Category: PART V – Base cost

Paragraph 32 (Eighth Schedule) – Base cost of identical assets

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32.     Base cost of identical assets

 

(1)     This paragraph applies to assets which form part of a holding of identical assets.

 

(2)     For the purposes of this paragraph “identical assets” means a group of similar assets which-

 

(a)     if any one of them were disposed of, would realise the same amount regardless of which of them was so disposed of; and

 

(b)     are not able to be individually distinguished apart from any identifying numbers which they may bear.

 

(3)     Subject to subparagraphs (3A) and (3B), the base cost of identical assets must be determined by using one of the following methods-

 

(a)     specific identification; or

 

(b)     the first in first out method.

 

(3A)   The weighted average method of determining base cost of assets, as contemplated in subparagraph (4), may be used for identical assets that do not constitute assets contemplated in subparagraph (3B) and which-

 

(a)     from the date of acquisition to the date of disposal constituted assets contemplated in paragraph 31(1)(a), other than instruments contemplated in item (d);

 

(b)     constitute participatory interests –

 

(i)      contemplated in paragraph 31(1)(c), where the prices of these participatory interests or shares are regularly published in a national or international newspaper;

 

(ii)     in any portfolio comprised in any collective investment scheme managed or carried on by a company registered as a manager under section 42 of the Collective Investment Schemes Control Act for purposes of Parts IV an V of that Act; or

 

(iii)    in any arrangement or scheme contemplated in paragraph (e)(ii) of the definition of ‘company’ in section 1 of the Act, which is approved in terms of section 65 of the Collective Investment Schemes Control Act by the Registrar as defined in section 1 of the latter Act;

 

(c)     constitute coins made mainly from gold or platinum, where the prices of these coins are regularly published in a national or international newspaper; or

 

(d)     from the date of acquisition to the date of disposal constituted instruments as defined in section 24J that were listed on a recognised exchange and for which a price was quoted on that exchange,

 

and where a person uses the weighted average method for any identical asset contemplated in item (a), (b), (c) or (d), that method must be used for all identical assets, contemplated in that item, held by that person.

 

(3B)   The weighted average method of determining base cost of assets, as contemplated in subparagraph (4), must be used for identical assets that are, in terms of section 29A, allocated to all the policyholder funds of an insurer as defined in that section: Provided that this subparagraph must not apply to any asset-

 

(a)     that constitutes-

 

(i)      an instrument as defined in section 24J(1);

 

(ii)     an interest rate agreement as defined in section 24K(1);

 

(iii)    a contractual right or obligation the value of which is determined directly or indirectly with reference to-

 

(aa)    an instrument contemplated in subparagraph (i);

 

(bb)   an interest rate agreement contemplated in subparagraph (ii); or

 

(cc)    any specified rate of interest;

 

(iv)    trading stock; or

 

(v)     a policy of reinsurance; or

 

(b)     held by an insurer if that insurer is a Category III Financial Services Provider as defined in section 29B(1) and that asset is held by that insurer in its capacity as a Category III Financial Services Provider.

 

(4)     In applying the weighted average method of determining base cost-

 

(a)     the weighed average base cost, on valuation date, of identical assets acquired and not disposed of before valuation date is equal to the valuation date value of those identical assets, as contemplated in paragraph 28, or the market value of those identical assets, as contemplated in paragraph 29, divided by the number of those identical assets; and

 

(b)     the weighted average base cost, thereafter, of identical assets must be calculated by-

 

(i)      adding expenditure allowable in terms of paragraph 20 in respect of identical assets to the base cost of identical assets acquired and not disposed of before that expenditure was incurred; and


(ii)     dividing that amount by the number of identical assets acquired and not disposed of after that expenditure was incurred.

 

(5)     ……….

 

(6)     Once a person has adopted one of the methods specified in this paragraph in respect of a class of identical assets contemplated in subparagraph (3A), that method must be used until all those identical assets have been disposed of.

Paragraph 33 (Eighth Schedule) – Part-disposals

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33.     Part-disposals

 

(1)     Subject to subparagraphs (2), (3), (4) and (5), where part of an asset is disposed of-

 

(a)     the proportion of the expenditure attributable to the part disposed of is an amount which bears to the expenditure allowable in terms of paragraph 20 in respect of the entire asset the same proportion as the market value of the part disposed of bears to the market value of the entire asset immediately prior to that disposal; and

 

(b)     the market value on valuation date attributable to the part disposed of is an amount which bears to the market value adopted or determined in terms of paragraph 29(4) in respect of the entire asset the same proportion as the market value of the part disposed of bears to the market value of the entire asset immediately prior to that disposal.

 

(2)     Subject to subparagraph (4), where a part of the expenditure allowable in terms of paragraph 20 or the market value adopted or determined in terms of paragraph 29(4) in respect of an asset can be directly attributed to the part of the asset that is disposed of or retained then the apportionment contemplated in subparagraph (1) does not apply in respect of that part of that expenditure or market value as the case may be.

 

(3)     For the purposes of subparagraph (1) and (2) there is no part-disposal of an asset by a person in respect of-

 

(a)     the granting of an option by that person in respect of an asset;

 

(b)     the granting, variation or cession of a right of use or occupation of that asset by that person in respect of which no proceeds are received by or accrue to that person;

 

(c)     the improvement or enhancement of immovable properly which that person leases from a lessor; or

 

(d)     the replacement of part of that asset in repairing that asset.

 

(4)     Where proceeds are received by or accrue to a person in respect of the granting, variation or cession of a right of use or occupation of an asset by that person, the portion of the expenditure allowable in terms of paragraph 20 or market value adopted or determined in terms of paragraph 29(4) attributable to the part of the asset in respect of which those proceeds were received or accrued is an amount which bears to that expenditure or market value as the case may be of the entire asset the same proportion as those proceeds bear to the market value of the entire asset immediately prior to that disposal.

 

(5)     Where a person has adopted the 20 percent of proceeds method contemplated in paragraph 26(1)(b) in determining the valuation date value of a part of an asset that has been disposed of, that person must adopt that method in determining the valuation date value of any remaining part of that asset.

Paragraph 34 (Eighth Schedule) – Debt substitution

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34.     Debt substitution

Where a person reduces or discharges a debt owed by that person to a creditor by disposing of an asset to that creditor, that asset must be treated as having been acquired by the creditor at a cost equal to the market value of that asset at the time of that disposal, which cost must be treated as an amount of expenditure actually incurred for the purposes of paragraph 20(1)(a).

[Paragraph 34 substituted by section 85(1) of Act 60 of 2001 and by section 49 of Act 23 of 2020]

Paragraph 20 (Eighth Schedule) – Base cost of asset

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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]

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 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 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 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.