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Capital Gains + Tax explained with example

June 17, 2024
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FinMeUp
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What is capital gains and how will you get taxed?

What is Capital Gain

Capital Gains Tax is a tax on the profit you make when selling an investment, like stocks or property. You pay CGT when you sell an investment, but here's the good news: you might not have to if your gains are below the annual exclusion.

What is the Annual Exclusion?

Individuals in South Africa have an annual exclusion of R40,000. It means if your gains are less than this amount for the tax year, you won't owe CGT.

If your gains exceed the annual exclusion, the calculation is as follows: Capital Gain x 40% x PAYE tax rate. So lets say your tax rate on your salary is 25%, you will pay (Capital Gain - R40,000 exclusion) x 40% x 25%.

Here is an example:

Buy shares for R100,000 and sell it for R150,000 a few years later. Your PAYE rate on your salary is 25%. Here is how much CGT you will owe SARS:

  • You made a capital gain of R150,000 - R100,000 = R50,000
  • Deduct the R40,000 exclusion, leaving R10,000 to be taxed.
  • Next, apply the formula: R10,000 0.4% x 25% = R1,000.

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