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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
1. WHAT IS REQUIRED OF YOU: Without calculating the capital gain of Ms. Kru, discuss the
capital gains tax principles applicable in the scenario.
Capital Gains Tax (CGT) is a tax levied on the profit realized from the sale of an asset. In South
Africa, CGT applies to both residents and non-residents, with residents taxed on their worldwide
income, including capital gains, and non-residents taxed on capital gains derived from South African
sources. Since Ms. Kru is a South African resident, the CGT provisions will apply to her worldwide
capital gains. In the given scenario, Ms. Kru and her spouse Lolo are married in community of
property, which means that all assets acquired during the marriage are considered to be owned
jointly. As such, any capital gains derived from the sale of jointly owned assets will be split equally
between Ms. Kru and Lolo. However, there are specific principles that need to be considered in
determining the taxable capital gains for each transaction.
Identification of Capital Assets Subject to CGT
The assets sold by Ms. Kru and her spouse fall into various categories of capital assets subject to
CGT under the Income Tax Act 58 of 1962. The following assets were disposed of:
Primary Residence (Blue Halley House): This property, located in Pretoria, was sold for
R2.5 million. Since this is the couple's primary residence, the Primary Residence Exclusion
will apply.
Holiday House (Hermanus, Western Cape): A holiday home, which is considered a
secondary property, was sold for R2 million.
Range Sports Car: A vehicle sold for R1 million. Generally, CGT does not apply to motor
vehicles as they are considered personal-use assets.
Kruger Rands: The sale of Kruger Rands, a form of gold bullion, for R500,000 is subject to
CGT as they are considered capital assets.
Please note that the author of this document will not responsibility for any plagiarizing you
commit.
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
1. WHAT IS REQUIRED OF YOU: Without calculating the capital gain of Ms. Kru, discuss the
capital gains tax principles applicable in the scenario.
Capital Gains Tax (CGT) is a tax levied on the profit realized from the sale of an asset. In South
Africa, CGT applies to both residents and non-residents, with residents taxed on their worldwide
income, including capital gains, and non-residents taxed on capital gains derived from South African
sources. Since Ms. Kru is a South African resident, the CGT provisions will apply to her worldwide
capital gains. In the given scenario, Ms. Kru and her spouse Lolo are married in community of
property, which means that all assets acquired during the marriage are considered to be owned
jointly. As such, any capital gains derived from the sale of jointly owned assets will be split equally
between Ms. Kru and Lolo. However, there are specific principles that need to be considered in
determining the taxable capital gains for each transaction.
Identification of Capital Assets Subject to CGT
The assets sold by Ms. Kru and her spouse fall into various categories of capital assets subject to
CGT under the Income Tax Act 58 of 1962. The following assets were disposed of:
Primary Residence (Blue Halley House): This property, located in Pretoria, was sold for
R2.5 million. Since this is the couple's primary residence, the Primary Residence Exclusion
will apply.
Holiday House (Hermanus, Western Cape): A holiday home, which is considered a
secondary property, was sold for R2 million.
Range Sports Car: A vehicle sold for R1 million. Generally, CGT does not apply to motor
vehicles as they are considered personal-use assets.
Kruger Rands: The sale of Kruger Rands, a form of gold bullion, for R500,000 is subject to
CGT as they are considered capital assets.
