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> Brighten their future

> Gold fever: here to stay?

> Nedbank goes green

> Evaluating performance

> Gold hits 18-month high

> Pay less estate duty

> Why lending will resume

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> Breaking the habit

Today, 22 November 2009

› SACP attacks Malema

› JZ hails Miss World effect

Yesterday, 21 November 2009

› SACP attacks Malema

› Match-fixing stuns Europe

› JZ hails Miss World effect

› Henry offers replay

› No armchair ride for Boks

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After much debate, Capital Gains Tax (CGT) has kicked in. What exactly is the tax and how will affect your bottom line? Lizwe Nkala the Marketing Manager for Old Mutual Personal Financial Advice says that in simple terms it is a tax that becomes payable on the gain you make when an asset of yours is sold or disposed of. Here are some simple guidelines to understanding CGT.

What is it?
It is the tax on any capital gain, when you dispose of an asset such as investments or property. A capital gain is the growth after subtracting the cost of the asset plus everything you have done to make the asset more valuable, for example, additions to your house. The tax comes into effect on October 1, 2001. You will only be taxed on that part of the capital gain, which has taken place and is realised after the tax kicks in on October 1, 2001.

Who will be taxed?
South African residents will be taxed on realised capital gains on assets held inside South Africa as well as everywhere else in the world. For non-resident CGT will occur only in respect of immovable property or interests in immovable property situated in SA or assets of a permanent establishment, branch, fixed base or agency in South Africa through which a trade, profession or vocation is carried out.

How it works:
You will declare capital gains as part of your normal income tax return and you will be taxed at your marginal tax rate. A CGT event takes place when a disposal or deemed disposal of an asset takes place. As a general rule, an asset is acquired or disposed of whenever there is a change in ownership of the asset. The capital gain or loss is the difference between the base cost of the affected asset and the money received when selling it. The base cost includes what you paid in order to acquire the asset plus any other costs relating to the acquisition and disposal of that asset (for example lawyers fees, stamp duty, agents commission, plus vat, plus improvement costs, plus any other legal costs involved).

As individuals the first R10 000 of your total capital gain will be disregarded. Twenty-five percent of the rest of your gain — the total of your capital gains made in a year, less your capital losses — will be included in your taxable income. A capital gain by somebody other than a natural person will be taxed on 50 percent of that person's net capital gain for that year of assessment. For example: Albert purchased a house in order to derive rental income from the property (therefore his property will not be his primary residential property). He bought the house on October 1, 2001 for a total cost of R1 250 000. Two years later Albert sells the property for R1 500 000. Assuming Albert pays income tax at the maximum marginal rate of 42 percent and that he has no other capital gains or losses in the specific tax year, his additional income tax liability as a result of the released capital gain will be determined as follows:

Proceeds: R1 500 000 Base cost: R1 250 000 capital gain: R250 000 Annual exclusion: R10 000 = R240 000 Taxable capital gain (R240 000 X 25%) = R60 000 Therefore R60 000 will be included in Albert’s taxable income for the tax year Tax payable (R60 000 X 42%) = R25 200

What is not included in CGT? All capital assets are considered affected assets and therefore potentially subject to CGT. Some of the assets that will be excluded from CGT include: