LML4804
Assignment 3 Semester 2 2025
2 2025 733857
Unique Number:
Due date: 3 September 2025
QUESTION 1
CAPITAL GAINS TAX CONSEQUENCES OF PETER’S TRANSACTIONS
1. Severance Package (R3 million)
The severance package Peter received upon retrenchment is classified as employment
income under the Income Tax Act, not as a capital gain. It is subject to normal income tax
under gross income and may qualify for exemptions under the retrenchment rules, but it
does not fall within CGT .
2. Compensation from Minister of Police (R1 million)
The R1 million paid as compensation is not connected to the disposal of an asset, but rather
a delictual claim settlement. Since CGT only applies to disposals of assets, this amount is
not subject to CGT .
DISCLAIMER & TERMS OF USE
Educational Aid: These study notes are intended to be used as educational resources and should not be seen as a
replacement for individual research, critical analysis, or professional consultation. Students are encouraged to perform
their own research and seek advice from their instructors or academic advisors for specific assignment guidelines.
Personal Responsibility: While every effort has been made to ensure the accuracy and reliability of the information in
these study notes, the seller does not guarantee the completeness or correctness of all content. The buyer is
responsible for verifying the accuracy of the information and exercising their own judgment when applying it to their
assignments.
Academic Integrity: It is essential for students to maintain academic integrity and follow their institution's policies
regarding plagiarism, citation, and referencing. These study notes should be used as learning tools and sources of
inspiration. Any direct reproduction of the content without proper citation and acknowledgment may be considered
academic misconduct.
Limited Liability: The seller shall not be liable for any direct or indirect damages, losses, or consequences arising from
the use of these notes. This includes, but is not limited to, poor academic performance, penalties, or any other negative
consequences resulting from the application or misuse of the information provided.
, For additional support +27 81 278 3372
QUESTION 1
CAPITAL GAINS TAX CONSEQUENCES OF PETER’S TRANSACTIONS
1. Severance Package (R3 million)
The severance package Peter received upon retrenchment is classified as
employment income under the Income Tax Act, not as a capital gain. It is subject to
normal income tax under gross income and may qualify for exemptions under the
retrenchment rules, but it does not fall within CGT .
2. Compensation from Minister of Police (R1 million)
The R1 million paid as compensation is not connected to the disposal of an asset,
but rather a delictual claim settlement. Since CGT only applies to disposals of
assets, this amount is not subject to CGT .
3. Disposal of Primary Residence (House in Midrand)
Proceeds: R2,500,000
Base cost: R1,500,000 (purchase price) + R120,000 (estate agent fee as
selling cost) = R1,620,000
Capital gain: R880,000 (R2,500,000 – R1,620,000)
As the house was Peter’s primary residence, he qualifies for the R2 million
primary residence exclusion (s 26A of the Income Tax Act). Since the gain of
R880,000 is below the R2 million exclusion, the entire capital gain is
disregarded for CGT purposes .
4. Purchase of Penthouse (R2 million)
The acquisition of the Johannesburg CBD penthouse is not a disposal but the
purchase of an asset. No CGT consequences arise at acquisition stage. CGT will
only apply on future disposal .
5. Sale of Car (GX Sport for R300,000)
Assignment 3 Semester 2 2025
2 2025 733857
Unique Number:
Due date: 3 September 2025
QUESTION 1
CAPITAL GAINS TAX CONSEQUENCES OF PETER’S TRANSACTIONS
1. Severance Package (R3 million)
The severance package Peter received upon retrenchment is classified as employment
income under the Income Tax Act, not as a capital gain. It is subject to normal income tax
under gross income and may qualify for exemptions under the retrenchment rules, but it
does not fall within CGT .
2. Compensation from Minister of Police (R1 million)
The R1 million paid as compensation is not connected to the disposal of an asset, but rather
a delictual claim settlement. Since CGT only applies to disposals of assets, this amount is
not subject to CGT .
DISCLAIMER & TERMS OF USE
Educational Aid: These study notes are intended to be used as educational resources and should not be seen as a
replacement for individual research, critical analysis, or professional consultation. Students are encouraged to perform
their own research and seek advice from their instructors or academic advisors for specific assignment guidelines.
Personal Responsibility: While every effort has been made to ensure the accuracy and reliability of the information in
these study notes, the seller does not guarantee the completeness or correctness of all content. The buyer is
responsible for verifying the accuracy of the information and exercising their own judgment when applying it to their
assignments.
Academic Integrity: It is essential for students to maintain academic integrity and follow their institution's policies
regarding plagiarism, citation, and referencing. These study notes should be used as learning tools and sources of
inspiration. Any direct reproduction of the content without proper citation and acknowledgment may be considered
academic misconduct.
Limited Liability: The seller shall not be liable for any direct or indirect damages, losses, or consequences arising from
the use of these notes. This includes, but is not limited to, poor academic performance, penalties, or any other negative
consequences resulting from the application or misuse of the information provided.
, For additional support +27 81 278 3372
QUESTION 1
CAPITAL GAINS TAX CONSEQUENCES OF PETER’S TRANSACTIONS
1. Severance Package (R3 million)
The severance package Peter received upon retrenchment is classified as
employment income under the Income Tax Act, not as a capital gain. It is subject to
normal income tax under gross income and may qualify for exemptions under the
retrenchment rules, but it does not fall within CGT .
2. Compensation from Minister of Police (R1 million)
The R1 million paid as compensation is not connected to the disposal of an asset,
but rather a delictual claim settlement. Since CGT only applies to disposals of
assets, this amount is not subject to CGT .
3. Disposal of Primary Residence (House in Midrand)
Proceeds: R2,500,000
Base cost: R1,500,000 (purchase price) + R120,000 (estate agent fee as
selling cost) = R1,620,000
Capital gain: R880,000 (R2,500,000 – R1,620,000)
As the house was Peter’s primary residence, he qualifies for the R2 million
primary residence exclusion (s 26A of the Income Tax Act). Since the gain of
R880,000 is below the R2 million exclusion, the entire capital gain is
disregarded for CGT purposes .
4. Purchase of Penthouse (R2 million)
The acquisition of the Johannesburg CBD penthouse is not a disposal but the
purchase of an asset. No CGT consequences arise at acquisition stage. CGT will
only apply on future disposal .
5. Sale of Car (GX Sport for R300,000)
