On April 1 next year the new capital gains tax (CGT) is due to come into
effect. Any capital gain you make from that date on any asset, with a few
exemptions such as your primary home, your motor vehicle and your personal
effects, will be taxed. The question that will face everyone on April 1 is
`what is the value of my assets?`
And, as a word of warning, you should also value your primary home because
maybe at some date in the future you may decide it is no longer your
primary home and it will become subject to capital gains tax on its sale or
transfer of ownership.
Now, you may think, I will merely declare an asset to be double the value
it actually is so when I come to sell it there will be no capital gain and
therefore no tax. It does not work this way. In fact, the taxman will be
looking out for any clever tricks to increase the value of assets unfairly
and will slap heavy penalties on anyone who does so.
So what do you do? In some cases it will be quite easy. For example, if you
own shares, the value will be set on that day, unless you paid more than
the price originally (remember you will be able to offset capital losses
against capital gains). However, some things are a bit more difficult to
value. Say you had a second home or a yacht in the marina at the Waterfront in Cape Town, what would the position be?
This raises a number of questions which were dealt with at a seminar on
capital gains tax organised recently by legal company, Cliffe Dekker Fuller
Moore Inc.
The main speaker at the conference was Matthew Lester, professor
of tax studies at Rhodes University in Grahamstown.
He says you will have to make a decision on how to value your capital
assets, which may be subject to capital gains tax on April 1 2000.
Two methods are proposed:
- Valuation at April 1 2001 by sworn appraisal; auditors valuation of
companies and closed corporations and businesses and reference to quoted
prices on the Johannesburg Stock Exchange; or
- Pro Rating of the Capital Gain. This means the capital gain is based on
the number of years the capital asset was held before and after the
implementation date of the tax. You can use this formula in working out
what would be paid:
Taxable portion of capital gain =
(Period held after implementation multiplied by capital gain)
Divided by
Total period held (Not exceeding 20 years)
The next question you must ask: ``Is it worth the cost and effort of valuing
assets at April 1 2001?``
Lester says there are only 2 000 sworn appraisers in the country and
because of the demand you can expect them to charge a fair whack for
assessing the value of your assets.
It may in fact be cheaper to take the initial cost of the asset plus the
cost of any improvements to the asset and use the formula.
The table above, compiled by Lester, shows the effective rate of capital
gains tax you will incur when you dispose of a capital asset as an
individual and company for the 10 years following the implementation of
capital gains tax, dependent on the year in which the capital asset was
acquired and assuming that the phase-in formula is applied. The capital
gains tax rate also assumes that you are on the top marginal income tax
rate of 42 percent. Once you have worked out the rate, you estimate the
value of the property when you dispose of it and multiply that figure by
the tax rate in the table.
The effect of capital gains tax is largely dependent on when the asset was
acquired. Assets acquired before 1997 and disposed of in the capital gains
tax era will attract very little of this tax when sold. However, assets
acquired in the two years prior to the implementation of capital gains tax
will enjoy lesser relief from the formula.
Lester recommends one of two choices:
Choice One: Where an asset has been acquired more than three years prior to
the implementation date of capital gains tax, it will probably not be worth
the cost and effort of arranging a sworn valuation; or
Choice Two: Where a capital asset has been acquired within three years of
the implementation date of capital gains tax and it can be anticipated that
there has been a substantial increase in the value of the asset between
acquisition date and April 1 2001, sworn appraisal should be considered.
You should consider the effective rate of tax you will be paying and then
compare that with the cost of having the asset valued and whether that
value will be considerably higher than the cost of the asset ( plus any
improvements if any).
This is one table you should cut out and keep for next year.
.blue1 { font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 8pt; color: 003399 }
.black1 { font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 8pt; color: 000000}
.white1 { font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 8pt; color: FFFFFF; font-weight: bold}
.blue2 { font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 10pt; color: 003399 }
.headerred { font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 10pt; color: 990000 ; font-weight: bold}
.headerblue { font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 10pt; color: 003399 ; font-weight: bold}
.articletext { font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 10pt; color: 000000 }
.lhbblue { font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 8pt; font-weight: bold; color: 003399 }
.lhbbrown { font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 8pt; color: 996600 ; font-weight: normal}
.date { font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 8pt; font-style: italic; color: 000000}
.author { font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 8pt; font-weight: bold; color: 000000}
.red1 { font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 8pt; color: 990000}
.lblue1 { font-family: Verdana, Arial, Helvetica, sans-serif; font-size: 8pt; color: 99CCFF; font-weight: bold}
.series { font-family: 'Times New Roman', Times, serif; font-size: 10pt; font-style: italic; font-weight: bold; color: 996600}
-->
DATE SOLD
DATE ACQUIRED
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
1981
0
0.53
1.05
1.58
2.1
2.63
3.15
3.68
4.2
4.73
1982
0
0.53
1.05
1.58
2.1
2.63
3.15
3.68
4.2
4.73
1983
0
0.55
1.05
1.58
2.1
2.63
3.15
3.68
4.2
4.73
1984
0
0.58
1.11
1.58
2.1
2.63
3.15
3.68
4.2
4.73
1985
0
0.62
1.17
1.66
2.1
2.63
3.15
3.68
4.2
4.73
1986
0
0.66
1.24
1.75
2.21
2.63
3.15
3.68
4.2
4.73
1987
0
0.7
1.31
1.85
2.33
2.76
3.15
3.68
4.2
4.73
1988
0
0.75
1.4
1.97
2.47
2.92
3.32
3.68
4.2
4.73
1989
0
0.81
1.5
2.1
2.63
3.09
3.5
3.87
4.2
4.73
1990
0
0.88
1.62
2.25
2.8
3.28
3.71
4.08
4.42
4.73
1991
0
0.95
1.75
2.42
3
3.5
3.94
4.32
4.67
4.97
1992
0
1.05
1.91
2.63
3.23
3.75
4.2
4.59
4.94
5.25
1993
0
1.17
2.1
2.86
3.5
4.04
4.5
4.9
5.25
5.56
1994
0
1.31
2.33
3.15
3.82
4.38
4.85
5.25
5.6
5.91
1995
0
1.5
2.63
3.5
4.2
4.77
5.25
5.65
6
6.3
1996
0
1.75
3
3.94
4.67
5.25
5.73
6.13
6.46
6.75
1997
0
2.1
3.5
4.5
5.25
5.83
6.3
6.68
7
7.27
1998
0
2.63
4.2
5.25
6
6.56
7
7.35
7.64
7.88
1999
0
3.5
5.25
6.3
7
7.5
7.88
8.17
8.4
8.59
2000
0
5.25
7
7.88
8.4
8.75
9
9.19
9.33
9.45