Property Investment and Related Taxes
There are several taxes that you need to be familiar with if you invest or trade in fixed property.
The seller will pay Income Tax on the sale of property which was bought (and perhaps renovated) with the object of selling at a profit. The taxable income will be added on top of any other taxable income earned by the seller before calculating the total tax (at 28% for companies and up to 45% for individuals).
Capital Gains Tax (CGT)
The seller will pay CGT on the sale of property which was bought (and perhaps renovated) with the object of holding as an investment (typically to earn rental income). The capital gain (net profit) on sale is multiplied by the inclusion rate (40% for individuals and 80% for companies) with the result being added to the seller’s taxable income before calculating the total tax as above.
So, if the seller trades in property, the trades are subject to Income Tax. If the seller invests in property, then the sale is subject to CGT
Transfer Duty is levied on the buyer when ownership of fixed property changes hands. It is zero up to a sale price of R750 000 and rises in steps to 11% for prices exceeding R2 250 000
It applies if the shares in a company owning predominantly residential property are sold (this sale is deemed to be a sale of the property itself), but it does not apply if the company owns predominantly commercial property.
It does not apply if the trustees of a trust which owns fixed property, award that property to a beneficiary who is a relation, within the third degree of consanguinity, of the founder of the trust. That covers, for example, a sibling’s (1st degree) child’s (2nd degree) child (3rd degree) i.e. three steps away from the founder.
It also does not apply on commercial property when the buyer is VAT registered or residential property if the seller is a VAT registered vendor trading in property.
Value Added Tax (VAT)
VAT is charged by a developer on the sale of the property that has been developed.
It will also be charged by a VAT registered vendor who trades in property.
The VAT vs. Transfer Duty rules are not entirely straightforward, so here’s a chart to guide you.