Summary TAX3701 Capital gains tax solutions

Manuals - Activity 1

Asset 1: Building
Step 1: Calculate recoupment

Selling price limited to cost R 500 000
Less tax value R 1 875 000
Cost R 2 500 000
Less allowances (2 500 000 x 5% x 5) R -625 000
Scrapping loss R -1 375 000

Buildings do not qualify for a scrapping loss.

Step 2: Calculate proceeds

Proceeds R 500 000

Step 3: Calculate base cost (VDV plus post 2001 expenditure)

Valuation date value

Proceeds 500 000
Expenditure 2 500 000

Proceeds less than expenditure, therefore use para 27

Market value 5 000 000
Proceeds exceed market value, therefore VDV is the lower of:

Market value 5 000 000
Time apportionment base 1 125 000
Therefore use MV R 1 125 000

Post 2001 expenditure
Post 2001 exp (832 000+ 67 500) R -
Base cost (3 112 207+3 000) R 1 125 000

Capital loss (proceeds less base cost) R -625 000

Asset 2: Shares

Proceeds (500 x 1 000) R 500 000
Less base cost (400 x 1 000) R -400 000
R 100 000

Asset 1 - buildings R -625 000
Asset 2 - shares R 100 000
Capital loss carried forward R -525 000

,Part b

Capital gain R 800 000
Capital loss carried forward R -525 000
Net gain R 275 000
Inclusion rate 80.0%
Taxable gain R 220 000

, Go-go

Step 1: Calculate proceeds

Proceeds R 12 500 000

Step 2: Calculate base cost (VDV plus post 2001 expenditure)

Valuation date value

Proceeds 12 500 000
Expenditure (1 235 000+ 832 000 + 67 500 + 133 500) 2 268 000

Proceeds exceed exepnditure, therefore use para 26

Market value 14 000 000
Proceeds are lees than market value, therefore VDV is Proceeds less post 2001 exp

Proceeds 12 500 000
Post 2001 exp (832 000 + 67 500) 899 500
VDV 11 600 500

Base cost (11 600 500+899 500) R 12 500 000

Capital gain (proceeds less base cost) R -