Some facts on CGT:
Capital gains tax (CGT) is not a separate tax but forms part of income tax. A capital gain arises when you dispose of an asset on or after 1 October 2001 for proceeds that exceed its base cost at that time.
A South African resident, as defined in the Income Tax Act, 1962, is liable for CGT on assets located both in and outside of South Africa.
CGT applies to individuals, trusts and companies.
A person who buys South African immovable property or an interest in such property from a non-resident for a consideration that exceeds R2 million must withhold tax from the purchase price and pay it to SARS.
What steps must I take?
Simply declare your capital gains and losses in your return of income covering the relevant year of assessment. Keep the records necessary to determine a capital gain or loss in a safe place as many years may elapse between the time you acquire an asset and dispose of it.
How is capital gains tax calculated when applied to the disposal of a capital asset such as property?
A ‘disposal’ might be the ‘actual physical disposal’ of the capital asset by sale or it could be the ‘deemed disposal’ of an asset. An example of a deemed disposal would be death of the owner.
What’s important is that a capital gain or capital loss must be determined for each asset that you dispose of during any one tax year. Total capital gains are then offset against total capital losses resulting in a net gain or net loss.
Important capital gains tax changes as from 2012:
The inclusion rate for individuals is 33, 33%. The maximum effective rate is 13, 33% for the top tax bracket
The inclusion rate for companies is 66, 67%, making their net effective rate 18, 67%.
The bad news for trusts is that the inclusion rate is also 66, 67%. The net effective rate applicable to trusts is a whopping 26, 67%.
The annual capital gain/loss exclusion is R30, 000 for individuals and special trusts.
The exclusion on death for individuals is R300, 000.
The primary residence exclusion is R2 million + base costs.
The capital gain = selling price - the base cost.
Where the Base cost includes original cost + transfer duty + transfer fees + bond registration fees + improvements + selling cost
And selling cost includes estate agent’s commission + bond cancellation fee + certificates of compliance (for example electrical, beetle, plumbing, gas and electrical fence compliance certificates), etc.
Improvement cost includes all additions over the years such as alterations, improvements, alarm system, new plants, paving, etc.
In addition, should you decide to put your property on the market and aim for a higher selling price by doing repairs and painting before selling, SARS allow for these costs to be deducted as improvements.
It is important that each homeowner keeps a file with proper records of the initial purchase costs as well as all further capital improvements and relevant expenditures
Example 1: Selling property bought after 1 November 2001
Say Person A has an annual taxable income of R680, 000 and more and is at the maximum tax rate of 40%.
He bought his primary residence in 2002 for R2 million after 2001 when CGT was implemented, and has registered his property in his personal name. He sells the property 12 years later for R5.5 million.
Therefore R5.5 million – R2 million primary residence exclusion = R1.5 million capital gain and a further base cost of R500 000 (agents fees, improvements etc) is subtracted = R1 million capital gain. This amount will be added to his annual tax return and the effective CGT rate will be 13.3% of the R1 million or R133, 000.
Example 2: Selling property that was bought before 1 November 2001
Person B sold his property that he bought in 1991 (10 years before Capital gains tax started in South Africa on 1 October 2001) for R300, 000. He sold the property on 1 November 2013 (12 years after 2001) for R3 million.
CGT is therefore calculated at R3 million – R300, 000 = R2, 700, 000 (X) capital gain and a taxable capital gain of (X) x 12/(10 + 12) years, therefore R1, 472, 727.
Example 3; Selling property that was partially occupied and partially let during ownership
If a person sells his property after 10 years, that was occupied as a primary residence for 7 years and he rented another property in a different town for 3 years due to work circumstances, then SARS will still give him the R2 million primary residence exclusion after the 10 year period.
However, if we use the same example and he bought another property after 7 years which is close to the first property, he will be able to claim only 70% of his primary residence exemption when selling the first property 10 years later.
Example 4: Selling property that is not deemed a primary residence
If a person buys a property for R10 million that is not occupied as a primary residence and then later sells it for R11 million. Then the CGT will be calculated on the capital gain of R1 million.
Exclusion of R30, 000 applies, therefore R970, 000.
An inclusion rate of 33, 33% of the R970, 000 balance is taxable, therefore R323,333.
It is imperative that you do your capital gains tax calculations carefully and arrive at the proper base costs and deductions when selling your property.
Source:
Fanus Jonck
Chris Green
SARS website:http://www.sars.gov.za/TaxTypes/CGT/Pages/default.aspx
For CGT or personal tax information contact our local tax consultant:
Fanus Jonck. Tel: 021 914 7454. Email: tax@jonck.net
Every sale agreement of a normal residential property (house and its usual outbuildings) will contain a voetstoots clause.
The word voetstoots is the action of buying something ‘as is’, that is ‘just as it stands’ in whatever condition it is, warts and all.
An example of the wording of a voetstoots clause is as follows:
The Property is sold voetstoots in the condition in which it stands and the Seller gives no warranty with regard thereto, whether express or implied.
The voetstoots clause is essential to the purchase of all second hand residential property which may well have deteriorated through normal wear and tear or which may be defective to some extent as a result of its constant use or through natural decay over a period of time. Its basic purpose is to shield the Seller from any action by the Buyer (on discovering any defects he was not aware of when purchasing the property) from doing anything to jeopardize the actual sale contract. It is important to know what the effect of such a clause is and to what extent it protects the Seller.
Voetstoots is not designed to shield Sellers who engage in fraud or bad faith dealing by making false or misleading representations about the quality or condition of a particular property. It merely summarizes the concept that a purchaser must examine, judge, and inspect a property considered to purchase.
Whilst this clause will protect a Seller, the protection is limited.
THE SELLER’S RESPONSIBILITIES: THE DUTY TO DISCLOSE
The Seller has the “duty to disclose” any defects which are latent, in other words any defects which are not obvious. If the Seller hides defects in the property on purpose, the Seller will not be protected. Therefore the voetstoots clause will not protect a Seller who knows of a defect in the property but does not tell the Purchaser about the defect. Sellers should also be aware that the law goes even further than a simple failure to tell the Purchaser about a defect in that the voetsoots clause it will also not protect a Seller who tells a half truth.
SELLERS REMEMBER: Disclose any defects to avoid problems after the sale
THE PURCHASER’S RESPONSIBILITIES: THE DUTY TO INSPECT
The Purchaser also has certain responsibilities when buying property. This responsibility is the “duty to inspect”. The Purchaser must inspect the property and must be aware of the condition of the property that he is about to buy.
If the Purchaser sees defects that are not acceptable, the Purchaser must write into the offer to purchase that the problem is to be fixed by the Seller prior to registration of transfer. If the Seller accepts the offer to purchase with this condition, that Seller has then agreed to fix the problem.
BUYERS REMEMBER: Make a thorough inspection and acquaint yourself with the general condition of the property.
A voetstoots clause at face value discharges a Seller from liability for all patent and latent defects. Before looking at how far this protection goes, it is important to explain the distinction between these two different types of defects.
Patent Defects are flaws that will be clearly visible on a normal inspection of a property. They include wall cracks, sagging gutters, broken windows, missing tiles and the like. It is a Buyer’s duty to acquaint himself with the general condition of a property on purchasing it and he cannot later claim he did not see such defects.
The test is an objective one, namely what could have been seen on the original inspection of the property.
Latent Defects are faults that are not immediately obvious and are hidden from view. These include faulty pool pumps and geysers, rusted internal pipes, leaking roofs (except where stain marks make the leak obvious) and defects that have been concealed such as dampness behind a cabinet.
The test is what could not normally be seen on inspection
While the voetstoots clause liberates a Seller from any liability for patent defects, this exemption is however not so in the case of latent defects.
THE SELLER’S RESPONSIBILITY
In terms of numerous South African court cases a Seller is only excused from liability for latent defects where he himself was not aware of the problem at the time of the sale. If a Seller knowingly conceals a latent defect he will be liable to the Buyer for the cost of its repair. In such a case he cannot rely on any clause in the original contract making no warranties as to the condition of the property.
A Seller will thus be liable for all cracks or dampness and other similar faults deliberately hidden from view. He is also responsible for latent defects which he is presumed to have been aware of, such as any appliance, which is not functioning properly. Examples are geysers delivering only lukewarm water, defective electrical points, and the like.
THE BUYER’S RECOURSE
It is very important for a Buyer to know what his rights are in such cases. By law he cannot do any of the following:
It is he, and not the Seller, who will be in breach of contract if he takes any of these actions. By law his proper recourse is to institute an action for damages and sue the Seller. This will obviously not appeal to the Buyer and the best way to resolve the problem is to ask the Conveyancer doing the transfer to settle the matter amicably with the Seller. Ideally he should arrange a refund of the costs of repair to the Buyer on registration of transfer. It is in the best interests of both parties to agree to this.
THE ISSUE OF FRAUD
It would be opportune at this stage to introduce a very important issue, and that is that the “voetstoots” clause does not protect the Seller against fraud.
For example, if the Seller knows about a particular problem, is aware of a latent defect, and fails to disclose details of that defect to the purchaser while knowing of its existence, this is pure misrepresentation; and misrepresentation is the essence of fraud. Such misrepresentation can occur in one of two ways
1. EXPRESS MISREPRESENTATION OR
2. NON-DISCLOSURE.
Here are the two scenarios:
In both of the above cases the Seller has defaulted – by either denying the presence of a latent defect of which he/she is aware when asked, or by failing in his/her obligation to disclose such a defect, although not questioned specifically on that issue. In both cases there has been misrepresentation by the Seller to either the Purchaser or Agent by being aware of the defect and fraudulently not disclosing it or concealing the defect from the Purchaser or Agent. His/her expressed declaration of silence constitutes blatant dishonesty
There are two other important issues that also need to be covered as they often affect sales of immovable property.
DEFECTS CAUSED AFTER A SALE
Who is responsible for damage done to a property after a sale contract has been signed but before registration of transfer takes place? For example, a negligent motorist might smash the front wall of the property or a geyser might suddenly burst, flooding the house and damaging its fitted carpets. Responsibility will lie as follows:
Buyers who only complain of defects some months after registration of transfer has taken place occasionally exasperate Sellers and Estate Agents. There are two issues here. Firstly the discovery of defects that only appear later. For example, a Buyer may only experience a major roof leak when the first summer rains appear long after registration. If it can be shown that the Seller knew or must have known about the leak and consciously failed to disclose it, the Buyer can sue him for his repair costs.
The second issue concerns a delayed discovery of defects by the Buyer. For example he may only first complain about a wall crack six months after taking occupation. It will be very hard to prove that the Seller knew about a defect which the Buyer himself took so long to discover or that the defect existed at the time of the sale. In such cases the Buyer will have no recourse against the Seller.
Far too many Buyers want to hold their Estate Agents liable for latent defects they only discover sometime after the sale has been concluded. This is particularly the case where a defect has only been discovered months after the transfer has been registered.
An Estate Agent is only obliged to inspect the property for obvious patent defects, to enquire from a Seller as to what known latent defects exist, and to then disclose them before signature to the Buyer.
Once having done this the Buyer’s recourse is against the Seller alone. Often a Seller, on being challenged about an undisclosed latent defect, will falsely claim that he had informed the agent about it prior to the sale. A Buyer’s recourse will inevitably rest against the Seller alone and the Estate Agent should not be harassed in any way.
It is important to us at Louise Reyneke Properties to make the experience of buying or selling property as easy and informed as possible. Defects seem to be one of the most contested problems that we encounter during the sales process. We have added a defects disclosure listto our Offer to Purchase that is designed to disclose known defects to potential purchasers and constitutes the honestly held beliefs of the Seller of the property.
However, the duty still rests on any potential Purchaser to properly and thoroughly examine the property and if concerned about any potential defect/condition to obtain independent advice from an appropriate expert before concluding a binding sale agreement.
Source:
http://www.roylaw.co.za/home/article/the-voetstoots-clause/pageid/your-rights
Up to recently it has been a matter of choice, however now, having an energy efficient building is no longer just the preserve of those wanting to do the right thing. What used to be a voluntary standard is now written into law and has become applicable as of 11 Nov 2011. These are the SANS 10400-XA: Energy Usage in buildings, and SANS 204: Energy Efficiency in buildings. The sure thing is that building costs will increase.
In Short: Heat loss mainly comes from the following places:
The regulations thus focus on two major elements:
It was stated that if thermal ceiling insulation and high-performance window systems were introduced today into all new residential and commercial buildings, an estimated 3500 MW in electricity could be saved by 2020.
This is almost twice the electricity currently produced by our only nuclear power plant, Koeberg (1800 MW).
This is the main point underlying the recent publication of SANS 204, Energy efficiency in buildings: a huge reduction in energy consumption, equivalent to a new nuclear power plant.
Potential Impacts of these regulations
Building costs may increase as a result of the new energy efficiency regulations. However, owners of buildings will experience long term energy savings resulting in a lower life cycle cost for the building.
Energy used by the building sector can account for up to 40% of the total energy used in the world and this amendment is the first of many amendments that will fit under the environmental sustainability section of the National Building Regulations and Building Standards Act in an effort to decrease the impact of the building sector on the environment. Future amendments include sections on water usage, materials and recycling.
For more information, please go to: http://www.insulpro.co.za/sans_204_explained.htm
Or for the SABS regulations, see their website at: https://www.sabs.co.za/index.php?page=energy
Information received from the Techno group:
Electrical Certificate: The electrical certificate covers the permanent electrical installation which is everything from where the Eskom cables join to the property up to the points where the cables terminate at the appliances, be it a plug outlet, a light fitting or a more permanent connection to a fixed appliance, for example a stove, pool pump, air conditioning unit or geyser. It is important to know that the actual appliances themselves do NOT form part of the certificate. It is generally accepted that all fixed appliances get sold with the property. It is the duty of the Seller to disclose any issues with these devices.
The certificate confirms that the appliances are connected correctly to the installation and that power is present, but we do not test the actual appliance itself.
Beetle Certificate: The beetle certificate can be a source of much frustration for two reasons.
There are no specific laws governing exactly what is required for a beetle inspection, it is a contractual agreement based on the beetle clause in the specific deed of sale and can vary dramatically from one contract to the next in terms of which beetle or beetles are required to be inspected and where on the property it is requested to check. It can be only in the main dwelling or all timbers on the property, including wooden fences, wendy houses or any other wooden structures.
Limitations: The beetle certificate is further limited to a VISUAL inspection of ACCESSIBLE timbers for ACTIVE infestation. The mere fact that we cannot see evidence of infestation with the naked eye at the time of the inspection does not guarantee that it is beetle free as the larva can live undetected inside the timbers for years. It can only become evident when the larwe mature and leave flight holes and dust to exit the timber. The timbers need to be accessible at the time of the inspection. Timbers in enclosed ceilings, wooden floors under fitted carpets, or any other inaccessible area cannot be checked.
Plumbing certificate. The plumbing by - laws are primarily concerned with reducing water wastage and ensuring that potable water and sewage water do not mix.
The geyser should be plumbed correctly, a pressure release valve of the correct value and vacuum breakers correctly installed, emergency overflow installed with a metallic pipe, all the overflows to be plumbed to the outside and discharge to atmosphere.
Check that the water meter to read properly when water is flowing and stops when all taps are closed to ensure that there are no water leaks. That none of the taps leak when the water meter is in the OFF position and that they are correctly fixed in position.
Leaking taps or blocked drains are not covered.
Gas certificate. The gas inspection is probably the least confusing of all the inspections and is purely to do with safety around explosive gases.
The inspector will check the following:
1. Cylinder storage to comply with safety zones.
2. SABS approved piping and installed in the correct manner.
3. Installation of isolation and emergency valve.
4. Adequate ventilation at cylinders and inside rooms.
5. If SABS approved appliances are connected to the reticulation system.
6. A pressure leak test to ensure system continuity.
For more information visit the Techno group website at
www.techno-group.co.za
Phone: 021 976 7117
Fax: 021 975 3313
E-
Sellers should be aware that there has been a new addition to the Electric, Gas, Water and Beatle Certificates when transferring a home.
Regulation 12 of the Electrical Machinery Regulations to the Occupational Health and Safety Act became effective as from 1 October 2012.
The regulation effectively stipulates that :
1. All users of electric fences must, as of 1 October 2012, be in possession of an ‘electric fence system certificate’.
2. The requirement in item 1 above does not apply to electric fences which already existed as at the 1st October 2012 but as soon as ownership changes of the property on which the fence is situated, the regulation will apply.
3. Once a certificate is issued it is valid forever and can be transferred by physical delivery from the existing owner of the property to subsequent owners.
In short, An Electrical Compliance Certificate has to be issued in respect of all electrical fence systems which are installed after the 1st October 2012 or in respect of which any modifications or alterations have been made to such electrical fence system after the 1st October 2012. In addition if there is a change of ownership which takes place after the 1st October 2012, such certificate must be issued.
Various entities can hold ownership of immovable property. Transfer can be effected to a natural person in his personal capacity or to a legal entity that is a trust, company (Co) or a closed corporation (CC).
There are specific tax implications to consider. Since 2001, there are almost no more tax benefits of holding residential property in a legal entity. There are however more benefits in buying a property in your personal capacity (natural person) than buying residential property in the name of a legal entity:
Fortunately until 31 December 2012, the South African Revenue Service (SARS) has offered relief. People who hold residential property in companies, CCs and trusts may transfer it into their own names free of taxes, if they meet certain requirements.
This does not mean the property must be registered in the name of the natural person in the Deeds Office by that date; but the parties must have signed some written agreement to transfer it.
You should seek professional advice from an attorney or other professional adviser to understand if this may be in your interest to do so.
If the transaction is implemented properly, the parties should suffer no transfer duty, CGT or secondary tax on companies. For CGT purposes, the person taking over the property effectively "takes over" the CGT base cost of the residence.
However, the law does not provide for relief from donations tax. So, be careful to make sure donations tax does not arise.
If you think you are a contender for relief then get professional advice, and remember the December 31, 2012 deadline.
This article is posted merely to inform you and does not pretend to be taken as legal or financial advice.
Our clients are often unsure about the extent of the plumbing certificate of compliance that has become law in the Cape on the transfer of ownership. As part of our ongoing service to present and passed clients, we would like to present you with the following summary from Techno electrical to what this entails.
CERTIFICATE OF COMPLIANCE OF WATER INSTALLATION ON TRANSFER OF OWNERSHIP IN ACCORDANCE WITH THE WATER BY-LAW SECTION 14(2) AND SANS 10252 AND SANS 10254
Information obtained from Techno electrical and lighting specialists, Durbanville
Tel: 021 976 7117
TAX PAYER |
INCLUSION RATE |
STATUTORY RATE |
EFFECTIVE TAX RATE |
Individuals |
33.3% |
0 - 40% |
0 – 13.3% |
Companies |
66.6% |
28% |
18.6% |
Trusts |
66.6% |
40% |
26.7% |
1. Location, Location, Location
South Africans are spoilt for choice when it comes to deciding upon a location for their holiday house. What is even more is that the “stock” currently available includes a range of properties in different destinations and price brackets. Location however remains important and buyers should research the property appreciation the area has achieved over the past year, how well maintained the area and its facilities are and establish the general market conditions prevailing in the particular suburb.
2. Looking Ahead
Property is a long-term investment and buyers should consider future developments and infrastructure planned for the suburb, as well as zoning and transport routes that may affect the tranquillity of the area should be borne in mind.
3. The Piggy-bank
There is no point in investing in a holiday home that is going to put extra strain on your personal finances. Holiday home buyers need to consider their financial position, with special regard to the initial out lay of capital such as a deposit, transfer fees and conveyancing fees, as well as the impact of possible interest rate increases and the rates, taxes and utility tariffs in the area.
4. Long Distance Relationship
There are obvious practical issues involved when the property is situated in a different town. Buyers need to consider the maintenance, security and insurance of the property, all of which need to be added into the overall budget.
5. Use it or lose it
Although buyers purchase holiday homes zealously and with great excitement, there is no point in owning a holiday home that will seldom or never be used. Carefully consider how much the property will be used and enjoyed in the years to come and establish whether or not the purchase will be worthwhile.
Holiday homes are still considered to be a strong asset class in which to invest. However, the property investment landscape has changed and with any property purchase, a good investment decision can only be assured if a buyer has done all his homework and is sure that the investment they are making is worth the financial commitment they are laying down to acquire it.
In property there are many weird and wonderful moments as well as the occasional frustrating ones. We have just encountered a combination of both where our Seller has broken his right hand and was unable to sign the necessary Offer to Purchase.
Michelle van Wyk from Bisset, Boemhke & McBlain came to our rescue with an ink pad and her commissioner of oath stamp. One of her colleagues wanted to know where the illiterate client lives that needs to use a finger print as signature. He was duly informed that he Seller lives in Welgedacht Estate.
With our resourceful connections and some humor, we are willing to do many extra ordinary things for our clients.
Try us!