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CAPITAL GAINS TAX: Changes aim to reduce ‘arbitrage’

23 February 2012   (0 Comments)
Posted by: SAIT Technical
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CAPITAL GAINS TAX: Changes aim to reduce ‘arbitrage’


AMANDA VISSER


FINANCE Minister Pravin Gordhan has introduced changes to the capital gains tax regime to reduce the scope for "tax arbitrage” and broaden the tax base. From March 1, the inclusion rate for individuals and special trusts will increase from 25% to 33,3%, and for companies and other trusts from 50% to 66,6%.

Capital gains tax was introduced in 2001 at "relatively modest rates” and was unchanged for 10 years, Mr Gordhan said. The tax was intended to ensure the tax system’s integrity and progressive nature, and the increase was aimed at enhancing equity. The effective capital gains tax rate rises to 13,3% for individuals and special trusts, to 18,6% for companies and 26,7% for other trusts.

Mr Gordhan also announced increases in the thresholds for individual capital gains and for primary residences to limit the effect of the increases on middle-income earners. For individual capital gains, the exemption for the annual exclusion rises from R20000 to R30000, the exclusion amount on death from R200000 to R300000 and the primary residence exclusion from R1,5m to R2m.

The exclusion amount on the disposal of a small business when the person is older than 55 years rises R900000 to R1,8m and the maximum market value of assets allowed for a small business sale for owners older than 55 years will increase from R5m to R10m.

Mr Gordhan has also sent a strong message against gambling, with proposed changes to the previously proposed withholding tax on gambling winnings above R25000. The Treasury said it wanted to address the socioeconomic effect of gambling in the same way it has been combating smoking and drinking.

The tax, effective from April next year, will take the form of an additional 1% national levy on a uniform provincial tax. A similar tax will be introduced on the national lottery. The previous proposal would have taxed only the winner, but with the new proposal, all gamblers and the gambling industry will be taxed.

Mr Gordhan has also announced that several other policy research projects will be undertaken in 2012-12. These include reforms to the primary, secondary and tertiary rebates in the context of a review of the means test for the old age grant; taxation of financial instruments; taxation of income from capital to ensure greater equity and minimise opportunities for tax arbitrage; and value-added tax treatment of public transport.


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