Many taxpayers may not be aware that the payment of capital gains tax (CGT) is due before you receive your investment tax certificates. This affects existing provisional taxpayers as well as any resident taxpayer who disposes of an asset and earns a capital gain or loss of more than R40 000.
As Donaldson Madungwe of Tax Consulting South Africa, explains, a resident taxpayer must register as a provisional taxpayer if they earn R83 100 or more (this amount is for the 2021 tax year) from income other than that as an employee.
This could apply to someone with a side hustle, a person earning rental income, or a pensioner who earns investment income.
It is important to note that earning income in a tax-free savings account will not make you a provisional taxpayer, nor will earning interest income above the exempt thresholds (less than R23 800 if you are under 65 or less than R34 500 if you are 65 or older).
Two provisional tax periods each year
As a provisional taxpayer, any taxes due are payable before the end of either or both of the two provisional tax periods namely 31 August and 28 February depending on which period the declaration is made. This means if a provisional taxpayer disposes of a capital asset, or an ordinary taxpayer has a capital gain of more than R40 000 (you do not pay capital gains tax on the first R40 000 of profit), the capital gain is payable at the very next provisional tax period.
For example, if the asset is sold in June 2021, CGT is payable by 31 August 2021. If the asset is disposed of in November 2021, the CGT would be payable by the end of February 2022.
Many taxpayers are not aware of this – especially someone who may not be normally registered as a provisional taxpayer. Taxpayers may mistakenly believe they are only required to declare and pay CGT in their normal tax return during tax filing season.
Madungwe says SARS is enforcing this rule, and penalties on late payment are being applied. This is despite the fact that financial institutions only issue tax certificates (an IT3(C) for CGT) several months after the end of the tax year on 28 February.
“SARS believes that an individual should be aware of the asset disposal, and also the anticipated gain or loss, and can make an actual or estimated calculation thereof,” says Madungwe.
This may be possible for an asset such as an investment property, however, on a share portfolio or a unit trust, where shares or units may have been bought at different times at different prices, this is a far more challenging calculation to make.
If you are selling out of an investment, ask your financial institution for the capital gain when the sale is made and make sure any CGT is paid on time.
This article first appeared in City Press.