Capital Gains Tax Calculator 2023
Disclaimer: The data supplied in response to your inquiry is only meant to be a rough approximation for a particular investment. It does not take into account the possible impacts of itemised or standard deductions, tax credits, or capital losses that may be available to offset your capital gains. It does not apply to capital gains on some company interests, homes, art, or other assets that are subject to particular capital gains tax laws. For further information, see a qualified tax expert.
What is Capital Gains Tax ?
Capital Gains Tax is a type of income tax levied on profits made from assets purchased at a lower price and sold at a higher price. In South Africa, the current capital gains tax rate is 18 percent for individuals and 22.4 percent for businesses. Because taxes can have an impact on your portfolio’s growth, it’s critical to understand how capital gains taxes operate and to discover some tactics for reducing them. Let me start by saying that we’re only going over the essentials in this essay. Because taxes are complicated and change depending on a variety of factors, it’s always better to seek advice from the South African Revenue Authority (SARS) or a tax specialist to fully comprehend your situation.
How do Capital Gains Tax work?
Let’s start with a straightforward example. Assume you’re a typical investor with a traditional taxable brokerage account. You purchase a share of stock XYZ for R500.00, and it rises to R600.00 over the course of a year. You’ve made a profit of R100.00 at this stage, but it’s an unrealized profit because you don’t profit until your trade is terminated. You won’t be taxed on profits as long as you don’t liquidate the position and the gains stay unrealized, regardless of how long you keep the stock or how much its price moves. Other types of stock income, such as dividends, may be taxed as well, but they aren’t always deemed capital gains.
Now, let’s return to our scenario. Assume you choose to sell the shares for R600.00. This is a taxable event because it represents a realized capital gain. The R100.00 profit is now owed to SARS. This article focuses on stocks, but capital gains taxes also apply to other types of investments such as real estate, bonds, and mutual funds.
How much is capital gains tax in South Africa?
| Type | 2023 | 2022 |
|---|---|---|
| Individuals | 18% | 18% |
| Special Trusts | 18% | 18% |
| Companies | 21.6% | 22.4% |
| Other Trusts | 36% | 36% |
How is Capital gains tax Calculated in South Africa?
It is primarily determined by two factors: the length of time you have kept the investment and your amount of income. Short-term and long-term capital gains are the two forms of capital profits. Short-term capital gains are the profits from investments you sell after holding them for a year or less. They’re usually taxed at the same rate as your regular income, which is determined by your marginal tax bracket. For the 2020 tax year, marginal tax rates varied from 18 percent to 36 percent, but rates can change over time, so it’s best to check with SARS for specifics.
Long-term capital gains are earnings from investments that have been held for more than a year. They’re frequently taxed more leniently because the South African government considers them to be beneficial to the economy. The exact rate will depend on your income, although the long-term capital gains rate for most people in 2020 was not higher than 18 percent. Rates might fluctuate over time, so check with SARS or a tax professional for the most up-to-date information. Capital gains are usually reported as part of your annual tax return, which may increase your tax liability when you file.
If you made any profits, it’s a good idea to set aside some money in case you have to pay taxes. It’s critical to be proactive in tax preparation because taxes can have a substantial impact on the profitability of your portfolio.
Investment tax planning strategies
- Weigh the pros and cons of short-term investments versus long-term investments. Active investors may attempt to increase returns by quickly buying and selling investments.
However, because of increased taxes and fees, it’s difficult for most people to outperform a well-diversified portfolio of long-term investments that are almost always taxed at a lower rate. When planning your investment strategy, consider how the investment holding period can affect your tax bill. - Consider maximizing tax-advantaged accounts, like retirement and education accounts. Depending on the type of account, you may be able to buy and sell investments without being subject to capital gains taxes. Reducing your tax burden could potentially help your portfolio grow faster.
- In taxable accounts, make the most of your losses. Benefiting from losses may sound counterintuitive, but SARS actually allows you to write off certain trading losses, which can help offset some of your capital gains taxes.
For example, tax-loss harvesting is a strategy that involves closing certain positions to intentionally realize losses that reduce your tax liability. Many brokerages offer automated tax-loss harvesting services, but it’s not right for everybody, so be sure to check with a tax or financial advisor.
Conclusion
Of course, tax planning and some capital gains calculations can be confusing. That’s why even seasoned investors enlist the help of tax professionals to make sure their taxes are in order.