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Income Tax Act, 1962 (Act 58 of 1962)

Schedules

Eighth Schedule

Determination of Taxable Capital Gains and Assessed Capital Losses

Part V - Base Cost

 

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) amended by section 108(1)(a) of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015]

(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, if that improvement or enhancement is still reflected in the state or nature of that asset at the time of its disposal;
(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);

[Paragraph (g) amended by section 130(a) of Act No. 31 of 2013]

(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 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
(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.

[Subparagraph (1)(h)(iii) amended by section 108(1)(b) of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015]

(iv)        a value shifting arrangement, an amount determined in accordance with paragraph 23;

(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 (iv) amended by section 84 of Act No. 43 of 2014]

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,

which must for the purposes of this Part be treated as expenditure incurred in respect of that asset.

 

(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 or raising fees;
(b) expenditure on repairs, maintenance, protection, insurance, rates and taxes, or similar expenditure, and
(c) the valuation date value of any option or right to acquire any marketable security contemplated in section 8(A)(1).

other than borrowing costs and expenditure contemplated in subparagraph (1)(g).

 

(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 I terms of section 9C(5),

before the inclusion of any taxable capital gain;

(b) has for any reason been reduced or recovered or become recoverable 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 taken into account in respect of trading stock as contemplated in section 19; or
(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.

[Proviso deleted by the Taxation Laws Amendment Act, 2012 (Act No. 22 of 2012)].

 

(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) inserted by section 108(1)(c) of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015]

 

 

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 and paid in respect of that immovable property for the purposes of this Part.

 

(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 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, any 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).

 

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.

 

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—

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.

 

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—

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 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.

 

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 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) 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) 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) are each lower than the expenditure allowable in terms of paragraph 20 incurred prior to that date determined without regard to paragraph 12(2) 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.

 

25.        Determination of base cost of pre-valuation date assets

(1) The base cost of a pre-valuation date asset (other than an identical asset in respect of which paragraph 32(3A) has been applied), is the sum of the valuation date value of that asset, as determined in terms of paragraph 26, 27 or 28 and the expenditure allowable in terms of paragraph 20 incurred on or after the valuation date in respect of that asset.

 

(2) If a person has determined the base cost as contemplated in subparagraph (1) of a pre-valuation date asset which was disposed of during any prior year of assessment and in the current year of assessment—
(a) any amount of proceeds is received or accrued in respect of that disposal which has not been taken into account in any prior year in determining the capital gain or capital loss in respect of that disposal;
(b) any amount of proceeds which was taken into account in determining the capital gain or capital loss in respect of that disposal has become irrecoverable, or has become repayable or that person is no longer entitled to those proceeds as a result of the cancellation, termination or variation of any agreement or due to the prescription or waiver of a claim or a release from an obligation or any other event during the current year;
(c) any amount of expenditure is incurred which forms part of the base cost of that asset which has not been taken into account in any prior year in determining the capital gain or loss in respect of that disposal; or
(d) any amount of base cost of that asset that has been taken into account in any prior year in determining the capital gain or capital loss in respect of that disposal, has been recovered or recouped,

that person must redetermine the base cost of that asset in terms of subparagraph (1) and the capital gain or capital loss from the disposal of that asset, having regard to the full amount of the proceeds and base cost so re-determined.

 

(3) The amount of capital gain or capital loss redetermined in the current year of assessment in terms of subparagraph (2), must be taken into account in determining any capital gain or capital loss from that disposal in that current year, as contemplated in paragraph 3(b)(iii) or 4(b)(iii).

 

26.        Valuation date value where proceeds exceed expenditure or where expenditure in respect of an asset cannot be determined

(1) Where the proceeds from the disposal of a pre-valuation date asset (other than an asset contemplated in paragraph 28 or in respect of which paragraph 32(3A) has been applied) exceed the expenditure allowable in terms of paragraph 20 incurred before, on and after the valuation date in respect of that asset, the person who disposed of that asset must, subject to subparagraph (3), adopt any of the following as the valuation date value of that asset —
(a) the market value of the asset on the valuation date as contemplated in paragraph 29;
(b) 20 per cent of the proceeds from disposal of the asset, after deducting from those proceeds an amount equal to the expenditure allowable in terms of paragraph 20 incurred on or after the valuation date; or
(c) the time-apportionment base cost of the asset as contemplated in paragraph 30.

 

(2) Where the expenditure incurred before valuation date in respect of a pre-valuation date asset cannot be determined by the person who disposed of that asset or the Commissioner, that person must adopt any of the following as the valuation date value of that asset—
(a) the market value of the asset on the valuation date as contemplated in paragraph 29; or
(b) 20 per cent of the proceeds from disposal of the asset, after deducting from those proceeds an amount equal to the expenditure allowable in terms of paragraph 20 incurred on or after the valuation date.

 

(3) Where a person has adopted the market value as the valuation date value of an asset, as contemplated in subparagraph (1)(a), and the proceeds from the disposal of that asset do not exceed that market value, that person must substitute as the valuation date value of that asset, those proceeds less the expenditure allowable in terms of paragraph 20 incurred on or after the valuation date in respect of that asset.

 

27.        Valuation date value where proceeds do not exceed expenditure

(1) Subject to subparagraph (2), where the proceeds from the disposal of a pre-valuation date asset do not exceed the expenditure allowable in terms of paragraph 20 incurred before, on and after the valuation date in respect of that asset, the valuation date value of that asset must be determined in terms of this paragraph.

 

(2) This paragraph does not apply in respect of any asset contemplated in paragraph 28 or in respect of which paragraph 32(3A) has been applied.

 

(3) Where a person has determined the market value of an asset on the valuation date, as contemplated in paragraph 29, or the market value of an asset has been published in terms of that paragraph, and—

(a)        the expenditure allowable in terms of paragraph 20 incurred before the valuation date in respect of that asset—

(i)        is equal to or exceeds the proceeds from the disposal of that asset; and

(ii)        exceeds the market value of that asset on valuation date,

the valuation date value of that asset must be the higher of—

(aa) that market value; or
(bb) those proceeds less the expenditure allowable in terms of paragraph 20 incurred on or after the valuation date in respect of that asset; or

(b)        the provisions of item (a) do not apply, the valuation date value of that asset must be the lower of—

(i)        the market value; or

(ii)        the time-apportionment base cost of that asset as contemplated in paragraph 30.

 

(4) Where the provisions of subparagraph (3) do not apply, the valuation date value of that asset, contemplated in subparagraph (1), is the time-apportionment base cost of that asset, as contemplated in paragraph 30.

 

28.        Valuation date value of an instrument

(1)        Despite paragraph 29, the valuation date value of an instrument as defined in section 24J must be—

(a) the adjusted initial amount as determined in terms of that section on valuation date; or
(b) the price which could have been obtained upon a sale of that instrument between a willing buyer and a willing seller dealing at arm’s length in an open market—
(i) in the case of an instrument which is listed on a recognised exchange, on the last trading day before valuation date; or
(ii) in any other case, on valuation date;

 

(2) Where a person has adopted the adjusted initial amount as the valuation date value of an instrument (other than an instrument listed on a recognised exchange), as contemplated in subparagraph (1)(a), and the proceeds from the disposal of that instrument are less than that adjusted initial amount, the valuation date value of that instrument must be the time-apportionment base cost of that instrument, as contemplated in paragraph 30.

 

29.        Market value on valuation date

(1)        The market value on the valuation date of—

(a) a financial instrument listed on a recognised exchange and for which a price was quoted on that exchange both before and after the valuation date is, subject to subparagraphs (2) and 2A, in the case of a financial instrument listed on an exchange—
(i) in the Republic, the price published by the Commissioner in the Gazette, which is the aggregate value of all transactions in that financial instrument on that recognised exchange during the five business days preceding the valuation date, divided by the total quantity of that financial instrument traded during the same period; and
(ii) outside the Republic and which is not listed on any exchange in the Republic, the ruling price in respect of that financial instrument on that recognised exchange on the last business day before valuation date;
(b) an asset which is not listed on a recognised exchange and which constitutes a right of a unit holder or holder of a participatory interest, as the case may be, in—
(i) any company contemplated in paragraph (e)(i) of the definition of ‘company’ in section 1 of the Act, or any unit portfolio comprised in any unit trust scheme in property shares carried on in the Republic, the price published by the Commissioner in the Gazette, which is the average of the price at which a unit could be sold to the management company of the scheme for the last five trading days before valuation date; or
(ii) any arrangement or scheme contemplated in paragraph (e)(ii) of the definition of ‘company’, the last price published before valuation date at which a participatory interest could be sold to the management company of the scheme or where there is not a management company the price which could have been obtained upon a sale of the asset between a willing buyer and a willing seller dealing at arm’s length in an open market on valuation date;
(c) any other asset, the market value determined in terms of paragraph 31 on valuation date.

 

(2)        Where—

(a) a person holds a controlling interest in a company the shares of which are listed on a recognised exchange, and that entire controlling interest is disposed of to another person (who is not a connected person in relation to that person), who acquires that entire controlling interest; and
(b) the price per share for which that controlling interest has been so disposed of deviates from the ruling price in respect of that share on the date prior to the announcement of the transaction,

the valuation date market value of that share so disposed of, as determined in terms of subparagraph (1)(a), must be increased or decreased, as the case may be, by an amount which bears to that market value the same ratio as the amount of the deviation bears to that ruling price.

 

(2A)        Where—

(i) a financial instrument listed on an exchange in the Republic was not traded during the last five business days preceding valuation date;
(ii) a financial instrument listed on an exchange in the Republic is suspended for any period during September 2001; or
(iii) the market value of a financial instrument determined in terms of subparagraph (1)(a)(i), exceeds the average of the ruling price of that financial instrument, determined for the first 14 business days of the month of September 2001, by five per cent or more,

the Commissioner must, after consultation with the recognised exchange and the Financial Services Board, determine the market value of that financial instrument having regard to the value of the financial instrument, circumstances surrounding the suspension of that financial instrument or reasons for the increase in the value of that financial instrument.

[Words following subitem (iii) amended by section 85 of Act No. 43 of 2014]

 

(3) For the purposes of this paragraph, ‘controlling interest’ in a company means an interest in more than 35 per cent of the equity shares in that company.

 

(4) For the purposes of paragraphs 26(1)(a) and 27(3), a person may only adopt the market value as the valuation date value of that asset if—

(a)        In the case where the valuation date is 1 October 2001—

(i) that person has valued that asset on or before 30 September 2004;
(ii) the price of that asset has been published by the Commissioner in terms of this paragraph in the Gazette; or
(iii) that person has acquired that asset from that person’s spouse as contemplated in paragraph 67 and the transferor spouse had adopted or determined a market value in terms of this paragraph, and for this purpose the transferee spouse must be treated as having adopted or determined that same market value; or

(b)        in the case where the valuation date is after 1 October 2001—

(i) that person has valued that asset within two years after valuation date; or
(ii) that asset is one contemplated in paragraph 31(1)(a) or (c)(i) and the market value of that asset on valuation date is determined in terms of one of those paragraphs.

 

(5)        Despite subparagraph (4), where a person has valued an asset and—

(a) the market value of that asset exceeds R10 million;
(b) that asset is an intangible asset (excluding financial instruments) and the market value thereof exceeds R1 million, or
(c) that asset is an unlisted share in a company and the market value of all the shares held by that person in that company exceeds R10 million,

that person may only adopt the market value as the valuation date value of that asset if that person has furnished proof of that valuation to the Commissioner in the form as the Commissioner may prescribe, with the first return submitted by that person after the date or period contemplated in subparagraph (4).

[Subparagraph (5) amended by section 109 of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015]

 

(6)        Where a person disposes of—

(a) an asset contemplated in subparagraph (5)(a), (b) or (c) which has been valued before proof of valuation is submitted as contemplated in that subparagraph; or
(b) any other asset which has been valued,

that person must retain proof of that valuation.

[Subparagraph (6) substituted by section 13(b) of the Tax Administration Laws Amendment Act, 2014 (Act No. 44 of 2014)]

 

(7) The Commissioner may, notwithstanding any proof of valuation submitted by a person to the Commissioner as contemplated in subparagraph (5) or (6)—
(a) request any such further information or documents relating to that valuation; or
(b) where the Commissioner is not satisfied with any value at which an asset has been valued, the Commissioner may adjust the value accordingly.

 

(8) Where the valuation date of a person is after 1 October 2001 the provisions of subparagraphs (1)(a), (1)(b)(i), (2), (2A), (3), (5) and (6)(a) do not apply.

 

30.        Time-apportionment base cost

(1) Subject to subparagraph (3), the time apportionment base cost of a pre-valuation date asset is determined in accordance with the formula —

where—

(a) ‘Y’ represents the amount to be determined;
(b) ‘B’ represents the amount of expenditure  incurred prior to the valuation date in respect of that asset that is allowable before, on or after the valuation date in terms of paragraph 20;
(c) ‘P’ represents the proceeds as determined in terms of paragraph 35, in respect of the disposal of that asset, or where subparagraph (2) applies, the amount of proceeds attributable to the expenditure in ‘B’ as determined in accordance with subparagraph (2);
(d) ‘N’ represents the number of years determined from the date that the asset was acquired to the day before valuation date, which number of years may not exceed 20 in the case where the expenditure allowable in terms of paragraph 20 in respect of that asset was incurred in more than one year of assessment prior to the valuation date;
(e) ‘T’ represents the number of years determined from valuation date until the date the asset was disposed of after valuation date:

Provided that for purposes of items (d) and (e) a part of a year must be treated as a full year.

 

(2) Where a portion of the expenditure allowable in terms of paragraph 20 in respect of a pre-valuation date asset was incurred on or after the valuation date, the proceeds to be used in the determination of the time apportionment base cost of the asset must be determined in accordance with the formula —

Where –

(a) ‘P’ represents the proceeds attributable to B;
(b) ‘R’ represents the total amount of proceeds as determined in terms of paragraph 35 in consequence of the disposal of the pre-valuation date asset;
(c) ‘A’ represents the amount of expenditure allowable in terms of paragraph 20 in respect of the asset that is incurred on or after valuation date;
(d) ‘B’ represents the amount of expenditure incurred prior to the valuation date in respect of that asset that is allowable  before, on or after the valuation date in terms of paragraph 20.

 

(3) A person must determine the time-apportionment base cost of a pre-valuation date asset in terms of subparagraph (4) where—
(a) that person has incurred expenditure contemplated in paragraph 20(1)(a), (c) or (e) on or after the valuation date;
(b) any part of the expenditure contemplated in paragraph 20(1)(a), (c) or (e) incurred before, on or after the valuation date is or was allowable as a deduction in determining the taxable income of that person before the inclusion of any taxable capital gain; and
(c) the proceeds in respect of the disposal of that asset exceed the expenditure allowable in terms of paragraph 20 incurred before, on and after the valuation date in respect of that asset.

 

(4) The time-apportionment base cost of a pre-valuation date asset referred to in subparagraph (3) is determined in accordance with the formulae —

 

 

And

 

 

where —

(a) ‘Y’ represents the time apportionment base cost of the asset;
(b) ‘P1’ represents the proceeds attributable to the expenditure in B1;
(c) ‘A1’ represents the sum of the expenditure allowable in terms of paragraph 20 in respect of the asset that is incurred on or after valuation date, and any amount of that expenditure that has been recovered or recouped as contemplated in paragraph 35(3)(a);
(d) ‘B1’ represents the sum of the expenditure allowable in terms of paragraph 20 in respect of the asset that is incurred before valuation date, and any amount of that expenditure that has been recovered or recouped as contemplated in paragraph 35(3)(a);
(e) ‘B’, ‘N’ and ‘T’ bear the same meanings ascribed to those symbols in subparagraph (1); and
(f) ‘R1’ represents the sum of the proceeds and any amount contemplated in paragraph 35(3)(a) in respect of that asset.

 

(5)        For purposes of this paragraph—

(a) any selling expenses incurred on or after the valuation date must be deducted from the following amounts—
(i) in the case where subparagraph (2) or (3) applies, the amounts represented by the symbols ‘R’ and ‘R1’, respectively; and
(ii) in any other case, the amount represented by the symbol ‘P’;
(b) except for subparagraph (3)(c) any reference to expenditure allowable in terms of paragraph 20 must exclude selling expenses; and
(c) ‘selling expenses’ means expenditure—
(i) contemplated in paragraph 20(1)(c)(i) to (iv) incurred directly for the purposes of disposing of that asset; and
(ii) which would, but for the provisions of item (b), have constituted expenditure allowable in terms of paragraph 20.

 

31.        Market value

(1)        The market value of an asset on a specified date is in the case of—

(a) an asset which is a financial instrument listed on a recognised exchange and for which a price was quoted on that exchange, the ruling price in respect of that financial instrument on that recognised exchange at close of business on the last business day before that date;
(b) an asset which is a long-term insurance policy, being a policy as defined in section 1 of the Long-term Insurance Act the greater of—
(i) the amount which would be payable to the policyholder upon the surrender of that policy on that day; or
(ii) the amount which according to the insurer is the fair market value of that policy should it run its remaining policy term as determined on that day;

(c)        an asset which is not listed on a recognised exchange which constitutes a right of a holder of a participatory interest in –

(i) any portfolio of a collective investment scheme in securities, or any portfolio of a collective investment scheme in property, carried on in the Republic, the price at which a participatory interest can be sold to the management company of the scheme on that date; or
(ii) any arrangement or scheme contemplated in paragraph (e)(ii) of the definition of ‘company’, the price at which a participatory interest can be sold to the management company of the scheme on that date or where there is not a management company the price which could have been obtained upon a sale of the asset between a willing buyer and a willing seller dealing at arm’s length in an open market on that date;
(d) a fiduciary, usufructuary or other similar interest in any asset, an amount determined by capitalising at 12 per cent the annual value of the right of enjoyment of the asset subject to that fiduciary, usufructuary or other like interest, as determined in terms of subparagraph (2), over the expectation of life of the person to whom that interest was granted, or if that right of enjoyment is to be held for a lesser period than the life of that person, over that lesser period;
(e) any asset which is subject to a fiduciary, usufructuary or other similar interest in favour of any person, the amount by which the market value of the full ownership of that asset exceeds the value of that fiduciary, usufructuary or other like interest determined in accordance with item (d);
(f) any asset which constitutes immovable property on which a bona fide farming undertaking is being carried on, subject to subparagraph (4), either—
(i) the value of that property determined as contemplated in paragraph (b) of the definition of ‘fair market value’ in section 1 of the Estate Duty Act; or

[Subitem (i) amended by section 86(a) of Act No. 43 of 2014]

(ii) the price contemplated in item (g);
(g) any other asset, the price which could have been obtained upon a sale of the asset between a willing buyer and a willing seller dealing at arm’s length in an open market.

 

(2) For purposes of subparagraph (1)(d) –
(a) the annual value of the right of enjoyment of any asset which is subject to any fiduciary, usufructuary or other like interest, means an amount equal to 12 per cent of the market value of the full ownership of the asset: Provided that where the asset which is subject to that interest cannot reasonably be expected to produce an annual yield equal to 12 per cent on that value of the asset, the Commissioner must decide, on application by the taxpayer, such sum as reasonably represents the annual yield, and the sum so fixed must for the purposes of subparagraph (1)(d) be treated as being the annual value of the right of enjoyment of that  asset; and

[Item (a) amended by section 110 of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015]

(b) the expectation of life of a person to whom an interest was granted –
(i) in the case of a natural person, must be determined in accordance with the provisions applicable in determining the expectation of life of a person for estate duty purposes, as contemplated in the regulations issued in terms of section 29 of the Estate Duty Act; and

[Subitem (i) amended by section 86(a) of Act No. 43 of 2014]

(ii) in the case of a person other than a natural person, is a period of fifty years.

 

(3) The market value of any shares of a person in a company not listed on a recognised exchange must be determined at a value equal to the price which could have been obtained upon a sale of the share between a willing buyer and a willing seller dealing at arm’s length in an open market subject to the following—
(a) no regard shall be had to any provision—
(i) restricting the transferability of the shares therein, and it shall be assumed that those shares were freely transferable; or
(ii) whereby or whereunder the value of the shares is to be determined;
(b) if upon the winding-up of the company that person would have been entitled to share in the assets of the company to an extent that is not in proportion to that person’s holding of shares, the value of the shares held by that holder of shares must not be less than the amount to which that holder of shares would have been so entitled if the company had been in the course of winding-up and the said amount had been determined as at valuation date.

[Paragraph (b) to be commenced]

 

(4) The value contemplated in subparagraph (1)(f)(i) may only be used on the death of a person or when the immovable property is disposed of by way of donation or non-arm’s length transaction, if—
(a) that value was used for the purposes of paragraph 26 or 27; or
(b) the person acquired the immovable property by way of donation or inheritance or non-arm’s length transaction at that value.

 

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;

(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 weighted 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)        [deleted by Second Revenue Laws Amendment Act, No. 60 of 2001]

 

(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.

 

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 subparagraphs (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 that 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 property which that person leases from a lessor;
(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 the 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

 

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 and paid for the purposes of paragraph 20(1)(a).