1.1 Without considering the different years of assessments, discuss the capital gains tax consequences of the assets belonging to Mario.
[10 marks]
1.2 Discuss the capital gains tax consequences of an asset belonging to Buhle.
[5 marks]
SUB-TOTAL FOR QUESTION 1 [15 marks]
LML4804 September/Nov...
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, QUESTION 1
(1.1) Without considering the different years of assessments, discuss
the capital gains tax consequences of the assets belonging to Mario. (10 marks)
For taxpayers, it usually comes down to what profit they will make when a home or investment
is sold, as they do not want to make a loss. This means that the proceeds/selling price is more
than the base cost.
This capital gain, or profit is taxed at a lower-than-normal rate of income because only a
portion of the capital gain, currently 40% is included in taxable income and not the full profit.
The Tax Act makes provision for a R2 million primary residence exclusion for those taxpayers
who sell their primary residence.
This means that the first R2 million of the capital gain is exempted from tax. The capital gain
is calculated as follows:
Base costs = R4.5 million.
Proceeds = R6.5 million.
Capital gain = R6.5 million – R4.5 million = R2 million.
Therefore, Taxable capital gain is nil because the capital gain is R2 million.
The Hubber SUV which he has bought for R3.5 million. Will have the capital gains tax
consequences will be as follows: The base cost of an asset must be reduced by an allowance
claimed, for instance wear and tear. On disposal of the asset the amount recouped on sale
(exceeds base cost) must be reduced from base cost unless it was included in income in terms
of section 8(4)(a) of the Income Tax Act.1 The recouped amount will also not form part of
proceeds on disposal if included in income. In this instance, Mario purchased the Hubber SUV
for R3.5
1 Income Tax Act 58 of 1962.
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