Are you worried that the SARS capital gains tax is affecting your financial status and that you are paying more than the requirements? Capital gain tax is one of the most significant parts of taxation and plays a vital role in the sales of our assets. As a responsible taxpayer, you need to understand how the mechanism of the CGT works and what you should do if you are paying more than required.
You can face a sentence too if you do not pay or misguide the SARS about your CGT details as it is considered a crime in South Africa. Come with me to prevent these problems and file the CGT in an appropriate way!
SARS Capital Gains Tax
To understand the mechanism and filing method we should see the dynamics of the CGT. Actually, it is a tax one pays when he is selling assets.
The amount of the levy depends on the worth of the asset, for example, the more expensive a land or asset is, the higher one will pay the CGT. But before we proceed further you should know what the assets are.
The CGT is imposed on almost all kinds of assets such as bonds, stocks, property, and investments. If you are selling any of your assets for more than the purchased price, the SARS will impose CGT according to your profit. The CGT is also imposed on the donation of assets, expropriation of assets, vesting of interest, and death of a person who owns assets.
How To Calculate Capital Gain Tax?
Calculating the CGT is a bit difficult but if you have a formula, you can effortlessly perform this job. Basically, the capital gain tax is measured by subtracting the base cost of the asset from the selling price. You might question what the base cost is, so if we go deeper the base cost is the original price of the asset, then additional costs such as renovations, transfer costs, and attorney fees.
For example, John purchased a property for R500,000 and with the passage of time, the value of assets increased. After purchasing the property he renovated the place and the total price is about R600,000. Now, John has decided to sell the property for R1,000,000.
Purchasing price: R500,000
Price after renovation: R600,000
Capital Gain: R1,000,000 – R600,000 = R400,000
Here you can see that John is covering a major profit therefore we will calculate the amount according to the profit on the property. According to the 40% of the R400,000, the CGT amount will be R160,000. But it does not end here, if a company is selling an asset, the percentage of the CGT will be 80%.
For example, if A&S Co. purchases some assets for R800,000 and the renovation cost is R900,000. After a few weeks the company decides to sell the assets and the new price is R2,000,000. Now we will use another formula to calculate the CGT of the company assets.
Original Price: R800,000
Price After Renovation: R900,000
Selling price: R2,000,000
Capital Gain: R2,000,000 – R900,000 = R1,100,000
Here you can see that a company purchased the property for R800,000 and renovated it for R100,000 but after a few weeks it sold it for R2,000,000 but the 80% CGT will determine the profit limit. According to the formula, 80% of the R1,100,000 is about R880,000.
How To Pay Capital Gain Tax?
There are different ways to pay the tax such as you can transfer it via your bank account or you can send it by post. Anyhow, the first method is easy and I am going to explain it. I have divided the entire procedure into steps so you can understand effortlessly, here we go.
The first thing is to open the official website of the SARS eFiling, the link is given below. If you do not have an account, you can create it by tapping on the “Create An Account” button. Provide all the significant details and verify them with the email or phone number.
Official Website Link: sarsefiling.co.za/
Moving on further, you have to find the “Payment” option which is available on the portal. Scroll down and you will see the option, open the new page by tapping on it and you will appear on the payment page. Now select the tax type, you have to click on the “CGT” option and provide all the relevant details.
Now enter the amount you have to pay then provide the tax reference number. Recheck the number because there is no redo in case you pay the wrong taxes. Once you are sure then tap on the pay button, you have successfully paid your capital gain tax.
Open the official website of the SARS and download the tax form. In my opinion, you should take a print of the form and then fill it out carefully. You have to provide all the details and attach the documents which are required.
- Required Documents
- Documents of the property
- Bank payment slips
- ID document
You should post the document on the address of SARS near the branch. The document should contain certified documents, in case the taxpayer is caught deceiving the department and higher authorities will take legal action against him. Anyhow, post the document and you will receive a verification mail or SMS that you have provided to the CGT.
What costs can be deducted from capital gains tax?
The cost of disposal, acquisition, improvement, and finance cost are deducted from the capital gains.
Do foreigners pay tax in South Africa?
Yes, foreigners pay tax but according to their residency status. Ordinary foreigners will pay taxes on the income they earn from outside of South Africa. On the other hand, the factual residents will pay from their South African source of income.
If you are living in South Africa and have a business of property or you are about to sell your assets then you must read the guidelines of the capital gain tax. It is the amount one has to pay to the government from the profit he is earning on each sale. In case you are earning R500,000 on a property then you have to pay 40% of the amount but if a company is selling its assets it will pay 80% of the profit.
Anyhow, I have explained what the CGT is in simple words and how it impacts when you sell a property. If you are a taxpayer but not paying the capital gain tax, the government and its institute such as SARS can take legal action against you. I hope this information will help you in the future, thank you!