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
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
