Learning Unit 8 - Capital gains tax Flashcards
In terms of the Eight Schedule, define what is a disposal.
Paragraph 11
A disposal is any event event act, forbearance or operation of law, which results in the creation, variation, transfer or extinction of an asset.
When is a “deemed disposal” considered taking place.
Paragraph 12
- When a person commences to be a resident.
- Where a person ceases to be a resident
- When a person commences to hold assets, other than trading stock as if it is trading stock
With reference to the Eight Schedule, which instances are not regarded as disposals of assets?
Paragraph 11
- The transfer of an asset as security for a debt or the transfer of the asset back to the person upon the release of the security
- the issue, cancellation or extinction of a share or a member’s interest or a debenture in a company
- the issue of any debt by or to a person
With reference to the relevant section, where proceeds have not yet accrued, when is a capital loss recognized?
Paragraph 39A
If a person disposes of an asset and all the proceeds from the disposal do not accrue to him in that year, any resulting capital loss on the disposal must be disregarded for that year of assessment.
Which costs may be included in the base cost of an asset?
The Act allows the following costs as part of the base cost:
- expenditure actually incurred in order to acquire or create an asset;
- expenditure actually incurred in respect of the valuation of the asset for the purpose of determining the capital gain or loss
- the following expenditure actually incurred and directly related to the acquisition or disposal of an asset:
a) the remuneration of a surveyor, valuer, auctioneer, accountant, broker, agent, consultant or legal advisor
b) transfer costs
c) stamp duty
d) advertising costs to find a seller or buyer
e) the cost of moving that asset from one location to another
f) installation costs
g) donations tax paid by the donor (determined in accordance with paragraph 22)
- expenditure incurred to defend legal right in an asset
In which instances must the base cost be reduced by?
An amount that was allowable or deemed to have been allowable as a deduction for income tax purposes (capital allowances)
Primary exclusion - CGT
What are the two exclusions available for disposals for primary residence
The R2 million gross exclusion (paragraph 45(1)(b))
The R2 million gain or loss exclusion (par 45(1)(a))
Primary exclusion - CGT
In the instance where primary residence was used partially for a trade, how are capital gains or losses treated on disposal?
Only the portion of the capital gain or loss that is attributable to a period on or after the valuation date during which that person was ordinarily resident.
You must apportion the gain for the period they were ordinarily resident.
Primary exclusion - CGT
Where more than one natural person owns the property and uses it as their ordinary residence, how is the primary exclusion treated?
The R2 million gain or loss exclusion is a per residence exclusion.
The R2 million gain or loss must be divided between the persons according to their ownership.
Primary exclusion - CGT
Where a person owns more than one residence, how is the primary exclusion treated?
Where a person owns more than one residence, only one of the residence will qualify as a primary residence.
Primary exclusion - CGT
Where a company and natural person jointly holds interest in the property, how is the primary residence exclusion treated?
Only the natural persons can claim their portion of the R2 million gain or loss exclusion.
Primary exclusion - CGT
Where primary residence is disposed of together with the land on which it is situated, how is the exclusion treated?
Where primary residence is disposed of together with the land on which it is situated, the exclusion of R2 million gain or loss exclusion applies to:
- maximum of two hectares of the gain relating to the land;
- land used mainly for domestic purposes together with that residence; and
- land which is disposed of at the same time and to the same person as the resident
Primary exclusion - CGT
Where a natural person disposes of a primary residence and that residence was used for the purpose of carrying on a trade, how is the primary residence exclusion treated?
The capital gain or loss is apportioned. The R2 million capital gain or loss exclusion is determined for that portion of the house during that period on or after the valuation date during which the residence was used for trade purposes to be excluded from the R2 million gain or loss exclusion is determined for that portion of the house during the period which the residence was used for trade purposes.
Primary exclusion - CGT
If a natural person, did not stay in the residence for a period, and when they stayed there, used a percentage for business purposes, how is the primary exclusion treated?
The capital gain or loss in respect to both absence and trade use must be excluded from the primary residence exclusion.
Exclusion: Personal-use assets - CGT
What is a personal use asset?
Eight schedule paragraph 53
A personal use asset is an asset of a natural person or a special trust that is used mainly for purpose other than the carrying on of a trade.
Exclusion: Personal-use assets - CGT
Which assets are excluded from considered personal-use assets
Personal-use assets exclude
- a coin made mainly from gold or platinum
- immovable property
- an aircraft of bigger than 450kg
- a boat exceeding ten meters in length
- a financial instrument
- a fiduciary, usufructuary or similar interest
- contract in terms of which a premium is paid for policy benefits upon the happening of a certain event.
Exclusion: Disposal of small business assets (par 57, Eight schedule)
What is the small business asset exclusion.
If a person disposes of a small business asset, the capital gains, to a maximum of R1 800 000 (during a person’s lifetime) are disregarded in calculating the aggregate capital gain or aggregate capital loss.
Exclusion: Disposal of small business assets (par 57, Eight schedule)
Who does the small business asset exclusion apply to?
This exclusion is granted to a natural person:
- who is the owner or a partner in a small business; or
- who hold a direct interest in a company (at least 10%) which qualifies as a small business. A small business is a business which the market value of all its assets does not exceed R10 million.
The exclusion only applies where the person:
- held the interest for a continuous period of at least five years prior to its disposal;
- was substantially involved in the operations of the business during the five-year period; and
- has attained the age of 55 years; or
- has disposed of the interest as a consequence of ill-health or death.
