LML4804 EXAM PACK.
1
LML4804: 2021
FEEDBACK TO ASSIGNMENT 03
MODEL ANSWERS
MARKING RUBRIC:
Assessment will take place in accordance with the assessment criteria provided to
the students in the form of the following rubric:
Criteria &
Qualities
Poor (0-50) Good (50-70) Excellent (70-100)
...
, LML4804: 2021
FEEDBACK TO ASSIGNMENT 03
MODEL ANSWERS
MARKING RUBRIC:
Assessment will take place in accordance with the assessment criteria provided to
the students in the form of the following rubric:
Criteria & Poor (0-50) Good (50-70) Excellent (70-100)
Qualities
The legal No problem Issue is identified All issues are identified
problem in the identified. but not all and explained briefly in
question is problems are student’s own words.
identified highlighted
The relevant The correct The words of the The student has
section of the section is not Act are used and explained the law in his
Act is mentioned at the student has own words in a clear and
explained in all. not explained succinct manner.
your own anything in his
words own words.
The relevant No case is The correct case The correct case is cited
court case is cited. is cited but its and its relevance is
explained relevance is not explained.
briefly explained
The section in No application There is limited There is application of
the Act, court to the facts in application of the the law to the facts in
case and question. law to the facts in question and all issues
opinions are question but are resolved.
applied to the some issues are
facts in the not resolved.
question
Legal advice is No advice. Incomplete Brief but complete
given advice. advice is given.
1
,QUESTION 1: CAPITAL GAINS TAX
Mr and Mrs Thalitha are both tax resident in South African. They are married out
of community of property. On 1 November 2002, Mr Thalitha purchased a piece of
land (less than 2 hectares) in Midrand in Gauteng for R750 000 where they intended
to build their dream house where they would live. Construction of the house began
on 15 March 2005. The construction costs amounted to R450 000. The construction
ended on 3 December 2005, upon which date they moved in (i.e.13 months from date
of commencing the building of their home).
In 2006, the Thalitha added an additional bedroom for Mr Thalitha’s aged mother to
move in. The construction costs R100 000. While the builders were building the
additional bedroom, they repaired a leaking roof in the kitchen at a cost of R50 000.
During their 2020 annual December holiday at Jeffreys Bay, in the Eastern Cape, the
family decided that they are tired of the city life and that they want to move to Jeffreys
Bay. On 18 February 2021, the house was sold for R3 500 000, with no suspensive
conditions attached to the sale.
Shortly after, Mr and Mrs Thalitha entered into a lease-with-the-option-to-buy
agreement in respect of a small-holding some 3km from Jeffreys Bay. Mr Thalitha is
so happy that her wife agreed to the move to Jeffreys Bay, that he gave a painting to
her wife as a birthday gift. He bought the painting as a long-term investment five years
ago for R300 000. At the time of her wife’s birthday, the painting is worth R600 000.
WHAT IS REQUIRED OF YOU:
1. Explain the Capital Gains Tax consequences of the sale of the house in Midrand.
Your explanation must include a calculation of the taxable capital gain/loss in the
2020/2021 year of assessment.
[15 marks]
2. Advise Mr Thalitha on the Capital Gains Tax consequences of the painting he gave
to his wife as a birthday present.
[5 marks]
3. After three months of settling at Jeffrey’s Bay, Mrs Thalitha is offered a job as an
English Teacher in Dubai. Mrs Thalitha has thoughts of emigrating from South Africa
to Dubai. Discuss the Capital Gains Tax consequences of Mrs Thalitha should he
decide to emigrate from South Africa to Dubai.
[5 marks]
Sub-total [25 marks]
2
, MODEL ANSWER:
1. Explain the Capital Gains Tax consequences of the sale of the house in Midrand.
Your explanation must include a calculation of the taxable capital gain/loss in the
2020/2021 year of assessment.
[15 marks]
1) Identify the four CGT Building Blocks:
1.1 Asset: An “asset” is defined in para 1 of the Eighth Schedule as property of
any nature (movable/immovable, corporeal/incorporeal), and any right or interest of
any nature in such property. The house and land attached to it that is owned by Mr
Thalitha therefore meets the definition of an asset.
1. 2 Proceeds: Defined in Para 35 of the Eighth Schedule as the total amount received
by or accrued to a person in respect of a disposal. Mr Thalitha received payment for
the disposal of his house (R 3 500 000) so such payment would constitute “proceeds”
as defined.
1.3 Disposal: Defined in para 1 as an event, act, forbearance or operation of
law envisioned in para 11. Events that qualify as “disposals” are listed in para 11(1)
of the Eighth Schedule. A sale of an asset is specifically included in the list of disposal
events (para 11(1)(a)) and for CGT purposes there would have been a disposal made
by Mr Thalitha when he sells his house in Midrand.
1.4 Base Cost: The house in Midrand is built/acquired after valuation date
(1 October 2001). As a result, the base cost of the house would be the cost of
acquiring the house (building the house, in this case) and qualified expenditure that
is listed in paragraph 20 of the Eighth Schedule. For example, the cost for adding on
an extra bedroom would be included as qualified expenditure (para 20(1)(e)), but
the repair of a leak in the kitchen is maintenance (holding costs) and will not be
included in the base cost of the house in Midrand (para 20(2)(b)).
Conclusion: All four CGT building blocks are present, and the disposal will be subject
to Capital gains tax legislation.
2) Calculating the Capital Gain/Loss
2.1
Base Cost:
The asset is a post-valuation date asset (purchased after 1 Oct 2001).
In terms of par 20, the base cost is the expenditure actually incurred in respect
of the cost of acquisition or creation of that asset. There is also certain qualifying
expenditure that can be added to the base cost of the asset. In this case
study, the base cost of the asset would be: R750 000 (land) + R450 000
(building house) + R100 000 (additional bedroom) EQUALS R1 300 000
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