Calculating Capital Gains Tax
Calculating taxable capital gains
Capital gains tax is triggered upon the disposal of a capital asset, meaning that the proceeds received for that asset are not subject to income tax.
Disposal of an asset could occur as a result of a sale, donation, expropriation, or inheritance (among others).
To determine a capital gain you take the proceeds received for the asset and you subtract the base cost of the asset.
Capital gain = proceeds – base cost
Proceeds is the amount received by or accrued to the taxpayer upon the disposal of an asset.
Base cost is the amount (including costs) that was paid by a taxpayer to acquire the asset.
A natural person has an annual exclusion of R40 000 per year on capital gains. This means that you do not have to pay any capital gains tax on the first R40 000 of capital gains in a particular tax year.
In a particular year of assessment, a taxpayer’s net capital gain, is calculated as follows for a natural person:
Net capital gain = Total capital gains – total capital losses – annual exclusion
For a natural person, a person’s taxable capital gain is calculated as 40% of that person’s net capital gain for that year of assessment. A person’s taxable capital gain is included in their taxable income and therefore is subject to normal tax.
Example:
- Person A buys 100 shares in company X for R10 000 in December 2013.
- Person A sells the same 100 shares in company X for R100 000 in January 2021.
- The sale of the shares by Person A in 2021 constitutes a disposal, which may trigger capital gains tax.
- The base cost will be R10 000.
- The proceeds is R100 000.
- The capital gain is R90 000.
- Assuming that Person A did not make any other disposals which are subject to capital gains tax in the 2021 year of assessment, A’s net capital gain for the 2021 year of assessment is R90 000 – R40 000 (annual exclusion) = R50 000
- Person A’s taxable capital gain for the 2021 year of assessment is R50 000 x 40% = R20 000
- Therefore Person A will have to include R20 000 in their taxable income which will be subject to income tax.