Capital Gains Tax

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Capital Gains Tax
July 2001
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• how the rules apply
• valuation rules
• loss limitation
• anti-avoidance
• roll-overs
• individuals
• basic planning

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The annual exclusion applies in the case of a
natural person and increases to R50,000 on death.
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Companies R
Individuals R
Trusts R
60 000
50 000
Net capital gain
60 000
x 50
x 25
Inclusion Rate
x 50
30 000
12 500
Taxable capital gain
30 000
30
Tax rate
40
40
15
10
Effective rate
20
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• definition very wide
• includes items not normally included
• e.g. donation, exchange, forfeiture,
  cancellation, scrapping, distribution, granting
  an option
• part disposals - prorated

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• A number of events are treated as disposals for
  CGT purposes.
• emigration (not fixed property)
• immigration
• change of intention - investment to speculative
• change of intention - speculative to investment
• waiver of debts
• and others
• Deemed sold at market value and then reacquired

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• cost of acquisition
• transfer costs, stamp duty, advertising, certain
  professionals' fees (surveyor, valuer, broker,
  etc)
• moving costs, option costs
• improvements
• limited claim for
• borrowing costs (including interest or raising
  fees)
• repairs, maintenance, insurance, rates and taxes
• additional provisions dealing with other costs to
  be added and certain amounts to be excluded from
  base cost.

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• market value
• or
• 20 of proceeds (after deducting allowable
  expenses incurred after 1 October 2001)
• or
• base cost plus time apportionment profit

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• listed financial instrument
• average 5 days trading price preceding valuation
  (SARS will provide prices to T/P by way of notice
  in the Government Gazette)
• last trading price on foreign exchange
• SA unit trusts
• price to be published by the SARS in the Gazette
• foreign unit trusts
• resale price

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• long-term policy
• surrender value, or
• actuarial fair market value
• other assets
• willing buyer willing seller
• other specialised provisions

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• Assets must be valued by by 30 September 2003 (if
  market value basis is to be used).
• must lodge proof of valuation with SARS with
  first return submitted after 30 September 2003
• only if market value greater than R10 million, or
• value greater than R1 million for intangible
  assets
• otherwise lodge proof of valuation when return
  reflecting disposal is submitted

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To determine base cost (Value as at 1 Oct 2001)
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LOSS LIMITATION - 1MARKET VALUE IS GREATER THAN
PROCEEDS
Value determined on the higher of the expenditure
before 01.10.2001 or proceeds less expenditure
after 01.10.2001. A B Market Value 600
000 600 000 Sale Proceeds 500 000 500
000 Actual Costs - before 01.10.2001 300
000 460 000 - after 01.102001 30 000 50
000 Revised Value Proceeds / Costs before
01.10.2001 500 000 460 000 Less costs since
01.10.2001 30 000 - Loss - 10 000 In
the absence of this provision a GCT loss of
R100,000 would arise (R500,000 - R600,000).
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Value is determined at the higher of the market
value as at 01.10.2001 or the time apportionment
base cost. A B Sale Proceeds 500
000 500 000 Expenditure 550 000 550
000 Market Value - 01.10.2001 600 000 530
000 Time Apportionment Base Cost 525 000 575
000 (assumed for illustration purposes) Deemed
Value - 01.10.2001 525 000 530 000 Capital
Loss 25 000 30 000 In the absence of this
provision a GCT loss of R50,000 would arise
(R500,000 - R550,000).
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• no capital loss on intangible assets, e.g.
• goodwill and
• intellectual property
• acquired pre 1 October 2001
• loss on shares reduced
• if sold within two years,
• by the amount of any "extraordinary" dividend
• "extraordinary" means amount in excess of 15 of
  sale proceeds of shares

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Measures to prevent artificial loss created
through dividend stripping
not applicable to group companies (pre-acquisition
earnings subject to STC anyway)
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• loss denied on disposal of debt due by connected
  person
• and other provisions

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• reduction of share capital/premium deducted from
  base cost
• liquidation/deregistration dividends (if not
  subject to STC) deducted from base cost

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• sales between connected persons between 23
  February 2000 and 1 October 2001 (the receiver
  would look through this transaction and use the
  market value for CGT purposes)

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• Connected persons
• eg group companies
• if non-arm's length transaction
• deemed to be at market value
• rule not limited to eighth schedule
• can result in recoupments
• capital losses disregarded
• can be claimed on later transactions

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• "bed and breakfast" schemes
• 90 day period to pass
• value shifting arrangements
• other provisions

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• expropriation, loss, destruction, damage
• disregard gain
• re-investment in similar assets
• only applicable to manufacturing plant, farming
  equipment, ships, aircraft and other depreciable
  assets
• spread gain over 5 years

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• transfers between spouses
• during marriage
• on divorce
• on death

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• maximum exemption R1 million
• must be personally owned
• if owned by company or cc or trust
• shares/member's interest to be owned at
• 5 April 2001
• transfer duty exemption to 30 September 2002
• limited to house plus 2 hectares land
• some concessions where temporary absence -
  property remains the primary residence.

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• assets not used for trade
• excludes
• gold/platinum coins if value derives from the
  metal
• fixed property
• aircraft less than 450kg
• boat less than 10 metres
• financial instrument

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• insurance/endowments
• must be original owner, or
• spouse or dependant of original owner
• only SA policies exempt
• retirement lumpsums
• small business assets
• maximum value R5 million
• applies on retirement

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• compensation
• prizes
• certain foreign exchange gains and losses

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• deceased is deemed to sell assets to estate
• at market value
• heirs acquire at market value
• excluded are
• assets bequeathed to surviving spouse
• assets bequeathed to charity
• insurance proceeds
• estate duty reduced to 20

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• value assets at 1 October 2001
• shares, properties, intellectual property,
  goodwill, etc.
• group assets together
• flatten structures avoid cascade

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