Capital Gains Tax 'to affect property pricing'
Capital Gains Tax 'to affect property pricing'
The news about capital gains tax in the 2012 Budget has brought further relief for sellers of primary residences in some respects, but the general increase of the CGT rates will have a definite and immediate effect on the pricing of property.
This is according to Herschel Jawitz, chief executive of Jawitz Properties.
"Primary residences sold from March 1, 2012, for R2 million and more, the first R2m will be exempt from CGT. This is an increase of R500 000 over the previous R1.5m threshold.
"However, there is a substantial increase in the inclusion rate of the taxable net profit individuals realise when they sell, from 25 percent to 33.3 percent. This will translate into an average rate of CGT an individual pays of 13.3 percent, which is substantially up from the previous average of 10 percent," Jawitz says.
"The increase from a 50 percent inclusion rate to 66.6 percent will apply when a company or close corporation sells a property, which translates into an average of 18.6 percent, up from the previous 14 percent, and trusts' rates have increased from 20 percent to 26.7 percent.
"The increase in the inclusion rate when an entity sells a property is a further indication of SARS'S eagerness to encourage investors to take transfer of residences into their names, as entities are to be used mainly for trading purposes."
CGT is not a flat rate charged by SARS. Rather, it's a calculation based on the net profit realised, which is then added to an individual's income and taxed according to the tax tables. Furthermore, it's a rollover tax, which means that, even though the tax is triggered on the date the agreement is signed, it only becomes payable when the income tax return is submitted at the end of the financial year during which the property was sold.
Jawitz says the impact of the increase from 50 percent to 66 percent is substantial. If a home is owned in a legal entity then the actual tax payable to SARS will be as much as a third higher than last year, taking into account that the R2m exemption does not apply.
However, a number of deductions can be made against the gross profit, Jawitz says. These include any renovations that were carried out and which will qualify as improvements to the property; estate agents' commission and VAT on commission; attorneys' fees including VAT; and other fees for other professionals such as architects, draughtsmen, and beetle, electrical, gas and plumbing inspectors. However, costs for routine maintenance, such as painting the property, may not be deducted.
"Nevertheless, the increase in the rate of CGT on properties owned in legal entities continues to make it financially prohibitive to own property in this way. Owners need to make sure that they carefully consider the merits of owning property in legal entities.
"The tax amnesty period for properties to be transferred out of entities and into individual ownership is still available until December 31.
"Owners of properties in trusts, companies and close corporations would be well advised to consider taking advantage of t he amnesty before it expires," Jawitz says.
Weekend Argus (Saturday Edition)
The news about capital gains tax in the 2012 Budget has brought further relief for sellers of primary residences in some respects, but the general increase of the CGT rates will have a definite and immediate effect on the pricing of property.
This is according to Herschel Jawitz, chief executive of Jawitz Properties.
"Primary residences sold from March 1, 2012, for R2 million and more, the first R2m will be exempt from CGT. This is an increase of R500 000 over the previous R1.5m threshold.
"However, there is a substantial increase in the inclusion rate of the taxable net profit individuals realise when they sell, from 25 percent to 33.3 percent. This will translate into an average rate of CGT an individual pays of 13.3 percent, which is substantially up from the previous average of 10 percent," Jawitz says.
"The increase from a 50 percent inclusion rate to 66.6 percent will apply when a company or close corporation sells a property, which translates into an average of 18.6 percent, up from the previous 14 percent, and trusts' rates have increased from 20 percent to 26.7 percent.
"The increase in the inclusion rate when an entity sells a property is a further indication of SARS'S eagerness to encourage investors to take transfer of residences into their names, as entities are to be used mainly for trading purposes."
CGT is not a flat rate charged by SARS. Rather, it's a calculation based on the net profit realised, which is then added to an individual's income and taxed according to the tax tables. Furthermore, it's a rollover tax, which means that, even though the tax is triggered on the date the agreement is signed, it only becomes payable when the income tax return is submitted at the end of the financial year during which the property was sold.
Jawitz says the impact of the increase from 50 percent to 66 percent is substantial. If a home is owned in a legal entity then the actual tax payable to SARS will be as much as a third higher than last year, taking into account that the R2m exemption does not apply.
However, a number of deductions can be made against the gross profit, Jawitz says. These include any renovations that were carried out and which will qualify as improvements to the property; estate agents' commission and VAT on commission; attorneys' fees including VAT; and other fees for other professionals such as architects, draughtsmen, and beetle, electrical, gas and plumbing inspectors. However, costs for routine maintenance, such as painting the property, may not be deducted.
"Nevertheless, the increase in the rate of CGT on properties owned in legal entities continues to make it financially prohibitive to own property in this way. Owners need to make sure that they carefully consider the merits of owning property in legal entities.
"The tax amnesty period for properties to be transferred out of entities and into individual ownership is still available until December 31.
"Owners of properties in trusts, companies and close corporations would be well advised to consider taking advantage of t he amnesty before it expires," Jawitz says.
Weekend Argus (Saturday Edition)
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