CAPITAL GAINS TAX AND 'PERSONAL USE' ASSETS

Is SARS' grubby paw out every time you sell something? The answer is no ... not always

- STEVEN JONES

A FRIEND of mine is thinking about selling their car, and has expressed concern about the potential Capital Gains Tax (CGT) implications.

Now we're not talking about a Ferrari Daytona, here-this was some grotty little Toyota Tazz that had barely survived the past ten years ferrying around three small kids and two large dogs, for which said friend was only too glad to hand the keys over to someone else so that they can drive it off to wherever old cars go to die.

My somewhat incredulous initial thought was that I would like to know how it is possible, with most new vehicles sustaining depreciation of around 20% the moment they are driven off the showroom floor, that this friend expected to make any sort of capital gain from their old banger, never mind one that would raise SARS' eyebrows!

However, the question reflects a misconception that many taxpayers have as to what constitutes a capital gain. Certainly, in my own experience, most people who have entered into nervous conversations with me about CGT are under the impression that the moment they sell something, SARS will be after its share, in the form of CGT, on the full sale proceeds.

This is not true, unless the asset was obtained for nothing. As the name of this particular tax indicates, Capital Gains Tax is the tax payable on a gain in value of an asset. Using a simple example, if you invested in shares with an initial investment of (say) R10000, held them for longer than three years, and then sold them for R15 000, you would pay CGT on the R5,000 profit.

Assuming that your taxable income puts you within the 31% tax band, and ignoring the annual exclusion, your CGT bill would be R5000 x 31% (your tax rate) x 40% (the 'inclusion rate', or percentage of the gain that is taken into account for calculating CGT)-resulting in an amount payable of R620.