CGT increase could have nasty consequences
Stealth tax
Tony Barrett, wealth manager at FNB Financial Advisory says for high-net-worth South Africans, CGT implications are of particular importance as they have been a feature of the South African financial environment since 1 October 2001. He says, although the initial impact was small, with asset price increases being rather substantial, it has truly become a stealth tax in recent time.
Individuals and trusts will feel the pinch
The Ministry of Finance has proposed increasing the inclusion rate of capital gains from 33.3% to 40% for individuals, and from 66.6% to 80% for trusts and companies. In simple terms this means that, for individuals, 40% of all capital gains are added to that individual’s taxable income, the same principle applies for companies and trusts which now have 80% inclusion rate. For individuals and trusts the maximum marginal income tax rate remains at 41%, and for companies the tax rate is 28%.
No man's land
“This jump puts many investors in a veritable ‘no mans’ land due to the debilitating effect of CGT on a portfolio’s realised value. It also constrains the flexibility and accessibility of funds. After all, as people’s circumstances and needs change at different stages of life, they will only naturally want to dispose of certain assets in order to purchase new ones that better suit their requirements. CGT never goes away, on death the deceased is presumed to have disposed of his assets the day before he passes away and his executor is required to compute the CGT owed during the winding up of the estate.
“This year’s budget has brought home the reality of CGT as a serious tax to be reckoned with, and one that will have material impact on wealth creation of individuals, trusts and companies,’” concludes Barrett.