Capital Gains Tax Explained: Simple Guide

If you’ve sold a house, shares, or a business and made money, you’ve probably heard the term capital gains tax (CGT). It’s the tax you pay on the profit you earn from selling an asset. In South Africa, the tax is part of your normal income tax return, but the way it’s calculated can feel a bit different.

Most people think CGT only applies to big investors, but anyone who makes a profit from a sale can be affected. Even if you sold a used car for more than you bought it, that extra cash could be subject to CGT. The good news is the tax rates are usually lower than regular income tax, and there are several ways to keep your bill down.

How CGT Is Calculated

First, you need to figure out the capital gain. That’s simply the selling price minus the base cost (what you paid) and any allowable expenses like legal fees, commissions, or improvement costs. For example, if you bought shares for R10,000, paid R500 in brokerage fees, and sold them for R15,000, your gain is R4,500.

Next, you apply the inclusion rate. In South Africa the inclusion rate is 40% for individuals. That means only 40% of your capital gain is added to your taxable income. Using the share example, 40% of R4,500 is R1,800. That R1,800 is then taxed at your normal personal tax rate, which could be anywhere from 18% to 45% depending on your income bracket.

There’s also an annual CGT exemption. For the 2025 tax year, individuals can exclude up to R40,000 of capital gains. If your total gains for the year are below that amount, you won’t owe any CGT at all. Couples filing jointly can combine their exemptions for up to R80,000.

Ways to Lower Your CGT

One of the easiest tricks is to time your sale. If you expect your income to drop next year, waiting could push you into a lower tax bracket, meaning the same CGT amount is taxed at a lower rate. Another tip is to keep detailed records of all costs associated with the asset – improvements, repairs, and selling fees can all be deducted from your profit.

Investors often use a strategy called loss harvesting. If you have assets that are losing value, you can sell them to realize a capital loss. That loss can be used to offset capital gains from other sales, reducing the net amount you’re taxed on.

Lastly, consider using tax‑advantaged accounts where possible. Certain retirement savings vehicles, like a pension fund, allow you to grow investments tax‑free, meaning you won’t face CGT when you eventually withdraw the money, as long as you follow the rules.

Remember, CGT only kicks in when you actually sell an asset. Holding onto a property or investment for longer than a year can give you more flexibility to plan your sale around your overall tax situation.

Bottom line: capital gains tax is just another piece of the tax puzzle, but with a few simple steps you can keep the amount you pay low. Track your costs, use the annual exemption, consider timing, and don’t forget about loss harvesting. By staying organized and planning ahead, you’ll avoid nasty surprises at tax time and keep more of the profit you worked hard to earn.