Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

Tax > CGT > Flashcards

CGT Flashcards

1
Q

What takes precedence? Eighth Schedule or ITA

A

The ITA takes precedence over the Eighth Schedule.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Where can CGT be found

A

Eighth Schedule.

Section 26A forms the link between the ITA and the Eighth Schedule

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Inclusion rates

A
  • Individuals/Special Trusts -> 33.3%
  • Companies -> 66.6%
  • Trusts -> 66.6%
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

WHO PAYS CGT?

Resident on….

A

Worldwide assets (inside and outside SA)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

WHO PAYS CGT?

Non-Resident on….

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is the 80/20 rule

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

In order for there to be CGT, ask yourself

A

IS THERE A “DISPOSAL”?
IS THERE AN “ASSET”?
DID IT OCCUR IN THE CURRENT YEAR OF ASSESSMENT?

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

ASSET

Definition (para 1)

A

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

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q 
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?
A

CGT =proceeds -base cost

= 96mill-40 mill=56 mill

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

DISPOSAL

Actual disposal (para 11)

A

“… any event, act, forbearance or operation of law which results in the creation, variation, transfer or extinction of an asset…”

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Disposal event includes – para 11(1)

A

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
18

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Non-disposal events – para 11(2)

A

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)
19

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Deemed disposal disposed of at

A

Market Value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Deemed disposal in leg?

A

(para 12) (s9H(2))

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Deemed disposal circumstances

A
  • 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
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Deemed disposal applies to all assets, except when -Foreign company ceases to be a CFC as a result of becoming a resident

A

Immovable property in SA
Assets attributable to a permanent establishment (PE) in SA
Any right to acquire any marketable security contemplated in sec 8A

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

deemed disposal para 12 does not apply if

A

para 24 applies

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

DISPOSAL
Time (para 13)
Agreement subject to suspensive conditions

A

date when conditions are satisfied

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

DISPOSAL
Time (para 13)
Agreement not subject to conditions

A

date of conclusion of agreement

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

DISPOSAL
Time (para 13)
Donation of asset

A

date of compliance with all legal requirements for a valid donations

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

DISPOSAL
Time (para 13)
Conversion of asset

A

date of conversion

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

DISPOSAL
Time (para 13)
On scrapping, loss or destruction

A

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)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

DISPOSAL
Time (para 13)
Any other case/ general rule

A

date of change in ownership

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

DISPOSAL

By spouse married in community of property Para 14

A

one spouse can dispose of asset without other knowing

  • Disposal in equal share
  • each pays 50% of CGT
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
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
26
BASE COST | Amounts excluded from base cost – para 20(2)
Borrowing costs Repairs and maintenance VAT allowed as input tax deduction
27
Reductions in base cost – para 20(3)
- By amounts that were allowed as a deduction for income tax | - Any tax-free government grants
28
Base cost | Limitation of expenditure – para 21
Expenditure only allowed once in 8th Schedule | Expenditure allowed under para 20(1)(a) and (e)
29
BASE COST of donation tax - rule - formula - when it applies
Base cost of donations= Base cost + Portion of any donations tax paid by donor or donee (para 22) - Doesn't apply if capital loss (MV- amnt at aqu=
30
EXAMPLE 2 Macquarie Bank donates a yacht to Cape Town yacht club for marketing purposes at the time when the yacht had a MV of R80 mil. The base cost of the yacht before taking donations tax into account is R75mil. Macquarie Bank pays a donations tax of R16 mil. What are the tax consequences for Macquarie Bank?
``` M=mv=80 A= 75 D= Donations tax Y=((M-A)/M)*D =(80-75)/(80)* 16= 1 mill therefore base cost = A + Y= 75+ 1=76 Proceeds =80 therefore CGT= 80-76 ```
31
Valuation-date defined in s1 as
1 October 2001 | Date person ceases to be an exempt person, if after 1 October 2001
32
Valuation date value methods
Market value on 1 October 2001 20% of (proceeds less allowable expenditure AFTER valuation date) Time-apportionment base (TAB) cost of asset
33
If asset purchased before 1 October 2001 how establish base cost
- value needs to be placed on the asset at valuation date in order to determine base cost of the asset on disposal (para 20 (1)(b)) - Base cost = Valuation date value + expenditure per para 20 incurred AFTER valuation date
34
Valuation date value(VDV) is determined in para
26, 27, 28 and 29 | 31
35
When to use par 26, & when to use par 27
par26= Potential gain= Proceeds > expenditure or where expenditure cannot be determined par27= Potential loss = Proceeds
36
Use par 26 for potential gain/ Proceeds > expenditure | VDV is determined by
The highest of: •Market Value on 1/10/2001 •Time-Apportioned Base Cost (TABC) •20% of (disposal proceeds less post 1/10/2001 expenditure) or If MV is highest of 3 AND if Proceeds
37
exception for par 26 for potential gain/ Proceeds > expenditure when chose MV as highest amount
``` Par 26(3) Limit fictitious loss If MV is highest of 3 AND if Proceeds ```
38
``` example mv=200 proceeds= 100 Post VDV exp =20 what is CGT ```
Procceds
39
``` Noah, a furniture manufacturer disposes of a pre-valuation machine after valuation date. Details are – Cost before VD 100 000 Cost after VD 25 000 MV on VD 200 000 Proceeds on disposal 150 000 ```
MV
40
Spacedout.com acquired a main frame years before VD which the original cost thereof could not be determined. Improvements were made to the mainframe at a cost of R1 mil after VD. The mainframe was sold a few years later for R55 mil.
``` Selling Price53 000 000 Ltd to cost24 000 000 Tax Value (R24m - R7m)-17 000 000 =Recoupment 7 000 000 Proceeds"P"in formula53 000 000 Recoupment-7 000 000 =46 000 000 Base cost "B"in formula 24 000 000 Allowances -7 000 000 =17 000 000 Std TAB Formula =17 000 000+ [46 000 000 - 17 000 000) x 3] 3+14 = 22 117 647 20% of (proceeds less post VD exp) - 20% *( R53 000 000 - R7 000 000) 9 200 000 Par 26, use TAB value So Proceeds 46 000 000 Base cost (there was no cost after VD) -22 117 647 23 882 353 ```
41
Use Par 27 if...
Proceeds less than pre and post expenditure, where make a potential loss
42
Using Par 27 (Proceeds less than pre and post expenditure, where make a potential loss): what are the two situations to determine VDV
1.Par 27(3)(a) Where proceeds & MV @ 1/10/2001 do not exceed PRE expenditure (Proceeds & MV do not exceed pre expenditure) 2. Par 27(3)(b) Where MV @ 1/10/2001 or proceeds exceed PRE 1/10/2001 expenditure (MV OR Proceeds (ie. one of them) exceeds pre expenditure)
43
Using Par 27(3)(a) how do you determine VDV
1.Par 27(3)(a) Where proceeds & MV @ 1/10/2001 do not exceed PRE VDV is higher of: •MV @ 1/10/2001; or •Proceeds less post 1/10/2001 expenditure
44
Using Par 27(3)(b) how do you determine VDV
``` 2. Par 27(3)(b) Where MV @ 1/10/2001 or proceeds exceed PRE 1/10/2001 expenditure then lower of: • MV @ 1/10/2001; or •TABC ```
45
Determining VDV: | Proceeds and MV both exceed pre expenditure
``` Use par 26: The highest of: •Market Value on 1/10/2001 •Time-Apportioned Base Cost (TABC) •20% of (disposal proceeds less post 1/10/2001 expenditure) ```
46
Determining VDV: | Proceeds & MV both do not exceed pre expenditure
1.Par 27(3)(a) Where proceeds & MV @ 1/10/2001 do not exceed PRE VDV is higher of: •MV @ 1/10/2001; or •Proceeds less post 1/10/2001 expenditure
47
Determining VDV: | Proceeds or MV exceed pre expenditure (only one of them, not both)
``` 2. Par 27(3)(b) Where MV @ 1/10/2001 or proceeds exceed PRE 1/10/2001 expenditure then lower of: • MV @ 1/10/2001; or •TABC ```
48
VDV of an financial instrument
Para 28 | Market value of the instrument on valuation date
49
If MV is used for VDV then...
Para 29 Where MV is used as VDV, do valuation within 3 years of 1/10/2001 however we now use par 31
50
Three different alternatives for TABC ( Time apportioned base cost)
- Basic TABC formula – para 30(1) - Adjusted TABC formula – para 30(2) - Extended TABC formula – para 30(3)
51
3 questions to ask when choosing which TABC formula is correct?
1. Have capital allowances been claimed 2. Have costs been incurred (par 20 costs) on or after 1 sept 2011 3. Was the asset disposed of at a capital profit (ignoring recoupments and allowances)
52
situation: - capital allowances have been claimed - costs have been incurred (par 20 costs) on or after 1 sept 2011 - Asset is disposed of at a capital profit (ignoring recoupments and allowances) which formula to use?
Extended TABC formula – para 30(3)
53
situation: -capital allowances have been claimed -costs have been incurred (par 20 costs) on or after 1 sept 2011 --Asset is disposed of at a capital loss (ignoring recoupments and allowances) which formula to use?
-Basic TABC formula – para 30(1)
54
situation: -capital allowances have been claimed -costs have not been incurred (par 20 costs) on or after 1 sept 2011 which formula to use?
-Basic TABC formula – para 30(1)
55
situation: -capital allowances have not been claimed -costs have been incurred (par 20 costs) on or after 1 sept 2011 which formula to use?
-Adjusted TABC formula – para 30(2)
56
situation: -capital allowances have not been claimed -costs have not been incurred (par 20 costs) on or after 1 sept 2011 which formula to use?
-Basic TABC formula – para 30(1)
57
In what situation would you use the Extended TABC formula – para 30(3)
situation: - capital allowances have been claimed - costs have been incurred (par 20 costs) on or after 1 sept 2011 - Asset is disposed of at a capital gain (ignoring recoupments and allowances)
58
In what situation would you use Adjusted TABC formula – para 30(2)
- capital allowances have not been claimed | - costs have been incurred (par 20 costs) on or after 1 sept 2011
59
In what situation would you use the Basic TABC formula – para 30(1)
In all other situations: - capital allowances have been claimed - costs have been incurred (par 20 costs) on or after 1 sept 2011 - Asset is disposed of at a capital loss (ignoring recoupments and allowances) situation: - capital allowances have been claimed - costs have not been incurred (par 20 costs) on or after 1 sept 2011 situation: - capital allowances have not been claimed - costs have not been incurred (par 20 costs) on or after 1 sept 2011
60
What is the Basic TABC formula – para 30(1)
``` Basic TABC formula Y = B + [(P - B) x N/(T + N)] B – expenditure pre 1/10/2001 P – proceeds on disposal N – number of years pre 1/10/2001 (limited to 20 years where exp incurred in more than 1 year) T – number of years post 1/10/2001 ```
61
What is the Adjusted TABC formula – para 30(2)
Adjusted TABC formula (expenditure post 1/10/2001) •Determine the proceeds to be used in basic TABC Y = R x B/(A+B) =P R – proceeds less selling costs A – expenditure incurred on or after 1/10/2001 B – expenditure incurred before 1/10/2001 ``` Determine P then sub into : Y = B + [(P - B) x N/(T + N)] B – expenditure pre 1/10/2001 P – R x B/(A+B) N – number of years pre 1/10/2001 (limited to 20 years where exp incurred in more than 1 year) T – number of years post 1/10/2001 ```
62
What is the Extended TABC formula – para 30(3)
Extended TABC formula •Expenditure incurred post 1/10/2001; and •Expenditure allowed as a deduction for normal tax; and •Proceeds exceed all expenditure incurred Y = B + [(P1 – B1) x N]/(T + N) and P1 = R1 x B1/(A1 + B1) A1 – expenditure post 1/10/2001 plus para 35(3)(a) recouped amounts B1 – expenditure pre 1/10/2001 plus para 35(3)(a) recouped amounts R1 – para 35 proceeds plus para 35(3)(a) recouped amounts B, N, T – same as basic TABC
63
What special treatment is given in par 30 (5) when using TABC formula
``` Par 30(5) – Deduct selling expenses from P, R or R1 Use only when calculating TABC formula as this contradicts par 20 ```
64
CGT=
Proceeds-Base cost
65
Proceeds=
Selling price -recoupments
66
Recoupments =
Selling price (limited to cost) -Tax value
67
Tax value =
cost-allowences
68
Base cost=
cost+ expenditure -allowences
69
B in TABC formula also means
base cost
70
EXAMPLE 5 Foodcorp Ltd acquired a mill on 1 Oct 1998 at a cost of R24 mil and claimed capital allowances of R7 mil up to date of sale. The mill was sold on 30 Sep 2015 for R53 mil. Establish VDV & CGT
``` Selling Price 53 000 000 Ltd to cost 24 000 000 Tax Value (R24m - R7m) -17 000 000 Recoupment 7 000 000 Proceeds "P"in formula 53 000 000 Recoupment -7 000 000 46 000 000 Base cost "B"in formula 24 000 000 Allowances -7 000 000 17 000 000 Std TAB Formula = 17 000 000 + [46 000 000 - 17 000 000) x 3] 3+14 = 22 117 647 20% of (proceeds less post VD exp) - 20% *( R53 000 000 - R7 000 000) 9 200 000 Par 26, use TAB value So Proceeds 46 000 000 Base cost (there was no cost after VD) -22 117 647 CGT=23 882 353 ```
71
``` Determination of ‘N’ and ‘T’ Date of acquisition ‘N’ 1 Oct 1981 30 June 1999 30 Sep 2001 Date of disposal ‘T’ 1 Oct 2001 30 June 2002 1 Oct 2002 ```
``` Date of acquisition ‘N’ 1 Oct 1981 20 30 June 1999 3 30 Sep 2001 1 Date of disposal ‘T’ 1 Oct 2001 1 30 June 2002 1 1 Oct 2002 2 ```
72
EXAMPLE 7 Redefine acquired a piece of land in Joburg on 1 Oct 1971 for R2 mil and disposed of it on 30 Sep 2014 for R90 mil. No other expenditure was incurred during the period of ownership and the land was not valued at VD. Assume TABC adopted as the VDV.
``` Example 7 TAB but to specifically look at "N" in the formula "P"= 90 000 000 "B"= 2 000 000 "N"= 30 "T"= 13 TAB = 2 000 000 + [(90 000 000 - 2 000 000) X 30] 30 + 13 = 63 395 349 So Proceeds 90 000 000 Base cost -63 395 349 26 604 651 ```

Tax (7 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions