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 65B (Eighth Schedule) – Disposal by recreational club

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65B.    Disposal by recreational club

 

(1)     A recreational club approved in terms of section 30A may elect that this paragraph applies in respect of the disposal of an asset the whole of which was used mainly for purposes of providing social and recreational facilities and amenities for members of that club, where –

 

(a)     proceeds accrue to that club in respect of that disposal;


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


(c)


(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 replacement assets all of which will be used mainly for such purposes;

 

(ii)     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

 

(iii)    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 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

 

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

 

(2)     Where a club 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 (3), (4) and (5) be disregarded when determining that club’s aggregate capital gain or aggregate capital loss.

 

(3)     Where a club acquires more than one replacement asset as contemplated in subparagraph (1), that club 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 club 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 club must treat that portion of disregarded capital gain as a capital gain from the disposal of that replacement asset in that year of assessment.

 

(5)     Where a club fails to conclude a contract or fails to bring any replacement asset into use within the period prescribed in subparagraph (1)(c)(ii) and (iii), that club 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 club’s aggregate capital gain or aggregate capital loss.

Paragraph 39A (Eighth Schedule) – Disposal of asset for unaccrued amounts of proceeds

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39A.    Disposal of asset for unaccrued amounts of proceeds

 

(1)     Where a person during any year of assessment disposes of an asset and all the proceeds from the disposal of that asset will not accrue to that person during that year, that person must, when determining the aggregate capital gain or aggregate capital loss for that year or any subsequent year of assessment, disregard any capital loss determined in respect of that disposal.

 

(2)     A person’s capital loss which is disregarded during any year of assessment in terms of subparagraph (1) which has not otherwise been allowed as a deduction may be deducted from that person’s capital gains determined in any subsequent year in respect of the disposal of the asset contemplated in subparagraph (1).

 

(3)     If during any year of assessment a person shows that no further proceeds will accrue to that person from the disposal contemplated in subparagraph (1), so much of the capital loss contemplated in that subparagraph as has not been deducted from any subsequent capital gains as contemplated in subparagraph (2), may be taken into account in determining that person’s aggregate capital gain or aggregate capital loss for that year of assessment.

Paragraph 43 (Eighth Schedule) – Assets disposed of or acquired in foreign currency

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43.     Assets disposed of or acquired in foreign currency

(1)     Where, during any year of assessment, a person that is a natural person or a trust that is not carrying on a trade disposes of an asset for proceeds in a foreign currency after having incurred expenditure in respect of that asset in the same currency, that person must determine the capital gain or capital loss on the disposal in that currency and that capital gain or capital loss must be translated to the local currency by applying the average exchange rate for the year of assessment in which that asset was disposed of or by applying the spot rate on the date of disposal of that asset.

(1A)   Where, during any year of assessment, a person disposes of an asset (other than a disposal contemplated in subparagraph (1)) for proceeds in a foreign currency or after having incurred expenditure in respect of that asset in a foreign currency, that person must, for the purposes of determining the capital gain or capital loss on the disposal of that asset, translate-

(a)     the proceeds into the local currency at the average exchange rate for the year of assessment in which that asset was disposed of or at the spot rate on the date of disposal of that asset; and

(b)     the expenditure incurred in respect of that asset into the local currency at the average exchange rate for the year of assessment during which that expenditure was incurred or at the spot rate on the date on which that expenditure was incurred.

Provided that the amount of any capital gain or capital loss determined under this subparagraph in respect of an exchange item contemplated in section 24I must be taken into account in terms of this paragraph only to the extent to which it exceeds the amounts determined in respect of that exchange item under section 24I.

[Sub­paragraph (1A) inserted by section 117(1)(b) of Act 22 of 2012, substituted by section 136(1)(b) of Act 31 of 2013 and amended by section 61(a) of Act 34 of 2019]

(2)       ………..

(3)     ……….

(4)     ……….

(5)     Where a person is treated as having derived an amount of proceeds from the disposal of any asset and the expenditure incurred to acquire that asset is determined in any foreign currency-

(a)     the amount of those proceeds must be treated as being denominated in the currency of the expenditure incurred to acquire that asset; and

(b)     the expenditure incurred by a person acquiring that asset must for purposes of sections 9HA and 25 and paragraph s 12, 38 and 40 be treated as being denominated in that currency.

[Item (b) substituted by section 114(a) of Act 25 of 2015, by section 72(1) of Act 15 of 2016 and by section 61(b) of Act 34 of 2019]

[Paragraph (5) amended by section 101 of Act 45 of 2003 and substituted by section 88 of Act 43 of 2014 effective on 1 January 2015]

(6)     Where a person has adopted the market value as the valuation date value of any asset contemplated in this paragraph, that market value must be determined in the currency of the expenditure incurred to acquire that asset and for purposes of the application of subparagraph (1A) be translated to the local currency by applying the spot rate on valuation date.

[Subparagraph (6) amended by section 75 of Act 31 of 2005, substituted by section 136 of Act 31 of 2013, section 88 of Act 43 of 2014 and section 114 of Act 25 of 2015 effective on 8 January 2016]

(6A)…

[Sub­paragraph (6A) inserted by section 117(1)(d) of Act 22 of 2012, amended by section 136(1)(f)­(i) of Act 31 of 2013 and deleted by section 61(c) of Act 34 of 2019]

Paragraph 45 (Eighth Schedule) – General principle

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45.    General principle

(1)     Subject to subparagraphs (2), (3) and (4), a natural person or a special trust must, when determining an aggregate capital gain or aggregate capital loss, disregard –

(a)     so much of a capital gain or capital loss determined in respect of the disposal of the primary residence of that person or that special trust as does not exceed R2 million; or

(b)     a capital gain determined in respect of the disposal of the primary residence of that person or that special trust if the proceeds from the disposal of that primary residence do not exceed R2 million.

(1A)

(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 amount of the capital gain or capital loss determined in terms of subparagraph (1)(a) or the amount of the capital gain determined in terms of subparagraph (1)(b) 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 (1A) inserted by section 81 of Act 23 of 2018 effective on 17 January 2019]

(2)     Where more than one natural person or special trust jointly holds an interest in a primary residence at the same time, the amount to be disregarded in terms of subparagraph (1) must be apportioned in relation to each interest so held.

(3)     Subject to paragraph 48, only one residence may be a primary residence of a person or a special trust for any period during which that person or special trust held an interest in more than one residence.

(4)     Subparagraph (1)(b) does not apply where a natural person or a special trust disposes of an interest in a residence which is or was a primary residence, and that person or a beneficiary of that special trust or a spouse of that person or beneficiary –

(a)     was not ordinarily resident in that residence throughout the period commencing on or after the valuation date during which that person or special trust held that interest; or

(b)     used that residence or a part thereof for the purposes of carrying on a trade for any portion of the period commencing on or after the valuation date during which that person or special trust held that interest.

“Active business asset” definition of paragraph 57 of Eighth Schedule

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(1)     For purposes of this paragraph,

 

“active business asset” means –

 

(a)     an asset which constitutes immovable property, to the extent that it is used for business purposes; or

 

(b)     an asset (other than immovable property) used or held wholly and exclusively for business purposes, but excludes –

 

(i)      a financial instrument; and

 

(ii)     an asset held in the course of, carrying on a business mainly to derive any income in the form of an annuity, rental income, a foreign exchange gain or royalty or any income of a similar nature;

Paragraph 66 (Eighth Schedule) – Reinvestment in replacement assets

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66.  Reinvestment in replacement assets

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

(a)     that asset qualified for a deduction or allowance in terms of section 11(e), 11D(2), 12B, 12BA, 12C, 12DA, 12E, 14, 14bis or 37B;

[Item (a) substituted by section 67(1)(a) of Act 8 of 2007, by section 79(a) of Act 35 of 2007 and by section 43(1)(a) of Act 17 of 2023 effective on 1 March, 2023 and applicable in respect of assets brought into use on or after that date]

(b)     the proceeds received or accrued from that disposal are equal to or exceed the base cost of that asset;

(c)     an amount at least equal to the receipts and accruals from that disposal has been or will be expended to acquire one or more assets (hereinafter referred to as the “replacement asset or assets”), all of which will qualify for a capital deduction or allowance in terms of section 11(e), 11D(2), 12B, 12BA, 12C, 12DA, 12E or 37B;

[Item (c) substituted by section 67(1)(b) of Act 8 of 2007, by section 79(b) of Act 35 of 2007 and by section 43(1)(b) of Act 17 of 2023 effective on 1 March, 2023 and applicable in respect of assets brought into use on or after that date]

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

[Item (d) substituted by section 125 of Act 22 of 2012 and section 78 of Act 15 of 2016 effective on 1 January 2012, applies in respect of disposals made during years of assessment commencing on or after that date]

(e)     the contracts for the acquisition of a replacement asset or assets are or will be concluded within 12 months after the asset contemplated in item (a) is disposed of and are all brought into use within three years after that disposal: Provided that the Commissioner may, on application by the taxpayer, decide to extend the period by which the contracts must be concluded or assets 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 120 of Act 25 of 2015 effective on 8 January 2016]

(f)      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), (6) and (7), 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), (5) and (6), 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)     A person must treat as a capital gain for a year of assessment so much of the disregarded capital gain contemplated in subparagraph (2), as bears to the total amount of that disregarded capital 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 terms of section 11(e), 11D(2), 12B, 12BA, 12C, 12DA, 12E or 37B in respect of the replacement asset bears to the total amount of the deduction or allowance in terms of that section (determined with reference to the cost of value of that asset at the time of acquisition thereof) which is allowable for all years of assessment in respect of that replacement asset.

[Subparagraph (4) substituted by section 67(1)(c) of Act 8 of 2007, by section 79(c) of Act 35 of 2007 and by section 43(1)(c) of Act 17 of 2023 effective on 1 March, 2023 and applicable in respect of assets brought into use on or after that date]

(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 as contemplated in subparagraph (3), has not been treated as a capital gain in terms of subparagraph (4) or (6), 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 during any year of assessment a person ceases to use a replacement asset for the purposes of that person’s trade and any portion of the disregarded capital gain which is apportioned to that asset as contemplated in subparagraph (3), has not been treated as a capital gain in terms of subparagraph (4) or (5), that person must treat that portion of disregarded capital gain as a capital gain for that year of assessment.

(7)     Where a person fails to conclude a contract or to bring any replacement asset into use within the period prescribed in subparagraph (1)(e), 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 that 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.

Paragraph 46 (Eighth Schedule) – Size of residential property qualifying for exclusion

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46.    Size of residential property qualifying for exclusion

 

Where a primary residence and the land on which it is situated is disposed of by a person, the provisions of paragraph 45 apply in respect of so much of that land, including unconsolidated adjacent land, as-

 

(a)     does not exceed two hectares;

 

(b)     is used mainly for domestic or private purposes together with that residence; and

 

(c)     is disposed of at the same time and to the same person as that residence.