Author: admin_kmos

Paragraph 37 (Eighth Schedule) – Assets of trust and company

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37.     Assets of trust and company

 

(1)     Where-

 

(a)     an asset contemplated in paragraph 15 which is not used for purposes of carrying on a trade or an asset which, if owned by a natural person, would be a personal-use asset as contemplated in paragraph 53, is owned by a trust or a company any interest in which or any shares of which are held directly or indirectly by a natural person;

 

(b)     there is a decrease in the market value of that asset while held by that trust or company after that person acquired an interest in that trust or company; and

 

(c)     any interest in that trust or that company is thereafter disposed of by a person, that person must be treated as having disposed of that interest for proceeds equal to the market value of that interest, determined on the date of disposal, as if the market value of that asset had not decreased.

 

(2)     Subparagraph (1) does not apply where more than 50 per cent of the assets of the trust or company consist of assets used wholly and exclusively for trading purposes.

Paragraph 35A (Eighth Schedule) – Disposal of certain debt claims

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35A.     Disposal of certain debt claims

(1)     This paragraph applies where-

(a)     a person has disposed of an asset during any year of assessment, all the proceeds of which will not accrue to that person in that year;


(b)     that person subsequently disposes of any right to claim payment in respect of that disposal; and


(c)     that claim includes any amount which has not yet accrued to that person at the time of the disposal of that claim.

(2)     So much of any consideration received by or accrued to a person from the disposal of a claim contemplated in subparagraph (1)(b) as is attributable to any amount which has not yet accrued to that person as contemplated in subparagraph (1)(c), must be treated as an amount of consideration which accrues to that person in respect of the disposal of the asset contemplated in subparagraph (1)(a).

[Subparagraph (2) substituted by section 71 of Act 17 of 2017 effective on 18 December 2017]

(3)     So much of any capital gain or capital loss determined in respect of the disposal by the person of the right to claim payment as contemplated in subparagraph (1)(b), as is attributable to any amount which has not yet accrued to mat person, must be disregarded.

Paragraph 35 (Eighth Schedule) – Proceeds from disposal

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35.     Proceeds from disposal

(1)     Subject to subparagraphs (2), (3) and (4), the proceeds from the disposal of an asset by a person are equal to the amount received by or accrued to, or which is treated as having been received by, or accrued to or in favour of, that person in respect of that disposal, and includes-

(a)     the amount by which any debt owed by that person has been reduced or discharged; and

(b)     any amount received by or accrued to a lessee from the lessor of property for improvements effected to that property.

(1A)    ………..

[Subparagraph (1A) inserted by section 133 of Act 31 of 2013 and deleted by section 78 of Act 23 of 2018 effective on 17 January 2019]

(2)     The amount of the proceeds from a disposal by way of a value shifting arrangement is determined as the market value of the person’s interests to which paragraph 11(1)(g) applies immediately prior to the disposal less the market value of the person’s interests immediately after the disposal, which amount shall be treated as having been received or accrued to that person.

(3)     The proceeds from the disposal, during a year of assessment, of an asset by a person, as contemplated in subparagraph (1) must be reduced by-

[Words preceding item (a) substituted by section 111 of Act 25 of 2015 effective on 1 January 2016]

(a)     any amount of the proceeds that must be or was included in the gross income of that person or that must be or was taken into account when determining the taxable income of that person before the inclusion of any taxable capital gain;

(b)     any amount of the proceeds that has during that year of assessment been repaid or has become repayable to the person to whom that asset was disposed of; or

[Paragraph (b) substituted by section 111 of Act 25 of 2015 effective on 1 January 2016] 

(c)     any reduction, as the result of the cancellation, termination or variation of an agreement, other than any cancellation or termination of an agreement that results in the asset being reacquired by the person that disposed of it, or any reduction due to the prescription or waiver of a claim or release from an obligation or any other event during that year, of an accrued amount forming part of the proceeds of that disposal.

[Item (c) substituted by section 111(1)(b) of Act 25 of 2015 and by section 58 of Act 34 of 2019]

(4)     Where during any year of assessment a person has become entitled to any amount which is payable on a date or dates falling after the last day of that year, that amount must be treated as having accrued to that person during that year.

Paragraph 34 (Eighth Schedule) – Debt substitution

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34.     Debt substitution

Where a person reduces or discharges a debt owed by that person to a creditor by disposing of an asset to that creditor, that asset must be treated as having been acquired by the creditor at a cost equal to the market value of that asset at the time of that disposal, which cost must be treated as an amount of expenditure actually incurred for the purposes of paragraph 20(1)(a).

[Paragraph 34 substituted by section 85(1) of Act 60 of 2001 and by section 49 of Act 23 of 2020]

Paragraph 33 (Eighth Schedule) – Part-disposals

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33.     Part-disposals

 

(1)     Subject to subparagraphs (2), (3), (4) and (5), where part of an asset is disposed of-

 

(a)     the proportion of the expenditure attributable to the part disposed of is an amount which bears to the expenditure allowable in terms of paragraph 20 in respect of the entire asset the same proportion as the market value of the part disposed of bears to the market value of the entire asset immediately prior to that disposal; and

 

(b)     the market value on valuation date attributable to the part disposed of is an amount which bears to the market value adopted or determined in terms of paragraph 29(4) in respect of the entire asset the same proportion as the market value of the part disposed of bears to the market value of the entire asset immediately prior to that disposal.

 

(2)     Subject to subparagraph (4), where a part of the expenditure allowable in terms of paragraph 20 or the market value adopted or determined in terms of paragraph 29(4) in respect of an asset can be directly attributed to the part of the asset that is disposed of or retained then the apportionment contemplated in subparagraph (1) does not apply in respect of that part of that expenditure or market value as the case may be.

 

(3)     For the purposes of subparagraph (1) and (2) there is no part-disposal of an asset by a person in respect of-

 

(a)     the granting of an option by that person in respect of an asset;

 

(b)     the granting, variation or cession of a right of use or occupation of that asset by that person in respect of which no proceeds are received by or accrue to that person;

 

(c)     the improvement or enhancement of immovable properly which that person leases from a lessor; or

 

(d)     the replacement of part of that asset in repairing that asset.

 

(4)     Where proceeds are received by or accrue to a person in respect of the granting, variation or cession of a right of use or occupation of an asset by that person, the portion of the expenditure allowable in terms of paragraph 20 or market value adopted or determined in terms of paragraph 29(4) attributable to the part of the asset in respect of which those proceeds were received or accrued is an amount which bears to that expenditure or market value as the case may be of the entire asset the same proportion as those proceeds bear to the market value of the entire asset immediately prior to that disposal.

 

(5)     Where a person has adopted the 20 percent of proceeds method contemplated in paragraph 26(1)(b) in determining the valuation date value of a part of an asset that has been disposed of, that person must adopt that method in determining the valuation date value of any remaining part of that asset.

Paragraph 32 (Eighth Schedule) – Base cost of identical assets

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32.     Base cost of identical assets

 

(1)     This paragraph applies to assets which form part of a holding of identical assets.

 

(2)     For the purposes of this paragraph “identical assets” means a group of similar assets which-

 

(a)     if any one of them were disposed of, would realise the same amount regardless of which of them was so disposed of; and

 

(b)     are not able to be individually distinguished apart from any identifying numbers which they may bear.

 

(3)     Subject to subparagraphs (3A) and (3B), the base cost of identical assets must be determined by using one of the following methods-

 

(a)     specific identification; or

 

(b)     the first in first out method.

 

(3A)   The weighted average method of determining base cost of assets, as contemplated in subparagraph (4), may be used for identical assets that do not constitute assets contemplated in subparagraph (3B) and which-

 

(a)     from the date of acquisition to the date of disposal constituted assets contemplated in paragraph 31(1)(a), other than instruments contemplated in item (d);

 

(b)     constitute participatory interests –

 

(i)      contemplated in paragraph 31(1)(c), where the prices of these participatory interests or shares are regularly published in a national or international newspaper;

 

(ii)     in any portfolio comprised in any collective investment scheme managed or carried on by a company registered as a manager under section 42 of the Collective Investment Schemes Control Act for purposes of Parts IV an V of that Act; or

 

(iii)    in any arrangement or scheme contemplated in paragraph (e)(ii) of the definition of ‘company’ in section 1 of the Act, which is approved in terms of section 65 of the Collective Investment Schemes Control Act by the Registrar as defined in section 1 of the latter Act;

 

(c)     constitute coins made mainly from gold or platinum, where the prices of these coins are regularly published in a national or international newspaper; or

 

(d)     from the date of acquisition to the date of disposal constituted instruments as defined in section 24J that were listed on a recognised exchange and for which a price was quoted on that exchange,

 

and where a person uses the weighted average method for any identical asset contemplated in item (a), (b), (c) or (d), that method must be used for all identical assets, contemplated in that item, held by that person.

 

(3B)   The weighted average method of determining base cost of assets, as contemplated in subparagraph (4), must be used for identical assets that are, in terms of section 29A, allocated to all the policyholder funds of an insurer as defined in that section: Provided that this subparagraph must not apply to any asset-

 

(a)     that constitutes-

 

(i)      an instrument as defined in section 24J(1);

 

(ii)     an interest rate agreement as defined in section 24K(1);

 

(iii)    a contractual right or obligation the value of which is determined directly or indirectly with reference to-

 

(aa)    an instrument contemplated in subparagraph (i);

 

(bb)   an interest rate agreement contemplated in subparagraph (ii); or

 

(cc)    any specified rate of interest;

 

(iv)    trading stock; or

 

(v)     a policy of reinsurance; or

 

(b)     held by an insurer if that insurer is a Category III Financial Services Provider as defined in section 29B(1) and that asset is held by that insurer in its capacity as a Category III Financial Services Provider.

 

(4)     In applying the weighted average method of determining base cost-

 

(a)     the weighed average base cost, on valuation date, of identical assets acquired and not disposed of before valuation date is equal to the valuation date value of those identical assets, as contemplated in paragraph 28, or the market value of those identical assets, as contemplated in paragraph 29, divided by the number of those identical assets; and

 

(b)     the weighted average base cost, thereafter, of identical assets must be calculated by-

 

(i)      adding expenditure allowable in terms of paragraph 20 in respect of identical assets to the base cost of identical assets acquired and not disposed of before that expenditure was incurred; and


(ii)     dividing that amount by the number of identical assets acquired and not disposed of after that expenditure was incurred.

 

(5)     ……….

 

(6)     Once a person has adopted one of the methods specified in this paragraph in respect of a class of identical assets contemplated in subparagraph (3A), that method must be used until all those identical assets have been disposed of.

Paragraph 31 (Eighth Schedule) – Market value

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31.     Market value

(1)     The market value of an asset on a specified date is in the case of –

(a)     an asset which is a financial instrument listed on a recognised exchange and for which a price was quoted on that exchange, is the ruling price in respect of that financial instrument on that recognised exchange at close of business on the last business day before that date.

(b)     an asset which is a long-term insurance policy, being a policy as defined in section 1 of the Long-term Insurance Act the greater of-

(i)      the amount which would be payable to the policyholder upon the surrender of that policy on that day; or

(ii)     the amount which according to the insurer is the fair market value of that policy should it run its remaining policy term as determined on that day;

(c)     an asset which is not listed on a recognised exchange which constitutes a right of a holder of a participatory interest in –

(i)      any portfolio of a collective investment scheme in securities, or any portfolio of a collective investment scheme in property, carried on in the Republic, the price at which a participatory interest can be sold to the management company of the scheme on that date; or 

(ii)     any arrangement or scheme contemplated in paragraph (e)(ii) of the definition of ‘company’, the price at which a participatory interest can be sold to the management company of the scheme on that date or where there is not a management company the price which could have been obtained upon a sale of the asset between a willing buyer and a willing seller dealing at arm’s length in an open market on that date;


(d)     a fiduciary, usufructuary or other similar interest in any asset, an amount determined by capitalizing at 12 per cent the annual value of the right of enjoyment of the asset subject to that fiduciary, usufructuary or other like interest, as determined in terms of subparagraph (2), over the expectation of life of the person to whom that interest was granted, or if that right of enjoyment is to be held for a lesser period than the life of that person, over that lesser period;

(e)     any asset which is subject to a fiduciary, usufructuary or other similar interest in favour of any person, the amount by which the market value of the full ownership of that asset exceeds the value of that fiduciary, usufructuary or other like interest determined in accordance with item (d);

(f)      any asset which constitutes immovable property on which a bona fide farming undertaking is being carried on, subject to subparagraph (4), either-

(i)      the value of that property determined as contemplated in paragraph (b) of the definition of “fair market value” in section 1 of the Estate Duty Act; or

[Subitem (i) substituted by section 86 of Act 43 of 2014 effective on 20 January 2015]

(ii)     the price contemplated in item (g);

(g)     any other asset, the price which could have been obtained upon a sale of the asset between a willing buyer and a willing seller dealing at arm’s length in an open market.

(2)     For purposes of subparagraph (1)(d) –

(a)     the annual value of the right of enjoyment of any asset which is subject to any fiduciary, usufructuary or other like interest, means an amount equal to 12 per cent of the market value of the full ownership of the asset: Provided that where the asset which is subject to that interest cannot reasonably be expected to produce an annual yield equal to 12 per cent on that value of the asset, the Commissioner must decide, on application by the taxpayer, such sum as reasonably represents the annual yield, and the sum so fixed must for the purposes of subparagraph (1)(d) be treated as being the annual value of the right of enjoyment of that asset; and

[Item (a) substituted by section 110 of Act 25 of 2015 effective on 8 January 2016] 

(b)     the expectation of life of a person to whom an interest was granted-

(i)      in the case of a natural person, must be determined in accordance with the provisions applicable in determining the expectation of life of a person for estate duty purposes, as contemplated in the regulations issued in terms of section 29 of the Estate Duty Act, 1955; and

[Subitem (i) substituted by section 86 of Act 43 of 2014 effective on 20 January 2015]

(ii)     in the case of a person other than a natural person, is a period of fifty years.

(3)     The market value of any shares of a person in a company not listed on a recognised exchange must be determined at a value equal to the price which could have been obtained upon a sale of the share between a willing buyer and a willing seller dealing at arm’s length in an open market subject to the following-

(a)     no regard shall be had to any provision-

(i)      restricting the transferability of the shares therein, and it shall be assumed that those shares were freely transferable; or

(ii)     whereby or whereunder the value of the shares is to be determined;

(b)     if upon the winding-up of the company that person would have been entitled to share in the assets of the company to an extent that is not in proportion to that person’s holding of shares, the value of the shares held by that holder of shares must not be less than the amount to which that holder of shares would have been so entitled if the company had been in the course of winding-up and the said amount had been determined as at valuation date.

(4)     The value contemplated in subparagraph (1)(f)(i) may only be used on the death of a person or when the immovable property is disposed of by way of donation or non-arm’s length transaction, if-

(a)     that value was used for the purposes of paragraph 26 or 27; or

(b)     the person acquired the immovable property by way of donation or inheritance or non-arm’s length transaction at that value.

Paragraph 30 (Eighth Schedule) – Time-apportionment base cost

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30.     Time-apportionment base cost

 

(1)     Subject to subparagraph (3), the time-apportionment base cost of a pre-valuation date asset is determined in accordance with the formula-

 

Y     =     B     +     [(P – B) x N]

T + N

 

where-

 

(a)     “Y” represents the amount to be determined;

 

(b)     “B” represents the amount of expenditure incurred prior to the valuation date in respect of that asset that is allowable before, on or after the valuation date in terms of paragraph 20;

 

(c)     “P” represents the proceeds as determined in terms of paragraph 35, in respect of the disposal of that asset, or where subparagraph (2) applies, the amount of proceeds attributable to the expenditure in “B” as determined in accordance with subparagraph (2);

 

(d)     “N” represents the number of years determine from the date that the asset was acquired to the day before valuation date, which number of years may not exceed 20 in the case where the expenditure allowable in terms of paragraph 20 in respect of that asset was incurred in more than one year of assessment prior to the valuation date;

 

(e)     “T” represents the number of years determined from valuation date until the date the asset was disposed of after valuation date.

 

Provided that for purposes of items (d) and (e) a part of a year must be treated as a full year.

 

(2)     Where a portion of the expenditure allowable in terms of paragraph 20 in respect of a pre-valuation date asset was incurred on or after the valuation date, the proceeds to be used in the determination of the time apportionment base cost of the asset must be determined in accordance with the formula-

 

                                               

            P      =      R      x       B

                                            (A + B)

 

where-

 

(a)     “P” represents the proceeds attributable to B;

 

(b)     “R” represents the total amount of proceeds as determined in terms of paragraph 35 in consequence of the disposal of the pre-valuation date asset;

 

(c)     “A” represents the amount of expenditure allowable in terms of paragraph 20 in respect of the asset that is incurred on or after valuation date;

 

(d)     “B” represents the amount of expenditure incurred prior to the valuation date in respect of that asset that is allowable before, on or after the valuation date in terms of paragraph 20;

 

(3)     A person must determine the time-apportionment base cost of a pre-valuation date asset in terms of subparagraph (4) where –

 

(a)     that person has incurred expenditure contemplated in paragraph 20(1)(a), (c) or (e) on or after the valuation date;

 

(b)     any part of the expenditure contemplated in paragraph 20(1)(a), (c) or (e) incurred before, on or after the valuation date is or was allowable as a deduction in determining the taxable income of that person before the inclusion of any taxable capital gain; and

 

(c)     the proceeds in respect of the disposal of that asset exceed the expenditure allowable in terms of paragraph 20 incurred before, on and after the valuation date in respect of that asset

 

(4)     The time-apportionment base cost of a pre-valuation date asset referred to in subparagraph (3) is determined in accordance with the formulae-

 

           Y = B + [(P1 – B1 x N]

                             T + N

 

and

 

           P1      =       R1 x B1

                           (A1 + B1)

 

where –

 

(a)     “Y” represents the time apportionment base cost of the asset;

 

(b)     “P1” represents the proceeds attributable to the expenditure in B1;

 

(c)     “A1” represents the sum of the expenditure allowable in terms of paragraph 20 in respect of the asset that is incurred on or after valuation date and any amount of that expenditure that has been recovered or recouped as contemplated in paragraph 35(3)(a);

 

(d)     ‘B1’ represents the sum of the expenditure allowable in terms of paragraph 20 in respect of the asset that is incurred before valuation date, and any amount of that expenditure that has been recovered or recouped as contemplated in paragraph 35(3)(a).

 

(e)     “B”, “N” and “T” bear the same meanings ascribed to those symbols in subparagraph (1); and

 

(f)      ‘R1’ represents the sum of the proceeds and any amount contemplated in paragraph 35(3)(a) in respect of that asset.

 

(5)     For purposes of this paragraph –

 

(a)     any selling expenses incurred on or after the valuation date must be deducted from the following amounts –

 

(i)      in the case where subparagraph (2) or (3) applies, the amounts represented by the symbols ‘R’ and ‘R1’, respectively; and

 

(ii)     in any other case, the amount represented by the symbol ‘P’;

 

(b)     except for subparagraph (3)(c) any reference to expenditure allowable in terms of paragraph 20 must exclude selling expenses; and

 

(c)     ‘selling expenses’ means expenditure –

 

(i)      contemplated in paragraph 20(1)(c)(i) to (iv) incurred directly for the purposes of disposing of that asset; and

 

(ii)     which would, but for the provisions of item (b), have constituted expenditure allowable in terms of paragraph 20.