Will my capital gain be added to my income?

A capital gain arises when you dispose of an asset on or after 1 October 2001 for proceeds that exceed its base cost. In your case, you have a capital gain of R127 000 from withdrawing your unit trust. Capital gains tax (CGT) is not a separate tax but forms part of income tax and is based on the below sliding tax tables for individuals for the 2023 financial year:

Only a portion of the capital gain (currently 40%) is included in taxable income, and not the full profit. In your case, the portion that will be included for tax purposes is R50 800. So, selling your investment is not fully taxed at the same rate as money you earn from your salary, thank goodness!

The other good news is that you get an annual exclusion of R40 000.

For each year of assessment, an annual amount (referred to as the “annual exclusion”) of the sum of a natural person’s capital gains and capital losses is excluded for CGT purposes. The annual exclusion increases in the year in which a person dies.

A net loss that results after adding together the capital gains and capital losses for the year of assessment must also be reduced by the annual exclusion.

Annual exclusion = R40 000

Annual exclusion in year of death = R300 000

Your taxable capital can be calculated as follows:

Sum of capital gains and capital losses during the year of assessment

Less: Annual exclusion

= Aggregate capital gain or aggregate capital loss

Less/add: Assessed capital loss brought forward from previous year of assessment

= Net capital gain or assessed capital loss

Multiply a net capital gain by the inclusion rate (40% for an individual)

= Taxable capital gain to be included in taxable income.

There are some retirement and other investment products that are exempt from capital gains tax and that can be very beneficial to you. Get an advisor to assist you in setting up your financial plan in the most tax efficient manner.