MULWELI

RAKHADANI
Capital Gain
Tax (8th
Schedule
Learning Outcomes

Determine and discuss the scope of CGT and the persons who are liable for CGT.

Know and be able to apply and discuss the different applications of CGT for resident
and non-resident. Identify assets and disposal events and calculate proceeds and
base cost, including base cost of assets acquired before valuation date .

Calculate and discuss a taxpayers’ taxable capital gain or assessed capital loss for
disregarded capita gain or loss and rollover relief.

Calculate and discuss the amount of the capital gain to be included in the taxable
income of the taxpayer or the capital loss to be carried forward to the following year
of assessment.
 Normal Tax – Framework

Gross Income XXXX

Less: Exempt income (XXX)
Income XXX
Less: Deductions and allowances (XX)
Less: Assessed loss (XX)
Add: Other amounts included in taxable income (E.g., recoupment) XX
Add: Taxable Capital Gain XX
Less: Deductions in terms of s 11F (To be covered in second semester) (XX)
Less: Deductions in terms of s 18A (XX)
Taxable Income XXXX
Normal Tax per progressive tax table (Natural person) or at 28% or 27% (Companies) XXX
Less: Tax rebates and tax credits (XX)
Normal Tax Payable or (Refundable) XXXX
CGT is not a
separate Tax
Capital Gain Tax (8th Schedule)

 What is the crux of CGT?

 CGT is calculated on :
 each Disposal
 of an Asset
 by using the following formula:
Capital Gain/(Loss) = Proceeds Less Base Cost
Capital Gain Tax (8th Schedule)

 Two golden rules :

 Only portion of capital profit arising from the disposal made on/after 1
October 2001 will be subjected to CGT.
 Any portion of the profit already taxed for VAT and Income tax purposes is
Excluded from CGT
Capital Gain Tax (8th Schedule )

 Scope:
 Disposal on/after valuation date ( 1 October 2001)
 Resident ?
 Non – Resident ?

 Implication:
 Inclusion rate ?
Capital Gain Tax (8th Schedule)

 Scope – Residents (par 2(1)(a):

 All assets ( either located in SA or outside SA)
Capital Gain Tax (8th schedule)

Scope – Non – Resident (par 2(1)(b) and par2(2):

 Immovable property situated in SA.
 An interest in immovable property situated in SA, as long as (for
awareness purposes) :
 At the time of disposal, at least 80% of the market value of the interest is
subscribed to immovable property located in SA ( excluding property held as
trading stock); AND
 The non – resident and his connected persons (directly or indirectly ) hold at
least 20% of interest of the company
 Any Assets of the Parment establishment in SA (for awareness purposes)
Capital Gain Tax (8th Schedule) –
Framework for CGT

Capital gains XXX

Less: Capital Losses (XX)
Aggregate Capital Gain/Loss XXX
Less: Assessed Capital Loss carried forward (x)
Net Capital Gain/ Assessed Capital Loss XX
Taxable capital gain (Net Capital Gain X Inclusion Rate) X
Capital Gain Tax (8th Schedule)

Inclusion rate:
 Applied only on Net Capital Gain
 Depend on taxpayer
 Natural persons and special trusts - @ 40% (Part of second semester )
 Companies and other trusts - @ 80%
Capital Gain Tax (8th Schedule )

CGT Methodology:
1. Did a disposal take place?
2. Does it relate to an asset ?
3. Did the disposal occur in the current year of assessment?
Yes?
No?
Capital Gain Tax (8th Schedule)

Question 1: Disposal (paras 11,12 and 13)

 Starting point of any CGT question
 A disposal refers to an event, act, forbearance or operation of law which
leads to the creation, change to, transfer of or extinction of an asset.
Capital Gain Tax (8th Schedule)

Question 1: Disposal (paras 11,12 and 13)

 Disposal events:
 Sale, donation, expropriation, act, conversion, granting, cession, exchange or any other
alienation or transfer of ownership of an asset.
 Forfeiture, termination, redemption, cancellation, surrender, discharge, relinquishment,
release, waiver, renunciation, expiry or abandonment of an asset.
 Scrapping, loss or destruction of an asset.
Capital Gain Tax (8th Schedule)

Question 1: Disposal (paras 11,12 and 13)

 Non - Disposal events:
 Pledging an asset as a security for a loan.
 Issuing , cancellation and extinction of a share in company.
 Issuing of a debt
Capital Gain Tax (8th schedule)

Deemed Disposal:
 Capital Asset becomes Trading stock – (par 12(2)(c) – Deemed disposal @
Market Value
 Trading stock becomes Capital Asset – (par 12(3) - Deemed disposal @ Market
Value
 Personal – use asset becomes non – personal use asset (par 12(2)(d) – Deemed
disposal @ Market value
 Non – personal use asset becomes a Personal – Use asset (par 12(2)(e) –
Deemed disposal @ Market Value
Capital Gain Tax (8th Schedule)

Question 2: Asset (par 1):

 Property of any nature:
 Movable or immovable
 Corporeal or Incorporeal
 A right or interest of any nature to or such property
 Excludes any currency but not gold mainly made from gold or platinum
 Crypto Currency are assets for CGT purposes.
Capital Gain Tax (8th Schedule)

Question 3: Year of Assessment (para 13)

 Time of Disposal
 General Rule – date on which ownership of the asset changes.
 Special rule – depend on the nature of the disposal event.
Capital Gain Tax (8th Schedule)

Disposal Event Date of Disposal

Disposals subjected to suspensive Date the condition is satisfied
condition
Disposals not subjected to suspensive Date the contract becomes effective
conditions
Donation of assets Date the donation becomes affective
Scrapping, loss or destruction of an • Date full compensation is received,
asset or
• If no compensation, earlier of:
o The date the loss/destruction is
discovered.
o The date of finding out that no
compensation will be paid.

Expropriation of an asset Date full compensation is received

Capital Gain Tax (8th Schedule)

Proceeds – par 35
 Amount received or accrued due to a disposal
Specific exclusions :
 Amount already taken into account when determining taxable income
(recoupment).
 Output tax levied
Capital Gain Tax (8th Schedule)

Proceeds – par 35
 Anti – Avoidance (par 38)
 Donation; or
 Disposal for consideration not measurable in money; or
 Disposal to a connected person not at an arm’s length price

Disposal at market value,

and acquisition at market
value
 Capital Gain Tax (8th Schedule )

Base Cost

Pre – VD Asset
Post –VD Asset

Historic Gain Historic Loss

Par 20 expenditure
Less: VAT Claimed
Less: Allowances
Claimed

Par 26 Par 27
Capital Gain Tax (8th Schedule)

Pre – Valuation Date Assets:

Base cost = Valuation date Value + Par 20 expenditure incurred after VD

Capital Gain Tax (8th Schedule )

Valuation Date Value - Historic Gain

 Historic Gain is when Proceeds > (Par 20 expenditure before VD + Par 20
expenditure after VD)
 Valuation Date Value is determined in terms of par 26
 Taxpayer can elect the VDV:
 MV
 20% (Proceeds – Par 20 expenditure after VD)
 TAB
 If MV has been adopted as VDV and Proceeds is equal or less than MV:
VDV = Proceeds – Par 20 expenditure after VD
Capital Gan Tax (8th Schedule )

Valuation Date Value - Potential /Historic Loss

 Historic Loss is when Proceeds < = (Par 20 expenditure before VD + Par 20
expenditure after VD)
 VDV is determined in terms of para 27
 No election by the Taxpayer
 If MV is not determinable:
 VDV = TAB
 If MV is determinable, and Par 20 expenditure before VD > = Proceeds, and
Par 20 expenditure before VD > MV:
 VDV is the higher of:
 MV
 Proceeds – Par 20 expenditure after VD
Capital Gain Tax (8th Schedule)

Valuation Date Value - Potential /Historic Loss

 If MV is determinable but Par 20 expenditure before VD is not > =
Proceeds or Par 20 expenditure before VD is not > MV,
VDV is the lower of:
 MV
 TAB
Capital Gain Tax (8th Schedule)

Para 20 expenditure (Included):

 Acquisition or creation costs
 Valuation costs
 Direct cost of acquisition or disposal
 Cost of defending legal title
 Cost of improvements
Capital Gain Tax (8th Schedule)

Para 20 expenditure (Excluded):

 Borrowing costs
 Expenditure associated with ownership – Repairs, Maintenance, Protection,
Insurance, Rates and taxes
 Input VAT claimed
 Reduction of Base cost:
 Allowed deductions
Capital Gain Tax (8th Schedule)

Base cost of Donated Asset (par 22)

 Add a portion of donation tax paid to the base cost determined as
follows:
( )
Y= XD

Y = portion of the donation tax to add to the base cost.

M = Market value of the donated asset
A = Base cost
D = Donations Tax
Capital Gain Tax (8th Schedule )

Base Cost of a donated asset Example

ABC Limited donated a ship to Clean Oceans on 1 April 2022. The market
value of the yacht was R1 000 000 on the date of donation. ABC limited
the Ship on 1 January 2021 for a total cost of R1 250 000 and brought it into
use immediately in its fishing business. ABC Limited paid a donation tax of
R230 000. ABC Limited has a 31 December year-end.

Calculate CGT on the asset donated?

Capital Gain Tax (8th Schedule)

Base cost of Donated Asset Example:

SP of R1 000 000 limited to cost of R1 250 000 1 000 000
Less: Tax Value (750 000)
Cost 1 250 000
Less: 2021 12C allowance (1250 000 X20%) (250 000)
Less: 2022 12C allowance (1250 000 X20%) (250 000)

Recoupment 250 000

Capital Gain Tax (8th Schedule)

Base cost of Donated Asset Example:

Proceeds 750 000
SP 1 000 000
Less: Recoupment (250 000)

Less: Base Cost (842 000)

Cost 1 250 000
Less: 2021 12C allowance (1250 000 X20%) (250 000)
Less: 2022 12C allowance (1250 000 X20%) (250 000)
Plus: Portion of Donations Tax 92 0000

Capital Loss 92 0000

Capital Gain Tax (8th Schedule)

Base cost of Donated Asset Example:

Portion of Donation Tax = ((1 000 000 – 750 000)/1 000 000) X 230 000
= 92 000
Capital Gain Tax (8th Schedule)

 Rollover Relief:
 Involuntary disposal – par 65
 Reinvestment in replacement assets – Par 66.
Capital Gain Tax (8th Schedule)

Involuntary disposal 65
Scope:
 Involuntary disposal – theft, destruction, or operation of law.
 Proceeds accrue by way of compensation.
 Proceeds => Base cost.
 Proceeds will be used to acquire replacement asset
 Replacement assets are acquired with 12 months from the date of disposal
 Replacement assets are brought into use with 3 years from the date of the
disposal.
Para 65 applies to both
movable and immovable
assets
Capital Gain Tax (8th Schedule

Involuntary disposal – para 65

 Implications:
 At the election of the taxpayer:
 Non-allowance assets – Defer Capital Gain and Recoupment until
disposal of the replacement.
 Allowance asset – Defer Capital Gain and Recoupment and tax the in
proportion of the allowance claimed on the replacement asset in each
year of assessment
Capital Gain Tax (8th Schedule)

Reinvestment in replacement assets – para 66

Scope:
 Disposal of depreciable movable assets – s 11(e), 12C and 12E
 Proceeds accrue by way of compensation.
 Proceeds => Base cost.
 Proceeds will be used to acquire replacement asset.
 Replacement assets are acquired with 12 months from the date of disposal
 Replacement assets are brought into use with 3 years from the date of the
disposal.
Capital Gain Tax (8th Schedule

Reinvestment in replacement assets – para 66

 Implications:
 At the election of the taxpayer:
 Allowance asset – Defer Capital Gain and Recoupment and tax the in
proportion of the allowance claimed on the replacement asset in each
year of assessment
Capital Gain Tax (8th Schedule

Involuntary disposal – para 65 example:

ABC Limited purchased a new machine on 28 February 2018 at a cost of R100
000. on 29 February 2020, the machine was destroyed in a fire. The company
received R120 000 from its insurer as compensation. ABC Limited used the
compensation to purchase a more advanced new replacement machine at a
cost of R150 000 on 30 June 2020.the new machine was brought into use
immediately. ABC Limited has a 30 June year-end.

Determine recoupment and capital gain to be brought inro account in 2020 to

2023?
Capital Gain Tax (8th Schedule

Involuntary disposal – para 65 example:

SP of R120 000 limited to cost of R100 000 100 000
Less: Tax Value (20 000)
Cost 100 000
Less: 2018 12C Allowance (100 000 X 40%) (40 000)
Less: 2019 12C Allowance (100 000 X 20%) (20 000)
Less: 2020 12C Allowance ( 100 000 X 20%) (20 000)
Recoupment 80 000
Capital Gain Tax (8th Schedule)

Involuntary disposal – para 65 example:

Proceeds: 40 000
SP 120 000
Less: Recoupment (80 000)
Less: Base Cost (20 000)
Cost 100 000
Less: 2018 12C Allowance (100 000 X 40%) (40 000)
Less: 2019 12C Allowance (100 000 X 20%) (20 000)
Less: 2020 12C Allowance ( 100 000 X 20%) (20 000)
Capital Gain 20 000
Capital Gain Tax (8th Schedule)

Involuntary disposal – para 65 example:

Capital Allowances on a new machine (replacement Machine):
2020: 150 000 X 40% = R60 000
2021: 150 000 X 20% = R 30 000
2022: 150 000 X 20% = R 30 000
2023: 150 000 X 20% = R 30 000
Capital Gain Tax (8th Schedule)

Involuntary disposal – para 65 example:

Recoupment to be recognized:
2020: 80 000 X 40% = R 32 000
2021: 80 000 X 20% = R 16 000
2022: 80 000 X 20% = R 16 000
2023: 80 000 X 20% = R 16 000
Capital Gain Tax (8th Schedule)

Involuntary disposal – para 65 example:

Capital Gain to be recognized:
2020: 20 000 X 40% = R 8 000
2021: 20 000 X 20% = R 4 000
2022: 20 000 X 20% = R 4 000
2023: 20 000 X 20% = R 4 000
Capital Gain Tax (8th Schedule)

Other exclusions:
 Gambling, games and competition (para 60) – disregard both capital
gain and capital loss.
 Donations to exempt entities – disregard both capital gain and loss.
The End
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