Budget 2010 - Residential Property Implications

The 2010 Budget changes that were announced by the Minister will have very little effect on the measurement of investment return. Transfer duties, the corporate income tax rate, the capital gains tax inclusion rates and the primary residence exemption were all left unchanged. We have therefore retained the 2009 Budget Speech changes on this page.

Budget 2009 - Residential Property Implications

The implications for residential property investments as a result of the amendments announced in the Minister of Finance's annual budget speech are summarised below. As you should be able to conclude, these amendments will not have a significant effect on residential property calculations and the investment returns which are achieved from these type of investments.

Amendments

The annual capital gains tax exemption relating to individuals was raised from R16,000 to R17,500. This exclusion applies to all capital gains realised by an individual during a year of assessment and therefore would provide virtually no relief for property investors.

In terms of primary residences sold by individuals, all properties with a gross selling price below R2 million will be exempt from capital gains tax. Please note that the R1.5 million primary residence exemption still applies to properties sold for more than R2 million.

This means that the further exemption announced in this year's Budget only affects primary residences bought for less than R500,000 on which a capital gain was realised of more than R1.5 million and is sold for less than R2 million. The added exemption clause will therefore only provide relief for a small number of home owners.

The important aspect of this exemption is that in terms of compliance with the Income Tax Act and the regulation of capital gains tax by the South African Revenue Service, the number of properties sold has been significantly reduced. It will therefore be easier for SARS to monitor compliance with the Income Tax Act.

Variables not affected

Transfer duties have remained unchanged - individuals still pay transfer duty based on the property purchase price of 5% between R500,000 and R1 million and 8% on amounts above R1 million. Properties acquired for less than R500,000 are exempt from transfer duty. Corporations and trusts pay transfer duty of 8% on the property purchase price.

Individuals pay income tax on a sliding scale and some further relief has been provided. The corporate tax rate remains at 28% and trusts are taxed at 40%.

The capital gains tax inclusion rate for individuals remains at 25% and the inclusion rate for corporations and trusts is still at 50%.

As mentioned earlier, the primary residence exemption remains at R1.5 million.