What is Capital Gains Tax Liability on Sale of Investment Property?

We’re often asked to break down the effects of Capital Gains Tax on the sale of investment property. There are quite significant exemptions and deduction allowances to reduce Capital Gains Tax liability. In March 2012 exclusions were increased – primary residence from R1.5m to R2m, and subsequently the annual from R30k to R40k, and so was the taxable percentage. But the impact can be reduced.

Capital Gains Tax on Investment Property

Some of the deductions one can make from sale of an asset before Capital Gains Tax will be calculated include:

  • Cost of acquisition (purchase price & attorneys & transfer fees);
  • R40,000 p.a. Annual exclusion;
  • Cost of improvements/renovation (capital expenses);
  • Cost of disposal (sale), e.g. agents commission & Beetle and other such inspections for purpose of sale.
Capital Gains Tax on Investment Property

Maintenance and repair costs cannot be deducted (these expenses can be offset against rental income in annual Income Tax return).

For the the individual investor 33.3% of the balance (Net profit) is taxable at the individual’s tax rate. NOTE: This is not payable on sale of the property – rather at financial year end this amount is submitted as income on the investors tax return and taxed according normal tax tables.

For legal entity investor 66% of net profit is taxable.

For one’s primary residence, properties sold for over R2-million, the first R2-million is excluded from Capital Gains Tax.