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.