Capital Gains Tax Calculator

DO I HAVE TO PAY?
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Capital gain is the profit one receives after selling a property. You can find the base cost of the property and then the renovation cost. Subtract the amount you spent on purchasing and improving the property from the amount you purchased a building.

In this guide, we will see simple method to calculate capital gain tax.

How Capital Gain is Different From Income Tax?

The majority of people ask how income tax is different from capital gain tax. When we calculate capital gain tax, we need to see the inclusion rate. The inclusion rate refers to the counted amount that is taxable and currently, 40% of the capital gain is taxable according to the State Department.

Whereas income tax is levied on all the money people earn, such as salary, or profit on selling goods. When we are counting capital gain tax, we need to subtract 40% of the amount and then count the tax on it. Here is a simple example of the inclusion rate.

Example

Subject A has earned R80,000 profit by selling a property.

  • Inclusion rate: 40%
  • Formula: inclusion rate x capital gain
  • Taxable amount: R80,000 x 40%
  • Taxable amount: R32,000

Simple Method to Calculate Capital Gain Tax

We have a basic understanding of what capital gain is, and how it is calculated. I also informed you about the inclusion rate for individuals in South Africa. Let’s calculate the capital gain tax step by step and understand it with the help of various examples.

Step 1

Determine the amount you have earned by selling an asset. It is also known as determining proceeds in which we calculate the total amount a seller receives from his client. Let’s say a person received R410,000 by selling a house.

Step 2

Once precedes are determined, you need to calculate the base cost. As I have explained before, the base cost is the amount we spend on purchasing a property and then improving or renovating it. Suppose, the person who received R410,000 proceeds, has a base cost of R310,000.

Calculation

  • Base Cost: R310,000
  • Precedes: R410,000
  • Capital Gain:?

Formula

  • Proceeds - Base Cost: R410,000 - R310,000
  • Capital Gain: R410,000 - R310,000 = R100,000

Formula

  • Net Capital Gain: Capital Gain − Primary Residence Exclusion
  • R100,000 - R2,000,000 = R0
  • Note: Primary exclusion is a tax relief of R2 million for the people who are selling their primary residence.

Because the gain is less than R2 million, it means the seller is not supposed to pay tax. It is a condition for those who are selling their primary residence but those who exceed the limit must pay capital gain tax; otherwise, the tax department may take action against the person who violates the rules.

What If I am Selling Investment Property?

If you are selling an investment property, not a primary one, you need to calculate the taxable amount without subtracting R200,000. The formula is the same but we need to skip the R2 million part. Here is another example to calculate capital gain tax.

  • Determined Proceeds are R400,000.
  • The base Cost is R280,000.
  • Formula
    • Proceeds - Base Cost: R400,000 - 280,000
    • Capital Gain: R120,000
  • Formula
    • Net Capital Gain: Capital Gain - Annual Exclusion
    • Net Capital Gain: R120,000 - R40,000 = R80,000
  • Formula
    • Payable Capital Gain Tax: Includable Capital Gain × Marginal Tax Rate
    • Payable Capital Gain Tax: R32,000 x 41% = R13,120
    • Payable Capital Gain Tax is R13,120.
  • Apply Inclusion Rate
    • Included Capital Gain: Net capital gain x 40%
    • R80,000 x 40% = R32,000
    • Determine the existing taxable income of the subject and the total existing taxable income is R500,000.
  • Formula
    • Total Taxable Income: Existing Taxable Income + Includable Capital Gain
    • Total Taxable Income: R500,000 + R32,000 = R532,000
    • To calculate capital gain tax, we need to find out the marginal tax rate of the individual which is supposed 41%.

What If I am Selling A Primary Residence That I Rent Out?

  • Example: Subject B lives in a house for 7 years but he rents it out for 2 years. Later, he sold it and received R700,000.
    • Determined Proceeds are R700,000.
    • The base cost is R580,000,
    • Capital gain: R700,000 - R580,000 = R120,000

Note: In the previous examples, we calculated the taxable amount with the help of annual or primary residency exclusions and now we need to apply both approaches.

  • Primary residence duration: 5 years
  • Non-primary residence duration: 3 years
  • Calculating the portion of the capital gain attributable to a primary residence.
  • Formula
    • (5/8) x R120,000 = R75,000
    • Capital Gain Tax amount: R75,000 - R2,000,000 = R0
    • The calculation shows that the property does not owe capital gain tax due to primary residence tax relief.
  • Calculating a portion of the capital gain attributable to a non primary residence.
    • Total years: 8
    • Rent out duration: 3 years
  • Formula
    • (3/8) x 120,000 = R45,000
    • Because primary residence exclusion does not apply here, we need to apply annual exclusion.
    • Net Capital Gain: R45,000 - R40,000 = R5,000 The subject’s Taxable Income is supposed R140,000
  • Formula
    • Net capital gain x 40% = Taxable income
    • R5,000 x 40% = R2,000
    • The existing taxable income of the subject is R310,000.
  • Formula
    • Taxable income: Existing taxable income + included capital gain
    • R310,000 + R5,000 = R315,000
    • Determine the marginal rate of tax which is 41%
  • Formula
  • Capital gain tax: Taxable capital gain x Margiante rate of tax
  • R315,000 x 41% = R129,150
  • Capital gain tax = R129,150
  • Calculating the portion of the capital gain attributable to a primary residence.
    • Total years: 5
    • Rent out duration: 3
    • 5 + 3 = 8 years
    • It indicates that the property qualifies for the primary residence exclusion, let’s apply it.
  • Formula
    • (5/8) x R120,000 = R75,000
    • Capital Gain Tax amount: R75,000 - R2,000,000 = R0
    • The calculation shows that the property does not owe capital gain tax due to primary residence tax relief.
  • Calculating a portion of the capital gain attributable to a non primary residence.
    • Total years: 8
    • Rent out duration: 3 years
  • Formula
    • (3/8) x 120,000 = R45,000
    • Because primary residence exclusion does not apply here, we need to apply annual exclusion.
    • Net Capital Gain: R45,000 - R40,000 = R5,000 The subject’s Taxable Income is supposed R140,000
  • Formula
    • Net capital gain x 40% = Taxable income
    • R5,000 x 40% = R2,000
    • The existing taxable income of the subject is R310,000.
  • Formula
    • Taxable income: Existing taxable income + included capital gain
    • R310,000 + R5,000 = R315,000
    • Determine the marginal rate of tax which is 41%
  • Formula
    • Capital gain tax: Taxable capital gain x Margiante rate of tax
    • R315,000 x 41% = R129,150
    • Capital gain tax = R129,150

FAQs

The capital gain tax was started in South Africa in 2001, 1st October.

Capital gain tax is the amount one has to pay to the tax department from the profit one makes by selling assets, such as houses, or investments.

Calculating capital gain tax is not difficult but still, people find it confusing because they follow the wrong instructions. Instead of applying difficult formulas, you can see the method I explained above in simple and short words. I hope this information will help you in the future, thank you.