By Leigh Roberts
There are only a few months left to have your home valued for capital gains tax (CGT) purposes - and given spiralling property prices, not getting a market valuation could cost you.
The deadline is September 30.
This is the last day on which you can obtain a market valuation for capital assets acquired before October 1 2001.
A market valuation must be backdated to this date.
A tax on capital gains was first mooted by the finance minister in his 2000 budget speech. The R1m rebate was considered generous at the time.
However, the rise in property values (the average house price leapt 61% from October 2001 to May 2004), and the expectation that prices will continue to rise means some homeowners could be in for a shock. The first R1m from the sale of your home is tax-free; anything above that attracts CGT and the property boom should draw into the net homeowners who never dreamt CGT might affect them. Property values in Gauteng have risen by 19%/year in the past three years, with some of Johannesburg's northern suburbs enjoying even higher appreciation rates.
Holiday homes and second properties do not attract the luxury of a CGT rebate and owners will be notching up a tax liability on the full capital appreciation since October 2001. Ratcheting up your cost is the aim of the game with CGT.
The SA Revenue Service (Sars) accepts three methods in calculating the base cost of an asset acquired before October 2001: A market valuation as at October 1 2001 (provided it was obtained before the deadline); or Allocating 20% of the selling price as the base cost; or Purchase price, plus a portion of the capital gain (as calculated on a time basis before and after October 1 2001). For example, let's say a home bought for R1m in October 1998 had a market value of R2m in October 2001, and now has a selling price of R3,4m.
The base cost, as calculated using the above methods respectively, would be: R2m; R680 000; and R2,2m (R1m cost plus portion of the gain (R3,4m minus R1m times 3/6 years)). The apportionment method gives the highest base cost and should be used by the homeowner.
If you made capital improvements to your property after October 2001, the cost of these can be added to your base cost. Grant Thornton senior tax manager Justin Liebenberg says capital improvement costs are defined as those that result in an improvement or enhancement to the value of the asset, and the improvement must still be in existence when you sell the asset. But the cost of repairs is not allowed. If a loss is made on the sale, Sars requires you to use either the market value or the time apportionment method to determine the base cost.
And when there is a gain, but using market value as the base cost gives a CGT loss, then you are deemed to be breaking even. For capital assets purchased after October 1 2001, there is only one method for calculating cost in the CGT calculation - the purchase price plus any capital improvement and selling costs. Surprisingly, Sars does not specify who can give market valuations. So there's no stopping you from submitting your own valuation.
But an independent expert valuation carries more weight. Sars has the right to reject any market valuation if it feels it is overstated. It can reduce the valuation to a level that it feels gives a fairer reflection. The taxpayer is obliged to pay up according to this valuation and object later if he or she wishes. So what is Liebenberg's advice on planning for CGT? Keep all your cost records and vouchers of capital improvements made after October 2001, and make use of the few months remaining to obtain expert valuations on your capital assets, dated as at October 1 2001.
This includes assets such as time-shares, unlisted shares, gold and platinum coins, and those assets specifically defined by Sars.
The CGT net excludes personal-use assets, defined as those used "mainly for purposes other than carrying on a trade". So your car, jewellery and other personal belongings are CGT-free. Collectables, such as art and stamps, also fall out of the CGT net. As a general rule, documents need be submitted to Sars only in the year of sale, together with your tax return.
And if you have a capital loss, it can be carried forward to future tax years to be set off against capital gains. Also remember CGT not only comes into effect when selling assets, but also when you give them away, leave for overseas pastures, or die.
Publisher: Financial Mail
Source: Financial Mail
Capital gains tax - the day of reckoning
Posted On Thursday, 08 July 2004 02:00 Published by eProperty News
Increased property values may place unsuspecting homeowners in the receiver's net
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