Capital Gains Tax (CGT) & Commercial Property

The 2016 National Budget was presented by Finance Minister Pravin Gordhan recently and one changes announced was an increase in Capital Gains Tax (CGT). While CGT can affect a number of investments, commercial property is one of the sectors where its effect is noteworthy.

Capital Gains Tax (CGT) & Commercial Property

The 2016 National Budget was presented by Finance Minister Pravin Gordhan recently and one changes announced was an increase in Capital Gains Tax (CGT). While CGT can affect a number of investments, commercial property is one of the sectors where its effect is noteworthy.

Perhaps before examining the effects of the increase in CGT, it is worth outlining how CGT works and who is affected.

CGT becomes payable on the profit made in respect of the sale of a property after October 2001, when the tax was first introduced.  For properties purchased before October 2001, a fair market valuation was required to be submitted on or before 30 September 2004, failing which the value of the property at October 2001 will be deemed to be 20% of the disposal value.

Natural persons, companies, CC’s and trusts are all liable for CGT at differing rates and this is where it can become somewhat complicated. Essentially however, a set percentage of the profit is taxed at an entity or persons marginal tax rate. In the case of natural persons, 40% of the profit is taxable and in the case of a CC, company or trust, 80% of the profit is taxable.

The maximum CGT payable after 1 March 2016 therefore for each entity can be summarised as follows:-

 

Profit

Taxable Profit

Max Marginal Tax Rate

CGT Payable as % of Profit

Natural Person

100%

40%

41%

16.4%

CC or Pty

100%

80%

28%

22.4%

Trust

100%

80%

41%

32.8%

Property owners can mitigate profit accrued to a certain extent by keeping a good record of expenses incurred on the property. Items such as transfer duty, transfer fees, costs of improvements or renovations, agent’s fees and valuations can all be set off against the profit amount. Furthermore, there are also special relaxations on CGT on a primary residence.

While the above figures provide a broad outline of the workings of CGT, I would advise engaging with ones accountants, auditors or other tax professionals to assist in determining the best approach in dealing with individual CGT cases.

By Scott McNair, In2assets Property Specialists

Posted by In2Assets