Capital Gains Tax

Question 1

Distinction in acquisition date: Assets acquired prior to 1 October 2001:

Answer 1

VDV + post date qualifying expenditure
Base cost = VDV + qualifying expenditure

26. Proceeds > expenditure
3 methods to determine VDV
1. MV on October 1
2. TABC
3. 20% (proceeds - expenditure)
ONLY use 3 if you don't have a record of actual original cost!

27. Proceeds <= expenditure

Question 2

Distinction in acquisition date: Assets acquired after 1 October 2001:

Answer 2

Qualifying expenses

TABC formula & adjustment

Question 3

Paragraph 27: Proceeds < expenditure:

Answer 3

A) MV >= proceeds AND
MV > MV of asset on valuation date
Then: VDV higher of:
MV AND
Proceeds less paragraph 20

B) proceeds <= expenditure:
VDV is the lower of:
MV
TABC

Where MV is not determined
VDV= TABC

Question 4

TABC: Expenditure incurred before & after 1 October 2001:

Answer 4

Adjustment before applying basic formula:

P = R (proceeds - selling expenses) x before expenses / (A + B)

Question 5

TABC: 2different formula:

Answer 5

Standard formula:

Y = B + (proceeds - B) x N (max: 20) / T (Oct 1 to disposal) + N

Question 6

Market valuation method:

Answer 6

Between October 2001 & September 2004
Otherwise CANNOT use!
- assets over R10mil
- intangibles over R1mil
- shareholding exceeds R10mil

Question 7

Paragraph 26: MV as VDV &

Proceeds < MV

Answer 7

VDV = proceeds - expenditure after VDV
Limitation = cannot be a loss
Limited to proceeds = no gain or loss

Question 8

Base cost cannot include…

Answer 8

…costs and expenses deducted for normal tax purposes

Question 9

CGT: Base cost includes:

Answer 9

1. Expenditure to acquire or create asset
2. Expenditure of valuation
3. Expenditure of acquisition / disposal:
   Transfer
   Advertising
   Moving
   Installation
   Improvements
   Legal costs

Question 10

Donations:

Answer 10

Where proceeds cannot be measured:
Disposer: proceeds = MV
Acquirer: expenditure = MV
Donor paid tax = may add portion of donation tax to base cost:
Y = (MV - base cost excl. donation tax) / MV x donation tax
Limited to 0 if A > M

Question 11

VDV where expenditure cannot be determined:

Answer 11

Either:
MV on October 2001
20% (proceeds - expenditure)
NOT TABC!!!

Question 12

Calculation of a capital gain:

Answer 12

(Deemed) proceeds (reduced appropriately) - (base cost) / capital gain or loss

Question 13

Proceeds exclude:

Answer 13

1. Recoupements

2. Refunds or reductions

Question 14

Capital Gains Tax: Framework:

Answer 14

Capital gains
- Capital losses
- Annual exclusion (17500)
= Aggregate capital gain
- Assessed losses: Previous years
= Net capital gain / loss
Multiply by exclusion rate: 25% or 50% (reduces gains & losses!)
= Taxable capital gain

Question 15

Capital Gains Tax: If an amount is included in income…

Answer 15

…it is not included in proceeds.

Trading stock not subject to CGT!

Question 16

Capital Gains Tax:

Answer 16

Acquirer obtains asset when seller disposes of asset
Proceeds: amounts received / accrued on disposal
- amounts that must be or were included in gross income
- amounts taken into account in determining taxable income
- amounts repayable

Donations are deemed to be at MV

Question 17

Capital Gains Tax:

Answer 17

Base cost:
Before 1 October 2001:
VDV + all expenditure after 1 October 2001
On or after 1 October 2001:
Expenditure actually incurred in creating / acquiring asset

Amounts excluded:
Borrowing costs
Repairs & maintenance

Cannot be: amounts allowed as a deduction OR amounts taken into account in calculating taxable income

Reduced by any tax free government grants!!!