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Pravin Gordhan, Minister of Finance. Photo: Matthew Jordaan.

In a comprehensive overview of the existing capital gains tax environment, the National Treasury has announced some sweeping amendments to tax-free exemptions, but it has also increased capital gains tax rates for the first time since this form of tax was introduced in South Africa.

With effect from March 1, the annual exemption for individuals will increase to R30,000 from R20,000, while the exclusion on death will rise to R300,000 from R200,000.

Good news for home owners is that the primary residence exclusion will rise to R2 million from R1.5 million. There is also good news for small business owners with the exclusion on disposal rising to R1.8 million from R900,000 for individuals over the age of 55.

The maximum market value of assets allowed for a small disposal for business owners over the age of 55 increases to R10 million from R5 million.

On the other side of the equation, the Budget Review document said that to enhance equity, effective capital gains tax rates would be increased with the inclusion rate for individuals and special trusts increasing to 33.3%, shifting their maximum effective capital gains tax rate to 13.3%.

It said the inclusion rate for other entities would increase to 66.6%, raising the effective rate for companies to 18.6% and for other trusts to 26.7%.

Explaining the changes, National Treasury said capital gains tax had been introduced in 2001 at relatively modest rates and had remained unchanged for the past 10 years.

“This reform has helped to ensure the integrity and progressive nature of the tax system,” it said.

National Treasury said exemption thresholds had been amended to limit the impact of capital gains taxation on middle-income households. - I-Net Bridge

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