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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 VI - Proceeds

 

35.        Proceeds from disposal

(1) Subject to subparagraphs (2), (3) and (4), the proceeds from the disposal of an asset by a person are equal to the amount received by or accrued to, or which is treated as having been received by, or accrued to or in favour of, that person in respect of that disposal, and includes—
(a) the amount by which any debt owed by that person has been reduced or discharged; and
(b) any amount received by or accrued to a lessee from the lessor of property for improvements effected to that property.

 

(1A) The amount of proceeds from the disposal of a share, option or certificate issued to any person by a resident company in exchange, directly or indirectly, for shares in a foreign company as contemplated in paragraph 11(2)(b) must be treated as an amount equal to the fair market value of the shares in the foreign company.

[Subparagraph (1) inserted by section 133 of Act No. 31 of 2013]

 

(2) The amount of the proceeds from a disposal by way of a value shifting arrangement is determined as the market value of the person’s interests to which subparagraph 11(1)(g) applies immediately prior to the disposal less the market value of the person’s interests immediately after the disposal, which amount shall be treated as having been received or accrued to that person.

 

(3) The proceeds from the disposal, during a year of assessment, of an asset by a person, as contemplated in subparagraph (1) must be reduced by—
(a) any amount of the proceeds that must be or was included in the gross income of that person or that must be or was taken into account when determining the taxable income of that person before the inclusion of any taxable capital gain;
(b) any amount of the proceeds that has during that year of assessment been repaid or has become repayable to the person to whom that asset was disposed of; or
(c) any reduction, as the result of the cancellation, termination or variation of an agreement or due to the prescription or waiver of a claim or release from an obligation or any other event during that year, of an accrued amount forming part of the proceeds of that disposal.

[Subparagraph (3) amended by section 111(1)(a) and (b) of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015]

 

(4) Where during any year of assessment a person has become entitled to any amount which is payable on a date or dates falling after the last day of that year, that amount must be treated as having accrued to that person during that year.

 

35A.        Disposal of certain debt claims

(1)        This paragraph applies where—

(a) a person has disposed of an asset during any year of assessment, all the proceeds of which will not accrue to that person in that year;
(b) that person subsequently disposes of any right to claim payment in respect of that disposal; and
(c) that claim includes any amount which has not yet accrued to that person at the time of the disposal of that claim.

 

(2) So much of any consideration received by or accrues to a person from the disposal of a claim contemplated in subparagraph (1)(b) as is attributable to any amount which has not yet accrued to that person as contemplated in subparagraph (1)(c), must be treated as an amount of consideration which accrues to that person in respect of the disposal of the asset contemplated in subparagraph (1)(a).

 

(3) So much of any capital gain or capital loss determined in respect of the disposal by the person of the right to claim payment as contemplated in subparagraph (1)(b), as is attributable to any amount which has not yet accrued to that person, must be disregarded.

 

36.        Disposal of partnership asset

The proceeds from the disposal of a partner’s interest in an asset of the partnership must be treated as having accrued to that partner at the time of that disposal.

 

37.        Assets of trust and company

(1)        Where—

(a) an asset contemplated in paragraph 15 which is not used for purposes of carrying on a trade or an asset which, if owned by a natural person, would be a personal-use asset as contemplated in paragraph 53, is owned by a trust or a company any interest in which or any shares of which are held directly or indirectly by a natural person;
(b) there is a decrease in the market value of that asset while held by that trust or company after that person acquired an interest in that trust or company; and
(c) any interest in that trust or that company is thereafter disposed of by a person,

that person must be treated as having disposed of that interest for proceeds equal to the market value of that interest, determined on the date of disposal, as if the market value of that asset had not decreased.

 

(2) Subparagraph (1) does not apply where more than 50 per cent of the assets of the trust or company consist of assets used wholly and exclusively for trading purposes.

 

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 paragraph 67, 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 in relation to that person for a consideration which does not reflect an arm’s length price—
(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 and paid for the purposes of paragraph 20(1)(a).

 

(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

[Subparagraph (2)(c) substituted by section 134(1)(b) of Act No. 31 of 2013 - effective 1 April 2013]

(d)        [Subparagraph (2)(d) deleted by section 98 of Act No. 7 of 2010]

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

[Subparagraph (2)(e) substituted by section 71(1) of the Taxation Laws Amendment Act, 2016 (Act No. 15 of 2016) - effective 1 March 2015]

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

[Subparagraph (2)(f) inserted by section 71(1) of the Taxation Laws Amendment Act, 2016 (Act No. 15 of 2016) - effective 1 March 2015]

 

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;

 

(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.

 

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.

 

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—

(a) assets transferred to the surviving spouse of that deceased person as contemplated in paragraph 67(2)(a);
(b) [deleted by the Revenue Laws Amendment Act No. 60 of 2008];
(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.

[Subparagraph (1) amended by section 112(1) of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015)]

 

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 paragraph 67(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 or trustee 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).

 

(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.

 

41.        Tax payable by heir of a deceased estate

(1)        Where a person dies before 1 March 2016 and—

(a) the tax determined in terms of this Act, which relates to the taxable capital gain of a deceased person, exceeds 50 per cent of the net value of the estate determined for purposes of the Estate Duty Act, before taking into account the amount of that tax so determined; and

[Item (a) amended by section 87 of Act No. 43 of 2014]

(b) the executor of the estate is required to dispose of any asset of the estate for purposes of paying the amount of that tax,

any heir or legatee of the estate, who would have been entitled to that asset contemplated in item (b), had there been no liability for tax, may elect that that asset be distributed to that heir or legatee upon the condition that the amount of tax which exceeds 50 per cent of that net value be paid by him or her within a period of three years after the date that the executor obtained permission to distribute the assets of the estate, as contemplated in section 35(12) of the Administration of Estates Act, 1965 (Act No. 66 of 1965).

[Subparagraph (1) amended by section 113(1) of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015)]

 

(2) Any amount of tax payable by an heir as contemplated in subparagraph (1), becomes a debt due to the state and must be treated as an amount of tax chargeable in terms of this Act which is due by that person.

 

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

 

(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 29A, allocated to any policyholder fund of an insurer as defined in that section.

 

42A. [Paragraph 42A was repealed by the Taxation Laws Amendment Act, 2013 (Act No. 31 of 2013) Government Gazette 37158 dated 12 December 2013]

 

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.

[Subsection 1 amended by section 136(a) of Act No. 31 of 2013]

 

(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.

[Subsection 1A amended by section 136(b) of Act No. 31 of 2013]

 

(2) [Subparagraph (2) was deleted by the Taxation Laws Amendment Act, 2013 (Act No. 31 of 2013) Government Gazette 37158 dated 12 December 2013]

 

(3) [Deleted by the Revenue Laws Amendment Act, 74 of 2002].

 

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

 

(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 section 9HA and paragraphs 12, 38, and 40, be treated as being denominated in that currency.

[Subparagraph (5)(b) substituted by section 71(1) of the Taxation Laws Amendment Act, 2016 (Act No. 15 of 2016 - effective from 1 March 2016]

 

(5A) [Subparagraph (5A) was deleted by the Taxation Laws Amendment Act, 2013 (Act No. 31 of 2013) Government Gazette 37158 dated 12 December 2013]

 

(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 114(b) of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015]

 

6A.        Subparagraph (1A) must not apply in respect of the disposal by a person of—

(b)        any amount of a debt owed to that person denominated in a foreign currency; or

(c) any right of that person arising from any contractual agreement or arrangement to which that person and another party are parties where-
(i) that contractual agreement or arrangement gives rise to that right and to a corresponding obligation of the other party; and
(ii) the value of that right and the amount of that obligation are determined directly or indirectly with reference to an amount contemplated in item (b).

 

(7)        For the purposes of this paragraph—

 

‘foreign currency’ means currency other than local currency; and

 

‘local currency’ means—

(a) in relation to a permanent establishment of a person, the functional currency of that permanent establishment (other than the currency of any country in the common monetary area).
(b) in relation to a headquarter company, in respect of amounts which are not attributable to a permanent establishment outside the Republic, the functional currency of that headquarter company;
(c) in relation to a domestic treasury management company, in respect of amounts which are not attributable to a permanent establishment outside the Republic, the functional currency of that domestic treasury management company;

[Item (c) inserted by section 136(l) of Act No. 31 of 2013]

(d) in relation to an international shipping company defined in section 12Q, in respect of amounts which are not attributable to a permanent establishment outside the Republic, the functional currency of that international shipping company; or

[Item (d) inserted by section 136(l) of Act No. 31 of 2013]

(e) in any other case, the currency of the Republic.

[Item (e) inserted by section 136(l) of Act No. 31 of 2013]

 

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

(1) For the purposes of this section, ‘exempt dividend’ means any dividend or foreign dividend to the extent that the dividend or foreign dividend is—
(a) not subject to any tax under Part VIII of Chapter II; and
(b) exempt from normal tax in terms of section 10(1)(k)(i) or section 10B(2)(a) or (b).

 

(2) The proceeds from the disposal by a taxpayer that is a company of shares in another company must be increased by an amount equal to the amount of any exempt dividend received by or accrued to that taxpayer in respect of any share held by the taxpayer in that other company-.
(a) to the extent that the exempt dividend is received by or accrues to the taxpayer within a period of 18 months prior to or as part of the disposal;
(b) if the taxpayer immediately before the disposal-

(i)        held the shares disposed of as a capital asset (as defined in section 41); and

(ii)        held more than 50 per cent of the equity shares in the other company; and

(c) if the other company (or any company in which that other company directly or indirectly holds more than 50 per cent of the equity shares) has, within a period of 18 months prior to that disposal, by reason of or in consequence of the disposal, incurred any debt-
(i) owing to the person acquiring the shares or any connected person in relation to that person; or
(ii) that is guaranteed or otherwise secured by the person acquiring the shares or any connected person in relation to that person.

 

(3) For the purposes of subparagraph (2), the amount by which the proceeds must be increased is limited to the amount of the debt contemplated in item (c) of that subparagraph.

 

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.