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 56 (Eighth Schedule) – Disposal by creditor of debt owed by connected person

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56.    Disposal by creditor of debt owed by connected person

(1)     Where a creditor disposes of a debt owed by a debtor, who is a connected person in relation to that creditor, that creditor must disregard any capital loss determined in consequence of that disposal.

(2)     Despite paragraph 39, subparagraph (1) does not apply in respect of any capital loss determined in consequence of the disposal by a creditor of a debt owed by a debtor, to the extent that the amount of that debt so disposed of represents-

(a)       an amount-

(i)     which is applied to reduce the expenditure in respect of an asset of the debtor in terms of section 19(3) or paragraph 12A(3); or

(ii)     which must be taken into account by the debtor as a capital gain in terms of paragraph 12A(4);

[Item (a) substituted by section 119(1)(c) of Act 22 of 2012, amended by section 138(1)(a) of Act 31 of 2013 and substituted by section 63(1) 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]

 

(b)     an amount which the creditor proves must be or was included in the gross income of any acquirer of that debt;

 

(c)     an amount that must be or was included in the gross income or income of the debtor or taken into account in the determination of the balance of assessed loss of the debtor in terms of section 20(1)(a); or

 

(d)     a capital gain which the creditor proves must be or was included in the determination of the aggregate capital gain or aggregate capital loss of any acquirer of the debt.

Paragraph 37G (Eighth Schedule) – Determination of taxable income derived from small business undertakings

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37G.     Determination of taxable income derived from small business undertakings

 

(1)     The Minister of Finance may make regulations to facilitate compliance with the provisions of this Act by natural persons who carry on business through small business undertakings, whether as sole proprietors or in partnership with other natural persons.

 

(2)     A regulation made under subsection (1) may –

 

(a)     prescribe what shall constitute a small business undertaking, having regard to –

 

(i)      the nature of the undertaking;

 

(ii)     the turnover, taxable income or profit of the undertaking;

 

(iii)    the number of persons employed in the undertaking;

 

(iv)    the nature and extent of other income derived by the proprietor or partners; and

 

(v)     any other feature which, in the opinion of the said Minister, indicates that an undertaking should be regarded as a small business undertaking;

 

(b)     provide for the variation of any provision of this Act relating to the determination of the taxable income derived from a small business undertaking, including –

 

(i)      the determination of taxable income having regard only to amounts actually received or expended;

 

(ii)     any variation in the manner in which the values of trading stock are taken into account;

 

(iii)    the manner in which expenditure of a capital nature incurred is to be treated; and

 

(iv)    any other provision which, save in so far as the timing of the receipt or accrual of income or the incurral of expenditure is concerned, will not result in a material variation in the determination of the taxable income derived by the undertaking over a period of time;

 

(c)     provide for the exemption from, or extension of time limits in, any provision of this Act relating to the preparation and submission of documents, accounts, returns or payments;

 

(d)     make such other provision as in the opinion of the said Minister will facilitate the carrying on of small business undertakings.

Paragraph 41 (Eighth Schedule) – Tax payable by heir of a deceased estate

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41.    Tax payable by heir of a deceased estate

(1)       Where a person dies before 1 March 2016-

[Words preceding item (a) substituted by section 113 of Act 25 of 2015 effective on 1 March 2016]

(a)     the tax determined in terms of this Act, which relates to the taxable capital gain of a deceased person, exceeds 50 per cent of the net value of the estate determined for purposes of the Estate Duty Act, before taking into account the amount of that tax so determined; and

[Item (a) substituted by section 83 of Act 74 of 2002 and section 87 of Act 43 of 2014 effective on 20 January 2015]

(b)     the executor of the estate is required to dispose of any asset of the estate for purposes of paying the amount of that tax, any heir or legatee of the estate, who would have been entitled to that asset contemplated in item (b), had there been no liability for tax, may elect that that asset be distributed to that heir or legatee upon the condition that the amount of tax which exceeds 50 per cent of that net value be paid by him or her within a period of three years after the date that the executor obtained permission to distribute the assets of the estate, as contemplated in section 35(12) of the Administration of Estates Act, 1965 (Act No. 66 of 1965).

(2)     Any amount of tax payable by an heir as contemplated in subparagraph (1), becomes a debt due to the state and must be treated as an amount of tax chargeable in terms of this Act which is due by that person.

“Primary residence” definition of paragraph 44 of Eighth Schedule

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“primary residence” means a residence-

 

(a)     in which a natural person or a special trust holds an interest; and

 

(b)     which that person or a beneficiary of that special trust or a spouse of that person or beneficiary-

 

(i)      ordinarily resides or resided in as his or her main residence; and

 

(ii)     uses or used mainly for domestic purposes;

Paragraph 65 (Eighth Schedule) – Involuntary disposal

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65.     Involuntary disposal

(1)     A person may elect that this paragraph applies in respect of the disposal of an asset (other than a financial instrument), where-

(a)     that asset is disposed of by way of operation of law, theft or destruction;

(b)     proceeds accrue to that person by way of compensation in respect of that disposal;

(c)     those proceeds are equal to or exceed the base cost of that asset;

(d)

 

(i)      an amount at least equal to the receipts and accruals from that disposal has been or will be expended to acquire one or more asset (hereinafter referred to as the ‘replacement asset or assets’);

(ii)     all the replacement assets constitute assets contemplated in section 9(2)(j) or (k);

[Subitem (ii) substituted by section 124(1)(a) of Act 22 of 2012, section 124(1)(b) of Act 22 of 2012 and section 119 of Act 25 of 2015 effective on 1 January 2012]

(iii)    the contracts for the acquisition of the replacement asset or assets have all been or will be concluded within 12 months after the date of the disposal of that asset; and

(iv)    the replacement asset or assets will all be brought into use within three years of the disposal of that asset: Provided that the Commissioner may, on application by the taxpayer, decice to extend the period within which the contract must be concluded or asset brought into use by no more than six months if all reasonable steps were taken to conclude those contracts or bring those assets into use; and

[Proviso substituted by section 119 of Act 25 of 2015 effective on 8 January 2016]

(e)     that asset is not deemed to have been disposed of and to have been reacquired by that person.

(2)     Where a person has elected in terms of subparagraph (1) that this paragraph must apply in respect of the disposal of an asset, any capital gain determined in respect of that disposal must, subject to subparagraphs (4), (5) and (6) be disregarded when determining that person’s aggregate capital gain or aggregate capital loss.

(3)     Where a person acquires more than one replacement asset as contemplated in subparagraph (1), that person must, in applying subparagraphs (4) and (5), apportion the capital gain derived from the disposal of that asset to each replacement asset in the same ratio as the receipts and accruals from that disposal respectively expended in acquiring each of those replacement assets bear to the total amount of those receipts and accruals expended in acquiring all those replacement assets.

(4)     Where a replacement asset contemplated in subparagraph (1) constitutes a depreciable asset, the person must treat as a capital gain for a year of assessment, so much of the disregarded capital gain contemplated in subparagraph (3), as bears to the total amount of that disregarded gain apportioned to that replacement asset as contemplated in subparagraph (3) the same ratio as the amount of any deduction or allowance allowed in that year in respect of the replacement asset bears to the total amount of the deduction or allowance (determined with reference to the cost or value of that asset at the time of acquisition thereof) which is allowable for all years of assessment in respect of that replacement asset.

 

(5)     Where a person during any year of assessment disposes of a replacement asset and any portion of the disregarded capital gain which is apportioned to that asset, has not otherwise been treated as a capital gain in terms of this paragraph, that person must treat that portion of disregarded capital gain as a capital gain from the disposal of that replacement asset in that year of assessment.

(6)     Where a person fails to conclude a contract or fails to bring any replacement asset into use within the period prescribed in subparagraph (1)(d)(iii) or (iv), subparagraph (2) shall not apply and that person must-

(a)     treat the capital gain contemplated in subparagraph (2) as a capital gain on the date on which the relevant period ends;

(b)     determine interest at the prescribed rate on that capital gain from the date of that disposal to the date contemplated in item (a); and

(c)     treat that interest as a capital gain on the date contemplated in item (a) when determining that person’s aggregate capital gain or aggregate capital loss.

(7)     Where a replacement asset or assets constitute personal use assets, the provisions of this paragraph shall not apply.

Paragraph 42 (Eighth Schedule) – Short-term disposals and acquisitions of identical financial instruments

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42.    Short-term disposals and acquisitions of identical financial instruments

(1)     Where a capital loss is determined in respect of the disposal by a person of a financial instrument, other than a disposal contemplated in section 29B, and within a period beginning 45 days before the date of disposal and ending 45 days after that date, that person or a connected person in relation to that person, subject to subparagraph (3), acquires or has entered into a contract to acquire a financial instrument of the same kind and of the same or equivalent quality-

(a)     the person who disposed of the financial instrument must be treated as having disposed thereof for proceeds equal to the base cost thereof; and

(b)     the person who acquired the financial instrument of the same kind and of the same or equivalent quality must be treated as having acquired that financial instrument at a cost equal to the total of –

(i)      any amount allowable in terms of paragraph 20; and

(ii)     the amount of any capital loss which would have arisen in the hands of the person who disposed of the asset, were it not for the operation of item (a).

which cost must be treated as an amount of expenditure actually incurred for the purposes of paragraph 20(1)(a).

[Item (b) substituted by section 90(1)(a) of Act 60 of 2001 and amended by section 74 of Act 35 of 2007, by section 55 of Act 3 of 2008 and by section 50 of Act 23 of 2020]

(2)     For the purposes of subparagraph (1), there must not be taken into account in determining the period of 91 days any days in which the person disposing of the financial instrument-

(a)     has an option to sell, is under a contractual obligation to sell or has made (and not closed) a short sale of a financial instrument of the same kind and of the same or equivalent quality;

(b)     is the grantor of an option to buy a financial instrument of the same kind and of the same or equivalent quality; or

(c)     has otherwise diminished risk of loss in respect of that financial instrument by holding one or more contrary positions with respect to a financial instrument of the same kind and of the same or equivalent quality.

(3)     For the purposes of this paragraph, a connected person in relation to-

(a)     a natural person does not include a relative of that person other than a parent, child, stepchild, brother, sister, grandchild or grandparent of that person; or

(b)     a fund of an insurer contemplated in section 29A does not include another such fund of that insurer in respect of the disposal of an asset by such fund to another such fund.

(4)     This paragraph must not apply to any asset-

(a)     in respect of which the weighted average method of determining base cost of assets, as contemplated in paragraph 32(4), is used; and

(b)     if that asset is, in terms of section 29B, allocated to any policyholder fund of an insurer as defined in that section.

Sub-paragraphs 2, 3, 4, 5 and 6 of paragraph 57 of Eighth Schedule

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(2)     Subject to subparagraphs (3), (4) and (5), a natural person must, when determining an aggregate capital gain or aggregate capital loss, disregard a capital gain determined in respect of the disposal of-

(a)     an active business asset of a small business owned by that natural person as a sole proprietor; or

(b)     an interest in each of the active business assets of a business, which qualifies as a small business, owned by a partnership, upon that natural person’s withdrawal from that partnership to the extent of his or her interest in that partnership; or

(c)     an entire direct interest in a company (which consists of at least 10 per cent of the equity of that company), to the extent that the interest relates to active business assets of the business, which qualifies as a small business, of that company,

if that person at the time of that disposal held for his or her own benefit that active business asset, interest in the partnership, or interest in the company (as the case may be) for a continuous period of at least five years prior to that disposal and was substantially involved in the operations of the business of that small business during that period, and-

(i)      has attained the age of 55 years; or

(ii)     the disposal is in consequence of ill-health, other infirmity, superannuation or death.

(3)     The sum of the amounts to be disregarded by a natural person as contemplated in subparagraph (2) may not exceed R1,8 million during that natural person’s lifetime.

(4)     A natural person must realise all capital gains qualifying in terms of subparagraph (2) within a period of 24 months commencing on the date of the first disposal contemplated in subparagraph (2).

(5)     Where a natural person operates more than one small business either by way of a sole proprietorship, a partnership interest or a direct interest in the equity of a company consisting of at least 10 per cent, then he or she may subject to subparagraphs (4) and (6), include every such small business in the determination of the amount to be disregarded in terms of subparagraph (2).

(6)     The provisions of this paragraph do not apply where a person owns more than one business either by way of a sole proprietorship, apartnership interest or a direct interest in the equity of a company consisting of at least 10 per cent, and the total market value of all assets in respect of all those businesses exceeds R10 million.

(7)

(a)     The Minister may announce in the national annual budget contemplated in section 27(1) of the Public Finance Management Act, that, with effect from a date or dates mentioned in that announcement, the market value of all assets referred to in the definition of ‘small business’ in subparagraph (1), the sum of the amounts referred to in subparagraph (3) or the total market value of all assets referred to in subparagraph (6) will be altered to the extent mentioned in the announcement.

(b)     If the Minister makes an announcement of an alteration contemplated in paragraph (a), that alteration comes into effect on the date or dates determined by the Minister in that announcement and continues to apply for a period of 12 months from that date or those dates subject to Parliament passing legislation giving effect to that announcement within that period of 12 months.

[Subparagraph (7) added by section 83 of Act 23 of 2018 effective on 17 January 2019]