INVESTMENT INCOME

  • Financial Institutions will produce an annual IT3(b) investment income certificate for all your investment income for the year.
  • Investment income generally comprise foreign and local interest, foreign and local dividends and Real Estate Investment Trust (REIT) income.
  • If you've had a positive balance in a bank account, you will usually earn some interest income, which should be declared. The good news is that the first R23,800 in local interest income (for those under 65) is tax free. For over 65's the amount increases to R34,500.
  • If you have not received an investment certificate IT3(b) from your bank or other investment institution, you will need to request it. It can be downloaded from the electronic banking sites of some banks.

CAP GAINS TAX

CAPITAL GAINS TAX applies to the profit on the sale of assets. The profit is determined by subtracting the base cost (i.e. purchase price) from the sales price. The most common capital gains declaration are from the sale of listed stock/shares - in such cases your investment house will issue you with an IT3(c) certificate (provided it is a South African company). The annual capital gains exclusion  applies which is that the first R40,000 in profit is tax free and after that 40% of the remaining amount will be added to your taxable income.

PLEASE LET US KNOW IF YOU REALIZED LARGE AMOUNTS OF PROFIT ON THE SALE OF SHARES. THIS WILL HAVE TO BE DECLARED  AND THE TAX PAID IN PROVISIONAL TAX SUBMISSIONS TO AVOID PENALTIES AND INTEREST.

SELLING PROPERTY - CAPITAL GAINS IMPLICATIONS

YOU WILL ONLY HAVE A CAPITAL GAINS TAX LIABILITY IF THE PROFIT ON THE SALE OF A PRIMARY RESIDENCE EXCEEDS R2 MILLION

When you sell fixed property, such as your house, you potentially become liable for for the capital gains on the profit of the sale. Three main scenarios apply when selling fixed property:

  1. The sale applies to your primary residence, you've never rented it out and never used it as a home office (100% domestic use). In this case you are allowed the primary residence capital gains exclusion of  R2,000,000. The 2 million applies to the GAIN or profit, i.e. the sales price less the purchase price, upgrade expenses, purchase expenses and sales expenses (all the expenses make up the base cost). Even if you have zero capital gains liability, the sale must still be declared to SARS.
  2. The property is not your primary residence and you have been renting it out the entire time. You do not qualify for the capital gains exclusion and you will be taxed on the profit, which is the sales price less the base cost (see above). The capital gains tax  will be calculated by subtracting the annual capital gains exclusion of R40,000 from the profit and then adding 40% of the remaining amount to your taxable income. If you are married in community of property or the property was jointly held, the profit will be halved (or split proportionally if ownership is not 50/50) - each partner will then also be able to make use of the R40,000 cap gains exclusion amount.
  3. You've rented the property out for a portion of the time and stayed in it for a portion of the time OR you've claimed home office expenses on the property. The capital gains and primary residence exclusion will then be apportioned based on a ratio of use between use for domestic and commercial purposes .

CAPITAL GAINS = SALES PRICE - BASE COST

Components of base cost

(invoices, receipts, statements and similar documentation is required to prove that the expenses were incurred):

  • Original purchase price.
  • Upgrades to the premises (need invoices and receipts) - this excludes maintenance costs.
  • Expenses incurred in purchasing the premises (invoices and receipts needed), e.g.
    • transfer costs.
    • fees paid to the transfer attorneys.
  • Sales expenses such as
    • agents commission.
    • advertising expenses.
    • bond cancellation fees.
    • electrical and other compliance certificates.
    • expenses directly related to preparing the property for sale.