Property Tip of the Day 92 – Defining Capital Gain Tax
(Property Tips) JOHANNESBURG (October 17) - Once again it is that time of year when everyone is frantically filing their tax returns and for most this is fairly easy process. But what are the tax implications of selling or owning a property?
Deon Lessing, marketing director of Bettterbond says: “Many sellers may be worried about paying a Capital Gains Tax, however there is an exclusion of a gain of up to R1 500 000 on a primary residence. This means that any home sold for a capital profit of that amount or less will not be subject to a Capital Gains Tax.”
So how is a primary residence defined? A primary residence is one used mainly for domestic purposes that you both own in your personal capacity and live in on a permanent basis. Inclusive of the land the property is situated on an unconsolidated adjacent land, the residence must not exceed two hectares.
“If the property is in the name of a company, close corporation or trust, the exclusion will not apply as the owner is then not classified as a natural person and the property will not be used as a primary residence. The seller would have to pay the capital gains tax upon registration of the property into the purchaser’s name,” adds Lessing.
Johan van Heerden of Dykes van Heerden Inc, advises: “It is of utmost importance for the purchaser to establish before the agreement is entered into, whether the seller is registered for VAT or not.”
With regards to purchasing a residential property, as a general rule in South Africa, a purchaser will pay transfer duty on a sliding scale to the Receiver of Revenue. However, should the seller be registered for VAT, the purchase price will be inclusive of VAT, unless specifically excluded in the contract. If the property that is being purchased is of a commercial or business nature and purchaser is registered for VAT, then the purchaser will be able to claim the VAT back from the Receiver of Revenue after registration. However, sales of residential immovable property do not attract VAT, due to the fact that the sellers are not registered for VAT. This situation is of course different should a buyer purchase a property from a developer who is registered for VAT, and as such, no transfer duty is payable as the seller is registered for VAT.
With current market conditions and increase in demand for rental property, many investors are buying property to let out. If a property is purchased as a buy-to-rent investment, the tax levied for the letting of residential property falls under the normal ambits of income tax.
A proposal has been included in the new Revenue Laws Amendment bill, issued 1 August 2008, which calls to revamp the allowance applied to taxpayers renting out residential housing units. The proposal relates to housing units let out by a taxpayer, or that are occupied by the full-time employees of the taxpayer. Currently there is a write off of 12% for the first year and then a write off of 2% per year for the next 44 years. The proposal aims to change this to a standard rate of 5% over a 20 year period.
If a residential property has been bought for business use, there is no difference to how the property is taxed except if the property is zoned as a business. If this is the case, the Property Rates Bill could effect how the municipality determines the amount of tax charged. It is best to phone the municipality for rates being charged in the area you wish to purchase.
SARS has made tax returns far simpler to fill out and submit. However, if there are areas you are unsure of it is best to use a tax consultant or contact an attorney. Visit www.dykesvanheerden.co.za for more information on property tax and transfers.
***The information contained in this Property Tip provides general guidance. It is not intended to constitute substantive information and cannot replace the specific advice which should be sought from an appropriate professional advisor in relation to the actual facts of a matter, before taking any particular course of action.
Submitted: 17 Oct 2008
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Property Tip of the Day 92 – Defining Capital Gain Tax
(Property Tips) JOHANNESBURG (October 17) - Once again it is that time of year when everyone is frantically filing their tax returns and for most this is fairly easy process. But what are the tax implications of selling or owning a property?
Deon Lessing, marketing director of Bettterbond says: “Many sellers may be worried about paying a Capital Gains Tax, however there is an exclusion of a gain of up to R1 500 000 on a primary residence. This means that any home sold for a capital profit of that amount or less will not be subject to a Capital Gains Tax.”
So how is a primary residence defined? A primary residence is one used mainly for domestic purposes that you both own in your personal capacity and live in on a permanent basis. Inclusive of the land the property is situated on an unconsolidated adjacent land, the residence must not exceed two hectares.
“If the property is in the name of a company, close corporation or trust, the exclusion will not apply as the owner is then not classified as a natural person and the property will not be used as a primary residence. The seller would have to pay the capital gains tax upon registration of the property into the purchaser’s name,” adds Lessing.
Johan van Heerden of Dykes van Heerden Inc, advises: “It is of utmost importance for the purchaser to establish before the agreement is entered into, whether the seller is registered for VAT or not.”
With regards to purchasing a residential property, as a general rule in South Africa, a purchaser will pay transfer duty on a sliding scale to the Receiver of Revenue. However, should the seller be registered for VAT, the purchase price will be inclusive of VAT, unless specifically excluded in the contract. If the property that is being purchased is of a commercial or business nature and purchaser is registered for VAT, then the purchaser will be able to claim the VAT back from the Receiver of Revenue after registration. However, sales of residential immovable property do not attract VAT, due to the fact that the sellers are not registered for VAT. This situation is of course different should a buyer purchase a property from a developer who is registered for VAT, and as such, no transfer duty is payable as the seller is registered for VAT.
With current market conditions and increase in demand for rental property, many investors are buying property to let out. If a property is purchased as a buy-to-rent investment, the tax levied for the letting of residential property falls under the normal ambits of income tax.
A proposal has been included in the new Revenue Laws Amendment bill, issued 1 August 2008, which calls to revamp the allowance applied to taxpayers renting out residential housing units. The proposal relates to housing units let out by a taxpayer, or that are occupied by the full-time employees of the taxpayer. Currently there is a write off of 12% for the first year and then a write off of 2% per year for the next 44 years. The proposal aims to change this to a standard rate of 5% over a 20 year period.
If a residential property has been bought for business use, there is no difference to how the property is taxed except if the property is zoned as a business. If this is the case, the Property Rates Bill could effect how the municipality determines the amount of tax charged. It is best to phone the municipality for rates being charged in the area you wish to purchase.
SARS has made tax returns far simpler to fill out and submit. However, if there are areas you are unsure of it is best to use a tax consultant or contact an attorney. Visit www.dykesvanheerden.co.za for more information on property tax and transfers.
***The information contained in this Property Tip provides general guidance. It is not intended to constitute substantive information and cannot replace the specific advice which should be sought from an appropriate professional advisor in relation to the actual facts of a matter, before taking any particular course of action.
Submitted: 17 Oct 2008