CGT Flashcards
What takes precedence? Eighth Schedule or ITA
The ITA takes precedence over the Eighth Schedule.
Where can CGT be found
Eighth Schedule.
Section 26A forms the link between the ITA and the Eighth Schedule
Inclusion rates
- Individuals/Special Trusts -> 33.3%
- Companies -> 66.6%
- Trusts -> 66.6%
WHO PAYS CGT?
Resident on….
Worldwide assets (inside and outside SA)
WHO PAYS CGT?
Non-Resident on….
Non-Resident:
Immovable property in SA or interest therein
Assets attributable to a permanent establishment (PE) in SA
Interest/Right which meets the 80/20 rule
What is the 80/20 rule
Non-Resident pays CGT on Interest/Right which meets the 80/20 rule:
20% ownership in a company (direct OR indirect)
>= 80% of the market value (after deducting the source of finance from this) of that company is attributable to immovable property in SA
In order for there to be CGT, ask yourself
IS THERE A “DISPOSAL”?
IS THERE AN “ASSET”?
DID IT OCCUR IN THE CURRENT YEAR OF ASSESSMENT?
ASSET
Definition (para 1)
Property of any nature –
-Movable or immovable
-Corporeal or incorporeal (Tangible or intangible)
-Excluding currency but includes coins from gold or platinum
A right or an interest of any nature in such property
EXAMPLE 1 The 54 on Bath Hotel was started in 2005 costing R40 million and was sold to Tsogo Sun Hotels for R80 million on 1 July 2015. In addition, the following amounts were added to the selling price, each on condition that the net room occupancy was more than 50% for August, September and October 2015 – August 2015 – R1 million September 2015 – R10 million October 2015 – R5 million All the occupancy conditions were met. CGT impact @ YE December 2015?
CGT =proceeds -base cost
= 96mill-40 mill=56 mill
DISPOSAL
Actual disposal (para 11)
“… any event, act, forbearance or operation of law which results in the creation, variation, transfer or extinction of an asset…”
Disposal event includes – para 11(1)
Sale, donation, expropriation, conversion, grant, cession, exchange or any other alienation or transfer of ownership
Forfeiture, termination, redemption, cancellation, surrender, discharge, relinquishment, release, waiver, expiry or abandonment
Scrapping, loss or destruction
Vesting of an interest in an asset
Distribution of an asset by a company to a shareholder
Granting, renewal, extension or exercising of an option
Decrease in value of a person’s interest in a company or trust or partnership as a result of a value shifting arrangement
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Non-disposal events – para 11(2)
Transfer of an asset as security for a debt
Issuing or cancellation of a share in a company or the granting by a company of an option to acquire a share
Issuing of a bond, debenture, note or other borrowing of money
Disposal by a person in order to correct an error in the registration of immovable property
Security lent by a lender under a “securities lending arrangement”
8C Equity instrument not yet vested
Securities ceded or rights released for other marketable securities as consideration – 8A(5)
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Deemed disposal disposed of at
Market Value
Deemed disposal in leg?
(para 12) (s9H(2))
Deemed disposal circumstances
- A person commences to be a resident
- Ceasing to be a resident
- Foreign company becomes a CFC or
- Foreign company ceases to be a CFC
- Foreign company ceases to be a CFC as a result of becoming a resident
- Asset of a non-resident which asset becomes an asset of the person’s PE other than by way of acquisition
- ceases to be an asset of the person’s PE otherwise that by way of disposal
- Capital asset becomes trading stock and visa versa
- Non-personal-use asset becomes a personal asset and visa versa
Deemed disposal applies to all assets, except when -Foreign company ceases to be a CFC as a result of becoming a resident
Immovable property in SA
Assets attributable to a permanent establishment (PE) in SA
Any right to acquire any marketable security contemplated in sec 8A
deemed disposal para 12 does not apply if
para 24 applies
DISPOSAL
Time (para 13)
Agreement subject to suspensive conditions
date when conditions are satisfied
DISPOSAL
Time (para 13)
Agreement not subject to conditions
date of conclusion of agreement
DISPOSAL
Time (para 13)
Donation of asset
date of compliance with all legal requirements for a valid donations
DISPOSAL
Time (para 13)
Conversion of asset
date of conversion
DISPOSAL
Time (para 13)
On scrapping, loss or destruction
the timing is deemed to be when full consideration is received. If this is disputed, the disposal takes place on the date on which it is discovered that all proceeds has been received (eg. from the insurer)
DISPOSAL
Time (para 13)
Any other case/ general rule
date of change in ownership
DISPOSAL
By spouse married in community of property Para 14
one spouse can dispose of asset without other knowing
- Disposal in equal share
- each pays 50% of CGT
BASE COST
Direct cost of acquisition or disposal included – para 20(1)
Direct cost of acquisition or disposal included – para 20(1)
Acquisition or creation costs
Expenditure with respect to the valuation of the asset
Remuneration of valuer, auctioneer etc
Transfer costs or defending legal title or right in an asset
Advertising costs
Cost of moving asset from one location to another
Cost of installation
Cost of improvements or enhancements to the value of the asset
Holding costs (business purposes and not allowed for normal tax purposes)
-Maintaining, repairing, protecting or insuring
-Rates or taxes
BASE COST
Amounts excluded from base cost – para 20(2)
Borrowing costs
Repairs and maintenance
VAT allowed as input tax deduction
Reductions in base cost – para 20(3)
- By amounts that were allowed as a deduction for income tax
- Any tax-free government grants
Base cost
Limitation of expenditure – para 21
Expenditure only allowed once in 8th Schedule
Expenditure allowed under para 20(1)(a) and (e)
