Category: Eighth Schedule – Determination of taxable capital gains and assessed capital losses

EIGHTH SCHEDULE

 

Eighth Schedule inserted by section 38 of Act 5 of 2001.

Paragraph 20A (Eighth Schedule) – Provisions relating to farming development expenditure

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20A.    Provisions relating to farming development expenditure

(1)     Despite the provisions of paragraph 20(3)(a), where a person carrying on pastoral, agricultural or other farming operations as contemplated in section 26, incurred expenditure in respect of the matters referred to in items (c) to (i) of paragraph 12(1) of the First Schedule (referred to in this paragraph as ‘capital development expenditure’) and that person-

(a)     ceased to carry on such pastoral, agricultural or other farming operations during any year of assessment; and

(b)     at any time thereafter disposes of immovable property on which those operations were carried on,

that person may elect that the amount of the capital development expenditure, or part thereof, which is carried forward and deemed in terms of paragraph 12(3) of the First Schedule to be expenditure which has been incurred in the next succeeding year of assessment for purposes of paragraph 12(1) of the First Schedule (as reduced in terms of paragraph 12(3B) of the First Schedule, if applicable), must be treated as expenditure incurred in respect of that immovable property for the purposes of this Part.

[Subparagraph (1) amended by section 48 of Act 23 of 2020]

 

(2)     The amount of the capital development expenditure in respect of which the election may be made in terms of subparagraph (1) may not exceed ed the proceeds from the disposal of that immovable property contemplated in subparagraph (1), reduced by-

(a)     in the case of a pre-valuation date asset, any other amount allowable in terms of paragraph 25; or

(b)     in any other case, an amount allowable in terms of paragraph 20.

(3)     Where a person adopts or determines the market value of immovable property on which pastoral, agricultural or other farming operations were carried on as the valuation date value of that asset in terms of paragraph 29(4), only capital development expenditure incurred by that person on or after 1 October 2001 must be taken into account for the purpose of calculating the amount in respect of which an election can be made in terms of subparagraph (1).

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 21 (Eighth Schedule) – Limitation of expenditure

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21.     Limitation of expenditure

 

(1)     Where, but for the provisions of this subparagraph, an amount qualifies or has qualified as an allowable expenditure or may otherwise be taken into account in determining a capital gain or capital loss under more than one provision of this Schedule, that amount or portion thereof, shall not be allowed as expenditure or be taken into account more than once in determining that capital gain or capital loss.

 

(2)     No expenditure shall be allowed under paragraph 20(1)(a) or (e) where any amount of that expenditure is allowable under any other provision of this Schedule, despite that that other provision imposes any limitation on the amount of the expenditure.

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 22 (Eighth Schedule) – Amount of donations tax to be included in base cost

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22.    Amount of donations tax to be included in base cost

 

The amount of the donations tax payable by a person in respect of the disposal of an asset which may be taken into account in terms of paragraph 20(1)(c)(vii) must be determined in accordance with the formula-

 

Y       =       (M  –  A)   x   D

                        M

 

where-

 

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


(b)     “M” represents the market value of the asset donated in respect of which the donations tax is payable;


(c)     “A” represents all amounts allowed to be taken into account in determining the base cost of the asset in terms of this Part (other than paragraph 20(1)(c)(vii)); and


(d)     “D” represents the total amount of donations tax so payable:

 

Provided that where the amount included in “A” is greater than the amount included in “M”, the amount of donations tax to be taken into account in terms of paragraph 20(1)(c)(vii) shall be nil.

Paragraph 23 (Eighth Schedule) – Base cost in respect of value shifting arrangement

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23.     Base cost in respect of value shifting arrangement

 

In the case of a disposal by way of a value shifting arrangement-

 

(a)    the base cost of a person’s interest to which paragraph 11(1)(g) applies, is determined in accordance with the formula-

 

Y      =      (A – C)      x      B

                     A

where-

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


(ii)     “A” is the market value of that person’s interests immediately prior to the disposal;


(iii)    “B” is the person’s base cost of the interests calculated immediately prior to the disposal; and


(iv)    “C” is the market value of that person’s interests immediately after the disposal.

 

(b)     the base cost of a person-

 

(i)      whose interests increased in value as a result of a value shifting arrangement contemplated in subparagraph (a) is increased by that proportion of the proceeds on disposal contemplated in paragraph 35(2) in respect of the value shifting arrangement which resulted in the increase in market value of that person’s interest; or


(ii)     who acquires a direct or indirect interest in the company, trust or partnership, is that proportion of the proceeds of disposal contemplated in paragraph 35(2) in respect of the value shifting arrangement which resulted in the acquisition of that interest.

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 13 (Eighth Schedule) – Time of disposal

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13.     Time of disposal

(1)     The time of disposal of an asset by means of-

(a)     a change of ownership effected or to be effected from one person to another because of an event, act, forbearance or by operation of law is, in the case of-

(i)      an agreement subject to a suspensive condition, the date on which the condition is satisfied;

(ii)     any agreement which is not subject to a suspensive condition, the date on which the agreement is concluded;

(iiA)  the distribution of an asset of a trust by a trustee to a beneficiary to the extent that the beneficiary has a vested interest in the asset, the date on which the interest vests;

(iiB)  the granting by a trust to a beneficiary of an equity instrument contemplated in section 8C, the time that equity instrument vests in that beneficiary as contemplated in that section;

[Subitem (iiB) inserted by section 107 of Act 25 of 2015 effective on 1 March 2016]

(iii)    a donation of an asset, the date of compliance with all legal requirements for a valid donation;

(iv)    the expropriation of an asset, the date on which the person receives the full compensation agreed to or finally determined by a competent tribunal or court;

(v)     the conversion of an asset, the date on which that asset is converted;

(vi)    the granting, renewal or extension of an option, the date on which the option is granted, renewed or extended;

(vii)   the exercise of an option, the date on which the option is exercised;

(viii)  the termination of an option granted by a company to a person to acquire a share, participatory interest or debenture of that company, the date on which that option terminates; or

(ix)    any other case, the date of change of ownership;

(b)     the extinction of an asset including by way of forfeiture, termination, redemption, cancellation, surrender, discharge, relinquishment, release, waiver, renunciation, expiry or abandonment, the date of the extinction of the asset;

(c)     the scrapping, loss or destruction of an asset is the date-

(i)      when the full compensation in respect of that scrapping, loss or destruction is received; or

(ii)     if no compensation is payable, the later of the date when the scrapping, loss or destruction is discovered or the date on which it is established that no compensation will be payable;

(d)     ……….

(e)     the distribution of an asset by a company to a holder of shares, is the date on which that asset is so distributed as contemplated in paragraph 75;

(f)      the decrease of a person’s interest in a company, trust or partnership as a result of a value shifting arrangement, is the date on which the value of that person’s interest decreases; or

(g)     the happening of an event contemplated in-

(i)      paragraph 12(2)(a), (b), (c), (d) or (e), 12(3) or 12(4), is the date immediately before the day that the event occurs; or

(ii)     paragraph 12(2)(f), is the date that that event occurs.

(2)     A person to whom an asset is disposed of is treated as having acquired that asset at the time of disposal of that asset as contemplated in subparagraph (1).

Paragraph 24 (Eighth Schedule) – Base cost of asset of a person who becomes a resident on or after valuation date

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24.     Base cost of asset of a person who becomes a resident on or after valuation date

 

(1)     The base cost of an asset, other than an asset situated in the Republic listed in paragraph 2(1)(b)(i) and (ii) or an asset held by a person if any amount received or accrued from the disposal of the asset would be taken into account for purposes of determining the net income as contemplated in section 9D of that person, acquired by a person before the date on which that person became a resident is the sum of the value of that asset determined in terms of subparagraphs (2) or (3) and the expenditure allowable in terms of paragraph 20 incurred on or after that date in respect of that asset.

 

(2)     Where an asset contemplated in paragraph 12(2) or (4) has been disposed of by a person on or after the date on which that person commenced to be a resident and the proceeds from that disposal and the expenditure allowable in terms of paragraph 20 incurred prior to that date (determined without regard to paragraph 12(2) or (4)) in respect of that asset are each lower than the market value of that asset as contemplated in paragraph 12(2) or (4), that person must be treated as having acquired that asset at a cost equal to the higher of-

 

(a)     the expenditure allowable in terms of paragraph 20 incurred in respect of that asset prior to that date; or


(b)     those proceeds less the expenditure allowable in terms of paragraph 20 incurred on or after that date in respect of that asset.

 

(3)     Where an asset contemplated in paragraph 12(2) or (4) has been disposed of by a person on or after the date on which that person commenced to be a resident and the proceeds from the disposal of that asset and the market value of that asset as contemplated in paragraph 12(2) or (4) are each lower than the expenditure allowable in terms of paragraph 20 incurred prior to that date (determined without regard to paragraph 12(2) or (4)) in respect of that asset, that person must be treated as having acquired that asset at a cost equal to the higher of-

 

(a)     that market value; or


(b)     those proceeds less the expenditure allowable in terms of paragraph 20 incurred on or after that date in respect of that asset.

 

(4)     The provisions of this paragraph do not apply in respect of any asset of a person who became a resident before 1 October 2001.