In South Africa, you only pay tax on capital gains and losses when you dispose of your shares or other capital assets. So, if you buy shares and their value increases, but you have not yet sold them, you will not be taxed on the unrealised profits
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Capital Gains Tax
When you sell shares, you are liable to pay capital gains tax (CGT) on any profit you make. However, you are entitled to an annual CGT exclusion of R40 000. This means that you only pay tax if your capital gains exceed R40 000. The tax rate for CGT is 18%.
Losses
If you make a loss on the sale of shares, you can offset this against any capital gains you have made on other assets. This can reduce your overall CGT liability. Capital losses can be carried forward indefinitely until they are utilized to offset future capital gains.
Taxation of Foreign Shares
If you sell shares in a foreign company, you will be liable to pay CGT in South Africa if you are a South African resident. However, foreign tax credits may be applied to reduce your South African tax liability.
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Tips for Reducing Your CGT Liability
There are a number of things you can do to reduce your CGT liability. These include:
- Holding shares for a long time. The longer you hold shares, the lower your average cost will be. This will reduce your capital gains when you eventually sell the shares.
- Investing in companies that pay dividends. Dividends are not subject to CGT, so they can help to reduce your overall tax liability.
- Using a tax-free savings account (TFSA). TFSAs are specifically designed to help investors save for retirement. They offer tax-free growth and withdrawals.
FAQs
Q: What is the CGT rate in South Africa?
A: The CGT rate in South Africa is 18%.
Q: Can I offset capital losses against other income?
A: No, capital losses can only be offset against other capital gains.
Q: What is the annual CGT exclusion?
A: The annual CGT exclusion is R40 000. This means that you only pay tax if your capital gains exceed R40 000.
Are Unrealised Profits On Share Trading Taxed In South Africa
Conclusion
Understanding the tax implications of share trading is essential for any South African investor. By following the tips and advice outlined in this article, you can help to reduce your CGT liability and maximize your after-tax returns. Are there any other questions or concerns you have about this article’s topic?
