Capital gains tax calculation -please help

[Basment Dweller]

- I buy the property for R1 358 000 and sell it for R2 450 000

- Gain is R 1 092 000 - 30 000 annual inclusion = 1 062 000 x 33.33% inclusion rate = R353 964.6 added to my taxable income

- Current taxable income sits at 394440/annum

- How much added tax will I have to pay as a result of this income? Am I doing this right?

- The property is in a company and not in my private name

[CLIVE-TRIANGLE]

Assuming it is in fact a capital gain; there is no annual exclusion for companies. The inclusion rate is 66.6% and the tax rate 28%, unless it is an SBC.

The bigger question whether or not this is a capital gain. What was the nature of the income derived from the property?

[Basment Dweller]

This example is hypothetical but is based on real assets.

I'm not sure what you mean by 'assuming it is in fact a capital gain', how can it not be?

Residential property was purchased for R1 358 000 and sold for R2 450 000, gain is R1 092 000, right?

No other income was derived, profits are made from the capital gain realised from the sale.

What's SBC? So capital gains are levied against the company tax rate of 28%? Then if I want to declare it as a dividend and draw the money out as a shareholder it's another 10% right?

So..
Gain is R 1 092 000 - 30 000 annual inclusion = 1 062 000 x 66.66% inclusion rate = R707929.2 added to THE COMPANY'S taxable income

company tax =R707929.2 X 28% = R198 220,17

Net = R2 450 000 - R198 220,17= R 2251779,83

100% declared to share holders R 2251779,83*10% = R225 177,983

net to shareholders = R 2251779,83 - R225 177,983 = 2 026 601,847

SARS get total of R423 398,16? Jeezuz

[Beancounter]

Clive is right. If the company's main business is trading in properties then the nature of the income will be trading and then the profit will be taxed at 28% or SBC rates.

[Basment Dweller]

Thanks guys, I updated my calculations above ^ Can you verify?

Also the companies main business is rentals, but we're selling one of the units, does this make a difference?

[CLIVE-TRIANGLE]

Also the companies main business is rentals, but we're selling one of the units, does this make a difference?

That makes a huge difference. If the intention in acquiring the properties was demonstrably to earn rentals, then the disposal is capital in nature. But if the acquisition was speculative in nature, then it the profit is normal trading income.

So, if the disposal passes that test, then we proceed to your actual calculation where you have some errors.

Profit on disposal is R1,092,000

Determine the net profit excluding the capital gain, for example R2,500,000

Add 66.6% profit on disposal R727,272.

Taxable profit is R3,227,272

Tax is R903,636

Net after tax is R 2,323,636

Now you wish to declare, for example R2m in dividends;

Dividends tax is 15%, so thats R300,000 to SARS and R1.7m to the shareholders

[Basment Dweller]

Profit on disposal is R1,092,000

Determine the net profit excluding the capital gain, for example R2,500,000

Add 66.6% profit on disposal R727,272.

Taxable profit is R3,227,272

Tax is R903,636

Net after tax is R 2,323,636

Now you wish to declare, for example R2m in dividends;

Dividends tax is 15%, so thats R300,000 to SARS and R1.7m to the shareholders

Holy sh*t I'm confused. Are you using the same numbers as the example I gave above? i.e. property was purchased for R1 358 000 and sold for R2 450 000?

How do you get taxable profit of R3,227,272?

Do you mind retyping everything including the calculations?

[Odwa]

1. Is this your company? I get the sense that you are confusing yourself with the company.

2. If the property belongs to the company and is held to generate revenue; then correct this is a capital gain and should be included at a rate of 66.6% to the taxable income which is taxed at a rate of 28%.

3. If you are the owner of the company and you want your company to sell this property so that you as the owner can have the profit therefrom distributed to you as a dividend,
you still have to go through number 2 above and declare a dividend of which your company will have to withhold 15% thereof and pay over to SARS.
You will have to declare this in your own personal declaration to SARS and it will be exempt.

4. No annual exclusions for companies.

[Basment Dweller]

1. Is this your company? I get the sense that you are confusing yourself with the company. Yes my company, was confusing it with a personal asset but now understand

2. If the property belongs to the company and is held to generate revenue; then correct this is a capital gain and should be included at a rate of 66.6% to the taxable income which is taxed at a rate of 28%. How does this work exactly do I times the gain by 66.66%?

3. If you are the owner of the company and you want your company to sell this property so that you as the owner can have the profit therefrom distributed to you as a dividend,
you still have to go through number 2 above and declare a dividend of which your company will have to withhold 15% thereof and pay over to SARS.
You will have to declare this in your own personal declaration to SARS and it will be exempt. Understood

4. No annual exclusions for companies. Understood

Reply above thanks

Clive do you mind helping me with that calculation in a little more detail?

[Odwa]

Yes.

Proceeds less Base Cost = Capital Gain x 66.6% = Taxable capital gain

[Basment Dweller]

Yes.

Proceeds less Base Cost = Capital Gain x 66.6% = Taxable capital gain

So R2 450 000 - R1 358 000 = R1 092 000 * 66.6% = R727 927.2 * 28%= R203 819.616

R2 450 000 - R203 819.616 = R2 246 180.38 net profit to business

So dividends will be

R2 246 180.38 * 15% = R336 927.057

R2 246 180.38 - R336 927.057 =R 1 909 253.32

So from a R2 450 000 sale SARS take R 540 746.61 and shareholers get R 1 909 253.32

Is this correct?

[CLIVE-TRIANGLE]

Clive do you mind helping me with that calculation in a little more detail?

Sure. I assume you are ok with the profit on disposal, which is simply proceeds less selling expenses, less cost, less additions, less any other acquisition costs like transfer costs and so on?

If that's clear, you need to determine your normal taxable income excluding capital gain (and the components thereof). This is your rental income less deductible expenses, for example
- interest
- rates
- utilities
- insurance
- bank charges
- repairs
- any other operating expenses

Whatever the net is, add to that 66.6% of the capital gain (profit on disposal) to arrive at the company's taxable profit.

That number is taxed at 28%

Whatever is left, in theory you can distribute as a dividend. However, the company is bound to withhold the tax thereon that the shareholders have to pay on it, at 15%. It is actually "paid" by the shareholders (like paye, it is withheld by the company and paid to SARS) but the company deducts it from the dividend and pays the net amount to shareholders.

[CLIVE-TRIANGLE]

So R2 450 000 - R1 358 000 = R1 092 000 * 66.6% = R727 927.2 * 28%= R203 819.616

R2 450 000 - R203 819.616 = R2 246 180.38 net profit to business

So dividends will be

R2 246 180.38 * 15% = R336 927.057

R2 246 180.38 - R336 927.057 =R 1 909 253.32

So from a R2 450 000 sale SARS take R 540 746.61 and shareholers get R 1 909 253.32

Is this correct?

No it is very wrong. You need to separate capital from operating. Refer my post above

[Basment Dweller]

Thank Clive I really appreciate the input...I've been working off I template I found online, do you mind if we do this again?

Firstly this property is brand new and is not earning any rental income (vacant), so there is no extra income.

Based on the screen shot below I have this calculation:

R2 500 000 (gross sales price) - R181 500(agent comm) - R148 196 (transfer costs) - R151 630.08 (CGT)

= R2 018 673.92 net profit

if we declare this as a dividend we get R2 018 673.92*15%= R302 801.088 subtract from R2 018 673.92 =1 715 872.83 paid out to sharholders.

[CLIVE-TRIANGLE]

Firstly this property is brand new and is not earning any rental income (vacant), so there is no extra income.

which means that you will most likely fail in your attempt to have it regarded as capital profits and will instead be regarded as normal profits.

I'll try to illustrate both scenarios:



I assume the company got the money from you to acquire the property? If that is the case then it would be unnecessary to declare a full dividend; it would first repay the loan it made from you.