How much capital gains tax will I pay when I sell my shares?

Overview

  • you may need to pay capital gains tax on shares if you sell them for a profit
  • the maximum you will pay is 18% - if you are in the highest income tax bracket
  • the amount of tax payable depends on your income tax bracket
  • you only pay tax if your profit is more than R40 000 in a year
  • if you make a loss, you can use it to offset future gains
  • no capital gains tax applies if shares are sold in a tax free savings account, retirement annuity or living annuity

CGT calculator when you sell your shares

Here is the simple formula and online CGT calculator to work out how much capital gains tax you will pay when you sell your shares for profits in South Africa.

The Formula
Tax you will pay = (Profit - R40 000) x 40% x Marginal Income Tax Rate
Capital Gains Tax Calculator for 2022-2023 tax year
I currently earn (Rands) per year
Here is how much tax you will pay
= [(R100k - 40k) x 40%] x Marginal Income Tax Rate
= R24k x 36.0%
= R9k
R 1.0k = tax you need to pay based on a R100k profit.

Will you need to pay capital gains tax on your shares

When does capital gains on shares apply?

  • if you disposed of your shares. “Disposed” means you sold, donated or emigrated to another country, and
  • if you held the shares for more than three years, and
  • if you made more than R40 000 profits

When does capital gains tax NOT apply on shares?

  • if you held the share for less than three years. In this case, SARS may see the profit as income and apply income tax
  • if you hold shares in a retirement annuity, pension fund or living annuity = no CGT applies
  • if you made less than R40 000 in profits in a year - no tax will be payable on your profits

How to calculate capital gains tax when selling your shares in South Africa

When you sell (or “dispose”) your shares

  1. For more than it cost you - then you have made a profit
  2. For less than it cost you - then you have made a loss

If you made a profit,

the amount of capital gains tax you pay on your shares is calculated

  • Step 1. Calculate the total profits
  • Step 2. Deduct R40 000 (“annual capital gains exclusion”) from your profits
  • Step 3. Multiply by 40% (“the inclusion rate”) of your profits
  • Step 4. Multiply by your marginal income tax rate

If you made a loss,

  • it will not reduce your tax payable in this year,
  • but, you can carry it forward to the next year and offset it against any gains
  • if no gains are made next year, you can carry the losses forward forever util you make gains

How to calculate the base cost for shares

If you sold all of your shares

the base cost is simply what you paid for them.

PS brokerage costs, STT and investor protection levy all form part of the base cost. There is no need to deduct any of these from your base cost.

If you sold part of your shares

the base cost for shares can be calculated using any of these methods:

  1. average weighted cost, or
  2. first-in, first-out (“FIFO”) method, or
  3. specific identification method.

Once you have picked a method, you cannot apply a different method for the same shares in another tax year.

The most common method is average weighted cost for shares.

Summary

  • SARS may tax you on your profits when you sell your shares
  • If you held your shares for less than three years, income tax may apply
  • If you held your shares for more than three years, capital gains tax may apply
  • Capital gains tax (CGT) is less evil than income tax, since SARS allows for deductions when it comes to capital gains
  • For CGT, you can deduct R40 000 from your profits AND reduce your taxable profits further by multiplying by the inclusion rate (40%)
  • The amount of CGT you end up paying is linked to how much you earn
  • Higher earners are in a higher income tax bracket and will pay more CGT than lower income earners
  • No CGT on shares is applicable within a tax-free savings account, retirement annuity or living annuity
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