Capital Gains Tax Flashcards
1
Q
Principles
CGT
A
- Share issue is not a disposal for CGT
- Add back portion taken out
- Par 65/66
* Proceeds were fully utilised to acquire replacement asset
* Contract concluded withing 12 months and biu within 3 years
* Recoupment not added to taxable income so there is a roll over
- Recoupment
- Replacement Asset
- Capital allowances
- Capital gains
- Immovable property not PUA if needs replacement consider par 65/66
- The deferral is on capital gains, and recoupment *sold(old)/replacement - Did disposal take place?
- Does it relate to an asset as defined?
- Did it happen in the current year? - A sale triggers a disposal of an asset
- Asset in specie triggers disposal for CGT
- No WHT liability for asset in specie - No capital gain if sold below original cost
- Exchange of an asset is a disposal
- Settlement of the loan is a disposal of an asset (par 11 of the Eighth Schedule) (1) for Mr Hove and there will be a capital gains tax in terms of the Eighth Schedule as Mr Hove is not a money lender
- This applies mostly when dealing with shares:
* Interest does not form part of base cost as x company is not a listed company and par 20(2)(a) does not allow an inclusion of interest - Donation of asset is a disposal for CGT purposes
- Include donations tax portion in base cost
- Annual exclusion 40000 and inclusion rate of 40%
- Disposal by an executor is also disposal for CGT
- Disposal to CP be at MV (par 38)
- Weighted avrg, FIFO, specific identification: Choose the one with highest BC yield low capital gain
- Liquidation is a disposal for CGT and exchange of an asset
- Distributions are not a disposal
- Transfer duty part of base cost less s16(3)(h) and VAT if distribution
- Scrapping, loss or destruction of assets are regarded as a disposal of assets by par 11(c) of the Eighth Schedule.
- The disposal of capital assets subject to capital allowances will result in the calculation of either a recoupment or a scrapping allowance
Share issue increase CTC
- Immovable property cannot be a PUA
- Cost to convert is capital in nature
- Legal expenses included par20 BC
S11(o) N/A if dealing with connected persons use Par 39 clogged loss
2
Q
Items to include in CGT calculation
A
- Annual exclusion (40000/300000)
- Exclusion rate 40%/80%
- Rebates (primary, secondary or tertiary)
- Withholding Tax (it is not a final tax just an advance payment)
- Tax return not submitted within 12 months it becomes a final tax - Primary residence exclusion R2 000 000
3
Q
Sale of an asset
A
- Trigger recoupment and capital gains
- CGT taxed in year of disposal
- Recoupment is set off against cost
- sale of trading stocking, revenue in nature so include at Rnil
4
Q
Shares PAR 26/27
A
Between FIFO, Specific identification and weighted average. Choose the one with highest base cost as it yields low capital gains
5
Q
Debt Benefit
A
Mention
- Debt relief rules apply
- There is a debt benefit
- There is a concession or compromise
- Amount not gratuitously done as debt not reduced by way of donation
-closing stock last year 100 000
-opening stock this year (100 000)
Recoupment 100 000
Recoupment prev deducted (NRV) 20000
Recoupment of what was sold as is 280000
If you paid the debt benefit, same as above but the sold part changes.
Debt benefit-opening stock- NRV. That is new recoupment
- Debt subordination
( changing terms and conditions of a loan agreement is not read into concession or compromise. There is no tax implications) - Loan account turned into share capital. Interest is written off
>( capital element is a concession or compromise it is not a debt benefit)
>( interest portion is a concession or compromise and debt benefit is equal to interest)
>Recoupment of interest - If asset is sold, Recalculate reduction in BC and recoup as of debt was waived before asset was sold BC then reduce it to 0
- Recoup past allowances
- CTC will increase debt value (conversion)
Mention:
- recoupment is on the debt benefit
- It will be limited to interest portion
- MV debt less Cost price of trading stockx%x/12
Debtor:
- Debt benefit is a deemed disposal par 12A because there is a concession or compromise
- Mention if any exceptions apply
- Consider purpose of debt
- Conclude
Creditor:
- s11(i) N/A as company is not a money lender therefore actual disposal is CGT which results in capital loss
- Consider PAR 56 as it overrides PAR 39 CP
- Conclude
Creditor:
6
Q
Par 43: Non monetary assets
A
- Cannot use PAR 43 if proceeds and BC not in same currency
- Election is per asset
7
Q
Common paragraphs
A
- Par 33 part disposals
- Par 57 Disposals of SBA
- Par 38 Disposal at MV
- Par 39 Dusposal to CP now capital loss
- Par 56 Debt benefit
- Debt substitution Par 34
- Par 64B Foreign share disposal
8
Q
Par 43(1)
A
- First calculate gain or loss before translation
- Use lowest (spot/avrg) if gain
- If loss use highest
- If gain and loss are not in the same currency for natural persons go to 43(1A)
9
Q
Going Concern
A
Income Tax Implications
- Amounts revenue or capital in nature?
1. Calculate recoupment or s11(o)
2. Trading stock - Include at MV since revenue in nature xx
- O/S (mv*100/135%) (xx)
- If asset is fully written off, include MV amount as recoupment TV=0
CGT -Sum of gains or losses xxx Par 57 (1800000) Annual exclusion (40000) Inclusion 40%
10
Q
Par 19
A
- Extraordinary dividend is = 18 months prior divided less 15% of proceeds
- If extraordinary dividend > capital loss the entire loss is disregarded
- Capital loss cannot be set off against normal taxable income
11
Q
Liquidation
A
- From F/S less what you sold it for
- T+OR at lower amount as debt did not go bad therefore there’s a capital loss
- Liquidation cost not included in production of income - Add amounts in SFP if not sold at SP excluding anything fully paid
- Amount above xxx
CTC -xxx
= Dividend which is included in gross income and then exempt
- No tax on ROC it is equity
- ROC P=BC
