Tax and SARS knowledge base
Can a capital loss reduce salary or interest income?
Can I offset a capital loss against salary or interest income?
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Direct answer
No. SARS states that an assessed capital loss cannot be set off against ordinary income of a revenue nature. That means it does not reduce salary, interest, rental profit or similar ordinary income. An assessed capital loss is ring-fenced and can be set off only against capital gains arising in future years of assessment.
The word "assessed" matters. A loss shown in a broker report or a spreadsheet is not automatically an assessed capital loss. You need to calculate the relevant current-year capital gains and losses, complete the applicable ITR12 information and retain the assessment that reflects the result.
What this means in practice
It is tempting to think of every investment loss as a deduction. CGT does not work that way. A capital loss first forms part of the CGT calculation for the year. It is considered with other capital gains and losses, subject to the rules and annual exclusion applicable to that year. If an assessed capital loss remains, it is carried forward as a capital item, not used to reduce ordinary income.
Salary is normally subject to PAYE as it is earned. Do not ask an employer to reduce PAYE simply because you sold an investment at a loss. Interest and other ordinary income are also not reduced by a capital loss in the normal manner. The effect, if any, is recognised through the capital-gains calculation and the income-tax assessment, not through a payroll instruction.
Keep capital and revenue items separate in your record file. A broker account can include dividends, interest on cash, fees, share sales, futures activity and foreign-currency movements. Not all of these form one capital loss. Identify every disposal, determine whether it is capital in nature, calculate proceeds and base cost, and preserve the documents. A negative cash balance or declining portfolio value is not enough.
An assessed loss from a trade is different from an assessed capital loss. The names sound similar, but the rules may differ. Do not copy a business-loss treatment into an investment calculation. If you carry on a trade, have share activity that may be revenue in nature, or have foreign transactions, get advice before treating the loss as an assessed capital loss.
Step-by-step
- Gather the source documents.
Save purchase and sale contract notes, broker reports, statements, corporate-action notices and any previous CGT schedules. Do not begin with the final portfolio value.
- Decide whether the disposals are capital in nature.
A capital loss calculation is only appropriate where the transaction is properly capital. Keep the facts supporting that conclusion and seek advice where the activity resembles trading.
- Calculate each gain and loss.
Record proceeds, allocated base cost and the resulting gain or loss for each disposal. Keep a note linking every figure to the document that supports it.
- Complete the current-year CGT calculation.
Combine current-year capital gains and losses and apply the correct-year SARS rules. Do not use a current annual-exclusion amount for an earlier year.
- Check the assessment.
Preserve the ITR12 and ITA34. If an assessed capital loss is shown, record the balance in your future-year CGT file.
- Reconcile it only when a later capital gain arises.
When you next make a supported capital gain, bring forward the assessed capital loss in the current return process. Do not put it against salary or interest.
Documents and records to keep
- Purchase and sale evidence, including broker contract notes.
- Base-cost, proceeds and CGT working papers.
- Previous ITR12 returns and ITA34 assessments.
- Corporate-action records and correspondence about corrections.
- A future-year schedule showing the assessed capital-loss balance.
Important limits and exceptions
This guide does not say every investment loss is available. The asset may be personal-use property, the transaction may be revenue in nature, or a special limitation may apply. It also does not mean that a loss generates a cash refund. The relevant benefit arises only under the CGT calculation when a qualifying capital gain is available.
Use the wording on the assessment rather than assuming a broker's "realised loss" is the carried-forward SARS amount. If the return is incomplete, an earlier assessment has changed or a verification is open, resolve that before relying on a balance in a future year.
When to get tailored advice
Get advice if the loss is material, trading and investing are mixed, records are incomplete, the loss is foreign, or the return treatment has changed from a previous year. TaxProof can help assemble the disposal evidence and reconcile the assessments, but a complex classification or loss calculation should be reviewed before filing.