Government Income
2. Wealth Tax Tis type of taxation can take the form of property tax, capital gains tax, estate duty and transfer duty. Property tax is the largest source of income for municipalities; estate duty and transfer duty are both levied by the central government.
Property Tax Real property refers to land plus improvements. Personal property refers to goods such as furniture and motor cars. Real property is taxed because any property adds to the wealth of the owner. It has become common practice in South Africa to refer to the taxes which local authorities charge owners of real property, as rates and taxes – the rate is calculated either on the market value of the real property or on the size of the land and the improvements made to the buildings. In most cases the rate of taxation was calculated by doing a municipal valuation of the property – oſten completed many decades ago (it takes time and cost money to value very single property in a large city, for instance).
Tis has meant that properties worth a great deal are taxed at a low rate. Most local governments have decided to change the valuation process, and to perform a market-related valuation. Te object of taxation spoken about above is therefore real property. Te subject of taxation is the owner of that property. A good example of personal property taxation is motor vehicle licensing – the license fee goes towards the construction and maintenance of roads.
Estate Duty Tis is oſten known as death duty, and also succession duty. Te estate of the deceased becomes the object of taxation; the tax base being fair market value of the estate on the date of death of the deceased. A deduction of R3.5 million is allowed before any taxation takes place; the rate of this type of taxation is a flat rate of 20%. It stands to reason that the majority of people in South Africa do not pay death duty when they die, as their estates are worth less than R3.5 million.
Transfer Duty Tis is the oldest known tax in South Africa, instituted by the VOC in 1686. When a purchaser buys a property and the title deed is transferred into their name, the state levies a tax called transfer duty on this transaction and subsequent registration. Te tax base is the market value of the property – the purchase price is normally accepted as such. Certain exemptions exist, the most important of which is that any property bought from a developer (new property, sold for the first time) is exempt from transfer duty in order to avoid double taxation – the purchaser will have already paid VAT on the building materials used to build the house.
Stamp Duty Tis is a duty imposed on personal property such as agreements and contract (e.g. ante-nuptial), bonds, custom and excise documents, etc. Tis tax is not an ad valorem tax, but is levied per item – for example, so much for a bond document.
Capital Gains Tax As of October 2001, South Africa introduced capital gains tax (CGT). A person’s capital gain in respect of an asset disposed of (physical or otherwise) is the amount by which the proceeds exceed the base cost of that asset. Disposing includes donation, sale or loss. For example, if someone buys a gold coin for R2000 and sells the coin for R2 500, then they have made a capital gain of R500, and this amount should be declared.
However, certain items such as your primary residence (the house that you reside in) as long as the home is valued at R2 million or less, and your car are exempt from capital gain. Furthermore the first R20 000 of your capital gains, if you are an individual (not a company) are also exempt from CGT.
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