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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 VIII - Other Exclusions

 

52.        General principle

Capital gains and capital losses must be disregarded in the circumstances and to the extent set out in this Part when determining the aggregate capital gain or aggregate capital loss of a person.

 

53.        Personal-use assets

 

(1) A natural person or a special trust must disregard a capital gain or capital loss determined in respect of the disposal of a personal-use asset as contemplated in subparagraph (2).

 

(2) A personal-use asset is an asset of a natural person or a special trust that is used mainly for purposes other than the carrying on of a trade.

 

(3)        Personal use assets do not include—

(a) a coin made mainly from gold or platinum of which the market value is mainly attributable to the material from which it is minted or cast;
(b) immovable property;
(c) an aircraft, the empty mass of which exceeds 450 kilograms;
(d) a boat exceeding ten metres in length;
(e) a financial instrument;
(f) any fiduciary, usufructuary or other like interest, the value of which decreases over time;
(g) any contract in terms of which a person, in return for payment of a premium, is entitled to policy benefits upon the happening of a certain event and includes a reinsurance policy in respect of such a contract, but excludes any short-term policy contemplated in the Short-term Insurance Act;
(h) any short-term policy contemplated in the Short-term Insurance Act to the extent that it relates to any asset which is not a personal-use asset; and

 

4) For the purposes of subparagraph (2), an asset of a natural person or a special trust to whom an allowance is or was paid or payable in respect of the use of that asset for business purposes, must be treated as being used mainly for purposes other than the carrying on of a trade.

 

54.        Retirement benefits

 

A person must disregard any capital gain or capital loss determined in respect of a disposal that resulted in that person receiving—

(a) a lump sum benefit as defined in the Second Schedule; or
(b) a lump sum benefit paid from a fund, arrangement or instrument situated outside the Republic which provides similar benefits under similar conditions to a pension, pension preservation, provident, provident preservation or retirement annuity fund approved in terms of this Act.

 

55.        Long-term assurance

 

(1) A person must disregard any capital gain or capital loss determined in respect of a disposal that resulted in the receipt by or accrual to that person of an amount—
(a) in respect of a policy, where that person—
(i) is the original beneficial owner or one of the original beneficial owners of the policy;
(ii) is the spouse, nominee, dependant as contemplated in the Pension Funds Act or deceased estate of the original beneficial owner of the relevant policy and no amount was paid or is payable or will become payable, whether directly or indirectly, in respect of any cession of that policy from the beneficial owner of that policy to that spouse, nominee or dependant; or

[Item (ii) amended by section 115 of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015]

(iii) is the former spouse of the original beneficial owner and that policy was ceded to that spouse in consequence of a divorce order or, in the case of a union contemplated in paragraph (b) or (c) of the definition of ‘‘spouse’’ in section 1 of this Act, an agreement of division of assets which has been made an order of court;
(b) in respect of any policy, where that person is or was an employee or director whose life was insured in terms of that policy and any premiums paid by that person’s employer were deducted in terms of section 11(w);
(c) in respect of a policy that was taken out to insure against the death, disability or severe illness of that person by any other person who was a partner of that person, or held any share or similar interest in a company in which that person held any share or similar interest, for the purpose of enabling that other person to acquire, upon the death, disability or severe illness of that person, the whole or part of –

(i)        that person’s interest in the partnership concerned; or

(ii)        that person’s share or similar interest in that company and any claim by that person against that company,

and no premium on the policy was paid or borne by that person while that other person was the beneficial owner of the policy;

(d) in respect of a policy originally taken out on the life of a person, where that policy is provided to that person or dependant by or in consequence of that person’s membership of a pension fund, pension preservation fund, provident fund, provident preservation fund or retirement annuity fund;
(e) in respect of a risk policy with no cash value or surrender value; or
(f) if the amount received or accrued constitutes an amount contemplated in section 10(1)(gG) or (gH).

 

(2)        For the purposes of subparagraph (1), "policy" means a policy as defined in section 29A with an insurer.

 

56.        Disposal by creditor of debt owed by connected person

 

(1) Where a creditor disposes of a debt owed by a debtor, who is a connected person in relation to that creditor, that creditor must disregard any capital loss determined in consequence of that disposal.

 

(2) Despite paragraph 39, subparagraph (1) does not apply in respect of any capital loss determined in consequence of the disposal by a creditor of a debt owed by a debtor, to the extent that the amount of that debt so disposed of represents –
(a) an amount which is applied to reduce;
(i) the expenditure in respect of an asset of the debtor in terms of paragraph 12A; or

[Subitem (i) amended by section 138(a) of Act No. 31 of 2013]

(ii) any assessed capital loss of the debtor in terms of paragraph 12A;

[Subitem (ii) amended by section 138(a) of Act No. 31 of 2013]

(b) an amount which the creditor proves must be or was included in the gross income of any acquirer of that debt;
(c) a capital gain which the creditor proves must be or was included in the determination of the aggregate capital gain or aggregate capital loss of any acquirer of the debt.
(d) a capital gain which the creditor proves must be or was included in the determination of the aggregate capital gain or aggregate capital loss of any acquirer of the debt.

[Item (d) amended by section 119(e) of Act No. 22 of 2012]

 

57.        Disposal of small business assets

 

(1)        For purposes of this paragraph,

"active business asset" means —

(a)        an asset which constitutes immovable property, to the extent that it is used for business purposes; or

(b)        an asset (other than immovable property) used or held wholly and exclusively for business purposes, but excludes –

(i) a financial instrument; and
(ii) an asset held in the course of carrying on a business mainly to derive any income in the form of an annuity, rental income, a foreign exchange gain or royalty or any income of a similar nature;

 

‘small business’ means a business of which the market value of all its assets, as at the date of the disposal of the asset or interest contemplated in subparagraph (2), does not exceed R10 million.

 

(2) Subject to subparagraphs (3), (4) and (5), a natural person must, when determining an aggregate capital gain or aggregate capital loss, disregard a capital gain determined in respect of the disposal of—
(a) an active business asset of a small business owned by that natural person as a sole proprietor; or
(b) an interest in each of the active business assets of a business, which qualifies as a small business, owned by a partnership, upon that natural person’s withdrawal from that partnership to the extent of his or her interest in that partnership; or
(c) an entire direct interest in a company (which consists of at least 10 per cent of the equity of that company), to the extent that the interest relates to active business assets of the business, which qualifies as a small business, of that company,

if that person at the time of that disposal held for his or her own benefit that active business asset, interest in the partnership, or interest in the company (as the case may be) for a continuous period of at least five years prior to that disposal and was substantially involved in the operations of the business of that small business during that period, and—

(i)        has attained the age of 55 years; or

(ii)        the disposal is in consequence of ill-health, other infirmity, superannuation or death.

 

(3) The sum of the amounts to be disregarded by a natural person as contemplated in subparagraph (2) may not exceed R1,8 million during that natural person’s lifetime.

 

(4) A natural person must realise all capital gains qualifying in terms of subparagraph (2) within a period of 24 months commencing on the date of the first disposal contemplated in subparagraph (2).

 

(5) Where a natural person operates more than one small business either by way of a sole proprietorship, a partnership interest or a direct interest in the equity of a company consisting of at least 10 per cent, then he or she may subject to subparagraphs (4) and (6), include every such small business in the determination of the amount to be disregarded in terms of subparagraph (2).

 

(6) The provisions of this paragraph do not apply where a person owns more than one business either by way of a sole proprietorship, a partnership interest or a direct interest in the equity of a company consisting of at least 10 per cent, and the total market value of all assets in respect of all those businesses exceeds R10 million.

[Subsection (6) amended by section 139 of Act No. 13 of 2012]

 

57A.        Disposal of micro business assets

 

A registered micro business as defined in terms of the Sixth Schedule must disregard any capital gain or capital loss in respect of the disposal by that business of any asset used mainly for business purposes.

[Paragraph (57A) amended by section 116 of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015]

 

58.        Exercise of an option

 

Where, as a result of the exercise by a person of an option, that person acquires or disposes of an asset in respect of which that option was granted, that person must disregard any capital gain or capital loss determined in respect of the exercise of that option.

 

59.        Compensation for personal injury, illness or defamation

 

A natural person or a special trust must disregard a capital gain or a capital loss determined in respect of a disposal that resulted in that person or that special trust, as the case may be, receiving compensation for personal injury, illness or defamation of that person or a beneficiary of that special trust.

 

60.        Gambling, games and competitions

 

(1) A person must disregard a capital gain or capital loss determined in respect of a disposal relating to any form of gambling, game or competition.

 

(2)        Notwithstanding subparagraph (1), a capital gain may not be disregarded—

(a) by any person other than a natural person; or
(b) by any natural person, unless that form of gambling, game or competition is authorised by, and conducted in terms of, the laws of the Republic.

 

61.        Portfolios of collective investment schemes other than portfolios of collective investment schemes in property

 

(1) A holder of a participatory interest in a portfolio of a collective investment scheme, other than a portfolio of a collective investment scheme in property, must determine a capital gain or capital loss in respect of the participatory interest only upon the disposal of that participatory interest.

[Subparagraph (1) amended by section 141(b) of Act No. 31 of 2013]

(2) The capital gain or capital loss to be determined in terms of subparagraph (1) must be determined with reference to the proceeds from the disposal of that participatory interest and its base cost.

 

(3) Any capital gain or capital loss in respect of a disposal by a portfolio of a collective investment scheme, other than a portfolio of a collective investment scheme in property, must be disregarded.

[Subparagraph (3) amended by section 141(c) of Act No. 31 of 2013]

 

 

62.        Donations and bequests to public benefit organisations and exempt persons

 

A person must disregard a capital gain or capital loss determined in respect of the donation or bequest of an asset by that person to—

(a) the government of the Republic in the national, provincial or local sphere, as contemplated in section 10(1)(a);

[Subparagraph (a) amended by section 107 of Act No. 7 of 2010]

(b) a public benefit organization contemplated in paragraph (a) of the definition of ‘public benefit organisation’ in section 30(1) that has been approved by the Commissioner in terms of section 30(3);
(c) a person contemplated in section 10(1)(cA) or (d)(iv); or

[Subparagraph (c) amended by section 142 of Act No. 31 of 2013]

(d) a person referred to in section 10(1)(cE) or (e); or

 

63.        Exempt persons

 

A person must disregard any capital gain or capital loss in respect of the disposal of an asset where any amount constituting gross income of whatever nature would be exempt from tax in terms of section 10, were it to be received by or to accrue to that person.

 

63A.        Public benefit organisations

 

A public benefit organization approved by the Commissioner in terms of section 30(3) must disregard any capital gain or capital loss determined in respect of the disposal of an asset if—

(a) that public benefit organisation did not use that asset on or after valuation date in carrying on any business undertaking or trading activity; or
(b) substantially the whole of the use of that asset by that public benefit organisation on and after valuation date was directed at—
(i) a purpose other than carrying on a business undertaking or trading activity; or
(ii) carrying on a business undertaking or trading activity contemplated in section 10(1)(cN)(ii)(aa), (bb) or (cc)’

 

63B.        Small business funding entities

 

(1) A small business funding entity approved by the Commissioner in terms of section 30C must disregard any capital gain or capital loss determined in respect of the disposal of an asset if—
(a) that small business funding entity did not use that asset in carrying on any business undertaking or trading activity; or
(b) substantially the whole of the use of that asset by that small business funding entity was directed at—
(i) a purpose other than carrying on a business undertaking or trading activity; or
(ii) carrying on a business undertaking or trading activity contemplated in section 10(1)(cQ)(ii)(aa), (bb) or (cc).

[Paragraph 63B inserted by section 90(1) of Act No. 43 of 2014 - effective 1 March 2015]

 

64.        Asset used to produce exempt income

A person must disregard any capital gain or capital loss in respect of the disposal of an asset which is used by that person solely to produce amounts which are exempt from normal tax in terms of—

(a)        section 10, other than receipts and accruals contemplated in paragraphs (cN), (cO), (i) and (k) of subsection (1) thereof; or

[Subparagraph (a) amended by section 143 of Act No. 31 of 2013]

(b)        section 12K.

 

64A.        Awards in terms of land restitution programmes and land reform measures

 

A person must disregard any capital gain or capital loss in respect of the disposal that resulted in that person receiving—

(a) restitution of a right to land, an award or compensation in terms of the Restitution of Land Rights Act, 1994 (Act No. 22 of 1994); or
(b) land or right to land by virtue of the measures as contemplated in Chapter 6 of the National Development Plan: Vision 2030 of 11 November 2011 released by the National Planning Commission, Presidency of the Republic of South Africa.

[Paragrah 64A substituted by section 76(1) of the Taxation Laws Amendment Act, 2016 (Act No. 15 of 2016) - effective 29 February 2016]

 

64B.        Disposal of equity shares in foreign companies

 

(1) Subject to subparagraph (4), a person other than a headquarter company must disregard any capital gain or capital loss determined in respect of the disposal of any equity share in any foreign company (other than an interest contemplated in paragraph 2(2)), if—
(a) that person (whether alone or together with any other person forming part of the same group of companies as that person) immediately before that disposal—

(i)        held an interest of at least 10 per cent of the equity shares and voting rights in that foreign company; and

(ii)        held the interest contemplated in subitem (i) for a period of at least 18 months prior to that disposal, unless—

(aa) that person is a company;
(bb) that interest was acquired by that person from any other company that forms part of the same group of companies as that person; and
(cc) that person and that other company in aggregate held that interest for more than 18 months; and
(b) that interest is disposed of to any person that is not a resident (other than a controlled foreign company or any person that is a connected person in relation to the person disposing of that interest) for an amount that is equal to or exceeds the market value of the interest.

[Paragraph (b) amended by section 117(1) of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015]

 

(2) Subject to subparagraph (4), a headquarter company must disregard any capital gain or capital loss determined in respect of the disposal of any equity share in any foreign company (other than an interest contemplated in paragraph 2(2)) if that headquarter company (whether alone or together with any other person forming part of the same group of companies as that headquarter company) immediately before that disposal held at least 10 per cent of the equity shares and voting rights in that foreign company.

 

(3) Paragraph 8(b) applies in respect of any capital gain determined in respect of any disposal of any equity share in any foreign company on or before 31 December 2012 by a person which is or was disregarded in terms of subparagraphs (1) and (4) in any year of assessment, if—
(a) the foreign company prior to that disposal was a controlled foreign company in relation to that person or in relation to any other company in the same group of companies as that person;
(b) the equity share in that foreign company was disposed of to a connected person in relation to that person either before or after that disposal;
(c) that person—
(i) disposed of that equity share for no consideration or for consideration which does not reflect an arm's length price, other than a distribution contemplated in subitem (ii);
(ii) disposed of that equity share by means of a distribution made unless—
(aa) that distribution was made to a company that forms part of the same group of companies as that person; or
(bb) the full amount of that distribution was included in the income of a holder of shares in that foreign company or would, but for the provisions of section 10B(2)(a) or (b), have been so included; or

[Subitem (bb) amended by section 144(a) of Act No. 31 of 2013]

(iii) disposed of any consideration where that consideration was received or accrued from the disposal of that equity share (or any amount received in exchange therefor) in terms of any transaction, operation or scheme of which the disposal of the equity share forms part—
(aa) for no consideration or for consideration which does not reflect an arm's length price (other than a distribution contemplated in subsubitem (bb)); or
(bb) by means of a distribution by a company, unless the full amount of that distribution—
(A) was subject to or would, but for the provisions of section 64B(5)(f), have been subject to secondary tax on companies; or
(B) was included in the income of a holder of shares in that company or would, but for the provisions of section 10B(2)(a) or (b), have been so included; and

[Unit (B) amended by section 144(b) of Act No. 31 of 2013]

(d) that foreign company ceased, in terms of any transaction, operation or scheme of which the disposal of the equity share forms part, to be a controlled foreign company in relation to that person or other company in the same group of companies as that person (having regard solely to any rights contemplated in paragraph (a) of the definition of 'participation rights' in section 9D).

 

(4) A person must disregard any capital gain determined in respect of any foreign return of capital received by or accrued to that person from a 'foreign company' as defined in section 9D (other than an interest contemplated in paragraph 2(2)) where that person (whether alone or together with any other person forming part of the same group of companies as that person) holds at least 10 per cent of the total equity shares and voting rights in that company.

 

(5) The provisions of this paragraph do not apply in respect of any capital gain or capital loss determined in respect of—
(a) the disposal of any equity share in any portfolio contemplated in paragraph (e) of the definition of 'company' in section 1; and
(b) any distribution contemplated in subparagraph (4) by any portfolio contemplated in item (a).

 

64C.        Disposal of restricted equity instruments

 

A person must disregard any capital gain or capital loss determined in respect of the disposal of any restricted equity instrument as contemplated in section 8C(4)(a), (5)(a) or (c).

[Paragraph 64C inserted by section 118(1) of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015)]

 

64D.        Land donated in terms of land reform measures

 

A person must disregard any capital gain or capital loss in respect of the disposal by way of a donation of land or right to land by virtue of the measures as contemplated in Chapter 6 of the National Development Plan:  Vision 2030 of 11 November 2011 released by the National Planning Commission, Presidency of the Republic of South Africa.

[Paragraph (64D inserted by section 77(1) of the Taxation Laws Amendment Act, 2016 (Act No. 15 of 2016) - effective 29 February 2016]