What is capital gain tax (CGT)?
Any profits you make from selling an asset (like shares) at a higher price than you paid for it, are capital gains. And if you make a capital gain, you might be liable to pay capital gains tax
(CGT) on it.
So if you’ve made a profit, how do you know if you’re liable to pay CGT on your profits?
How much capital gains tax you need to pay
Well, it depends if your profit is below or above SARS’ CGT threshold. At the moment, the threshold for CGT is R30,000.
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This means if you sell shares and make R25,000 in profit, and you don’t have any other profits from the sale of other assets over the tax year, you won’t have to pay any.
But if your profits were R100,000 for the tax year from the sale of shares, you’ll have to pay CGT.
At the moment, the CGT rate for individuals is 13.3%. That means 13.3% of your profits over the threshold of R30,000 go to SARS.
So if you’ve banked some decent gains, don’t go spending it all! You’ll have to keep some of it to cover your CGT.
What about if you trade?
If SARS sees your investing activities as trading rather than investing for the long-term, you don’t pay capital gains tax on your profits. In this case, you pay income tax on the profits.
Depending on the sums involved, this could push your income tax bracket higher.
How to avoid paying capital gains tax
To avoid paying CGT you have a couple of options…
One option is to never sell your assets. For example, if you don’t realise the gain from selling your shares, you don’t have to pay tax on the profits.
Another option is to ensure your profits don’t exceed your annual CGT threshold. But this might not be an option if you have a large portfolio.
Don’t forget though, you can offset capital losses against your capital gains.
So there you have it, when you have to pay capital gains tax on your investment profits.
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