Category: PART VI – Proceeds

Paragraph 37F (Eighth Schedule) – Determination of taxable income derived by persons previously assessable under certain other laws

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37F.     Determination of taxable income derived by persons previously assessable under certain other laws

 

Where it is necessary for any rule provided in this Act as to the inclusion in the income of any taxpayer for any year or as to the deduction or set–off of any amount from or against his income for such year, that regard shall be had to anything that has been done or has occurred in or in relation to a previous year of assessment, anything that has in fact been done or has in fact occurred in or in relation to a year of assessment during which the taxpayer was assessable for taxation purposes in terms of any law of a former self–governing territory declared under section 26 of the repealed Self–governing Territories Constitution Act, 1971 (Act No. 21 of 1971), to be a self–governing territory or of the former Republic of Transkei, Bophuthatswana, Venda or Ciskei for any year of assessment, shall, subject to such adjustments as may in the circumstances be appropriate, for the purposes of applying such rule be taken into account.

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 43A (Eighth Schedule) – Dividends treated as proceeds on disposal of certain shares

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43A.    Dividends treated as proceeds on disposal of certain shares

(1)       For the purposes of this paragraph-

[Words preceding the definition of “exempt dividend” substituted by section 80 of Act 23 of 2018 effective on 17 January 2019]

Paragraph 43B (Eighth Schedule) – Base cost of assets of controlled foreign companies

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43B.   Base cost of assets of controlled foreign companies

 

Where the functional currency of a controlled foreign company –

 

(a)     was the currency of a country which-

 

(i)      abandoned its currency; and

 

(ii)     had an official rate of inflation of 100 per cent or more for the foreign tax year preceding the abandonment of the currency; and

 

(b)     the controlled foreign company adopted a new functional currency as a consequence of the abandonment contemplated in subparagraph (a)(i),

 

the controlled foreign company must, for the purposes of determining the base cost of an asset of the controlled foreign company, be deemed to have acquired the asset in that new currency-

 

(A)    on the first day of the foreign tax year of the controlled foreign company in which; and

 

(B)     for an amount equal to the market value of the asset on the date on which,

 

the new currency was adopted by the controlled foreign company.

Paragraph 38 (Eighth Schedule) – Disposal by way of donation, consideration not measurable in money and transactions between connected persons not at arm’s length price

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38.    Disposal by way of donation, consideration not measurable in money and transactions between connected persons not at an arm’s length price

(1)    Subject to subparagraph (2) and section 9HB, where a person disposed of an asset by means of a donation or for a consideration not measurable in money or to a person who is a connected person immediately prior to or immediately after that disposal in relation to that person for a consideration which does not reflect an arm’s length price-

[Sub­paragraph (1) (previously paragraph 38) amended by section 87(1)(a) of Act 60 of 2001, by section 81 of Act 74 of 2002, by section 114(1) of Act 22 of 2012 and by section 59(a) of Act 34 of 2019]

(a)     the person who disposed of that asset must be treated as having disposed of that asset for an amount received or accrued equal to the market value of that asset as at the date of that disposal; and

(b)     the person who acquired that asset must be treated as having acquired that asset at a cost equal to that market value, 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 87(1)(b) of Act 60 of 2001 and by section 59(b) of Act 34 of 2019]

(2)     Subparagraph (1) does not apply in respect of the disposal of-

(a)     a right contemplated in section 8A;

(b)     an asset in the circumstances contemplated in section 10(1)(nE);

(c)     a qualifying equity share contemplated in section 8B by an employer, associated institution or any other person by arrangement with the employer, as contemplated in paragraph 1 of the Seventh Schedule, to an employee; or

(d)     ……….

(e)     any asset in respect of which section 40CA applies;

[Item (e) substituted by section 134 of Act 31 of 2013 and amended by section 71 of Act 15 of 2016 effective on 1 March 2015, applies in respect of years of assessment commencing on or after that date]

(f)     any land from the date on which that land becomes declared land as defined in section 37D(1).

[Paragraph (f) added by section 71 of Act 15 of 2016 effective on 1 March 2015, applies in respect of years of assessment commencing on or after that date]

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 39 (Eighth Schedule) – Capital losses determined in respect of disposals to certain connected persons

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39.    Capital losses determined in respect of disposals to certain connected persons

(1)     A person must, when determining the aggregate capital gain or aggregate capital loss of that person, disregard any capital loss determined in respect of the disposal of an asset to any person-

(a)     who was a connected person in relation to that person immediately before that disposal; or

(b)     which is immediately after the disposal –

(i)      a member of the same group of companies as that person; or

(ii)     a trust with a beneficiary which is a member of the same group of companies as that person.

(2)     A person’s capital loss which is disregarded in terms of subparagraph (1) may be deducted from that person’s capital gains determined in respect of disposals of assets during that year or subsequent years to the same person to whom the disposal giving rise to that capital loss was made, if at the time of those subsequent disposals, that person is still a connected person in relation to that person.

(3)     For the purposes of subparagraph (1), 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)     Subparagraph (1) does not apply in respect of the disposal by a trust of any right, marketable security or equity instrument contemplated in section 8A or 8C to a beneficiary of that trust, if –

(a)     that right, marketable security or equity instrument is disposed of to that beneficiary –

(i)      by virtue of that beneficiary’s employment with an employer, directorship of a company or services rendered or to be rendered by that beneficiary as an employee to an employer: or

(ii)     as a result of the exercise, cession, release, conversion or exchange by that beneficiary of the right, marketable security or equity instrument contemplated in subitem (i); and

(b)     that trust is an associated institution as contemplated in paragraph 1 of the Seventh Schedule in relation to that employer or company.

(5)     For the purposes of subparagraph (1), where a company redeems its shares, the holder of those shares must be treated as having disposed of them to that company.

[Subparagraph (5) added by section 79 of Act 23 of 2018 effective on 17 Januaery 2019]

Paragraph 40 (Eighth Schedule) – Disposal to and from deceased estate

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40.    Disposal to and from deceased estate

 

(1)     A person who dies before 1 March 2016 must be treated as having disposed of his or her assets, other than-

[Words preceding item (a) substituted by section 112 of Act 25 of 2015 effective on 1 March 2016]

(a)     assets transferred to the surviving spouse of that deceased person as contemplated in section 9HB(2)(a);

[Item (a) substituted by section 60(a) of Act 34 of 2019]

(b)     ………..

(c)     a long-term insurance policy of the deceased which if the proceeds of the policy had been received by or accrued to the deceased, the capital gain or capital loss determined in respect of that disposal would be disregarded in terms of paragraph 55; or

(d)     an interest in a pension, pension preservation, provident, provident preservation or retirement annuity fund in the Republic or a fund, arrangement or instrument situated outside the Republic which provides benefits similar to a pension, pension preservation, provident, provident preservation or retirement annuity fund which if the proceeds thereof had been received by or accrued to the deceased, the capital gain or capital loss determined in respect of the disposal of the interest would have been disregarded in terms of paragraph 54

for an amount received or accrued equal to the market value of those assets at the date of that person’s death.

(1A)  If any asset of a deceased person is treated as having been disposed of as contemplated in subparagraph (1) and is transferred directly to –

(a)     the estate of the deceased person, the estate must be treated as having acquired that asset at a cost equal to the market value of that asset as at the date of death of that deceased person; or

(b)     an heir or legatee of the person, the heir or legatee must be treated as having acquired that asset at a cost equal to the market value of that asset as at the date of death of that deceased person,

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

(2)     Where an asset is disposed of by a deceased estate to an heir or legatee (other than the surviving spouse of the deceased person as contemplated in section 9HB(2)(a))-

(a)     the deceased estate must be treated as having disposed of that asset for proceeds equal to the base cost of the deceased estate in respect of that asset; and

(b)     the heir or legatee must be treated as having acquired that asset at a cost equal to the base cost of the deceased estate in respect of that asset, which cost must be treated as an amount of expenditure actually incurred for the purposes of paragraph 20(1)(a).

[Sub­paragraph (2) amended by section 82(c) of Act 74 of 2002, by section 50 of Act 20 of 2006, by section 79(1)(c) of Act 60 of 2008, by section 115(1) of Act 22 of 2012 and by section 60(b) of Act 34 of 2019]

(3)     For the purposes of this Schedule, the disposal of an asset by the deceased estate of a natural person shall be treated in the same manner as if that asset had been disposed of by that natural person.

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.