Capital gains tax calculation -please help

[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.

[Basment Dweller]

Ok I get it now, this is perfect thanks.

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.

Company acquired the assets from a loan account with my mother's estate. Does that mean we can pay her out tax free?

[CLIVE-TRIANGLE]

Yes. To the extent that the company borrowed from anybody, it can first repay the borrowing.

[dellatjie]

@Bassment Dweller, an important fact to take into account here, is whether the company is an SBC (Small Business Corporation).

How to determine if the company is an SBC? In summary:

* The the turnover must be less than R20 million per year
* None of the shareholders may have an interest in another CC/Company.
* Not more than 20% of the entity's income may consist of investment income/income from rendering a personal service (personal service is defined in the income tax act). As far as I understand, investment income includes interest as well as rentals.

Should the company be an SBC, it will qualify for very favourable tax rates. Instead of 28% on the taxable income, the tax payable will be as follows (in 2014):

ON 67111 0%
67112-365000 7%
365000-550000 21%
550000+ 28%