LML4804 ASSIGNMENT 02 SEMESTER 02 ANSWERS DUE 25 SEPTEMBER 2024
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INCOME TAX LAW
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University Of South Africa (Unisa)
LML4804 ASSIGNMENT 02 SEMESTER 02 ANSWERS DUE 25 SEPTEMBER 2024
INCOME TAX LAW: LML4804
ASSIGNMENT (03): Compulsory assignment - Written
• This assignment has to reach UNISA by 25 September 2024.
• Your answer must not exceed ten (10) typed pages. Pages in excess of the limitation will no...
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LML4804 ASSIGNMENT 03 SEMESTER 02
DUE 25 SEPTEMBER 2024
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, QUESTION 1 (CAPITAL GAINS TAX)
In South Africa, CGT is levied on the disposal of assets, with the capital gain
calculated as the difference between the proceeds and the base cost of the asset,
which includes acquisition costs, improvements, and disposal costs such as agent
fees. The sale of the Blue Halley house falls under CGT, though vehicles like the
Range Sports Car are exempt from CGT, as discussed below. CGT in South Africa is
governed by the Eighth Schedule of the Income Tax Act 58 of 1962, which defines
the capital gain framework. The Blue Halley house is a capital asset for CGT
purposes, and its disposal triggers the need to calculate any applicable CGT based
on the proceeds minus base cost and allowable deductions such as the agent’s fee. 1
The primary residence exclusion provides that a capital gain of up to R2 million is
exempt from CGT when disposing of a primary residence. Given that the house in
Blue Halley is sold for R2.5 million, the capital gain would be reduced by R2 million,
leaving only R500,000 subject to CGT. Additionally, improvements like replacing taps
and fixing the swimming pool can be added to the base cost, thereby further
reducing the capital gain.2
The base cost for CGT purposes includes the acquisition cost (R900,000 for the Blue
Halley house) as well as any capital improvements, such as the R30,000 for the taps
and the R10,000 for fixing the pool. Transaction costs, such as the R200,000 paid to
the real estate agent, are also deductible from the proceeds, reducing the taxable
capital gain. These adjustments lower the total taxable gain. 3
Cars are considered personal-use assets under South African tax law, and the sale
of such assets is generally excluded from CGT. Consequently, the sale of the Range
Sports Car for R1 million is exempt from CGT.Since Ms. Kru is married in community
of property, any capital gain or loss on jointly owned assets is split equally between
1
M Stiglingh and others, Silke: South African Income Tax 2023 (25th edn, LexisNexis
2023) 601.
2
M Stiglingh and others, Silke: South African Income Tax 2023 (25th edn, LexisNexis
2023) 606.
3
M Stiglingh and others, Silke: South African Income Tax 2023 (25th edn, LexisNexis
2023) 608.
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