81. Base cost of interest in discretionary trust
Despite paragraph 38(1)(b), a person’s interest in a discretionary trust must be treated as having a base cost of nil.
Author: admin_kmos
Paragraph 80 (Eighth Schedule) – Capital gain attributed to beneficiary
80. Capital gain attributed to beneficiary
(1) Subject to paragraphs 68, 69 and 71, where a trust vests an asset in a beneficiary of that trust (other than any person contemplated in paragraph 62(a) to (e) or a person who acquires that asset as an equity instrument as contemplated in section 8C(1)) who is a resident, and determines a capital gain in respect of that disposal or, if that trust is not a resident, would have determined a capital gain in respect of that disposal had it been a resident-
(a) that capital gain must be disregarded for the purpose of calculating the aggregate capital gain or aggregate capital loss of the trust; and
(b) that capital gain or the amount that would have been determined as a capital gain must be taken into account as a capital gain for the purpose of calculating the aggregate capital gain or aggregate capital loss of the beneficiary to whom that asset was so disposed of.
(2) Subject to paragraphs 64E, 68, 69 and 71, where a trust determines a capital gain in respect of the disposal of an asset in a year of assessment during which a beneficiary of that trust (other than any person contemplated in paragraph 62(a) to (e)) who is a resident has a vested right or acquires a vested right (including a right created by the exercise of a discretion) to an amount derived from that capital gain but not to the asset disposed of, an amount that is equal to so much of the amount to which that beneficiary of that trust is entitled in terms of that right—
(a) must be disregarded for the purpose of calculating the aggregate capital gain or aggregate capital loss of the trust; and
(b) must be taken into account as a capital gain for the purpose of calculating the aggregate capital gain or aggregate capital loss of that beneficiary.
[Subparagraph (2) substituted by section 52(a) of Act 23 of 2020]
(2A)
(a) Subject to paragraphs 64E, 68, 69 and 71, this subparagraph applies where—
(i) a beneficiary who is a resident (other than any person contemplated in paragraph 62(a) to (e)) derives an amount through vesting during a year of assessment from a trust that is not a resident; and
(ii) that amount was derived directly or indirectly from that trust or another trust which is not a resident in respect of the disposal of an asset during the same year of assessment and that amount would have constituted a capital gain had the trust that disposed of the asset been a resident.
(b) Where item (a) applies, the amount derived by the beneficiary must be taken into account as a capital gain for the purpose of calculating that beneficiary’s aggregate capital gain or aggregate capital loss for that year of assessment.
[Subparagraph (2A) inserted by section 52(b) of Act 23 of 2020]
(3) Where during any year of assessment any resident acquires a vested right to any amount representing capital of any trust which is not a resident, and-
(a) that capital consists of or is derived, directly or indirectly, from an amount-
(i) determined as a capital gain of that trust; or
(ii) which would have been determined as a capital gain of that trust had that trust been a resident,
in any previous year of assessment during which that resident had a contingent right to that capital; and
(b) that capital gain or the amount that would have been determined as a capital gain has not been subject to tax in the Republic in terms of the provisions of this Act,
that amount must be taken into account as a capital gain when determining the aggregate capital gain or aggregate capital loss of that resident in respect of the year of assessment in which that resident acquired that vested right.
(4) In determining, for purposes of subparagraph (1), (2A) or (3), whether an amount would have constituted a capital gain had the trust been a resident, the provisions of paragraph 64B(1) and (4) must be disregarded in respect of an amount derived by that trust, directly or indirectly, from the disposal or in respect of an equity share in a foreign company if-
(a) more than 50 per cent of the total participation rights, as defined in section 9D(1), or of the voting rights in that company are directly or indirectly held or are exercisable, as the case may be, by that trust whether alone or together with any one or more persons that are connected persons in relation to that trust; and
(b) to the extent to which that amount is not derived from an amount that must be included in the income of or attributed to—
(i) the resident to whom an amount is attributed in terms of subparagraph (1), (2A) or (3); or
(ii) a resident who is a connected person in relation to the resident referred to in subitem (i).
[Subparagraph (4) amended by section 64 of Act 34 of 2019 and substituted by section 36 of Act 42 of 2024]
[Paragraph 80 amended by section 108(1) of Act 60 of 2001, by section 58 of Act 20 of 2006, by section 62 of Act 3 of 2008, by section 86(a)-(b) of Act 60 of 2008, by section 80 of Act 17 of 2009, by section 150(a)-(b) of Act 31 of 2013, by section 123(1)(a)-(b) of Act 25 of 2015 and by section 75(1)(a)-(b) of Act 17 of 2017 and substituted by section 87(1) of Act 23 of 2018 effective on 1 March, 2019 and applicable in respect of disposals on or after that date]
Part XII – Trusts, trust beneficiaries and insolvent estates
PART XII
Trusts, trust beneficiaries and insolvent estates
Paragraph 77 (Eighth Schedule) – Distributions in liquidation or deregistration received by holders of shares
77. Distributions in liquidation or deregistration received by holders of shares
[Heading of paragraph 77 substituted by section 92 of Act 43 of 2014 effective on 20 January 2015]
(1) A holder of shares in a company that is being wound up, liquidated or deregistered must be treated as having disposed of all the shares held by that holder in that company at the earlier of-
(a) the date of dissolution or deregistration; or
(b) in the case of a liquidation or winding-up, the date when the liquidator declares in writing that no reasonable grounds exist to believe that the holder of shares in the company (or holders of shares holding the same class of shares) will receive any further distributions in the course of the liquidation or winding-up of that company.
(2) Where-
(a) a return of capital or foreign return of capital by way of a distribution of cash or assets in specie is received by or accrues to a holder of shares contemplated in subparagraph (1) in respect of a share that is treated as having been disposed of in terms of that subparagraph; and
(b) that return of capital or foreign return of capital is received by or accrues to that holder after the date contemplated in subparagraph (1)(a) or (b),
the return of capital or foreign return of capital must be treated as a capital gain in determining that holder’s aggregate capital gain or aggregate capital loss for that year of assessment.
78. …………
79. …………
Paragraph 76B (Eighth Schedule) – Reduction in base cost of shares as result of distributions
76B. Reduction in base cost of shares as result of distributions
(1) Where-
(a) a return of capital or foreign return of capital by way of a distribution of cash or an asset in specie is received by or accrues to a holder of a share in respect of that share;
(b) that return of capital or foreign return of capital is received by or accrues to the holder of that share on or after 1 April 2012 and prior to the disposal of that share; and
(c) that share constitutes a pre-valuation date asset in relation to the holder of that share,
for purposes of determining the date of acquisition of that share and the expenditure in respect of the cost of acquisition of that share, the holder of that share must be treated as-
(i) having disposed of that share at a time immediately before the return of capital or foreign return of capital is received or accrues for an amount equal to the market value of the share at that time; and
(ii) having immediately reacquired that share at that time at an expenditure equal to that market value-
(aa) less any capital gain that would have been determined had the share been disposed of at market value at that time; and
(bb) increased by any capital loss that would have been determined had the share been disposed of at market value at that time,
which expenditure must be treated as an amount of expenditure actually incurred for the purposes of paragraph 20(1)(a):
: Provided that the market value of a share listed on a recognised exchange and for which a price was quoted on that exchange is equal to the sum of-
(i) the ruling price of that share at the close of business on the last business day before the accrual of the return of capital or foreign return of capital; and
(ii) the amount of the return of capital or foreign return of capital.
[Proviso to subparagraph (1) added by section 79 of Act 15 of 2016 effective on 19 January 2017]
(2) Where-
(a) a return of capital or foreign return of capital by way of a distribution of cash or an asset in specie is received by or accrues to a holder of a share in respect of that share; and
(b) that return of capital or foreign return of capital is received by or accrues to the holder of that share on or after 1 April 2012 and prior to the disposal of that share,
the holder of that share must reduce the expenditure in respect of the share by the amount of that cash or the market value of that asset on the date that the asset or that cash is received by or accrues to the holder of that share.
[Words following item (b) substituted by section 122 of Act 25 of 2015 effective on 8 January 2016]
(3) Where the amount of a return of capital or foreign return of capital contemplated in subparagraph (2) exceeds the expenditure in respect of the share in respect of which that return of capital or foreign return of capital is received or accrues, the amount of the excess must be treated as a capital gain in determining the aggregate capital gain or aggregate capital loss of the holder of that share for the year of assessment in which that return of capital or foreign return of capital is received by or accrues to the holder of that share.
Paragraph 76A (Eighth Schedule) – Part-disposal of shares
76A. Part-disposal of shares
(1) Where-
(a) a return of capital or foreign return of capital by way of a distribution of cash or an asset in specie (other than a share distributed in terms of an unbundling transaction contemplated in section 46(1)) is received by or accrues to a shareholder in respect of a share; and
(b) that return of capital or foreign return of capital is received by or accrues to that shareholder on or after 1 October 2007 and before 1 April 2012,
that shareholder must be deemed to have disposed of part of that share on the date that the return of capital or foreign return of capital is received by or accrues to the shareholder.
(1A) Subject to paragraph 76(2), where-
(a) a return of capital or foreign return of capital by way of a distribution of cash or an asset in specie (other than a share distributed in terms of an unbundling transaction contemplated in section 46(1)) is received by or accrues to a shareholder in respect of a share;
(b) that return of capital or foreign return of capital is received by or accrues to that shareholder on or after valuation date but before 1 October 2007; and
(c) that share is not disposed of before 1 April 2012,
that return of capital or foreign return of capital must be treated as having been distributed on 1 April 2012.
(2) If paragraph 76(2) applies and the base cost of those shares is a negative amount at the end of 31 March 2012-
(a) that shareholder must be treated as having a capital gain on 31 March 2012 equal to that negative amount; and
(b) the base cost of those shares at the end of 31 March 2012 must be treated as nil.
(3) For purposes of paragraph 33(1) the market value of the part disposed of under this paragraph must be treated as being equal to the amount of the cash or the market value of the asset received or accrued by way of a return of capital or foreign return of capital.
Paragraph 76 (Eighth Schedule) – Returns of capital and foreign returns of capital by way of distributions of cash or assets in specie
76. Returns of capital and foreign returns of capital by way of distributions of cash or assets in specie
(1) Subject to subparagraph (2), where a return of capital or foreign return of capital by way of a distribution of cash or an asset in specie (other than a distribution of a share in terms of an unbundling transaction contemplated in section 46(1)) is received by or accrues to a holder of a share in respect of that share, that holder must where the date of distribution of that cash or asset occurs-
(a) before valuation date, reduce the expenditure contemplated in paragraph 20 actually incurred before valuation date in respect of that share by the amount of that cash or the market value of that asset;
(b) on or after valuation date but before 1 October 2007 and that share is disposed of by the holder of that share on or before 31 March 2012, treat the amount of that cash or the market value of that asset as proceeds when that share is disposed of;
(c) on or after 1 October 2007 but before 1 April 2012, treat the amount of that cash or the market value of that asset as proceeds when that share is partly disposed of in terms of paragraph 76A.
(2) Where a holder of shares uses the weighted average method in respect of shares that are identical assets as contemplated in paragraph 32(3A)(a) and a return of capital or foreign return of capital by way of a distribution of cash or an asset in specie (other than a distribution of a share in terms of an unbundling transaction contemplated in section 46(1)) is received by or accrues to that holder of shares in respect of those shares on or after valuation date but before 1 October 2007, the weighted average base cost of those shares must be determined by-
(a) deducting the amount of that cash or the market value of that asset from the base cost of those shares held when that return of capital or foreign return of capital was received or accrued; and
(b) dividing the result by the number of those shares held when that return of capital or foreign return of capital was received or accrued.
(3) ……….
(4) Every-
(a) company that makes a distribution to any other person; and
(b) person that pays a distribution to any other person on behalf of a company,
on or after 1 April 2012 must, by the time of the distribution or payment, notify that other person in writing of the extent to which the distribution or payment constitutes a return of capital.
Paragraph 75 (Eighth Schedule) – Distributions in specie by company
75. Distributions in specie by company
(1) Where a company makes a distribution of an asset in specie to a person holding a share in that company-
(a) that company must be treated as having disposed of that asset to that person on the date of distribution for an amount received or accrued equal to the market value of that asset on that date; and
(b) that person must be treated as having acquired that asset on the date of distribution and for expenditure equal to the market value of that asset on that date, which expenditure must be treated as an amount of expenditure actually incurred for the purposes of paragraph 20(1)(a).
“Date of distribution” definition of Eighth Schedule
“date of distribution”, in relation to any distribution, means-
(a) to the extent that the distribution does not consist of a distribution of an asset in specie–
(i) where the company that makes the distribution is a listed company, the date on which the distribution is paid; or
(ii) where the company that makes the distribution is not a listed company, the earlier of the date on which the distribution is paid or becomes due and payable; or
(b) to the extent that the distribution consists of a distribution of an asset in specie, the earlier of the date on which the distribution is paid or becomes due and payable.
Paragraph 74 (Eighth Schedule) – Definitions
74. Definitions
For the purposes of this Part, unless the context otherwise dictates-