QUESTION 1 (CAPITAL GAINS TAX) Ms. Kru, a South African resident worked for
O Insure (Pty) Ltd (“O Insure”) as a specialist for 15 years. As a result of the Covid19 pandemic that hit the world, O Insure decided to retrench her team including Ms.
Kru. She was given a severance package of R5...
, QUESTION 1: Capital Gains Tax Principles
In understanding Capital Gains Tax (CGT) principles applicable to Ms. Kru and the
transactions described, the following key principles should be highlighted:
CGT Imposition:
In South Africa, CGT is imposed under the Income Tax Act (Act 58 of 1962),
specifically in terms of the Eighth Schedule. A capital gain arises when an asset is
disposed of, and the proceeds exceed the base cost of that asset.
Asset Definition:
For CGT purposes, an asset includes property, shares, and even financial
instruments. The residential house and holiday home are considered capital assets.
Vehicles like the Range Rover and BVM X would also be considered capital assets,
whereas Kruger Rands, being a form of currency and potentially an investment, may
be categorized differently depending on the context of holding.
Base Cost:
The base cost generally includes the acquisition cost of the asset plus any costs
incurred to enhance the asset value, such as renovation expenses (in this case, the
costs of fixing the swimming pool and replacing taps may improve the asset but must
be thoroughly checked against capital improvements criteria). However, the cost of
selling the house (agent fees) can typically be subtracted from the sale proceeds.
Disposal of Assets:
Disposal events trigger CGT liability. Sale of properties, vehicles, and any other
assets constitutes disposals. Each transaction with a capital nature should be
assessed individually.
Exclusion Amounts:
Individuals are entitled to a primary annual exclusion (currently R40,000 for
individuals) on capital gains realized in a tax year. This means the first R40,000 of
net capital gains is not taxed.
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