Chapter 21 Flashcards
Basic calculation
Proceeds from sale of (capital) asset
Less: base cost of asset
= capital gain
CGT is not charged only on profits made on the sale on the sale of capital asset but there is an effect that is charged on on the disposal or deemed disposal of all assets, where the proceeds on disposal of the assets are not included in gross income.
CGT is not a separate tax from income tax. Only part of the capital gain is included in his taxable income, it is then subject to capital gains tax.
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A portion of the taxpayers capital gains (less capital losses) for the year is included in the taxpayers taxable income, and taxed in terms of the normal tax tables. This has effect on the taxpayers marginal rate of tax for the year, and must be included in the second provisional tax payment calculation. (Where the taxpayer is registered for provisional tax)
The taxable capital gain for companies, trusts, close corporations and legal entities is 66.6%of the entity’s net capital gain for the year.
Definition of net capital gain
Aggregate capital gain (all capital gains for the year added together)
Less: assessed capital loss brought forward from previous year
=net capital gain
Proceeds Less:base cost =capital gain Taxable capital gain (66.6%) Tax at 28%
Persons liable for CGT
For SA residents
CGT applies to any capital asset of a South African resident. The SA resident is taxed on capital gains made on the sale or disposal of assets which he owns anywhere in the world.
Non residents
Fixed immovable property situated in SA
Any interest or right in immovable property situated in SA (usufruct)
Assets of a SA permanent establishment
For non residents, interest in immovable property situated in SA as including equity shares in a company or a vested interest in the assets of a trust if
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At least 80% of the value of shares, rights, or vested interest is attributable to immovable property in SA and
In the case of a company or other entity, the non resident holds at least 20% of the equity shares
Basic framework of of CGT Calculation Gross income Less: exempt income =income Less: deductions and set-offs Add: all amounts required to be included in taxable income ie Capital gains for the year
Less: capital losses for the year
Less annual exclusions (natural persons and special trusts)
=Aggregate capital gain
Less assessed capital loss from the previous year of assessment
= net capital gain
Capital losses and annual exclusions
If the capital losses exceed the capital gains for the year, the net loss is not deducted from taxable income but is carried forward to the next years calculation of the net capital gain
Rates of CGT
Two rates to look at
Inclusion rate which is the % of the net capital gain included in taxable income 66.6%
Effective tax rate on capital gain 28%
Capital loss
Arises when the base cost of the asset disposed of is greater than the proceeds or deemed proceeds from the disposal of that asset.
If asset has been disposed of in the previous year of assessment, and a capital loss is made in the current year from one of the following events, the loss must be accounted for in the current year
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Proceeds are reduced because the agreement has been cancelled
Proceeds are reduced due to prescription
Proceeds reduced due to the waiver of a claim or the release from an obligation
Proceeds are reduced due to any other even during the year of assessment
Part or all of the proceeds have become irrecoverable
Part or all proceeds have been repaid or become repayable
The base cost are more than was taken into account in the previous year of assessment
Introduction
Basic principle is that if a capital asset is sold at a profit, the profit is subject to Capital Gains Tax and if it is sold at a loss, the capital loss can be set off against other capital profits. If the are no other capital profits in the year, the capital loss is carried forward to the next year.
Except for shares sold after being held for three years.
