LML4804
ASSIGNMENT 3 SEMESTER 2 2024
UNIQUE NO.803378
DUE DATE: 25 SEPTEMBER 2024
, LML4804
Assignment 3 Semester 2 2024
Unique Number: 803378
Due Date: 25 September 2024
Tax Law
QUESTION 1: Capital Gains Tax Principles
In this scenario, Ms. Kru and her husband, Lolo, have undergone several transactions
which may trigger capital gains tax (CGT). Let's break down the principles of CGT that
apply to these transactions.
1. Primary Residence Exclusion
First, the sale of their home in Blue Halley needs attention. A primary residence is the
home where the couple lives most of the time, so Blue Halley qualifies as their primary
residence. When you sell a primary residence, South African tax law provides some
relief. The first R2 million of any capital gain on the sale of a primary residence is
excluded from capital gains tax. In this case, the home is sold for R2.5 million, but there
are also expenses to take into account.
2. Costs of Improvements and Selling Expenses
You can deduct certain costs from the selling price before calculating the capital gain.
For example:
The R200,000 paid to REX Real Estate for their services is a deductible
expense.
The R30,000 spent on the gold-plated taps qualifies as an improvement cost,
meaning it increases the cost base of the house.
The R10,000 spent fixing the swimming pool is considered maintenance, so it
does not increase the base cost and is not deductible for CGT purposes.
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