Taxation 298 Semester 2 Summary

Taxation 298
Chapter 17 – Capital Gains Tax (CGT)



Overview and Scope
 S26A requires inclusion of taxable CG in person’s taxable income
 S26A is the link to the 8th Schedule (no separate act for capital gains/losses)
 NOTE: Amount is included once  either is gross income in the framework or
in the proceeds in CGT




Proceeds Inclusion in taxable
from Treatment for normal tax purposes income
disposal

Income in • Include proceeds (or • Amount
nature recoupment) in gross income received/accrued
included in
(Principal • Deduct expenditure or
gross income
Act) allowances

Capital in • Include in proceeds (less any • Taxable capital gain
nature amounts already included in Included in taxable
(Eighth gross income) income at inclusion
Schedule) rate
• Expenditure included in base
cost (less any amounts already
deducted as allowances /
deductions)

,Person Liable for Payment of CGT (par 2) – also look at s9J
 All persons are subject to CGT (whether registered for normal tax or not)
 RSA resident: CGT on any asset (inside or outside RSA)
 Non-resident: CGT only on
o Immovable property (and interest in immovable property) in RSA or
o Asset attributable to permanent establishment through which non-
resident carries on trade in RSA

Interest in immovable property:
At least 20% interest in company AND
At least 80% of MV of shares is attributable to immovable property in RSA

 Withholding Tax (s35A)
o If non-resident sells immovable property (or interest) in RSA
o Purchaser withholds amount on behalf on non-resident and pays over
to SARS
o Only if amount payable exceeds R2 million
o How is withholding tax calculated?
 7.5% if seller is NP
 10% if seller is company
 15% if seller is trust


Basic Rules of CGT

,4 Requirements (CGT Building Blocks):
 Asset
 Disposal during YoA
 Base cost calculate  included acquisition cost, improvement cost and direct
cost i.r.o. the acquisition and disposal of the asset
 Proceeds calculate
Calculation (par 3-10):
 Capital Gain = Proceeds – Base cost
 Capital Loss = Proceeds < Base cost




Definition of an Asset (par 1)
 Asset:
o Property of any nature
 Moveable or immovable
 Corporeal or incorporeal
o Right or interest in property
 Worldwide assets of resident considered for CGT purposes
 Only certain assets of non-resident considered for CGT purposes
 Specifically excluded = currency
 Is inventory (current assets) an asset for the purposes of the Eighth
Schedule?
o It is an asset but a disposal thereof will NOT trigger CGT



Disposal

, Disposal Events (par 11(1)):
 Any event, act or operation of law which leads to
 Creation, variation, transfer, extinction of asset
 E.g.: sale, donation, exchange, destruction of asset
 Distribution of asset by co to shareholder?  dividend in specie will trigger
CGT
Non-disposals (par 11(2)):
 Event deemed NOT a disposal, and therefore NO CGT effect
 E.g.: asset transferred as security for debt, issue of a bond
 Issue of shares by company?  issue shares = increase contributed tax
capital of company
Deemed disposals (par 12 and s9H)
 R becomes NR  emigration
o Certain assets have to leave their net
o Only assets left are immovable property and connected to PE
o Proceeds = market value (calculate CG/CL)
o Deemed to have disposed of all assets, except immoveable property in
RSA (apply s9H)
o Disposes of interest in immoveable property on day before person
ceases to be a resident
 NR becomes R  immigration
o Net increases as more assets are included (assets enter net)
o Base cost = market value
 Although it is not an actual disposal, it is deemed to be
o Reason: purpose of par 12 is to calculate CG/CL or to determine a new
base cost
 If scenarios in par 12(2) occur, TP is:
o deemed to have disposed of certain assets at market value AND
o deemed to have reacquired those same assets at market value for par
20(1) (base cost)
 Asset of NR becomes asset of PE in SA (par 12(2)(b)(ii)))
o Base cost = MV
 Asset ceases to be asset of PE in SA
o Proceeds = MV, thus calculate CG/CL
 Personal-use asset becomes non-personal-use asset (par 12(2)(d))
o Base cost = MV
 Non-personal-use asset becomes personal-use asset (par 12(2)(e))
o Proceeds = MV, thus calculate CG/CL