Capital Gains Tax was introduced on 1 October 2001. It forms part of normal income tax and is based on the sliding tax tables for individuals. It comes about most often for taxpayers when their home or investment property is sold for a profit (gain) i.e. the proceeds/selling price is more than the “base cost”. The “base cost” is the purchase price plus any amounts spent on renovations or improvements, plus a few other smaller costs.
Below is How To Calculate Capital Gain Tax In South Africa
Selling your primary residence
In this example, the R 2 million primary residence exclusion would apply. If your home is sold for a gain (i.e. proceeds minus base cost) that is less than R 2 million, the sale will not attract Capital Gains Tax.
Example 1:
Paul buys a home for R 2 500 000. He spends R 400 000 renovating it, and then sells it for R 4 000 000 a few years later. Paul lived in this house for the whole time that he owned it and therefore it would be regarded as his primary residence for tax purposes.
Excluding the capital gain, Paul’s taxable income for 2021 is R 500 000.
The capital gain calculation for the tax year of 2021 is: Proceeds = R 4 000 000Base cost = R 2 500 000 + R 400 000 = R 2 900 000 Capital gain = R 4 000 000 – R 2 900 000 = R 1 100 000Taxable capital gain = R 1 100 000 – R 2 000 000 Primary residence exclusion = R 0 You can also use our handy Capital gains calculator to do the calculations for you.
Because the capital gain on Paul’s primary residence is less than R 2 million, the entire gain is exempt from capital gains tax and he doesn’t have to pay any.
Remember that every individual taxpayer also has an annual capital gain exclusion of R 40 000 which needs to be taken into account first when figuring out the final capital gains tax that will be owed.
Selling your investment property
If you sell a property that is not your primary residence (i.e you own it and rent it out), you can’t apply the primary residence exclusion to this gain. This means that if your gain is greater than the annual exclusion of R 40 000, it will attract capital gains tax.
Let’s look at the same example again but assume now that Paul has never lived in the house that he bought. He rented it to a tenant while he lived in a nearby property with his girlfriend i.e. he bought the house purely as an investment.
Example 2:Proceeds = R 4 000 000Base cost = R 2 500 000 + R 400 000 = R 2 900 000 Capital gain = R 4 000 000 – R 2 900 000 = R 1 100 000 Primary residence exclusion not applicableTaxable capital gain at an inclusion rate of 40% = R 1 060 000 x 40% = R 424 000 Paul’s total taxable income = R 500 000 + R 424 000 = R 924 000 Paul’s marginal rate of tax is 41% so he will pay approximately R 173 840 capital gains tax. (You can work this out by taking R424 000 x 41%)
You can also use our handy CGT calculator to do the calculations for you.
Selling your primary residence, which you rent out for a period
The above two examples are clear cut, so the capital gains tax calculation is quite simple i.e. it’s either your primary residence, or it’s never used for that purpose.
But what if you originally used it as your primary residence, but then moved out later and rented it to a tenant? Or, you first rented it out and then used it as your primary residence afterward? This is the situation many confused taxpayers face, and they want to know how this affects the capital gains tax they need to pay when their property is sold.
The answer? The capital gain on the sale needs to be apportioned between primary residence use and non-primary residence use. The R 2 million primary residence exclusion is applied to the portion of the gain, which relates to the primary residence use only. This means that you will need to pay capital gains tax on the remaining portion of the gain.
Let’s look at the same example again, but assume now that Paul lived in the house for five years and then relocated to a different city for three years, during which time he rented out his house. He then sold it eight years after buying it.
Example 3:
Proceeds = R 4 000 000Base cost = R 2 500 000 + R 400 000 = R 2 900 000
Capital Gain = R 1 100 000 (R 4 000 000 – R 2 900 000)
Primary residence = 5 years
Non-primary residence = 3 years
The portion of the capital gain attributable to the property’s use as a primary residence:
5/8 x R 1 100 000 = R 687 500
Taxable capital gain = R 687 500 – R 2 000 000 Primary residence exclusion = R 0
The portion of the capital gain attributable to the property’s use as a non-primary residence:
3/8 x R 1 100 000 = R 412 500
Primary residence exclusion will NOT apply.
Net capital gain = R 412 500 – R 40 000 (annual exclusion) = R 372 500
Taxable capital gains that should be included in taxable income = R 372 500 x 40% = R 149 000
Paul’s taxable income = R 500 000 + R 149 000 = R 649 000
Paul’s marginal rate of tax is 39%, so he will pay approximately R 58 110 capital gains tax.
You can also use our handy CGT calculator to do the hard work for you.
As you can see from the examples above, the number of capital gains tax payable varies widely depending on what you’re using the property for. There was no tax payable when it was used only as a primary residence, R 173 840 payable when it was not used as a primary residence at all, and R 58 110 to pay when it was used for some of the time as a primary residence and rented out for the rest of the time.
How to reflect the sale of your home in your tax return (ITR12)
In the Capital Gain/Loss section of the opening wizard, indicate that you disposed of an asset – this will open the Capital Gain/Loss section of your tax return.
If the property you sold was your primary residence (example 1), tick the Yes block in the section which asks this question. SARS will then apply the R 2 million primary residence exclusion to the capital gain on assessment.
If the property sold was not your primary residence (example 2), tick the No block in the section which asks this question. The primary residence exclusion will not be applied to this transaction when you’re assessed.
If the property sold was not your primary residence for the full amount of time that you owned it, you need to report the details of the property sale as two separate transactions (example 3). Do this by indicating in the opening wizard that two disposals happened. This will open up two capital gains/loss sections so that you can capture the details of each separately.
For example 3, let’s look in more detail at how Paul would capture his disposal in his tax return.
He must indicate in the opening wizard that he made two disposals.
Disposal 1:
Primary residence – YES
Proceeds: 5/8 x R 4 000 000 = R 2 500 000
Base Cost: 5/8 x R 2 900 000 = R 1 812 500
Gain: R2 500 000 – R1 812 500 = R687 500
SARS will apply the R 2 million primary residence exclusion on assessment so that capital gains tax will be zero.
Disposal 2:
Primary residence – NO
Proceeds: 3/8 x R 4 000 000 = R 1 500 000
Base Cost: 3/8 x R 2 900 000 = R 1 087 500
Gain: R 1 500 000 – R 1 087 500 = R 412 500
On assessment, the R40 000 annual exclusion will apply and therefore 40% of R 372 500 (R 412 500 – R 40 000) will be added to his taxable income.
How home office deduction impacts capital gains tax
With flexible employment being the latest trend, more people are working part or all of the week from an office in their own home. This cuts down on the traffic they have to deal with and saves employees valuable time, which they can use to be more productive.
Home office expenses count as a tax deduction if they meet various conditions. This means that they reduce your taxable income and ultimately your tax liability. However, not just anyone qualifies to deduct his or her home office expenses. Please refer to our Home Office decision tree to see if you qualify. You can also read our Deduction of Home Office Expenditure to find out what you can deduct and how to work it out.
While people are eager to claim this home office tax deduction so that they can reduce their taxable income (and ultimate tax liability), few understand the negative tax impact a home office has on the calculation of their capital gains tax, when they sell their property in the future.
Here’s an example:
Sarah bought a home in February 2010 for R 1 200 000. In February 2018, she did some renovations to add an extra bedroom costing R 300 000. She lived in this home until February 2021 when she sold it for R 3 500 000. Her taxable income for 2021 was R 600 000.
The Capital Gains Tax calculation is as follows:
Proceeds: R 3 500 000
Base Cost: R 1 200 000 + R 300 000 = R 1 500 000
Capital Gain (proceeds – less base cost): R 3 500 000 – R 1 500 000 = R 2 000 000
Less: primary residence exclusion = R 2 000 000 – R 2 000 000 = R 0
The annual exclusion of R 40 000 is not relevant here because the Capital Gain is nil, so it cannot be reduced further.
Therefore, the sale of Sarah’s home has no impact on her capital gains tax liability. This is because the capital gain (R2m) is equal to the primary residence exclusion (R2m) which reduces it to nil.
You can also use our handy CGT calculator to do the hard work for you.
In this situation, the Tax Act requires the capital gain to be apportioned between primary residence use and business use. This apportionment must take into account these two factors:
1. The length of time that the home office was used as a portion of the entire period of ownership (6 years out of 12 years in our example);2. The size of the home office compared to the size of the entire property (10% in our example)
Assuming all other details are exactly the same as in the first example, the Capital Gains Calculation is as follows:
Proceeds: R 3 500 000
Base Cost: R 1 200 000 + R 300 000 = R1 500 000
Capital Gain (proceeds – less base cost): R 3 500 000 – R 1 500 000 = R 2 000 000
Less: apportionment for period (6 years) during which home was partially used (10%) for home office purposes:
R 2 000 000 x 6/12 x 10% = R 100 000
Portion of the capital gain attributable to the property’s use as a primary residence:
R 2 000 000 – R 100 000 = R 1 900 000
Less primary residence exclusion: R 1 900 000 – R 2 000 000 = R 0.
The portion of the capital gain attributable to the property’s use as a home office:
R 2 000 000 – R 1 900 000 = R 100 000
Total Capital Gain: R 100 000
Less: annual capital gain exclusion R 100 000 – R 40 000 = R 60 000
The inclusion rate for capital gains is 40% for individuals. This means that 40% of the gain (i.e. R 60 000 x 40% = R 24 000) is added to Sarah’s taxable income and will be taxed at her marginal rate of tax.
If we assume her marginal tax rate is 39%, then approximately R 9 360 capital gains tax will be payable (i.e. R 24 000 x 39%).
Just a reminder: if she had not used part as a home office, then the capital gains tax on the disposal of the property would have been nil because the primary residence exclusion of R2 million would have been applied to the entire gain.
How much is capital gains tax in South Africa?
Capital Gains Tax (CGT)
| Type | 2022 | 2019 |
|---|---|---|
| Individuals and Special Trusts | 18% | 18% |
| Companies | 22.4% | 22.4% |
| Other Trusts | 36% | 36% |