CARMEN VENTER
WORKSHOPS FOR CFP®
EXAMINATIONS
2014
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CAPITAL GAINS TAX
8 TH SCHEDULE OF THE INCOME TAX ACT
UNDERSTANDING WHEN A CGT EVENT TAKES PLACE
COMMENCEMENT OF THE ACT
Receipts and accruals of a capital nature have been subject to a capital gains tax since 1/10/2001.
This date is known as the ‘ valuation date ‘ [VD]
The schedule is used , just to determine the taxable capital gain on the disposal of assets which, is then
included in the normal taxable income of the taxpayer and taxed at the taxpayer’s normal income tax
rate. Section 26A of the Income Tax Act
Recap of the framework:
Gross Income
Less
Exemptions
Less
Deductions
ADD Capital Gain
Taxable Income
There can only be a gain or a loss if all four of these are met:
DISPOSAL
+
ASSET
+
BASE COST
+
REFER TO CGT 4 BLOCKS MIND MAP
REFER TO MIND MAP = CGT EXCLUSIONS AND ROLL OVERS
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PROCEEDS
APPLICATION AND CALCULATION OF A TAXABLE GAIN / LOSS
PER ASSET
PER ASSET
PROCEEDS
R XXXX
LESS BASE COST
PROCEEDS
(RXXXX)
CAPITAL GAIN OR LOSS
R XXXX
LESS BASE COST
RXXXX
CAPITAL GAIN OR LOSS
APPLY EXCLUSIONS/
(RXXXX)
RXXXX
APPLY EXCLUSIONS/
ROLL OVERS
RXXXX
ROLL OVERS
RXXXX
GAIN / LOSS
RXXXX
GAIN / LOSS
RXXXX
SUM OF ALL THE CAPITAL GAINS / LOSS
REDUCE BY ANNUAL EXCLUSION R 30 000
(NATURAL PERSONS AND SPECIAL TRUSTS)
OR
REDUCE BY DEATH EXCLUSION R 300 000
DEDUCT ANY PREVIOUS ASSESSED CAPITAL LOSSES
CAPITAL GAIN
CAPITAL LOSS
X INCLUSION RATE:
CARRY OVER TO NEXT YEAR
33.3% NATURAL PERSON & SPECIAL TRUST
66.6% NON NATURAL
= TAXABLE CAPITAL GAIN
ADD TO TAXABLE INCOME (26A)
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REMEMBER? WE HAVE OWNED ASSETS BEFORE 1/10/2001 ??????
ASSETS
PRE VD
ASSETS
POST VD
1 / 10 / 2001
3 METHODS TO DETERMINE BASE COST
STRAIGHT FORWARD
CALCULATION METHOD
YOU ARE FREE TO SELECT PER ASSET, THE
METHOD WITH THE HIGHER BASE COST!
METHOD 1
MARKET VALUE ON VALUATION DATE
METHOD 2
20% OF THE PROCEEDS LESS POST EXPENDITURE
METHOD 3
TIME APPORTIONMENT BASE COST [TABC]
THE ONLY METHOD
PROCEEDS LESS
BASE COST
GAIN TO BE TAXED
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METHOD 2
20% OF THE PROCEEDS, LESS POST EXPENDITURE
 TAKE PROCEEDS LESS ALL ALLOWABLE EXPENSES INCURRED AFTER 1/10/2001
 20% OF THE RESULT EQUALS YOUR VALUATION DATE VALUE
Sold for R 1 000 000, had allowable improvements of R 50 000.
Proceeds
less improvements
Proceeds
R1 000 000
R 50 000
R 950 000
at 20% =
R190 000 which is now my base cost
Proceeds
Less base cost
Gain
R1 000 000
R 240 000
R 760 000
determines base cost
(190 000+50000)
normal calculation to
determine gain
PRACTICE
Barbara acquired a piece of Land in Joburg prior to VD and disposed of it in 30/09/2013 for R2 000 000.
Barbara incurred R 350 000 allowable expenditure. She had valued the land at VD as R 750 000. She
asks that you please advise which method she should adopt – the VD or 20% method?
WHICH METHOD HAS PRODUCED THE LOWEST GAIN? WHICH ONE WOULD YOU USE?
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METHOD 3
TIME APPORTIONMENT BASE COST [TABC]
OCT 2001
pre valuation date improvements
PRE + POST valuation date improvements
STANDARD FORMULA
PROCEEDS FORMULA +
STANDARD FORMULA
STANDARD FORMULA
b
n
Pre Exp + Pre period
x
Pre + post period
n
t

BASE COST =

Proceeds – base cost = capital gain
p
b
Proceeds – Pre exp
1
{pre period [n] may not exceed 20 if expenditure was incurred in more than
1 year of assessment prior to VD. Part of year is treated as full year}
PROCEEDS FORMULA

Proceeds = Actual proceeds x pre expenditure
total expenditure
NOW THAT YOU HAVE BASE COST…………..
Total Base Cost =
Gain =
TABC + post VD Expenses
Actual Proceeds – Total Base Cost
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WHAT IF PART OF AN ASSET IS DISPOSED OF
It is deemed that the ‘base cost’ has been disposed of:
proceeds
Allowable expenditure of entire asset x
base cost
mv of the whole asset
Application:
Ann has a 4 hectare piece of land. She is offered R 650 000 for half of the property. The entire asset is
valued at R2 mil. It cost Ann an amount of R 900 000 for the entire 4 hectare land on the 1/3/2009.
Calculate the taxable capital gain or loss on the sale of the land being disposed of

Proceeds
Base cost
[650000/2000000 x 900000
total Gain
Less annual exclusion
Net capital gain
at 33.3%
R650 000
R 292 500
357 500
30 000
327 500
R109 058 taxable capital gain
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WHAT IF???
AN ASSET HAS BEEN DONATED – PORTION OF DONATIONS IS BASE COST
Formula:
Y = (M-A)/M x D
Where:
M:
market value of the donated asset
A:
all amounts other than the donations tax taken into account in the determination of the base
cost of the asset
D:
the total amount of donations tax payable
MY VERSION?
M:
A:
D:
MV OF ASSET DONATED
THE BASE COST OF ASSET [DISREGARD DONATIONS TAX]
AMOUNT OF DONATION TAX PAID
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Application:
Mr Green donates a 12m yacht to his son on 1/4/2013 The MV of the yacht is R1 250 000 & base cost is
R750 000. Assume this is the only donation made by Mr Green during the 2014 tax year.
Calculate Mr Green’s capital gain on the disposal of the yacht.
Donated 1 250 000 – 100 000 = 1 150 000
At 20% = 230 000 donations tax.
Portion of donation to be taken as part of base cost:
1 250 000 – 750 000 / 1 250 000 x 230 000
= 92 000
Proceeds
Less base cost
portion of donation tax
Capital Gain
Less annual exclusion
R1 250 000
R 750 000
R 92 000
R 408 000
R 30000
R 378 000
At 33.3% = taxable capital gain R 125 874
PARA 12A WHEN DEBT IS CANCELLED OR REDUCED
EFFECTIVE 1/1/2013
PLEASE REFER TO MIND MAP - ‘CGT CANCELLED, REDUCED DEBT
THE PRINCIPLES ARE THIS:
1. HAS THE WAIVER OF THIS ‘DEBT’ ATTRACTED ESTATE DUTY? IE WAS THIS AN ASSET IN THE
DECEASED’S ESTATE THAT ATTRACTED ESTATE DUTY? IF YES = NO CAPITAL GAINS TAX IS
APPLICABLE…
2. HAS THE WAIVER OF THIS ‘DEBT’ ATTRACTED DONATIONS TAX AT 20%? IF YES = NO CAPITAL
GAINS TAX IS APPLICABLE..
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IMPORTANT TO NOTE THE DEFINITION OF DONATION…IS THIS NOT GRATUITOUS IN NATURE? IE
WHEN YOU DONATE IS IT NOT OUT OF THE KINDNESS OF YOUR HEART? YES = DONATION. BUT,
IF YOU ARE GIVEN NO CHOICE BUT TO DISREGARD THIS DEBT…….BECAUSE OF LET US SAY YOUR
DEBTOR’S INSOLVENCY… THEN IS OUT OF THE KINDNESS OF YOUR HEART??? NO = NOT A
DONATION.
3. IF YOUR EMPLOYER HAS DECIDED TO WAIVE YOUR DEBT WITH THE EMPLOYER –= THEN A
FRINGE BENEFIT HAS TO BE RAISED…IF A FRINGE BENEFIT HAS BEEN RAISED = NO CAPITAL
GAINS TAX IS APPLICABLE.
4. IF NONE OF THE ABOVE…..THE CAPITAL GAINS TAX WILL APPLY.
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CAPITAL GAINS TAX APPLICATION OF DEATH OF A NATURAL PERSON
DRAW YOUR DIAGRAM…
On the death of a person, there are CGT consequences for:
 The deceased person in the year of his death
and
 The estate of the deceased person
and
 The heirs or legatees of the deceased
DECEASED
ESTATE
HEIRS/LAGATEES OR OTHER
DISPOSES OF AN ASSET
MV IS PROCEEDS
SEE IF PARA 67
DISTRIBUTES TO HEIRS/LEGATEE
OR TO SPOUSE
OR SELLS
INHERITS AT MV
IF SOLD – RECEIVES AT MV
base cost
If goes to wife …gets at
Base Cost of the asset roll over
Market value
If sells to 3rd party
Cgt event for Estate at proceeds
R30 000 exclusion
Primary residence????
3rd Party receives at proceed
value which becomes Base Cost
Market value
Distributed to heirs / legatees
Receives at MV and disposes of
At MV – no CGT gain or loss
Heir / legatee receives at MV
which becomes base cost
R300 000 exclusion
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FOR THE DECEASED (PARA 40(1))


Assessed from the 1st March of tax year to date of death
Deemed to have disposed of assets to deceased estate for proceeds equal to market value. There
are 4 exceptions to this: (as mentioned in prior slides)
 Assets transferred to surviving spouse (Para 67(2)(a))
 Assets bequeathed to PBO
 Long term insurance the proceeds of which, if it had been received by the deceased
would have been exempt
 Pension, provident and RA Funds
FOR THE ESTATE (PARA 40(1))


Deemed to have acquired the assets from the deceased at market value
The Executor of the Estate can then dispose of the assets –
 The heirs, legatees or to trustees of the trust
 Dispose of the assets to 3rd parties
Heirs/legatees etc (para 40(2))
Treated as disposal equal to the Base Cost of the estate –no cgt consequences
3rd Parties (para 40(3))
Estate is liable for CGT and treated the same way as the deceased would have
been treated.
Note: Primary residence exclusion when disposed of by executor. Deemed primary for 2 years from date
of death
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EXAMPLE 1
Mr X is moving to Cape Town and sells the following assets:
 Cottage (owner the family trust)
R1 560 000
 His airplane (> than 450kg)
R1 200 000
 Van Zyl painting
R 50 000
 Shares
R 140 000
 Computers that he trades with
R 750 000
 Motor Vehicle
R 250 000
 Flat that he has been renting out
R1 000 000
 3 Townhouses as part of his trade
R6 000 000
 His primary residence
R1 850 000

He Bought the cottage in 2003 for R 950 00. Mr X inherited the shares in 2000 and on 1 October 2001
were R70 000. Mr X bought his airplane a year ago for R1 500 000. The painting was purchased at
R 5 000 after vd. His computers were purchased for R 315 000 in 2011. The motor vehicle was bought 5
year ago for R1 000 000. The flat that he rented out he purchased for R 650 000 in 2012 and he spend R
70 000 fixing it up.
The 3 townhouses that he buys and sells as part of his trade, he has spend R 135
000 in total which he has used as an income expense. He bought his primary residence in March 2010
for R 350 000.
Calculate his capital gain.
Suggested Solution
Aircraft
Proceeds
Base cost
1200000
1500000
loss disregarded
Shares
Proceeds
Base cost
Gain
Computers
Proceeds
Base cost
Gain
140000
70000
70000
750000
315000
435000
Flat rented
Proceeds
1000000
Base cost + expenses
720000
Gain
280000
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Townhouses
Part of trading stock
Primary residence
Proceeds below 2 million
Personal use
Painting and motor vehicle
Total gain
Less annual exclusion
Gain
X inclusion rate of 33.3%
X marginal rate of 40% = the capital gain tax
785 000
(30 000)
755 000
251 415
100 566
EXAMPLE 2
Jane purchased her house in March 2001 for an amount of R 750 000. In March 2014 she decides to sell
her house, in which she has resided in and mainly used for domestic purposes – for an amount of R 3
700 000. She had made improvements to the value of R 100 000 in August 2001 and incurred
commission costs to the value of R 75 000 in the process of selling her house. Her marginal tax rate is
40%. Please calculate the tax, if any, that Jane will have to pay as a result of this transaction.
SUGGESTED SOLUTION
This is tabc method and she has incurred expenses pre vd only.
750000 + 100000 + (1/ 14 x (3700000 – 850000) /1)
850 000 + (0.07143 x 2850000)
Base cost 1053576
PROCEEDS
LESS BASE COST
Less COMMISSION COSTS
GAIN
LESS ANNUAL EXCLUSION
3 700 000
(1052576)
(75 000 )
2 572 424
30 000
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TAXABLE GAIN
2 542 424 AT 33.3% AT 40% = 338 651 TAX
PAYABLE
EXAMPLE 3
Bobby died leaving the following assets – all purchased after VD. His marginal rate is 35%
Asset
Primary Residence
Motor Vehicle
Arts and crafts
Shares listed on JSE
Holiday Home
MV
3 000 000
750 000
35 000
500 000
2 000 000
BC
1 500 000
1 000 000
5 000
250 000
1 000 000
His will states:
Holiday home and motor vehicle to his wife. Shares to his girlfriend. Arts and crafts to his son. Primary
residence the executor must sell – the executor sold the house 7 months after Bobby died – all in the
same year of assessment = for an amount of R 4 500 000.
Calculate the total capital gains tax that is payable with regards to the above transactions – assume a
35% tax rate for all entities.
BOBBY’S TAXED AS THE DECEASED
ROLL OVER TO SPOUSE: HOLIDAY HOME AND MOTOR VEHICLE
PERSONAL USE: ARTS AND CRAFTS
ASSETS TO GIRLFRIEND
PROCEEDS
BASE COST
GAIN
DISPOSED TO ESTATE
PRIMARY RESIDENCE
PROCEEDS
BASE COST
GAIN
LESS PRIMARY RESIDENCE EXCLUSION
GAIN
500000
250000
250 000
3000000
1500000
1500000
(1500000)
0
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TOTAL GAIN
LESS DEATH EXCLUSION LIMITED
NOTHING TO TAXE = NO CAPITAL GAIN IN HANDS OF DECEASED.
250 000
(250000)
DECEASED ESTATE
EXECUTOR ACQUIRES PRIMARY RESIDENCE AT MV OF 3 000 000 WHICH BECOMES
BASE COST
PROCEEDS
BASE COST
GAIN
LESS PRIMARY EXCLUSION
4 500 000
3 000 000
1 500 000
(1 500 000)
NOTHING TO BE TAXED IN HANDS OF DECEASED ESTATE.
EXAMPLE 4
Jane acquired an asset on 1/10/1983 for an amount of R 260 000 and disposes of this asset on
1/11/2013 for R3 000 000.
 Allowable expenses of R300 000 incurred on 1/10/1983
Calculate the capital gains tax payable by Jane using the TABC method . Her marginal tax rate is 40%.
What amount would you bring into the tax calculation for the year 2013/2014 year of assessment.?
BASE COST = 560 000 + [ 18/29 X 3000000 – 560000/1] = 1 514 483
PROCEEDS
LESS BASE COST
GAIN `
LESS ANNUAL
EXCLUSION
3 000 000
(1 514 483)
1 485 517
(30 000)
GAIN
AT 33.3%
1 455 517
484 687 [ THIS IS THE AMOUNT TO CARRY OVER TO YOUR INCOME TAX
CALCULATION]
AT A 40% TAX BRACKET – THE TAX ON ABOVE WOULD BE? 484 687 X 40% = R 193 875
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EXAMPLE 5
Jane acquired an asset on 1/10/1983 for an amount of R 260 000 and disposes of this asset on
1/11/2013 for R3 000 000
 Allowable expenses of R300 000 incurred on 1/10/1983
 Allowable expenses of R 870 000 incurred just before she disposed of the asset.
Calculate the capital gains tax payable by Jane using the TABC method. Her marginal tax rate is 40% and
effective tax rate is 29%.
PROCEEDS FORMULA FIRST
PROCEEDS = 3 000 000 X 560 000 / 1 430 000 = 1 174 825
STANDARD FORMULA
BASE COST = 560 000 + [ 18/29 X 1174825 – 560000/1] = 941 616
ADD TO THIS BASE COST POST VD EXPENSES 941 616 +870 000= 1 811 616
PROCEEDS
LESS BASE COST
GAIN `
LESS ANNUAL
EXCLUSION
3 000 000
(1 811 616)
1 188 384
(30 000)
GAIN
AT 33.3%
1 158 384
385 742[ THIS IS THE AMOUNT TO CARRY OVER TO YOUR INCOME TAX
CALCULATION]
AT A 40% TAX BRACKET – THE TAX ON ABOVE WOULD BE? 385 742 X 40% = R 154 297
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EXAMPLE 6
Richard died on 01/03/2013 leaving the following assets
Asset
Base Cost
Market Value
Primary residence
Holiday Home
Household furniture
Yacht 11m length
Endowment policy
2nd hand endowment policy
Listed shares
1 000 000
250 000
500 000
300 000
100 000
200 000
600 000
3 100 000
350 000
800 000
200 000
150 000
300 000
900 000
The following was stipulated in his will:
 Holiday home to be left to his spouse
 The endowment policy to be left to his son
 The 2nd hand policy is to be left to Retina SA – registered PBO
 Remaining assets were to be sold and the proceeds to be split between his spouse and son

After Richard had passed away, his executor realised the assets that had not been bequeathed to specific
persons . These assets realised the following proceeds:
In order to realise a better price for the yacht the executor had the navigation equipment upgraded at a
cost of R5 000.
Proceeds
Proceeds
2013
2014
Primary Residence
Furniture & effects
3 900 000
850 000
Yacht
Listed shares
220 000
960 000
Calculate the Capital Gain Tax both for Richard and his estate using the most up to date tax tables in our
possession.
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GAIN AND OR LOSS FOR RICHARD
ASSET
BASE
COST
MV
GAIN/
LOSS
EXC/
R/O’S
TOTAL
PAR
REF
PRIMARY
RESIDENC
1000000
3100000
2100000
-1500000
600000
45(1)
HOLIDAY
HOME
250 000
350 000
100 000
NO
DISPOSAL
0
40(1)(a)
&
67(2)(a)
HOUSEHOLD
EFFECTS
500 000
800 000
300 000
-300 000
0
53(1)
YACHT
300 000
200 000
-100 000
100 000
0
15
ENDOWMENT
100 000
150 000
50 000
-50 000
0
40(1)©
2ND HAND
ENDOWM
200 000
300 000
100 000
-100 000
0
40(1)(b)
With 62
SHARES
600 000
900 000
300 000
-
300 000
TOTAL
900 000
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Sum of capital gain/losses
Less annual exclusion
Aggregate capital gain
Taxable capital gain x 33.3%
R900 000
R300 000
R600 000
R 199 800
This amount is included in his final tax assessment as part of his income. In turn, this is a liability in his
estate.
RESULTS FOR THE DECEASED ESTATE IN 2013
ASSETS
BASE COST
PROCEEDS
GAIN/LOSS
EXC OR R/O
HOUSEHOLD
EFFECTS
800 000
850 000
50 000
Personal effects
LISTED
SHARES
900 000
960 000
60 000
TOTAL
Capital Gain
Less annual exclusion
Aggregate Capital Gain
Inclusion rate
Taxable capital gain
60 000
-
R 60 000
R 30 000
R 30 000
33.3%
R 9 990
RESULTS FOR THE DECEASED ESTATE IN 2014
ASSETS
BASE COST
PROCEEDS
GAIN/LOSS
EXC/ R/O
PRIMARY
RESIDENCE
3 100 000
3 900 000
800 000
-1 500 000
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YACHT
205 000
220 000
TOTAL
15 000
0
15 000
Capital Gain
Less annual exclusion
Aggregate capital gain
R 15 000
R 30 000
R
0
Example 7
Mr Ready died on 1 March 2014. He was married out of community of property. His only assets (MV at
date of death) were:
Primary residence R 4 mil with a base cost of R 1 500 000
Cash of R400 000
Shares in a listed company which cost him R100 000 and have a MV of R 280 000
A Holiday day home of R 2 000 000 which cost R1 mil.
Mr Ready left the holiday house to his wife. He left the primary residence to his daughter. As per his will,
the executor had to use the cash to pay all the costs & liabilities of the estate and, in case of a shortfall
he has to sell his shares to pay the cost & liabilities. Any residue has to be split equally between his wife
and daughter
After paying estate cost of R R55 000 & settling the outstanding balances on the bonds of R20 000 on the
holiday house & R50 000 on the primary residence, the executor realised it was not necessary to sell the
shares & distributed as per the will. The shares had a value of R350 000 on the date that it was
distributed to the heirs. The balance of the cash was also split 50% to each heir.
You are required to calculate the taxable capital gain for both the deceased and the estate.
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SUGGESTED SOLUTION
Holiday home – roll over to spouse
Cash – not asset for capital gain
Primary residence
proceeds R 4 mil – BC 1.5 mil = 2 500000
less PR exclusion of R2 mil =
500 000 gain
Shares proceeds 280000 – BC 100000 =180000
less 50% to spouse =
90 000 gain

Gains
+
R500 000
R 90 000
590 000
300 000
290 000
96 750 to be included in income
Death exclusion
At 33.33%
Example 8
Jeff died on 15 April 2014. The total base cost of all his assets that were not private use is R2 800 000 &
the total market value of these assets at the date of his death is R7 000 000.
Jeff was not married. All of these assets were sold by the executor of the estate for a total proceeds of
R8 500 000. The capital gains tax liability is as follows:
Choose the correct answer:
a)
b)
c)
d)
Jeff’s estate is liable for capital gains tax in respect of the capital gain of R4 200 000 and will
qualify for an exclusion of R30 000.
Jeff, but not his estate, is liable for capital gains tax in respect of the capital gain of R1 500 000
and will qualify for an exclusion of R300 000
Jeff’s estate is liable for capital gains tax iro the capital gain of R1 500 00 & will qualify for an
exclusion of R300 000.
Both Jeff and his estate are liable for capital gains tax. Jeff qualifies for an exclusion of R300 000
and his estate R30 000
OPTION D IS CORRECT
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Example 9
Pieter and Mary are married in community of property. Their primary residence falls within the joint
property. They bought the house for R1 000 000 in October 2001 and sold it in 2014 for R4 000 000.
Calculate the capital gain for each.
Pieter
2 000 000
proceeds
500 000
base cost
1 500 000
1 000 000
exclusion
500 000
30 000
annual exc
470 000
At 33.3% 157 450
Mary
2 000 000
500 000
1 500 000
1 000 000
500 000
30 000
470 000
at 33.3% 157 450
Example 10
Elias wishes to retire when he attains the age of 55 in 2014. He operates a taxi business as a sole
proprietor for the last 8 years. He is substantially involved in the operations of this business although he
does not do the driving himself.
The MV was paid for in cash and is older than 5 years. Someone offered to buy his business ‘lock, stock
and barrel’ for R320 000 in March 2014
The purchase price includes as amount of R190 000 that relates to self-generated goodwill that had a nil
base cost and the remaining R130 00 relates to the purchase price of the taxi. The original cost of the taxi
was R90 000 .
Calculate the CGT consequences on the disposal of the taxi business
SUGGESTED SOLUTION
Taxi
GoodWill
Proceeds 130000 – 90000 = 40 000
190000 – 0 =
190 000
gain
230 000 – 1 800 000 small business Exclusion.
NO GAIN AFTER SMALL BUSINESS EXCLUSION
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AND THAT IS CGT LADIES AND GENTS!
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