CGT

Question 1

When must we as individuals account for Capital Gains Tax

Answer 1

Para 2 of 8th schedule
- when a capital gain or loss arises on the disposal of an asset

Question 2

What events are considered disposals?

Answer 2

para 11 and 12 of the 8th schedule and section 9H(3)
- when a resident ceases to be a resident
- a whole bunch of other stuff

Question 3

what does the Tax Act define assets to be? what types are there?

Answer 3

para 1
- asset includes… but excludes currency

para 53
- excludes personal use assets
* para idk(1 maybe), says that a personal use asset is…
- excludes other stuff too

Question 4

How do we calculate the Capital Gain of a disposed asset?

Answer 4

Para 3 and 4 of the 8th schedule
1. Proceeds - recoupments = Proceeds
2. Cost - allowances = base cost
3. Proceeds - base cost = capital Gain/ Capital loss

Question 5

What general considerations must you have in mind when a person disposes of an asset?

Answer 5

• Am I selling to a connected person?
• WHAT am I selling it for?
• How much did it cost when I bought the asset?
• when is this disposal occurring?
• What allowances have I received on this asset?
• What type of asset is it?
• what type of person is disposing of it
• what type of person is receiving it?

Question 6

What do we consider to be part of proceeds when disposing of an asset?

Answer 6

look it up Karen

Question 7

what do we consider to be part of the cost of our asset?

Answer 7

in terms of section 20? of the 8th schedule,
- transfer duty
- cost paid
- acquisition costs
- valuation costs

Question 8

What happens when you dispose of your debt or an asset to a connected person?

Answer 8

section 39(1) and (2) of 8th schedule
- when you dispose of the asset to the connected person, you will basically have to disregard your capital loss because it can only be deducted from the capital gains made from donations to that person

para 56 and para 12A of 8th schedule
- when you dispose of the debt, the capital loss must be disregarded
- unless the debt was used to purchase an asset other than trading stock THEN
1. that asset’s cost is decreased (asset still on hand) (gets proportioned to all assets if multiple assets)OR
2. the person who purchased the asset who has now sold it in a prior YOA, must increase his capital gain or loss by the amount
3. paragraph 39 gets disregarded

Question 9

What happens when you dispose of debt to a non-connected person?

Answer 9

para 4
- you will incur a capital loss in determination of your taxable income

Question 10

When happens when an asset that is within a trust, vests in one of the beneficiaries?

Answer 10

Para 11 or 12
- says that this is a disposal event

Para 80(1)
- says that any capital gain or loss that is experienced on that disposal event needs to be borne by the beneficiary

Para 13(1)(a)(iiA)
- the disposal and gain is dealt with not when the asset transfers but when it vests

Question 11

What happens when we acquire shares as consideration for an asset?

Answer 11

24BA(3)
- the value mismatch will result in a capital gain in the hands of the person who acquires the asset if the asset was worth more than the shares
* furthermore the Capital gain will be deducted from the base cost of the shares for the person receiving them

• However if the shares were worth more than the asset, then the value mismatch will be a deemed dividend in specie in the hands of the person receiving the shares and is paid on the date of the issue

Section 24BA(3)(a)(ii)
- the base cost of the shares is the market value of the asset less the capital gain

Section 40CA(a)
- the company issuing the shares is deemed to have incurred expenditure of the market value of the shares and so the base cost of the asset is the market value of the shares + the capital gain incurred by them from the accounting mismatch

Section 42
- I dont know what it says

Question 12

What happens if you dispose of shares in a foreign company?

Answer 12

para 64B of 8th schedule
- it will be treated like every other disposal unless it meets the following requirements, then it will be exempt from capital gain or loss
* the holding was at least 10%
* the shares were held for at least 18 months prior to disposal
* the disposal was not to a resident, connected person or CFC

Question 13

what are the implications of a company/ natural person ceasing to be resident during the year of assessment?

Answer 13

section 9H(3)
- disposes of each of its assets at market value on the day before it ceases to be a resident reacquires on the day at its market value
*
- the YOA ends on the day they cease to be a resident
- deemed to have declared a dividend (in specie) on the day prior to ceasing to be a resident, equal to the market value of all its shares less its CTC
- exempt foreign dividends in prior 3 years recouped
- paragraph 64B is disregarded and the capital from then is now included
- the deemed disposal rule above does not apply in respect of immovable property situated in the republic or assets attributable to a permanent establishment in the Republic

Question 14

what are the capital inclusion rates?

Answer 14

Section idk
- inclusion rate for natural persons = 40%
- inclusion rate for company persons = 80%

Question 16

Are there any annual exclusions relating to Capital Gains tax?

Answer 16

According to section idk
- Every natural person AND special trust gets a R40000 annual exclusion of the capital gain or loss amount

According to section idk
- deceased estates receive an annual exclusion of R300000 of the capital gain or loss amount

Question 17

What are the captail gains Tax implications of receiving an asset through a barter transaction? and the normal tax implications?

Answer 17

• Capital gains implications
  para idk of the ITA and Labat case
• the value of the asset could be zero if there was no dilution in your assets in order to acquire the asset

para idk of idk
- the Section 11e allowance says that the cost of an asset is equavalent to an objective market value

• the onus is on the tax payer to prove that they should et an allowance
• normal tax implications
  section idk of ITA
• the gross income definition includes cash or “otherwise”
• the software was earned for services rendered (special inclusion
• therefore they must include the market value of the consideration in Gross income (Brummeria Renaissance)