Individual Capital Gains

Question 1

What is the basic calculation for capital gain?

Answer 1

Proceed from sale of asset less basic cost of the asset.

Question 2

What is the capital gain tax rate for individual?

Answer 2

25%

Question 3

What is the aggregate capital gain?

Answer 3

The sum of all the capital gains for the year less the sum of all the person’s capital losses and reduce by annual exclusion of R20 000

Question 4

Where is capital gain in the taxable income calculation?

Answer 4

Gross income
Less: exempt income
= income
Less: deductions, allowance and amounts to be set off against income
Add: amount specifically included in taxable income (taxable capital gains)
= taxable income

Question 5

How do you calculate taxable capital gain?

Answer 5

Capital gain on asset for the year
Less: capital loss for the year
= subtotal
Less: annual exclusion (R20 000)
= aggregate capital gains or losses
Less: assessed capital loss brought forward from previous year
= net capital gain/loss
Multiply the net capital gain by the inclusion rate (25%)
= taxable capital gains (to be included in the calculation of taxable income)

Question 6

Who is liable for CGT?

Answer 6

1) resident
- worldwide assets disposed of
2) non-resident
- fixed(immovable) properties in SA
- assets of a permanent establishment in SA

Question 7

What is the base cost of asset?

Answer 7

A capital gain or loss is determined by deducting the base cost of an asset from the proceeds from the disposal of the asset. The base cost of an asset is determined in terms of the provisions.

Question 8

What does the base cost of an asset include?

Answer 8

The base cost of an asset includes:

• the cost of acquiring it (transaction cost, actual costs, moving costs, etc)
• the cost of improving or adding to it (must form part of the asset at time of disposal)
• costs and expense deducted for normal tax purposes cannot form part of base cost
• the following cannot be added to the base cost:
  1) borrowing cost
  2) repairs and maintenance
  3) protection and insurance costs
  4) rates and taxes

Question 9

What is the base cost of an asset acquired before 1 October 2001 (Pre-valuation date assets)?

Answer 9

The base cost of such asset is:

The valuation date value (valuation date = 1 October 2001) plus any expenditure incurred on or after 1 October 2001

Question 10

What is the base cost of asset acquire on or after 1 October 2001?

Answer 10

The base cost of such asset is the expenditure actually incurred in acquiring or creating the asset

Question 11

How do you determine the valuation date value of an asset where proceeds exceeds expenditure?

Answer 11

The VDV =
- the market value on 1 October 2001; or
- the time apportionment base cost; or
- 20% of the disposal proceed less post valuation date expenditure (if taxpayer did not have the asset valued and have no record of actual original cost of the asset)
(Calculate all three and choose the one that will result in the lowest CGT. i.e. the highest value)

Question 12

How do you determine the valuation date value where expenditure cannot be determined?

Answer 12

1) the market value on 1 October 2002

2) 20% of the disposal proceed less post valuation expenditure

Question 13

What is the valuation date value when proceed do not exceed expenditure?

Answer 13

1) where MV at 1 October 2001 has been determined and both proceed and MV are less than the expenditure the VDV is the higher of:
- MV at 1 October 2001 or
- proceed less post valuation expenditure
2) where either the MV at 1 october 2001 or the proceeds are greater than the pre valuation expenditure, the VDV is lower of:
- MV on 1 October 2001
- the time apportionment base cost

Question 14

Any capital gain or loss made which is subject to an exclusion, must be disregarded when calculating the person’s aggregate capital gain for the year. What are the exclusions?

Answer 14

1) the primary residence exclusion (primary residence - first R1,5million of the profit is not subject to tax or proceed is equal to or less than R2million, the whole capital gain is ignored)
2) personal use assets (not for trade)
3) retirement benefits
4) long terms assurance
5) debt defeasance
6) disposal of small business assets
7) compensation for personal injury, illness or defamation
8) gambling, games and competition
9) etc

Question 15

What is not considered as personal use asset? I.e. subject to CGT

Answer 15

1) coin made mainly from gold or platinum
2) immovable property
3) aircraft with empty mass exceeding 450kg
4) boat exceeding 10m in length
5) financial instruments
6) any fiduciary or usufructory interest
7) short term insurance policies over non personal use assets
8) long term insurance contracts

Question 16

What is the principle for capital loss limitation?

Answer 16

Person must disregard any capital loss on the disposal of certain non-personal use assets:
- aircraft with empty mass exceeding 450kg
- boats exceeding 10m in length
- time share
But if there is a gain then still take into account for CGT