Module 6

Question 1

When you buy an asset with parts, you get 1 base cost. However, if you dispose of parts, you need to apportion the base cost. What is the formula for this apportionment?

Answer 1

Base Cost x Market Value of part
Divided by MV of total asset immediately before disposal

Question 2

What will be the base cost of final disposal on an asset containing parts?

Answer 2

Amount remaining after previous disposals/calculations

Question 3

For calculating base cost on an asset disposed of for debt substitution, what amount makes up proceeds for the seller?

Answer 3

The reduction in debt

Question 4

When an asset is used to pay off a debt, both parties will have CGT consequences. The seller will have 1 CGT consequence where the proceeds from disposal are equal to the reduction in debt. What consequences do the purchasing party have?

Answer 4

The purchasing party has 2 consequences, 1 disposal of the right to the debt and 1 receipt of an asset.
The base cost of the asset received will equal the MV on date of transfer.
The proceeds from disposal of right will equal the MV of the asset and the base cost will be the reduction in debt.

Question 5

What 3 methods are available for establishing base cost of identical assets?

Answer 5

. FIFO
. Specific identification
. Weighted average (applicable only in certain circumstances)

Question 6

True or false: SA residents will always be subjected to CGT on disposals regardless of source.

Answer 6

True. Ouchies

Question 7

Non-residents are taxed on source of capital gain/loss. Which disposal items by non-residents are considered South African?

Answer 7

. Immovable property located in RSA
. Assets directly associated with a permanent establishment in RSA (aka a fixed place of business)

Question 8

Non-residents try to avoid CGT on fixed property by setting up companies to hold their interest. How is this avoidance measure countered?

Answer 8

The disposal of interest in a fixed property situated in RSA will be considered South African source if:
. Non-resident holds 20% or more equity interest in company/trust
. 80% or more of the market value of the owned interest is attributable to fixed RSA property

Question 9

Base cost post-valuation date must exclude what?

Answer 9

Any capital allowances claimed.

Question 10

(Only for pre-valuation date assets) When a potential capital gain arises, taxpayer must choose between what 3 options to determine valuation date value?

Answer 10

Highest of:
1. Market value on 1 Oct 2001
2. TABC (time apportionment base cost)
3. 20% x (proceeds - cost incurred after VD)

Question 11

After establishing valuation date value, what else do you need to do to get to base cost?

Answer 11

Add any post-valuation date expenses

Question 12

True or false: if a personal asset transfers to a business use asset, a deemed disposal will occur on date of transfer.

Answer 12

True. Market value at that date is used as base cost.