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WHAT YOU NEED TO KNOW ABOUT CAPITAL GAINS TAX Many people don’t realise that you pay capital gains tax only when you sell a qualifying asset, writes Martin Hesse CAPITAL gains tax (CGT), which was introduced in South Africa over 20 years ago, became effective on October 1, 2001. It operates in many other countries, including the United Kingdom, the United States and Canada. To what does CGT apply? This tax, which basically forms part of your income tax, applies to all types of property, including immovable property (a house, apartment or plot) and equity in a business. It does not apply to interest-bearing investments, such as bank deposits and moneymarket funds or to retirement fund investments. It also does not apply to what is termed “personal use items”, which include collectables such as
artworks, stamp collections and vintage cars. However, it does apply to bullion, in the form of gold coins such as Krugerrands, and foreign currencies, including cryptocurrency. Practically, you will pay CGT on: ● Your profit on selling a property; ● Your profit on selling shares in a company, either as direct owner of the shares, or indirectly, as an owner of units in a unit trust or exchange traded fund; ● Your profit on selling a small business; ● Your profit on selling a bullion coins such as a Krugerrand (but not, according to one coin website, a proof Krugerrand, which is considered a collectible); ● Your profit in a currency transaction, including
cryptocurrency. These must be once-off-type transactions. As soon as you’re buying and selling these assets regularly, SARS regards you as a trader. Instead of paying CGT, your profits are fully subject to income tax. How does CGT work for individuals? CGT only applies on the sale of an asset – you do not pay CGT on assets you're currently invested in. If you do not cash in on your gain, there is nothing to pay. If, on the sale of an asset, you make a loss instead of a gain, that loss may be offset against gains on other assets or may be rolled over to be offset against gains in the following tax year. When CGT is triggered, the gain is calculated
