1. Chapter 3 (Lecture 3)

2. Personal taxation Company taxation Capital gains tax Other taxes Double taxation South African taxation

3. What kinds of tax do we pay o Air passenger tax o Capital gains tax (CGT) o Diamond export levy o Donations tax o Estate duty o Excise duty o Income tax o Pay as you earn (PAYE) o Provisional tax o Retirement funds tax (RFT) o Skills development levy (SDL) o Stamp duty o Transfer duty o Uncertified securities tax o Unemployment insurance fund o Value Added Tax (VAT) o Other taxes

4. Capital Gains Tax (CGT) was introduced in October 2001. It forms part of the income tax system and the capital gains made on the disposal of assets are included in the taxable income. Applicable legislation Capital Gains Tax (CGT) legislation is contained in the Eighth Schedule to the Income Tax Act, 1962.Income Tax Act, 1962. It was introduced by the Taxation Laws Amendment Act, 2001 that was promulgated on 20 June 2001.Taxation Laws Amendment Act, 2001 Since then, it has been substantially amended.

5. Since CGT forms part of your income tax you must declare your capital gains / losses Annual exclusion for natural person is R30 000 after 1 March 2012 (Natural person in the year of death R300 000) Assets excluded:  Most personal belongings such as motor vehicles, caravan, furniture, artwork etc.  Boats not exceeding 10 metre in length  Aircraft having an empty mass of 450 kilograms or less which are personal-use asset  Lump sum payments from pension, pension preservation, provident, provident preservation and retirement annuity funds (approved retirement funds)  Proceeds from an endowment policy or life insurance policy (but not if it is a second hand policy or a foreign policy)  Compensation for personal injury or illness  Prizes / winnings from gambling, games or competitions which are authorised by, and conducted under, the laws of South Africa, for example the National Lottery

6. What is meant by a capital gain or capital loss? CAPITAL GAIN = PROCEEDS OF SALE EXCEEDS THE BASE COST OF ASSET Base cost = what you paid for the asset + the expenditure directly related to the acquisition of disposal of the asset Costs forming part of the base cost of an asset: Expenses to acquire the asset Transfer costs, stamp duty, securities transfer tax, transfer duty Advertising cost to find a buyer or seller Cost of improvements to an asset

7. Costs forming part of the base cost of an asset (continue..): Cost of obtaining a valuation of an asset for the purpose of obtaining a capital gain or loss upon its disposal Costs directly related to the acquisition, creation or disposal of an asset, for example, fees paid to a surveyor, auctioneer, accountant, broker, agent, consultant or legal advisor for services rendered VAT paid and not claimed or refunded on an asset Cost of establishing, maintaining or defending a legal title to or right in an asset Cost of moving an asset from one location to another for purposes of acquiring or disposing of it

8. What portion of capital gain is subject to tax?  Individual or a special trust, 33.3% of net capital gain  Company, closed corporation or trust, 66.6% of net capital gain Gain Inclusion rate Included gain Tax rate CGT on Gain IndividualR10033.3%R33.3040%R13.32 CompanyR10066.6%R66.6028%R18.65

9. Taxation of gains on long-term equity investments  With effect from 1 October 2007 all shares disposed of, having been held for a period of three years, will be subject to CGT. What is a primary residence?  Must be owned by a natural person (not a company, closed corporation or trust)  Owner or his spouse must reside in the home as his or her main residence and must use the home mainly for domestic purposes

10. When will the sale of a primary residence be subject to CGT?  If the capital gain on the sale exceeds R2 million (therefore if proceeds do not exceed R2 million - no CGT)  Similar if you have capital loss in excess of R2 million only the portion in excess of R2 million will be allowed as capital loss  A further restriction is that the maximum area of land on which the primary residence is located is limited to 2 hectares. Where the land area exceeds this limit, the exclusion needs to be apportioned.  The exclusion does not apply to the portion of capital gain or loss that relates to any part of the residence that is used for the purposes of trade