Capital Gains Tax

 ASSET
 There must be an asset.
o Assets (def in para 1) definition includes-
 Property of whatever nature, whether movable or
immovable, corporeal or incorporeal, excluding any
currency, but including any coin made mainly from gold or
platinum; and
 A right or interest of whatever nature to or in such
property
 DISPOSAL (para 11)
 There must have been a disposal of the asset during the year of
assessment.
o Disposal (def in para 1) means-
o An event, act or operation of law
o That results in the creation, variation, transfer or extinction of an
asset
o Disposal takes place when a person owned the asset in the
beginning of the year and no longer holds it at the end of the year
o Deemed Disposals and Acquisitions (para 12 and section 9H)
 (a)(i) A person
o commences to be a resident; or
 (a)(ii) a foreign company commences to be a CFC
o This rule applies to all assets, except:
o immovable property in SA or
o any right or interest in such property
o any asset attributable to a permanent establishment in
South Africa
 (b) An asset of a non-resident that becomes an asset of the
person’s PE in SA other than acquisition
 (c) Non-trading stock that becomes trading stock
 (d) A personal-use asset that becomes a non-personal use
asset
 (e) A non-personal use asset that becomes a personal-use
asset
o Section 9H (change in residence)
 S9H(2) – natural persons and trusts stops being a resident
 S9H(3) – applies when a resident company ceases to be a
resident during any year of assessment of that company
 S9H(4) – deemed in s9H(2) & s9H(3) do not apply to an
asset constituting of: immovable property; any instrument
contemplated in Section 8A; any asset which is effectively
connected to a PE after that person ceases to be a resident
or a CFC.
o Time of disposal (para 13)
 Agreement subject to suspensive conditions: date when
conditions are satisfied
  Agreement not subject to conditions: date of conclusion of
agreement
 Donation of asset: date of compliance with all legal
requirements for a valid donation
 Conversion of asset: date of conversion
 On scrapping, loss or destruction:
o Deemed to be when full compensation is received, or
o If no compensation is payable the later of the date the
loss is discovered or when it is established that no
compensation will be payable
o See paragraph 13 for a complete list and Paragraph 14
for the disposal between spouses married in
community of property
 BASE COST (para 20)
 The base cost of the asset must be determined.
o Base cost (def in para 1) means the amount to be determined in
terms of Part V
o Base Costs include; acquisition cost, improvement cost, and
direct cost in respect of the acquisition and disposal of the asset.
 Also includes: 1/3 of the Borrowing Costs
o Base Costs exclude; input tax, expenditure for repairs,
maintenance, insurance, and other similar expenses paid
monthly/expenditure already deducted
o Limitation of expenditure (para 21)
 Prevention of double deduction - An amount that
qualifies as allowable expenditure for CGT purposes shall
not be taken into account more than once for CGT purposes.
 General provisions - If expenditure is allowed under any
other provision of the 8th Schedule, then it must not be
considered in terms of para 20(1)(a) –(e)
o Donations tax (para 22)
 Portion of the donations tax payable by the donor on the
asset disposed off is included in the Base cost
 Formula: Y = (M - A) / (M x D)
 Where:
 Y = amount to be determined
 M = MV of the donated asset
 A = all amounts, excluding DT, taken into account when
determining the base cost
 D = total amount of donations tax payable
o SUBSEQUENT RECOVERY OF BASE COST
 Para 3(b)(ii) – stipulates that the amount taken in a
previous year of assessment as the base cost of an asset in
determining a capital gain must be treated as a capital gain
in the year that it is recovered.
 Para 4(b)(ii) – (contains the same principle in respect of a
capital loss).
o Part disposals (para 33)
  Where only part of an asset is disposed of, an allocation
needs to be done of the base cost attributable to the part
disposed off
 Formula: (MV of part disposed of / MV of the entire asset)
x expenditure under para 20
 PROCEEDS (para 35)
 The proceeds on disposal of the asset must be determined.
o Para 35(1) proceeds is the amount received by or accrued to a
person in respect of that disposal
o Proceeds include: the amount received from an insurer upon the
destruction of an asset
o Proceeds exclude; output tax, recoupment (s8(4)(a) of the ITA),
any amounts repaid/repayable by the buyer, cancellation,
termination or variation of an agreement, waiver of a claim, release
from obligation, any other amount of SP included in taxable
income
 PROCEEDS ACCRUING FOLLOWING DISPOSAL OF ASSET
(unquantifiable amounts)
 Par 3(b)(i) – stipulates that where any amount of proceeds
accrues to a taxpayer during the current year of
assessment in respect of a disposal which has not been
taken into account in any previous year of assessment in
determining the capital gain, that amount must be treated
as a capital gain in the current year of assessment.
 Para 4(b)(i) – same as above however results in a capital
loss when proceeds are reduced in a subsequent year
 Proceeds (para 38)
 Where an asset is disposed:
 To anyone by means of a donation
 To anyone for consideration that cannot be measured
 To a connected person for consideration NOT at MV
 Then proceeds is equal to MV of asset at date of
disposal
 Special provisions:
 Primary residence exclusion (Para 44 – 50)
 Para 45 – Less than R2m, not used for trade, more than one
resident
 Para 46 – Size of a residential property
 Para 47 – Periods not ordinarily resident
 Para 48 – Disposal and acquisition of primary residence
(deemed as ordinary resident for 2 yrs if met all the
requirements)
 Para 49 – Non-residential use
 Para 50 – Rental periods
 Other exclusions (Para 52 – 63)
 Para 52: General principle
 Para 53: Personal-use assets
 Para 54: Exclusion of retirement benefits
 Para 55: Exclusion of long-term assurance
 Para 57: Disposal of small business assets
  Para 58: Exercise of an option
 Para 59: Compensation for personal injury, illness or
defamation
 Para 60: Gambling, games and competitions.
 Para 62: Donations and bequests to public benefit
organisations
 Para 63: Exempt persons
 Connected persons (para 39)
o A capital loss resulting from a disposal to a connected person is
disregarded.
o A capital loss made on disposals to certain connected persons must
be ringfenced.
o The ring-fenced losses can only be offset against future gains or
losses made on disposals to that connected person.
o Para 39(3) lists specific connected persons to whom the provision
applies

 Eighth Schedule: Every person is subject to the CGT rules contained in

the Eighth Schedule.
o This includes natural persons and persons other than natural
persons
o Both residents and non-residents are subject to Eighth Schedule
o Annual Exclusion: Only applicable to NATURAL PERSONS.
 Currently R40 000 (R300 000 in year of a death natural
person)
 Never apportioned and never carried forward. Limited to the
sum of all capital gains and losses.
o Inclusion Rate:
 Natural persons:
 CGT Inclusion rate = 40%
 Statutory rate (%) = 45%
 Effective rate (%) = 18%
 Special trusts:
 CGT Inclusion rate = 40%
 Statutory rate (%) = 45%
 Effective rate (%) = 18%
 Ordinary trusts:
 CGT Inclusion rate = 80%
 Statutory rate (%) = 45%
 Effective rate (%) = 36%
 Companies:
 CGT Inclusion rate = 80%
 Statutory rate (%) =27%
 Effective rate (%) = 21.6%

Application (para 2)
 Applies to:
 Residents:
o Worldwide assets
 Non-residents:
o Immovable property in RSA
o Interest or right in immovable property in RSA (80/20 rule)
o Assets effectively connected with a PE of that person in RSA
 80/20 RULE
 Par 2(2): For purposes of subparagraph (1)(b)(i)
o 80% If a person holds 80% or more of the market value of those
equity shares, right to ownership or vested interest to immovable
property situated in the Republic
 (80% refers to the market value of the assets contained in
the company owned by the taxpayer)
o 20% in the case of a company or other entity, that person (whether
alone or together with any connected person in relation to that
person), directly or indirectly, holds at least 20% of the equity
shares, ownership or right to ownership of that other entity.
 (20% refers to the non-resident taxpayer’s shareholding in
the company)
 Para 43 – Foreign currency exchange