LML4804 Assignment 4
Semester 2 2024 - DUE 30
September 2024
[Company address]
, LML4804 Assignment 4 Semester 2 2024 - DUE 30 September 2024
QUESTION 1
(CAPITAL GAINS TAX) Ms. Kru, a South African resident worked for O Insure (Pty) Ltd
(“O Insure”) as a specialist for 15 years. As a result of the Covid-19 pandemic that hit
the world, O Insure decided to retrench her team including Ms. Kru. She was given a
severance package of R5 million. Ms. Kru is married in community of property to Lolo
and they stay in Blue Halley, Pretoria They bought the house in 2011 for R900 000.
They also own a holiday house in Hermies, Western Cape which they bought in 2012
for R800 000. The couple also own a BVM X and a Range Sports Car that Ms. Kru
bought for Lolo as a graduation present. As a result of the retrenchment, the couple
decided to downsize their lifestyle. They therefore embarked on the following
transactions:
• They appointed REX Real Estate agents at a cost of R200 000 to sell the house in
Blue Halley for R2,5 million; replaced all bathrooms’ taps with gold plated ones at a cost
of R30 000; appointed Fix It (Pty) Ltd (“Fix it”) to fix the leaking swimming pool at a cost
of R10 000;
• They also sold their holiday house in Hermanes for R2 million;
• They sold Range Sports Car for R1 million;
• They sold their Kruger Rands for R500 000 WHAT IS REQUIRED OF YOU: Without
calculating the capital gain of Ms. Kru, discuss the capital gains tax principles applicable
in the scenario. [25 marks]
To address the capital gains tax (CGT) principles applicable to Ms. Kru’s scenario, we
must consider the capital gains tax rules as defined in the South African Income Tax Act,
particularly under the Eighth Schedule, and how they apply to her various disposals of
assets.
1. Capital Gains Tax Overview
CGT is applicable when a South African tax resident disposes of an asset and makes a
profit (capital gain) from that disposal. The capital gain is the difference between the
base cost (the purchase cost, plus allowable improvements and disposal costs) and the
proceeds from the sale. The gain is then subject to tax at an inclusion rate of 40% for
individuals, meaning 40% of the capital gain is added to their taxable income for the
year.
Inclusions and exclusions:
Semester 2 2024 - DUE 30
September 2024
[Company address]
, LML4804 Assignment 4 Semester 2 2024 - DUE 30 September 2024
QUESTION 1
(CAPITAL GAINS TAX) Ms. Kru, a South African resident worked for O Insure (Pty) Ltd
(“O Insure”) as a specialist for 15 years. As a result of the Covid-19 pandemic that hit
the world, O Insure decided to retrench her team including Ms. Kru. She was given a
severance package of R5 million. Ms. Kru is married in community of property to Lolo
and they stay in Blue Halley, Pretoria They bought the house in 2011 for R900 000.
They also own a holiday house in Hermies, Western Cape which they bought in 2012
for R800 000. The couple also own a BVM X and a Range Sports Car that Ms. Kru
bought for Lolo as a graduation present. As a result of the retrenchment, the couple
decided to downsize their lifestyle. They therefore embarked on the following
transactions:
• They appointed REX Real Estate agents at a cost of R200 000 to sell the house in
Blue Halley for R2,5 million; replaced all bathrooms’ taps with gold plated ones at a cost
of R30 000; appointed Fix It (Pty) Ltd (“Fix it”) to fix the leaking swimming pool at a cost
of R10 000;
• They also sold their holiday house in Hermanes for R2 million;
• They sold Range Sports Car for R1 million;
• They sold their Kruger Rands for R500 000 WHAT IS REQUIRED OF YOU: Without
calculating the capital gain of Ms. Kru, discuss the capital gains tax principles applicable
in the scenario. [25 marks]
To address the capital gains tax (CGT) principles applicable to Ms. Kru’s scenario, we
must consider the capital gains tax rules as defined in the South African Income Tax Act,
particularly under the Eighth Schedule, and how they apply to her various disposals of
assets.
1. Capital Gains Tax Overview
CGT is applicable when a South African tax resident disposes of an asset and makes a
profit (capital gain) from that disposal. The capital gain is the difference between the
base cost (the purchase cost, plus allowable improvements and disposal costs) and the
proceeds from the sale. The gain is then subject to tax at an inclusion rate of 40% for
individuals, meaning 40% of the capital gain is added to their taxable income for the
year.
Inclusions and exclusions:
