20. Base cost of asset
(1) Despite section 23(b) and (f), but subject to paragraphs 24, 25 and 32 and subparagraphs (2) and (3), the base cost of an asset acquired by a person is the sum of-
(a) the expenditure actually incurred in respect of the cost of acquisition or creation of that asset;
(b) the expenditure actually incurred in respect of the valuation of the asset for the purpose of determining a capital gain or capital loss in respect of the asset;
(c) the following amounts actually incurred as expenditure directly related to the acquisition or disposal of that asset namely-
(i) the remuneration of a surveyor, valuer, auctioneer, accountant, broker, agent, consultant or legal advisor, for services rendered;
(ii) transfer costs;
(iii) stamp duty, transfer duty, tax payable in terms of the Securities Transfer Tax Act, 2007 (Act No. 25 of 2007), or similar duty or tax;
[Subitem (iii) substituted by section 108 of Act 25 of 2015 effective on 8 January 2016]
(iv) advertising costs to find a seller or to find a buyer;
(v) the cost of moving that asset from one location to another;
(vi) the cost of installation of that asset, including the cost of foundations and supporting structures;
(vii) despite section 23(d), in the case of a disposal of an asset by a person by way of a donation as contemplated in paragraph 38, so much of any donations tax payable by that person in respect of that donation, as determined in accordance with paragraph 22;
(viii) despite section 23(d), if that person acquired that asset by way of a donation and the donations tax levied in respect of that donation was paid by that person, so much of the donations tax which bears to the full amount of the donations tax so payable the same ratio as the capital gain of the donor determined in respect of that donation, bears to the market value of that asset on the date of that donation; and
(ix) if that asset was acquired or disposed of by the exercise of an option (other than the exercise of an option contemplated in item (f)), the expenditure actually incurred in respect of the acquisition of the option;
(d) the expenditure actually incurred for purposes of establishing, maintaining or defending a legal title to or right in that asset;
(e) the expenditure actually incurred in effecting an improvement to or enhancement of the value of that asset;
[Item (e) substituted by section 56(1)(a) of Act 34 of 2019]
(f) if that asset was acquired or disposed of by the exercise on or after valuation date of an option acquired prior to the valuation date, the valuation date value of that option, which value must be treated as expenditure actually incurred in respect of that asset on valuation date for the purposes of this Part;
(g) one-third of the interest as contemplated in section 24J excluding any interest contemplated in section 24O on money borrowed to finance the expenditure contemplated in items (a) or (e) in respect of a share listed on a recognised exchange or a participatory interest in a portfolio of a collective investment scheme (including money borrowed to refinance those borrowings);
(h) in the case of-
(i) a marketable security or an equity instrument, the acquisition or vesting, as the case may be, of which resulted in the determination of any gain or loss to be included in or deducted from any person’s income in terms of section 8A or 8C, the market value of that marketable security or equity instrument or amount received or accrued from the disposal thereof, as the case may be, that was taken into account in determining the amount of that gain or loss (including where the gain and loss so determined was nil);
(ii) any other asset –
(aa) so much of an amount that has been included in that person’s income in terms of section 8(5), as having been applied towards the reduction of the purchase price of that asset;
(bb) where an amount has been included in any person’s gross income in terms of paragraph (i) of the definition of “gross income” in section 1, the value placed on the asset under the Seventh Schedule for purposes of determining the amount so included in that person’s gross income;
(cc) where an amount has been included in that person’s gross income in terms of paragraph (h) of the definition of “gross income” in section 1 in respect of that asset, so much of that amount so included as exceeds the amount of any allowance granted to that person in terms of section 11(h); or
(dd) where an amount has been included in that person’s gross income in terms of paragraph (c) of the definition of ‘gross income’ in section 1, the value placed on the asset for the purposes of determining the amount so included in that person’s gross income;
(iii)
(aa) a right in a controlled foreign company held directly by a resident, an amount equal to the proportional amount of the net income (without having regard to the percentage adjustments contemplated in paragraph 10) of that company and of any other controlled foreign company in which that controlled foreign company and that resident directly or indirectly have an interest, which was included in the income of that resident in terms of section 9D during any year of assessment, reduced by the amount of any foreign dividend distributed by that company to that resident during any year of assessment which was exempt from tax in terms of section 10B(2)(a) or (c); or
[Subitem (aa) substituted by section 77 of Act 60 of 2008, section 110 of Act 24 of 2011 and section 108 of Act 25 of 2015 effective on 8 January 2016]
(bb) a right in a controlled foreign company held directly by another controlled foreign company, an amount equal to the proportional amount of the net income (without having regard to the percentage adjustments contemplated in paragraph 10) of that first-mentioned controlled foreign company and of any other controlled foreign company in which both the first- and second-mentioned controlled foreign companies directly or indirectly have an interest, which during any year of assessment would have been included in the income of that second-mentioned controlled foreign company in terms of section 9D had it been a resident, reduced by the amount of any foreign dividend distributed by that first-mentioned controlled foreign company to the second-mentioned controlled foreign company if that dividend would have been exempt from tax in terms of section 10B(2)(a) or (c) had that second-mentioned controlled foreign company been a resident;
[Subitem (iii) substituted by section 26 of Act 19 of 2001, section 75 of Act 60 of 2001, section 71 of Act 74 of 2002, section 95 of Act 45 of 2003, section 68 of Act 31 of 2005, section 73 of Act 35 of 2007, section 52 of Act 3 of 2008 and section 110 of Act 24 of 2011 and section 108 of Act 25 of 2015 effective on 8 January 2016]
(iv) a value shifting arrangement, an amount determined in accordance with paragraph 23, which must for the purposes of this Part be treated as expenditure incurred in respect of that asset.
(v) an asset which was acquired by a resident by way of inheritance from the deceased estate of a person who at the time of his or her death was not resident –
(aa) the market value of that asset immediately before the death of that deceased person; and
(bb) any expenditure contemplated in this paragraph incurred by the executor of that deceased estate in respect of that asset in the process of liquidation or distribution of that deceased estate:
Provided that this subitem does not apply in respect of any asset so acquired which constituted an asset of that deceased person as contemplated in paragraph 2(1)(b);
(vi) an asset which was acquired on or after the valuation date by a person from a person who at the time of that acquisition was not a resident by means of a donation or for a consideration not measurable in money or where the person acquiring the asset is a connected person in relation to the person that is not a resident, for a consideration which does not reflect an arm’s length price, the market value of that asset on the date of its acquisition:
[Subitem (vi) inserted by section 77 of Act 60 of 2008 and substituted by section 84 of Act 43 of 2014 effective on 20 January 2015]
Provided that where subitem (i), (ii)(bb) or (dd) applies, that person must for purposes of this paragraph disregard any expenditure actually incurred by that person in respect of that asset prior to the date on which –
(a) the market value or value placed on the asset under the Seventh Schedule, as the case may be, is determined; or
(b) the asset was disposed of, where the amount received or accrued from the disposal is taken into account in determining the gain or loss in terms of section 8C.
(2) The expenditure incurred by a person in respect of an asset does not include any of the following amounts-
(a) borrowing costs, including any interest as contemplated in section 24J, raising fees, bond registration costs or bond cancellation costs;
[Item (a) amended by section 26(1)(f) of Act 19 of 2001 and substituted by section 56(1)(b) of Act 34 of 2019]
(b) expenditure on repairs, maintenance, protection, insurance, rates and taxes, or similar expenditure, other than borrowing costs and expenditure contemplated in subparagraph (1)(g); and
(c) the valuation date value of any option or right to acquire any marketable security contemplated in section 8A(1).
(3) The expenditure contemplated in subparagraph (1)(a) to (g), incurred by a person in respect of an asset must be reduced by any amount which –
(a)
(i) is or was allowable or is deemed to have been allowed as a deduction in determining the taxable income of that person; and
(ii) is not included in the taxable income of that person in terms of section 9C(5),
before the inclusion of any taxable capital gain; or
(b) has for any reason been reduced or recovered or become recover able from or has been paid by any other person (whether prior to or after the incurral of the expense to which it relates), to the extent that such amount is not-
(i) taken into account as a recoupment in terms of section 8(4)(a) or paragraph (j) of the definition of ‘gross income’;
(ii) reduced in terms of section 12P; or
(iii) applied to reduce an amount of expenditure incurred in respect of-
(aa) trading stock as contemplated in section 19(3); or
(bb) any other asset as contemplated in paragraph 12A(3); or
[Sub item (iii) substituted by section 56(1)(c) of Act 34 of 2019 deemed effective on 1 January, 2018 and applicable in respect of years of assessment commencing on or after that date]
(c) is exempt from tax in terms of section 10(1)(yA) and is granted or paid for purposes of the acquisition of that asset.
(4) A person who-
(a) disposed of an asset to another person in terms of an agreement; and
(b) reacquired that asset from that other person by reason of the cancellation or termination of that agreement and the restoration of both persons to the position they were in prior to entering into that agreement,
must be treated as having acquired that asset for an amount equal to-
(i) the base cost of that asset prior to that disposal; and
(ii) so much of any expenditure incurred in respect of that asset by that other person that has been recovered from that person as would have constituted expenditure contemplated in subparagraph (1)(e) had it been incurred by that person.
[Subparagraph (4) added by section 45 of Act 20 of 2006, substituted by section 60 of Act 8 of 2007, deleted by section 130 of Act 31 of 2013, re-inserted by section 108 of Act 25 of 2015 effective on 1 January 2016]