Income Tax Law Assignment 03 2020
Question 1
Capital Gains
The requirements that have to met in order to determine whether there is a capital
gain or loss are provided in the Eighth schedule of the Income Tax Act 1. There has
to be four elements present which are discussed below.
Firstly there has to be a recognised asset. An asset is defined as "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 on such property"2. It is property that, upon disposal,
money can be attained.
There has to be a disposal and a disposal is defined as "the act forbearance or the
operation of law which results in the creation variation transfer or extinction of an
asset."3
A base cost must also be present which is defined as the monetary value of the
asset upon acquiring it and maintaining it as well as the disposal of the asset.
Lastly there had to be proceeds. This is money acquired upon disposing the asset.
Transactions from the facts in question
Appointment of the VEDO real estate agent
1 Income Tax Act 58 of 1962.
2 Paragraph 1 of the Eighth Schedule of the Income Tax Act 58 of 1962.
3 Paragraph 11 (1) of the Eighth Schedule of the Income Tax Act 58 of 1962.
, Section 20(c) of the Eighth Schedule provides that an amount paid to an agent is to
be included in the base cost as it is expenditure incurred in relation to the acquisition
or disposal of that asset. It will form part of the base cost of the house.
Sale of the house for R2,2 million
The house in Waterkloof can be said to be their primary residence as that is where
the couple lived. A primary residence is defined in paragraph 44 as where a natural
person lives and performs his or her domestic activities and is their main residence.
The house is also an asset according to paragraph 1 of the Eighth Schedule.
Paragraph 45(1) affords a natural person to exclude particular capital gains or losses
upon disposing a primary residence. Further, paragraph 45(1(b) calls for
disregarding capital gain or loss consequences where proceeds of the disposal of a
primary residence is less than R2 million. To qualify for this certain relief, the natural
person must hold an interest in that residence. This section will not apply in this
scenario as proceeds where R2,5 Million.
According to the paragraph 45(1)(a) where a primary resident has proceeds that
exceed R2 Million, the first R2 Million capital gain will be disregarded. In
circumstances where two or more natural persons hold an interest in a primary
residence, they have to divide the capital gain exclusion of R2 million in accordance
to each interest held. This is a per paragraph 45(2) of the Act. Since in the facts in
question, Mr Xaba is married in community of property, that means half of the capital
gain of the realised R2 million will face capital gain consequences as required by
paragraph 45(2).
Severance package
Paragraph 54 of the Act holds that in the event a person receives 'a lump sum
benefit as defined in the Second Schedule' 4the capital gain or loss will be
disregarded. Paragraph 54 will be of application in this case and there will be no
capital gain or loss consequence with regards to the severance package.
Holiday House
4 Paragraph 54 of the Eighth Schedule of the Income Tax Act 58 of 1962.
Question 1
Capital Gains
The requirements that have to met in order to determine whether there is a capital
gain or loss are provided in the Eighth schedule of the Income Tax Act 1. There has
to be four elements present which are discussed below.
Firstly there has to be a recognised asset. An asset is defined as "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 on such property"2. It is property that, upon disposal,
money can be attained.
There has to be a disposal and a disposal is defined as "the act forbearance or the
operation of law which results in the creation variation transfer or extinction of an
asset."3
A base cost must also be present which is defined as the monetary value of the
asset upon acquiring it and maintaining it as well as the disposal of the asset.
Lastly there had to be proceeds. This is money acquired upon disposing the asset.
Transactions from the facts in question
Appointment of the VEDO real estate agent
1 Income Tax Act 58 of 1962.
2 Paragraph 1 of the Eighth Schedule of the Income Tax Act 58 of 1962.
3 Paragraph 11 (1) of the Eighth Schedule of the Income Tax Act 58 of 1962.
, Section 20(c) of the Eighth Schedule provides that an amount paid to an agent is to
be included in the base cost as it is expenditure incurred in relation to the acquisition
or disposal of that asset. It will form part of the base cost of the house.
Sale of the house for R2,2 million
The house in Waterkloof can be said to be their primary residence as that is where
the couple lived. A primary residence is defined in paragraph 44 as where a natural
person lives and performs his or her domestic activities and is their main residence.
The house is also an asset according to paragraph 1 of the Eighth Schedule.
Paragraph 45(1) affords a natural person to exclude particular capital gains or losses
upon disposing a primary residence. Further, paragraph 45(1(b) calls for
disregarding capital gain or loss consequences where proceeds of the disposal of a
primary residence is less than R2 million. To qualify for this certain relief, the natural
person must hold an interest in that residence. This section will not apply in this
scenario as proceeds where R2,5 Million.
According to the paragraph 45(1)(a) where a primary resident has proceeds that
exceed R2 Million, the first R2 Million capital gain will be disregarded. In
circumstances where two or more natural persons hold an interest in a primary
residence, they have to divide the capital gain exclusion of R2 million in accordance
to each interest held. This is a per paragraph 45(2) of the Act. Since in the facts in
question, Mr Xaba is married in community of property, that means half of the capital
gain of the realised R2 million will face capital gain consequences as required by
paragraph 45(2).
Severance package
Paragraph 54 of the Act holds that in the event a person receives 'a lump sum
benefit as defined in the Second Schedule' 4the capital gain or loss will be
disregarded. Paragraph 54 will be of application in this case and there will be no
capital gain or loss consequence with regards to the severance package.
Holiday House
4 Paragraph 54 of the Eighth Schedule of the Income Tax Act 58 of 1962.
