In this article we will continue discussing the basics of Capital Gains Tax with an emphasis on calculations and information regarding gains or losses.
Recall from article “part 2” the following formula for Time-apportionment base cost method
The time-apportionment base cost method may be used when a company has a record of the date of acquisition and cost of an asset.
Y = B + [(P – B) × N / (N + T)]
Y = The amount to be determined
B = Allowable expenditure incurred before 1 October 2001
P = Proceeds on disposal of asset
N = Number of years or part of a year before 1 October 2001
T = Number of years or part of a year on or after 1 October 2001
Below are example calculations depicting the “Time-apportionment base cost method”. Example ONE is for time-apportionment base cost: All expenditure incurred BEFORE valuation date and example TWO is for time-apportionment base cost: All expenditure incurred AFTER valuation date
Aggregate capital gain or loss
A company’s aggregate capital gain or loss is determined by adding the capital gains and losses on individual assets together for a specific year of assessment.
Net capital gain or assessed capital loss
A company’s net capital gain or assessed capital loss is determined by deducting any assessed capital loss brought forward from the previous year of assessment from the aggregate capital gain or loss. An assessed capital loss may be deducted only from capital gains and added to capital losses. It may not reduce taxable income.
Inclusion rate and taxable capital gain
The taxable capital gain of a company is determined by multiplying the net capital gain by the inclusion rate. For years of assessment commencing on or after 1 March 2016 the inclusion rate of a company or close corporation is 80%. For years of assessment commencing on or after 1 March 2012 it was 66,6% and before that 50%.
This is shown as one example in the table below (calculation example 3)
Effective rates of CGT
SARS publishes a table of Statutory, inclusion and effective rates of tax annually. The table below is for the period 01 April 2019 to 31 March 2020. No amended rates beyond 31 March 2020 have been published as yet.
This concludes the three-part series explaining the basics of Capital Gains Tax for Companies.
In determining Capital Gains Tax outcomes it is advisable that companies and individuals utilise the services of professionally qualified tax practitioners to deal with such complex matters.
Author Craig Tonkin