Fin24

Your shares and Sars

2012-05-28 07:29

A Fin24 reader asks:

Several years ago, I inherited a couple of hundred shares that I would now like to sell, but I do not intend trading regularly. What are the tax implications?

Marika Yiannakis of Sharenet writes:

Thinking about the tax implications when it comes to your investments is an important part of dealing with your portfolio. The way you are taxed will vary according to whether you're deemed a regular trader or a long-term investor.

This depends on your intent – are you looking to invest for the long term, or do you want to make a quick buck?

There is a large grey area regarding this distinction, so the best way to figure out how you're going to be classified is to speak to a trained tax consultant.

Capital gains tax (CGT) is the tax you pay on any profit you make when you sell a share. Remember that there are two ways you can make a return on an investment: through capital growth or dividends.

Before October 1 2001, South African taxpayers enjoyed a position where all capital gains were tax-free. The Income Tax Act does not define what a capital gain is as compared to a revenue gain.

This has resulted in numerous court cases where the taxpayer has maintained that certain gains are capital (and therefore free of tax), with the revenue authorities contending otherwise.

The onus is on the taxpayer to prove that gains made are not made in the course of running a business or a profit-making scheme.

The sale of shares in a company is a classic scenario.

In some cases the gain could be of a revenue nature (for share traders/speculators, and therefore taxed as income) or capital in nature and therefore not taxed prior to October 2001, or now taxed at the more favourable CGT rates.

The introduction of taxes on capital gains did not change the rules for determining whether gains are capital or revenue in nature, but only reduced the benefit of having a gain classified as capital.

Shareholders therefore need to be extremely vigilant when realising assets - don't just assume that all your gains are capital in nature and therefore taxable at the lower tax rate (maximum of 10% for private investors).

The far higher marginal rate (40% for most private investors) provides plenty of incentive for the South African Revenue Service to want to tax gains as revenue.

 - Fin24

 

Comments
  • Anton - 2012-05-30 19:07

    Capital gains tax inclusion rate is now 33.3% and therefore the maximum capital gains for individuals is now 13.32% and not 10% anymore. If you've inherited the shares prior to 2001, and these shares were listed when CGT came into effect on 1/10/2001, you'll easily be able to find the quoted share price at the date that CGT became effective. Your capital gains will be: Selling price less price at 1/10/2001. This Capital gain is reduced by R30,000 (capital gains exclusion for individuals effective 1 March 2012). This new sum is then multiplied by 33.3% and this amount is included in your normal taxable income.

  • Jan - 2012-06-06 11:45

    Yup, you've made a mistake on your capital gains rate. And....and you totally didn't answer the question.

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