9. Capital Gains Tax

Question 1

When will capital gains tax occur?

Answer 1

When an asset is disposed of

Question 2

Where in the framework is capital gains tax included?

Answer 2

Before donations and medical expenses

Question 3

How is capital gains calculated on a bunch of assets?

Answer 3

They are all calculated separately

Question 4

What is the framework for aggregate capital gain?

Answer 4

Capital gain 1
Capital gain 2
(capital loss 1)
--------
Aggregate capital gain/(loss)

Question 5

What is the framework to calculate capital gain/(loss) on individual assets?

Answer 5

Proceeds
Less: base cost
Less: exclusions and roll-over
Equals: capital gain or loss for asset

Question 6

What is done with a net capital loss?

Answer 6

It is carried forward to next year of assessment and NOT deducted from current taxable income

Question 7

What is done with a total capital loss?

Answer 7

It is reduced by an annual exclusion of R30000

Question 8

Which assets are capital gains taxes levied on for residents?

Answer 8

ANY assets they dispose of

Question 9

What assets are subject to capital gain for non-residents?

Answer 9

1. Any immovable assets in SA or interest in immovable property
2. Any asset attributable to a permanent establishment in SA

Question 10

What is considered an interest in immovable property?

Answer 10

1. Equity shares in a trust
2. Ownership / right of ownership of another equity
3. Vested interest in asset of trust of at least 80% of its MV is attributable to immovable property in SA

Question 11

What are the steps in determining taxable capital gain or loss?

Answer 11

1. Is transaction subject to capital gain?
2. Capital gain/loss one each asset
3. Add all capital gains and losses
4. Reduce capital gain by exclusion rate of R30000
5. Determine assessed losses brought forward from last year
6. Calculate aggregate capital gain or loss
7. Determine if gain or loss, losses are carried forward
8. Calculate taxable capital gain by multiplying inclusion rate (33%) with aggregate gain
9. Add taxable capital gain to income tax framework

Question 12

What is the exclusion rate if the person has died in the current year of assessment?

Answer 12

It increases from R30000 to R300000

Question 13

What is done with a gain on equity shares in a foreign company if it was previously disregarded?

Answer 13

The gain is added to net capital gain

Question 14

What does the annual exclusion reduce?

Answer 14

Both gains and losses

Question 15

What is deemed when a resident becomes a non-resident?

Answer 15

That they sold all their assets at market value the day before they became a non-resident

Question 16

How are disposals of assets with spouses married in community dealt with?

Answer 16

1. If asset is part of joint estate, disposal was done together and gain or loss is divided equally
2. If not part of estate then gain or loss accrues solely to spouse who disposed of it

Question 17

What happens if the proceeds or base costs change during the year?

Answer 17

The gain or loss must be recalculated

Question 18

What is the basic rule for the value of proceeds?

Answer 18

The amount received for asset

Question 19

What happens if a portion of proceeds is subject to income tax?

Answer 19

That portion is NOT included in capital gains tax

Question 20

Do individuals get recoupments?

Answer 20

No, only occurs when a business sells an asset

Question 21

What do disposals included concerning lessor and lessee?

Answer 21

The amount lessee got from lessor to effect property improvements

Question 22

What are proceeds reduced by?

Answer 22

1. Amount included in gross income
2. Proceeds that have been repaid
3. Reductions due to cancellations of contract etc.

Question 23

What must be done if there is a change in capital gains in subsequent years?

Answer 23

The capital gain must be readjusted

Question 24

Where not all the proceeds have been received what is done with the amount that hasn’t been recieved?

Answer 24

It is disregarded

Question 25

Where not all proceeds have been received and it results in a capital loss what is done?

Answer 25

The loss is disregarded and cannot be used for aggregate capital gain/loss calculation.
Not once the full proceeds are received can a loss be used to reduce total capital gain

Question 26

What are done with amounts that have been recouped?

Answer 26

They are excluded from proceeds

Question 27

When are disposals deemed to be market value?

Answer 27

1. Donation
2. Consideration not measurable in money
3. Disposed to connected person where consideration is not equal to market value

Question 28

What is the date of the valuation date?

Answer 28

1 October 2001

Question 29

What question should be asked when determining the base cost?

Answer 29

When was the asset purchased?

Question 30

What is the based cost if the asset was purchased before 1/10/2001

Answer 30

The valuation date value + expenditure after valuation date

Question 31

What is the base cost if asset was purchased after 1/10/2001

Answer 31

All expenditure

Question 32

What are the different methods of determining valuation date value?

Answer 32

1. Market value at 1/10/2001
2. Time-apportionment base cost
3. 20% rule cost

Question 33

Which of the 3 valuation date value options are NORMALLY used?

Answer 33

The highest of the three

benefit to taxpayer

Question 34

What expenditures are included in the assets base cost?

Answer 34

1. Amount actually spent on acquiring it
2. Valuation expenses
3. Other expenditures relating to the acquisition of the asset
4. Expenditure for defending legal title of asset
5. Expenses to improve asset that increases value
6. Expenses relating to maintenance etc

Question 35

What are expense that relate the acquisition of an asset?

Answer 35

1. Payment to surveyor
2. Transfer costs
3. Stamp duty, transfer duty and similar duties
4. Advertising
5. Cost of moving assets between locations
6. Installations costs
7. Donations tax paid
8. If asset acquired through option, cost to acquire that option

Question 36

What is the 20% rule?

Answer 36

20% x (proceeds - expenditure after 1/10/2001)

Question 37

What must be done in order to use the market date at valuation date?

Answer 37

It must have been valued by a valuer no more than 3 years after valuation date

Question 38

What is the general rule for determining a market value?

Answer 38

It’s the price that would have been agreed upon by a willing seller and buyer

Question 39

If a person is exempt from tax and then ceases to be exempt, what date will they have been deemed to have ceased being exempt?

Answer 39

1/10/2001

Question 40

When is the 20% rule normally used?

Answer 40

When there is no proof of the cost of the asset

Question 41

Why would the valuation day value rules regarding paragraph 26 and 27 be applied?

Answer 41

Because the asset was sold for less than MV

Question 42

What is the affect of the provisions of paragraphs 26 and 27?

Answer 42

Loss is reduced

Question 43

When would paragraph 26 be used?

Answer 43

When proceeds exceed the expenditure or expenditure in respect of an asset cannot be determined

Question 44

According to paragraph 26, what value is used when expenditure cannot be determined?

Answer 44

1. Market value

2. 20% rule

Question 45

According to paragraph 26, what value is used when MV is used and proceeds do not exceed that MV?

Answer 45

Proceeds - expenditure on or after 1/10/2001

Question 46

When is paragraph 27 used?

Answer 46

Where proceeds do not exceed the expenditure before, after or on valuation date

Question 47

According to paragraph 27, what value is used when the MV has been determined and expenditure is equal to or exceeds proceeds and expenditure exceeds market value?

Answer 47

The higher of

1. MV
2. Proceeds - expenditure after

Question 48

What happens, according to paragraph 27, when none of the provisions apply?

Answer 48

Value used will be lower of:

1. MV
2. Time-apportioned