Firstly, I am not a tax consultant and, while I have tried to make all the information in this article accurate, I cannot guarantee it.

Secondly, this is not advise. Before you decide anything, call your tax consultant and run it past him/her/it.

Those little disclaimers aside, let's begin.

Finance Minister Pravin Gordhan announced in his 2012 Budget proposal to raise the Capital Gains Tax (CGT) for personal individuals from 25% to 33%. At the 40% marginal tax rate, this means that the effective CGT rate has been increased from 10% (=25% x 40%) to 13.32% (=33.3% x 40%).

The annual exemption was increased from R20,000 to R30,000.

The proposed new CGT rates will apply to the 2012/13 tax year, thus today (29 February 2012) is the last year of the 2011/12 tax year and, probably, the last day that the old CGT rates will apply.

So I tweeted how perhaps today you want to sell all the shares/investments that you are up on and re-buy them tomorrow. This way you would capture your historical gains at a 10% effective CGT rate and then only pay the higher 13.32% CGT rate from gain made hereon out.

Share/investments you are down on can probably wait to offset against other gains in at the higher 33% CGT tax rate...

Unfortunately, Twitter limits me to 140 characters, so this was not a full explanation and was meant to stimulate a bit of thought and get everyone doing their own calculations.

The replies suggested otherwise and I realized that I needed to put together an article on this matter.

There are several major variables in deciding what (if anything) to sell:

1. The annual exemption: In 2011/12 the annual exclusion is R20,000 (or a total gain of R200,000 at the marginal tax rate R80,000), while in 2012/13 the annual exclusion is R30,000 (or your first R225,225 R90,909 capital gains are tax free at the marginal tax rate).
2. Transaction costs: In this case, it would be brokerage, STRATE, securities tax etc. Changes per broker and deal size etc. Don't forget that an entry cost into listed equities is the spread between the buyers and sellers, so the bidding spread can add to your "effective" transaction cost to.
3. Time value of money: Paying tax right now has a cash flow impact, thus the later you can postpone paying tax, the greater the present value of your cash or the smaller the future value of your tax burden due to the time value of money.

So, bearing these three major variables (that will differ from case to case), I have built the following table. I have assumed that an investment was original acquired for R1m and is now worth R2m. I have assumed a transaction cost of 0,5% the total sum, one way, and used a discount rate of 15% across the time horizon of 1, 2 and 3 year holding period for the said investment. I have also ignored the annual exemption, which is wholly unrealistic.

I apologize for the messiness of the table above, but if you want to work through my workings in detail, then drop me an email and I'll forward the spreadsheet to you.

Still, the conclusion is simple: you would be capturing an extra about R17 652 or 1.8% on your above investment if you have maxed out your annual CGT exemption and have only a 1 year time horizon for that investment.

If, though, the time horizon is longer than a year, for example 3 years, then the time value of money eats into your tax savings (by basically "early" CGT payment), and you are better off doing nothing.

Once again, I am no tax expert and there may some finer points of the Income Tax Act I am missing. Run anything you want to do past a professional first, but in the meantime, please share your thoughts below this article in the comment box.

I assume I am not the only person to realize the above argument and, as as today is the last day of the 2011/12 tax year, our markets are likely to have some extra volumes going through from "tax close outs" (sort of like a futures close out) as investors rejig portfolios for tax efficiency.