sell a capital asset. This is Capital Gains Tax (CGT) and if you don't give this money to SARS, you'll face serious penalties.
That's why I'm going to show you how to work out the CGT you must pay on your business premises...
Here's how to work out your CGT on the profit from selling your business premises
Let's say you sell your business premises for R2.5 million. To work out your CGT
liability, you first need to check what the base cost of the asset is. This is the amount you paid for the asset when you first bought it.
So let's say you bought your premises seven years ago and paid R1.1 million for it.
Next, work out how much you spent on the property in repairs and maintenance over those seven years. For example, you spent R17 000 on repairs to your offices.
To work out your taxable profit, add your base cost and the maintenance costs together: R1.1 million + R17 000 = R1 117 000.
You then minus this from the amount you got for your premises: R2.5 million – R1 117 000 = R1 383 000.
Therefore, R1 383 000 is your taxable profit on your premises. But you don't stop there.
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Next, work out the percentage of your profit SARS will tax
SARS won't tax your whole profit. To work out how much of it will tax, apply the CGT
inclusion rate. SARS sets this at 66.6% for businesses. (66.6% x R1 383 000 = R921 077)
R921 077 is the amount SARS will tax. That means you must now apply the effective CGT
tax rate of 18.6% for businesses to work out your final tax amount. (18.6% x R921 077 = R171 320)
Therefore, R171 320 is your final CGT
liability. You need to pay this amount to SARS when you submit your business tax return at the end of the tax year.
But there's one important thing you need to do before you sell your premises to make sure you don't pay SARS more CGT
than you should.
Do this before your sell your business premises to make sure you don't pay too much CGT
Make sure you do a valuation on your premises to make sure your base cost is a true reflection of the premises' value.
Doing this could help you reduce your CGT
liability even more.