Capital Gains Tax on Shares

The purpose that your shares serve will determine whether your shares will be charged for Income Tax or Capital Gains Tax, and your professional accountant is the best person to give advice on whether you are liable for CGT on your shares.

If your shares are intended as trading stock used to resell, any gain or loss on disposal will be of a revenue nature. Revenue gains are subject to income tax at your marginal tax rate, which may vary between 18% and 40% depending on your income tax level. If your shares act as a capital asset (i.e. A long-term investment) any gain or loss will be of a capital nature.

Information pertaining to CGT on shares includes the following:

  • Capital gains are subject to tax at a lower rate than ordinary income. For individuals, the first R15 000 of net capital gains or losses in a tax year is exempt for CGT – this is known as the annual exclusion.
  • Of this balance, 25% is included in your taxable income and taxed at your marginal tax rate, much like your salary or pension is taxed.
  • The Capital Gains Tax rate on an individual’s net capital gains in a tax year can therefore vary between 0% and 10%, depending on whether your shares exceed the annual exclusion or not.
  • Companies and trusts are liable for a higher CGT rate, and are not qualified for exclusion.
  • Companies and trusts must include 50% of their net capital gains in their taxable income, and also pay secondary tax (STC) on the profits they distribute.
  • The effective tax rate on net capital gains for a company is 29% x 50% = 14,5%. If the capital profit is distributed as a dividend, the effective company tax rate is increased to 22,27% (14,5% normal tax + 7,77% STC).

Contact PATC today to learn more about the Capital Gains Tax services and other accountant services on offer.