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Use these five easy steps to calculate your CGT and you'll never get it wrong again

by , 09 January 2015
If you make a profit when you sell an asset, you have to pay Capital Gains Tax (CGT). This means you have to work out that tax and hand it over to SARS.

But this can be complicated because there are a lot of things that affect CGT. For example, how and when you disposed of the asset can affect your CGT.

That's why I'm going to show you an easy way to work out your CGT liability in five easy steps...


Work out your CGT easily with these five steps

Step 1: Calculate the base cost of the asset 
You only pay tax on a portion of the profit that you make. This means you don't have to work out your tax on your total earnings from the sale. 
To work out the profit you'll have pay CGT on, deduct the cost of the asset (the base cost) from the proceeds.
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Step 2: Calculate your capital gain or loss
You must calculate your capital gain or loss separately for each asset you dispose. If you want to use your annual exclusion (R30 000), add all the separate amounts together. Then deduct the total CGT amount from the annual exclusion. 
Step 3: Calculate your net gain or loss 
Deduct any assessed capital losses you brought forward from the previous year of assessment.
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
SARS doesn't tax your whole gain, it only taxes a portion. To determine how much of your total gain SARS will tax, you must apply the inclusion rate.
SARS determines inclusion rates as:
33.3% for individuals and special Trusts, e.g. a Trust set up by a will, or a Trust set up for a disabled person, translating to an effective tax rate of 13.3%.
66.6% for companies, close corporations and other Trusts, e.g. a Trust that's effective during the life of the founder or donor (Paragraph 10 of the Eighth Schedule of the Income Tax Act.) This translates to an effective tax rate of 18.6% for companies and 26.7% for other Trusts.
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Step 5: Calculate how much you'll owe SARS, by applying the effective CGT rate to your included amount
Once you've established how much of the gain you have to tax, apply the CGT rate to it.
That will determine how much tax you owe SARS, on the taxable portion of the gain.
This is around 18% for companies. 
This will show you exactly how much tax you need to pay over to SARS. But remember, you need to check the asset's current value as well to make sure the base cost is fair and accurate. 
To find out more about how to value your assets to work out your CGT liability, check out Capital Gains Tax 101.

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