LML4804-TAX LAW PORTFOLIO
DUE DATE: 29 OCTOBER 2021
, QUESTION 1
(1.1) Without considering the different years of assessments, discuss
the capital gains tax consequences of the assets belonging to
Mario. (10 marks)
For the home he bought in Cape Town, it comes about most often for
taxpayers when their home or investment property is sold for a profit
(gain), for instance the proceeds/selling price is more than the base
cost. This profit or capital gain is taxed at a lower rate than normal
income because only a portion of the capital gain, currently 40% is
included in taxable income and not the full profit. The Tax Act does
provide a R2 million primary residence exclusion” for those taxpayers
who sell their primary residence. This means that the first R2 million of
the capital gain is exempted from tax. The capital gain is calculated as
follows:
Base costs = R4.5 million.
Proceeds = R6.5 million.
Capital gain = R6.5 million – R4.5 million = R2 million.
Therefore, Taxable capital gain is nil because the capital gain is R2
million.
For the Hubber SUV he bought for R3.5 million. the capital gains tax
consequences is as follows: The base cost of an asset must be
reduced by an allowance claimed, for instance wear and tear. On
disposal of the asset the amount recouped on sale (exceeds base
cost) must be reduced from base cost unless it was included in income
in terms of section 8(4)(a) of the Income Tax Act.1 The recouped
amount will also not form part of proceeds on disposal if included in
income. In this instance, Mario purchased the Hubber SUC for R3.5
million and sold for R3 million. The capital loss will be R3.5 million –
R3 million = R500 000.
1
Income Tax Act 58 of 1962.
DUE DATE: 29 OCTOBER 2021
, QUESTION 1
(1.1) Without considering the different years of assessments, discuss
the capital gains tax consequences of the assets belonging to
Mario. (10 marks)
For the home he bought in Cape Town, it comes about most often for
taxpayers when their home or investment property is sold for a profit
(gain), for instance the proceeds/selling price is more than the base
cost. This profit or capital gain is taxed at a lower rate than normal
income because only a portion of the capital gain, currently 40% is
included in taxable income and not the full profit. The Tax Act does
provide a R2 million primary residence exclusion” for those taxpayers
who sell their primary residence. This means that the first R2 million of
the capital gain is exempted from tax. The capital gain is calculated as
follows:
Base costs = R4.5 million.
Proceeds = R6.5 million.
Capital gain = R6.5 million – R4.5 million = R2 million.
Therefore, Taxable capital gain is nil because the capital gain is R2
million.
For the Hubber SUV he bought for R3.5 million. the capital gains tax
consequences is as follows: The base cost of an asset must be
reduced by an allowance claimed, for instance wear and tear. On
disposal of the asset the amount recouped on sale (exceeds base
cost) must be reduced from base cost unless it was included in income
in terms of section 8(4)(a) of the Income Tax Act.1 The recouped
amount will also not form part of proceeds on disposal if included in
income. In this instance, Mario purchased the Hubber SUC for R3.5
million and sold for R3 million. The capital loss will be R3.5 million –
R3 million = R500 000.
1
Income Tax Act 58 of 1962.
