LML4804
ASSIGNMENT 3 of 2021
1.Explain the Capital Gains Tax Consequences of the sale of the house in Midrand. Your
explanation must include a calculation of the taxable capital gain/loss in the 2020/2021 year of
assessment.
The land of the house in Midrand is less than 2 hectares and Mr and Mrs Thalitha have been staying
on the house this makes it their primary residence. Upon the sale of the house, they qualify for
primary residence exclusion of R2million. The primary residence taxation only applies for the
duration on which the Thalitha family was staying on the house from 3 December 2005 until 18
February 2021. The base cost will be calculated in terms of paragraph 20 of the income tax which is
cost plus improvements. Repairs to the leaking roof do not form part of base cost. Since Thalitha
family are individuals, they qualify for Capital gain annual exclusion of R40 000. The taxable capital
gain shall be calculated at 40% of the aggregate capital gain. The proceeds on sale shall be the selling
price of the house and Capital Gain is calculated as follows:
Proceeds 3 500 000
Less Base Cost (1 300 000)
Purchase price of Land 750 000
Add Construction costs 450 000
Add Improvement 100 000
Repairs are excluded
Capital Gain on primary residence 2 200 000
Less Primary residence exclusion (2 000 000)
200 000
Less Capital Gain Annual exclusion (40 000)
Aggregate Capital Gain 160 000
Taxable Capital Gain at 40% 64 000
ASSIGNMENT 3 of 2021
1.Explain the Capital Gains Tax Consequences of the sale of the house in Midrand. Your
explanation must include a calculation of the taxable capital gain/loss in the 2020/2021 year of
assessment.
The land of the house in Midrand is less than 2 hectares and Mr and Mrs Thalitha have been staying
on the house this makes it their primary residence. Upon the sale of the house, they qualify for
primary residence exclusion of R2million. The primary residence taxation only applies for the
duration on which the Thalitha family was staying on the house from 3 December 2005 until 18
February 2021. The base cost will be calculated in terms of paragraph 20 of the income tax which is
cost plus improvements. Repairs to the leaking roof do not form part of base cost. Since Thalitha
family are individuals, they qualify for Capital gain annual exclusion of R40 000. The taxable capital
gain shall be calculated at 40% of the aggregate capital gain. The proceeds on sale shall be the selling
price of the house and Capital Gain is calculated as follows:
Proceeds 3 500 000
Less Base Cost (1 300 000)
Purchase price of Land 750 000
Add Construction costs 450 000
Add Improvement 100 000
Repairs are excluded
Capital Gain on primary residence 2 200 000
Less Primary residence exclusion (2 000 000)
200 000
Less Capital Gain Annual exclusion (40 000)
Aggregate Capital Gain 160 000
Taxable Capital Gain at 40% 64 000
