Money Business

In my series of buzz words and term classifications, I am looking at Capital Gains Tax today. What Capital Gains Tax is, who does it influence and how it works. For lack of a better description I have roped in the help of Wikipedia and found the following comprehensive explanation for  Capital Gains Tax and its influences in South Africa below.

A capital gains tax (CGT) is a tax charged on capital gains, the profit realized on the sale of a non-inventory asset that was purchased at a lower price. The most common capital gains are realized from the sale of stocks, bonds, precious metals and property. Not all countries implement a capital gains tax and most have different rates of taxation for individuals and corporations.

For equities, an example of a popular and liquid asset, each national or state legislation, have a large array of fiscal obligations that must be respected regarding capital gains. Taxes are charged by the state over the transactions, dividends and capital gains on the stock market. However, these fiscal obligations may vary from jurisdiction to jurisdiction because, among other reasons, it could be assumed that taxation is already incorporated into the stock price through the different taxes companies pay to the state, or that tax free stock market operations are useful to boost economic growth.

Capital Gains Tax in South Africa

For legal persons in South Africa, 50% of their net profit will attract CGT and for natural persons 25%. This portion of the net gain will be taxed at their marginal tax rate. As an effective tax rate this means a maximum effective rate of 10% is payable and for corporate taxpayers a maximum of 15%. For example, for natural persons the maximum marginal tax rate is 40%. Assuming the aggregate capital gain for the year of assessment is R50 000, 25% of R50 000 is R12 500, which is taxed at 40%, therefore R5 000 is payable. The R5 000 as a percentage of the original profit made is 10%. In addition, it was proclaimed in 2009 by president elect, Jacob Zuma, that 3.5% of all capital gains should be included in the capital gains tax, hence raising the tax to 53.5% for juristic persons and to 28.5% for natural persons. Zuma said this money will be invested by the state into the “maintenance of government investments” such as the president’s jet and Groote Schuur Estate in Rondebosch, Cape Town. Despite the many appeals by both local and international investors, the government has retained this policy as being “necessary for the maintenance of South Africa’s most valuable assets”.

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