Capital gains tax South Africa: what small business owners need to know

Published Friday 14 August 2026

Table of contents

• What is capital gains tax in South Africa?
• Capital gains tax rates in South Africa
• How to calculate capital gains tax in South Africa
• CGT exemptions and exclusions in South Africa
• Capital gains tax on property in South Africa
• CGT on selling a small business in South Africa
• CGT record-keeping tips for small business owners
• Simplify your small business tax compliance with Xero
• FAQs on capital gains tax in South Africa

Key takeaways

• Capital gains tax (CGT) in South Africa applies when you sell, donate, or dispose of an asset for more than its base cost, with individuals paying an effective rate of up to 18% and companies up to 21.6%.
• Small business owners can access valuable exclusions, including up to R2,700,000 when selling a qualifying small business.
• Accurate record-keeping of purchase prices, improvement costs, and disposal details is essential to calculate CGT correctly and avoid penalties from SARS.

What is capital gains tax in South Africa?

Capital gains tax in South Africa is a tax on the profit you make when you dispose of an asset for more than its base cost. It was introduced on 1 October 2001 under the Eighth Schedule to the Income Tax Act 58 of 1962 and forms part of your normal income tax return.

CGT isn't calculated in isolation. Instead, a portion of your capital gain (known as the inclusion rate) gets added to your taxable income, and you pay tax on it at your marginal rate. This means how much CGT you owe depends on both the size of your gain and your overall income.

A "disposal" doesn't only mean a sale. It includes donations, exchanges, the loss or destruction of an asset, the owner’s death, and even emigration f;;;;;rom South Africa. If you're a South African tax resident, CGT applies to your worldwide assets. Non-residents only pay CGT on immovable property located in South Africa.

Who pays CGT?

Any individual, company, trust, or other entity that disposes of an asset at a profit is liable for CGT. As a small business owner, you'll encounter CGT when you sell business equipment, vehicles, property, or the business itself.

Individuals and sole proprietors report your capital gains and losses on the ITR12 income tax return – if you’re incorporated, use the ITR14 instead. SARS expects you to keep detailed records of all asset acquisitions and disposals to support your calculations.

Capital gains tax rates in South Africa

The capital gains tax rate in South Africa depends on the type of taxpayer you are. Rather than taxing the full gain, SARS uses an inclusion rate to determine how much of the gain gets added to your taxable income.

Here are the current inclusion rates and maximum effective CGT rates for the 2026/2027 tax year:

• Individuals: 40% inclusion rate, resulting in a maximum effective rate of 18%
• Companies: 80% inclusion rate, resulting in a maximum effective rate of 21.6%
• Trusts: 80% inclusion rate, resulting in a maximum effective rate of 36%

How to calculate capital gains tax in South Africa

Calculating your CGT liability follows a simple formula: subtract the base cost from the proceeds, apply any exclusions, then multiply by your inclusion rate. The result gets added to your taxable income.

Understanding base cost

The base cost of an asset is essentially what it cost you to acquire and improve it. Getting this figure right is critical because a higher base cost means a smaller capital gain and less tax to pay.

Your base cost typically includes:

• The original purchase price or acquisition cost
• Direct costs of acquisition, such as transfer duty, legal fees, and agent commissions
• The cost of improvements that are still reflected in the asset's condition at disposal
• Costs directly related to the disposal, such as advertising or broker fees

For assets you held before 1 October 2001 (the valuation date), you can use a market value on that date, the time-apportionment method, or 20% of the proceeds where no records exist.

Worked example

Suppose you're a sole proprietor who bought commercial premises after 1 October 2001 for R1,500,000 and spent R200,000 on renovations. You sell the property for R2,500,000 in 2026, paying R50,000 in agent fees.

1. Calculate the proceeds: R2,500,000.
2. Calculate the base cost: R1,500,000 (purchase) + R200,000 (improvements) + R50,000 (selling costs) = R1,750,000.
3. Calculate the capital gain: R2,500,000 - R1,750,000 = R750,000.
4. Apply the annual exclusion (covered in the next section): R750,000 - R50,000 = R700,000.
5. Apply the inclusion rate (40% for individuals): R700,000 x 40% = R280,000 added to your taxable income.

The actual tax you pay on that R280,000 depends on your marginal tax rate. At a marginal rate of 45%, you'd owe R126,000 in CGT on this transaction.

CGT exemptions and exclusions in South Africa

South African tax law provides several exclusions that can reduce or eliminate your CGT liability. Knowing which ones apply to your situation helps you plan disposals more effectively.

Annual exclusion

Every individual gets an annual exclusion of R50,000 for the 2026/2027 tax year. This means the first R50,000 of your net capital gains each year is tax-free. Before 1 March 2026, this was R40,000.

The annual exclusion applies to your total net capital gains for the year, not per asset. If you sell multiple assets, you only get one R50,000 deduction across all of them.

Primary residence exclusion

When you sell your primary residence, the first R3,000,000 of any capital gain or loss is excluded from CGT. For the 2025/26 tax year, this threshold was R2,000,000. This exclusion applies only to the property you ordinarily live in, and specific rules govern situations where you use part of your home for business.

Small business exclusion

If you're 55 or older, or selling due to retirement, ill health, death, or another qualifying event, you may qualify for an exclusion of up to R2,700,000 on the disposal of active business assets. For the 2025/2026 tax year, this limit was R1,800,000.

To qualify, the market value of all your business assets must not exceed R15,000,000 (up from R10,000,000 in 2025/26). You must also have been actively involved in the business for at least five years before the disposal.

Other exclusions

Several additional exclusions apply in specific circumstances:

• Death exclusion: R440,000 applies in the year of death, rising from R300,000 in the 2025/26 tax year.
• Personal-use assets: Gains on personal-use assets (such as motor vehicles, furniture, and personal belongings) are generally excluded.
• Retirement benefits: Lump sums from retirement funds are exempt from CGT.
• Spousal transfers: Transfers of assets between spouses are generally treated as rollover events, deferring CGT until the receiving spouse disposes of the asset.
• Donations to approved public benefit organisations: These are excluded from CGT.

Capital gains tax on property in South Africa

Property is one of the most common assets that triggers CGT for small business owners. How much tax you pay depends on whether the property is your primary residence, a mixed-use space, or a dedicated business or investment property.

Primary residence

Your primary residence qualifies for the R3,000,000 exclusion from the 2026/27 tax year (rising from R2,000,000, provided you or your spouse ordinarily lived there. The exclusion covers both gains and losses on the property.

If your capital gain exceeds the exclusion threshold, SARS treats the excess as taxable. You still benefit from the annual exclusion on top of the primary residence exclusion.

Mixed-use property

Many small business owners run their business from home or use part of a property for business purposes. In these cases, SARS may apportion the capital gain between the residential and business portions.

The primary residence exclusion only applies to the portion used as your home. If 30% of your property's floor area is used for business purposes, SARS could treat 30% of the gain as a business-related capital gain, which wouldn't qualify for the primary residence exclusion.

Investment or business property

Property held purely for investment or business purposes doesn't qualify for the primary residence exclusion. The full capital gain, after deducting the annual exclusion, is subject to CGT at your applicable inclusion rate.

If the property is held in a company or trust, the 80% inclusion rate applies. For properties acquired before 1 October 2001, establishing the correct valuation-date value is essential to avoid overpaying.

CGT on selling a small business in South Africa

Selling your small business is likely one of the largest financial events you'll face, and CGT can take a significant portion of the proceeds. Understanding the tax implications helps you structure the sale to keep more of what you've built.

Selling shares versus selling assets

When selling a business, you can either sell the shares of your company or sell the underlying assets. Each approach has different CGT consequences.

Selling shares is usually simpler. You dispose of the shares at the agreed price, and the capital gain is the difference between the proceeds and your base cost in those shares. The buyer takes over the company as it stands.

Selling assets means you sell individual items: equipment, stock, goodwill, and property. Each asset may have a different base cost and may attract CGT separately. This approach can be more complex but sometimes offers advantages, such as allowing the buyer to claim capital allowances on the purchased assets.

The most tax-efficient approach depends on your specific circumstances, so it's worth modelling both options with a tax adviser before committing to a sale structure.

Qualifying for the small business exclusion

To access the small business exclusion of up to R2,700,000 (R1,800,000 for the 2025/2026 tax year) , you must meet all of these requirements:

• You're 55 or older, or the disposal is because of retirement, ill health, death, or a similar qualifying event
• The total market value of all assets of the business doesn't exceed R15,000,000 (R10,000,000 for the 2025/2026 tax year)
• You've been actively involved in the business for at least five years before the disposal

This exclusion is a lifetime allowance. If you've used part of it on a previous disposal, only the remainder is available.

Planning your exit

Exit planning should start well before you intend to sell. Accurate records of your base costs, including all improvements and associated expenses, directly affect how much CGT you'll pay.

Consider whether restructuring the business before the sale could reduce your CGT exposure. For example, if your business holds significant property, it may be worth separating the property into a different entity before the sale. Consulting a tax professional who specialises in small business exits is a practical step to ensure you claim every available exclusion.

CGT record-keeping tips for small business owners

Good record-keeping is the foundation of accurate CGT reporting. Without proper records, you risk overpaying tax or facing penalties from SARS.

What records SARS requires

SARS requires you to keep records of every asset acquisition and disposal. At a minimum, you should retain:

• Purchase agreements, invoices, and receipts showing the original cost
• Proof of improvement costs, including invoices from contractors and suppliers
• Records of disposal, including sale agreements and proof of proceeds
• Valuations for assets held before 1 October 2001
• Details of any exclusions or rollovers you've claimed

How long to keep records

You need to keep CGT records for at least five years after submitting the relevant tax return. If SARS is auditing or investigating your return, you must keep records until the audit is complete.

For assets you still hold, keep all acquisition and improvement records for as long as you own the asset, plus five years after you eventually dispose of it. Starting a filing system early saves significant effort when it comes time to sell.

Using accounting software

Cloud-based accounting software can simplify CGT record-keeping by automatically tracking asset purchases, improvement costs, and depreciation. Digital records are easier to organise, search, and back up than paper files.

Linking your bank accounts to your accounting platform means transactions are captured automatically, reducing the risk of missing an expense that forms part of an asset's base cost. This is particularly helpful when you need to reconstruct records years later at the point of disposal.

Simplify your small business tax compliance with Xero

Keeping track of asset costs, improvements, and disposals can feel overwhelming, especially when you're focused on running your business. Xero's cloud accounting software helps you stay on top of your finances by automatically recording transactions, organising receipts, and generating reports that make tax time less stressful.

With Xero, you can connect your bank accounts for real-time transaction tracking, store digital copies of invoices and receipts, and access clear financial reports whenever you need them. Xero's fixed asset management tools let you track asset values and depreciation schedules, so you have the information you need to calculate CGT accurately.

Whether you're preparing for a business sale or simply filing your annual return, Xero gives you confidence that your records are complete and organised. Ready to take the hassle out of your tax compliance? Get one month free and see how Xero can work for your small business.

FAQs on capital gains tax in South Africa

Here are answers to common questions small business owners have about CGT in South Africa.

How does capital gains tax work in South Africa?

When you dispose of an asset for more than its base cost, the profit is a capital gain. A portion of that gain (40% for individuals, 80% for companies) is added to your taxable income, and you pay tax on it at your marginal rate.

Do I pay CGT on inherited assets?

The deceased estate is liable for CGT on death, not the heir. A R440,000 exclusion (R300,000 in tax year 2025/26) applies in the year of death, and the heir acquires the asset at its market value on the date of death, which becomes their new base cost.

Can I offset capital losses against capital gains?

Yes. Capital losses reduce your net capital gain for the year. If your losses exceed your gains, the remaining loss carries forward to offset future capital gains; it can't be set off against your ordinary income.

Is CGT payable on cryptocurrency in South Africa?

SARS treats cryptocurrency as an asset, so CGT applies when you sell or exchange it at a profit. If you trade cryptocurrency frequently as a business activity, SARS may treat the profits as ordinary income instead.

When do I need to report CGT to SARS?

You report capital gains and losses in the capital gains section of your annual income tax return – the ITR12 for individuals and sole proprietors, or the ITR14 if you're incorporated. There's no separate CGT return; it forms part of your standard annual filing.

Does CGT apply if I emigrate from South Africa?

Yes. When you cease to be a South African tax resident, SARS treats you as having disposed of most of your worldwide assets at market value on the day before your tax residency status changes. This deemed disposal can trigger a significant CGT liability, so it's worth planning ahead.