PDSnet Glossary

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Definition

A profit made because an investment is sold for more than its purchase price. The term "capital gain" should not be confused with the definition of Capital Gains Tax (CGT), as certain specific requirements must be met before SARS will class a gain as a capital gain for CGT purposes. A dividend is an income gain, or the natural return on an investment. Capital appreciation occurs when shares or other investments are at a higher market price than when they were purchased. Until the shares are sold, no capital gain has been realised. Capital gains in the hands of private investors (natural persons) are effectively taxed at 18% - provided that the private investor has not been declared to be a "share dealer". Share dealers have capital gains added to their taxable income in the year when they are realized - which can mean that they pay up to 45% in tax on capital gains if they are in the marginal tax bracket. Gains made on investments held for three years or longer are automatically classed as capital gains by SARS. It is better to avoid being declared a share dealer in the share market.

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