Manuel's capital gains tax extension welcomed

FINANCE Minister Trevor Manuel's announcement of a new general extension for the introduction of Capital Gains Tax (CGT) to September 30, 2004, has been greeted with relief by property owners.

CGT was expected to come into effect on September 30 this year. Briefing the media at parliament, Manuel said the National Treasury had been inundated with requests for an extension from a wide spectrum. According to a report by Sapa, Manuel said the decision to extend had been taken reluctantly, as not all the reasons for the requests were valid.

However, others were, he said. Some claimed property valuations for CGT, done almost two years ago, were now dated, but there was also a serious shortage of qualified valuators. Treasury had looked at the situation and decided on a general extension, rather than isolating some categories of taxpayers. The extension would hopefully ensure a smooth introduction of CGT next year, Manuel said. Property owners have to have their properties and other assets valued for CGT.

The tax applies to the properties, whether in South Africa or abroad, owned by South African citizens and permanent residents. It also applied to properties in South Africa owned by non-citizens and non-residents. CGT does not apply to properties if a profit of less than R1 million is made on the sale of a property that is a primary residence. The capital gain is the difference between an asset's "base" or "initial" cost on the one hand and its sales price after October 1, 2001 on the other.

Apart from the original purchase price of the property, the "base" cost may include the original costs of taking transfer of the property, and the costs of selling the property. Base costs also include the costs incurred in "improving" the property, but exclude repairs, maintenance, insurance premiums, rates, taxes and any interest paid on a home loan.

The danger of not having a valuation done in time lies therein that if the tax does apply to your property, you may find yourself paying tax on supposed capital gain that may have more to do with the high inflation rates of the 1970s and '80s than on any gain accrued between October 1, 2001, and the subsequent sale of the property. CGT is payable at the end of the tax year in which the gain occurred.

It is triggered by the sale of the property (date of sale, as opposed to date of transfer) by the taxpayer, by the resident ceasing to be a resident, as well as by the taxpayer's death. The tax also has implications for those who work from home and claim a portion of their household expenses for tax purposes. These implications should be discussed with a tax consultant