TAX 200/300 Capital Gains Tax (CGT) Comprehensive Guide for UP BCom Taxation Students

Capital gains tax (CGT) is a core examinable topic in the University of Pretoria’s BCom (Taxation) programme, especially in modules such as TAX 200, TAX 300, and related law‑integrated subjects. Understanding South African CGT rules under the Income Tax Act 58 of 1962 is essential not only for exams but also for practical tax work and further studies (e.g. CTA and SAICA/SAIT paths).
This guide provides a detailed, exam‑oriented summary of CGT as applied in South Africa, with examples and explanations tailored to typical UP assessment styles.

1. CGT Basics in the South African System (UP BCom Taxation Context)

1.1 Position of CGT in the Income Tax Framework

Capital gains tax in South Africa is not a separate tax; it is part of normal income tax under the Income Tax Act 58 of 1962:

CGT was introduced with effect from 1 October 2001 (valuation date).
It applies to disposals of capital assets on or after 1 October 2001.
Only the taxable capital gain (not the full gain) is included in taxable income.

For University of Pretoria BCom (Taxation) students, CGT usually features prominently in:

TAX 200 – foundational rules, basic calculations, valuation date, inclusion rates.
TAX 300 – integrated CGT questions with individuals, companies, trusts, estate duty, business restructuring and property transactions.

CGT is designed to:

Broaden the tax base by including economic gains on capital assets.
Improve equity between taxpayers who earn income as salaries versus those who realise capital gains.
Limit arbitrage between income and capital streams.

1.2 Key Terminology and Concepts

Understanding the vocabulary is critical for exam questions, especially when scenarios have mixed capital and revenue elements.

Core terms:

Asset: Any property (tangible or intangible) including:
- Immovable property (land, buildings).
- Movable assets (vehicles, equipment).
- Shares and other financial instruments.
- Intangible property (goodwill, trademarks).
Capital asset: An asset held as an investment or for long-term purposes, not part of trading stock.
Disposal (para 11 of Eighth Schedule): Any event in which ownership changes or an asset is deemed to be disposed of, including:
- Sale, donation, exchange, scrapping, loss, or destruction.
- Vesting of an asset in a beneficiary of a trust.
- Certain events on death or emigration.
Base cost (para 20): Broadly, the cost of acquiring and improving the asset, plus certain incidental costs.
Proceeds (para 35): Amount received or accrued on disposal, excluding specific amounts like VAT where applicable, and after certain exclusions.
Capital gain/loss: Proceeds minus base cost.
Aggregate capital gain/loss: Sum of all capital gains and losses for the year (after exclusions and annual exclusion).
Taxable capital gain: Portion of net capital gain included in taxable income after applying the inclusion rate.

1.3 Who Is Subject to CGT?

CGT is determined by residency and source of the asset:

South African residents (as defined in section 1 of the Income Tax Act):
- Taxed on worldwide capital gains.
- This includes foreign immovable property, foreign shares, and foreign business interests.
Non‑residents:
- Subject to CGT only on disposal of:
  - Immovable property situated in South Africa.
  - Interests in immovable property companies (more than 80% of assets are SA immovable property and at least 80% of value held by the person).
  - Assets of a permanent establishment in South Africa.

In UP exam questions:

Pay attention to residency status (ordinarily resident vs. physical presence test).
Identify whether an asset is SA‑situs immovable property, shares in a property‑rich company, or an asset of a permanent establishment.

1.4 Eighth Schedule Structure and Exam Relevance

CGT rules sit in the Eighth Schedule to the Income Tax Act. Key paragraphs commonly examined in TAX 200 / TAX 300 include:

Para 2–3: Events that trigger capital gains and losses.
Para 4–9: Determination of capital gain or loss; aggregate and net capital gain.
Para 20–25: Determination of base cost.
Para 26–27: Valuation date and pre‑CGT assets.
Para 40–43: Assets acquired and disposed of in the same year, and certain anti‑avoidance rules.
Para 45–64: Special rules for specific assets (e.g. primary residence, personal‑use assets).
Para 65–66: Annual exclusion and death exclusion.

In addition, the Income Tax Act (mainly section 26A) sets out:

That the taxable capital gain must be included in taxable income.
The relevant inclusion rates, which for recent years (and in UP materials) are typically:
- Individuals and special trusts: 40% inclusion rate.
- Companies and other trusts: 80% inclusion rate.

(Always confirm the inclusion rate applicable to the exam year based on your prescribed UP textbook and SARS updates.)

1.5 Capital vs Revenue: Why Classification Matters

In exam problems for UP TAX 300, you often must decide whether a gain is capital or revenue in nature:

Capital gain:
- Asset held as investment or for long‑term appreciation.
- Not part of taxpayer’s normal trading operations.
- Subject to CGT (only the taxable capital gain is included in taxable income).
Revenue gain:
- Trading stock or assets acquired for resale at a profit.
- Part of normal business (e.g. a property developer’s housing units).
- Fully taxable as gross income (no CGT).

Common tests (from case law) include:

Intention at acquisition.
Frequency of similar transactions.
Length of holding period.
Nature of the taxpayer’s business.
Manner of financing and improving the asset.

UP exams may incorporate brief case references (e.g. CIR v George Forest Timber Co), but you generally won’t need case‑law detail at TAX 200 level; however, understanding the principles is important.

1.6 CGT and Typical UP BCom Taxation Exam Focus

Past and mock exams for modules like TAX 200 (UP) and TAX 300 (UP) often emphasise:

Identification of disposal events.
Distinguishing between capital and revenue.
Step‑by‑step computation of taxable capital gain.
Correct application of:
- Annual exclusion.
- Primary residence exclusion.
- Personal‑use assets (PUA) rules.
Integration of CGT into a full taxable income calculation alongside employment income, business income, and other amounts.

Being able to quickly recognise which assets fall into CGT, and which are excluded or exempt, is one of the most effective ways to save time in exam conditions.

2. Disposals, Events, and Valuation Date Rules

2.1 What Constitutes a Disposal? (Para 11)

Under para 11 of the Eighth Schedule, a disposal includes:

A sale, donation, exchange, or any other manner of alienation or transfer of ownership.
The granting, renewal, variation, or waiver of a right.
The reduction or waiver of a debt.
Cessation of an asset (e.g. expiry of a right).
Vesting of an asset in a beneficiary of a trust.
A deemed disposal, such as:
- On emigration (ceasing to be a resident) for certain assets.
- On death for worldwide assets of a resident (subject to specific exclusions).

Non‑disposals include, for example:

Transfer of an asset as security (e.g. mortgage bond, not an outright sale).
Certain intra‑group transactions that are specifically relieved by corporate rollover rules (discussed at advanced levels, usually in TAX 300 or CTA, but sometimes signposted in UP BCom modules).

2.2 Time of Disposal

The time of disposal is critical because:

It determines the year of assessment in which the capital gain or loss is recognised.
It affects whether certain valuation date rules apply.
It interacts with changes in inclusion rates and other law changes over time.

In general:

For a contract of sale: date on which the parties conclude a binding contract (not the date payment is received, unless specific conditions delay the formation of the contract).
For shares listed on a stock exchange: usually the trade date.

For exam purposes, UP lecturers often specify the transaction date clearly; you must then allocate the gain/loss to the correct year of assessment, especially in integrated questions covering multiple years.

2.3 Valuation Date: 1 October 2001

CGT only applies to gains arising on or after 1 October 2001. Assets acquired before that date may have a pre‑CGT element and a post‑CGT element.

Valuation date = 1 October 2001.
For assets acquired on or after 1 October 2001:
- Base cost = cost of acquisition plus allowable costs (no valuation date complications).
For assets acquired before 1 October 2001 and disposed of on or after that date:
- Special rules apply for determining the valuation date value.

Exams often provide the necessary valuation date information; you must choose and apply the correct method, usually with a note such as “Assume the taxpayer elects the method most beneficial to them.”

2.4 Pre‑CGT Assets and Valuation Date Methods

For assets acquired before 1 October 2001 and disposed of later, there are three possible methods to determine the valuation date value (para 26–27):

Market value method (1 October 2001 value):
- Asset is valued at market value on 1 October 2001.
- Base cost = valuation date value + qualifying costs incurred after 1 October 2001.
- This method requires:
  - A proper valuation at 1 October 2001; or
  - Use of approved SARS methods for listed shares and certain financial instruments.
- In exams, market value will usually be given; you must simply plug it into the base cost formula.
Time‑apportionment base cost (TAB):
- Used for assets where:
  - Original cost is known.
  - Asset was acquired before 1 October 2001.
- TAB formula (simplified for typical exam scenarios):
  
  [
  \text{Time‑apportioned base cost} = \text{Cost} + \left( \frac{\text{Gain to 1/10/2001}}{\text{Total gain}} \right) \times (\text{Proceeds} – \text{Cost})
  ]
- In practice, the more exam‑friendly version is:
  
  [
  \text{Base cost} = \text{Cost} + \frac{\text{(Cost × Post‑valuation date period)}}{\text{Total holding period}}
  ]
- UP exams generally provide the formula or guide you using worked examples in prescribed textbooks. Understanding conceptually that TAB spreads the gain across the pre‑ and post‑CGT periods is key.
20% of proceeds rule (para 26(1)(b)):
- Often used when:
  - No reliable valuation is available.
  - The taxpayer prefers a simplified calculation.
- Base cost may be taken as 20% of proceeds, plus qualifying post‑valuation date costs (depending on exam description and the year of law you are tested on).
- This effectively limits the taxable portion by treating the pre‑CGT element as 80% of the gain (this is only rough conceptual intuition; always apply the precise rule presented in your UP material).

Exam hint: If multiple methods are available:

You may be asked to compare base cost results or to assume that the taxpayer uses the most favourable method.
Always show all workings clearly—markers at UP award method marks even if your final decision is sub‑optimal.

2.5 Disposals on Death, Donations, and Emigration

CGT interacts with other parts of the tax and estate‑planning system, which becomes especially prominent in TAX 300 at UP.

2.5.1 Death (para 40)

On death of an individual who is a South African resident:

The individual is deemed to dispose of their worldwide assets at market value immediately before death.
Exceptions (no CGT event on death) include:
- Assets that pass to a resident spouse (rollover at base cost).
- Certain assets where other specific rules apply (e.g. some retirement funds).
A large gain may arise immediately before death, but:
- A R300 000 exclusion (para 67) applies in the year of death instead of the usual annual exclusion.

In exam questions, you may need to:

Compute capital gains on death, excluding assets transferred to a spouse.
Apply the higher death exclusion correctly.
Integrate with estate duty (in more advanced questions).

2.5.2 Donations

For CGT purposes, donation of an asset:

Triggers a deemed disposal at market value.
Proceeds = market value (since the donor receives little or no consideration).
Donor may also be liable for donations tax (20% / 25% depending on amount and year’s law, but CGT and donations tax are separate).

UP exam questions often combine:

CGT calculation on donation.
Brief commentary on donations tax implications.

2.5.3 Emigration / Cessation of Residency

When a taxpayer ceases to be a South African resident:

They are deemed to dispose of worldwide assets (except immovable property in SA, certain retirement fund interests, and some other specified exclusions) at market value.
This triggers CGT on exit, even though no sale occurs.

Exam points:

Carefully identify which assets are deemed disposed of.
Remember that SA immovable property remains subject to SA CGT rules when later disposed of, even for non‑residents.

2.6 Typical Disposal Scenarios in UP Exams

Common exam scenarios in UP BCom Taxation assessments include:

Sale of a primary residence with mixed business use:
- Portion used for trade (home office).
- Partial application of primary residence exclusion and CGT apportionment.
Disposal of listed shares:
- Several purchases at different times and prices.
- Part disposals of a portfolio.
- Application of weighted average base cost for identical financial instruments.
Donation of an asset to a child:
- Market value deemed proceeds.
- Possible interaction with donations tax and section 7C (loans to trusts) at advanced levels.
Death of a taxpayer with multiple assets:
- Differentiation between assets transferred to a spouse and assets bequeathed to others.
- Application of R300 000 death exclusion.

Being familiar with these patterns and the underlying disposal rules saves considerable analysis time in the exam hall.

3. Calculating Capital Gains and Losses: Core Mechanics

3.1 High‑Level Calculation Flow

A typical exam‑grade CGT calculation for an individual can be summarised as:

Identify all disposals in the year of assessment.
Compute capital gain/loss for each asset:
- Proceeds (para 35)
- Less: base cost (para 20)
Aggregate:
- Sum all capital gains.
- Sum all capital losses.
Apply specific exclusions:
- Primary residence exclusion.
- Personal‑use assets.
- Small business relief in some advanced questions (para 57).
Calculate aggregate capital gain/loss.
Apply annual exclusion (para 5 & 6, para 65 & 66).
Arrive at net capital gain (or assessed capital loss carried forward).
Multiply by inclusion rate to get taxable capital gain.
Add taxable capital gain to taxable income under section 26A.

3.2 Determining Proceeds (Para 35)

Proceeds are the amount received or accrued in respect of the disposal, including:

Money received.
Market value of any non‑cash consideration.
Any liabilities assumed by the purchaser.

Exclusions from proceeds (para 35(3)) may include, for example:

Amounts included in gross income (to avoid double taxation).
Recoupments under section 8(4) (depreciation recovered).
Certain donations tax amounts (specific interaction rules; details may vary by exam year).

Exam technique:

Clearly separate:
- Recoupments (ordinary income, not CGT).
- Capital gains (Eighth Schedule).
Cross‑reference to the question’s instructions: if a recoupment is already included in income, adjust proceeds accordingly.

3.3 Base Cost (Para 20) – Detailed Components

Base cost includes the following broad categories of expenditure actually incurred and not already allowed as a deduction under normal income tax rules:

Acquisition costs:
- Purchase price.
- Transfer duties on immovable property.
- Contract fees, including legal costs to purchase.
Improvement or enhancement costs:
- Capital improvements that increase the value or useful life of the asset.
- Not routine maintenance or repairs (those are revenue expenses).
Direct costs of acquisition or disposal:
- Advertising costs to find a buyer.
- Valuation and surveyor fees.
- Brokerage, securities transfer tax, and similar charges on shares.
- Auctioneer’s fees, agent’s commissions.
Certain holding costs (limited cases):
- Interest on loans to acquire listed shares is generally not included in base cost (and may be deductible under normal rules), but other cost items may be included depending on the legislation in force for your exam year.
- The general principle: if a cost has already been deducted for ordinary income tax, it cannot also form part of base cost (no double deduction).
Valuation date adjustments:
- For pre‑CGT assets, valuation date value and post‑valuation date capital costs.

Non‑allowable items:

Fines and penalties.
Costs claimed as deductions for income tax or as allowances.
Depreciation, wear‑and‑tear, and other capital allowances already granted.

3.4 Example: Simple CGT Calculation for an Individual

Consider a simplified scenario aligned with the kind of calculation you might see in TAX 200 (UP):

Thandi, a SA resident individual, sells a listed share portfolio in the 2025 year of assessment.
She bought the shares on 1 March 2020 for R120 000, plus broker fees of R2 000.
She sells them on 28 February 2025 for R200 000, with broker fees of R3 000.

Step 1: Determine proceeds

Proceeds = R200 000 (sale price).
Broker’s selling fees are not deducted from proceeds; they form part of base cost.
So proceeds = R200 000.

Step 2: Determine base cost

Acquisition cost: R120 000.
Initial broker fees: R2 000.
Selling broker fees: R3 000.

Total base cost = 120 000 + 2 000 + 3 000 = R125 000.

Step 3: Capital gain

Capital gain = proceeds − base cost
= 200 000 − 125 000 = R75 000.

Step 4: Aggregate and annual exclusion

Assume this is Thandi’s only capital transaction for the year and there are no specific exclusions (e.g. no primary residence effect).

Aggregate capital gain = R75 000.
Less annual exclusion (for the year, assume R40 000 for individuals, depending on year in law):

Net capital gain = 75 000 − 40 000 = R35 000.

Step 5: Taxable capital gain

For individuals at a 40% inclusion rate:

Taxable capital gain = 35 000 × 40% = R14 000.

This R14 000 is then added to Thandi’s taxable income under section 26A.

3.5 Annual Exclusion and Assessed Capital Loss

For individuals and special trusts:

There is an annual exclusion (e.g. R40 000 in many recent years).
For the year of death, the exclusion is usually higher (e.g. R300 000).

Mechanics:

Combine all capital gains and losses (after applying specific exclusions, such as primary residence or personal‑use assets).
Apply the annual exclusion once per year of assessment.
If capital losses exceed capital gains after annual exclusion, the result is an assessed capital loss, which is carried forward to future years and can only be used against future capital gains (not against ordinary income).

Example:

Capital gains (before exclusions): R60 000.
Capital losses: R20 000.

Aggregate capital gain = 60 000 − 20 000 = R40 000.
Assume annual exclusion = R40 000.

Net capital gain = 40 000 − 40 000 = R0.
Taxable capital gain = R0 (no CGT effect for that year).

3.6 Inclusion Rates and Effective Tax Rate

CGT uses inclusion rates to determine how much of the net capital gain enters taxable income.

Typical recent inclusion rates (check for your exam year):

Taxpayer type	Inclusion rate	Effective max rate (approx.)*
Individual / Special trust	40%	Top marginal rate × 40%
Company	80%	27% × 80% (around 21.6%)
Trust (other than special)	80%	Trust marginal rate × 80%

*The effective CGT rate for individuals depends on the highest marginal tax rate in the year; the idea is that CGT is taxed at a lower effective rate than ordinary income.

Exam emphasis for UP students:

You must multiply the net capital gain by the correct inclusion rate for the taxpayer type.
Then you add that taxable capital gain to taxable income and apply the normal tax tables.

3.7 Capital Losses: Treatment and Restrictions

Capital losses:

Can only be offset against capital gains, not ordinary income.
If total capital losses (after annual exclusion) exceed capital gains:
- The excess becomes an assessed capital loss carried forward indefinitely.
For companies and trusts:
- No annual exclusion; however, capital losses still only offset capital gains.

Certain losses are disallowed:

Losses on disposal of personal‑use assets (para 53).
Losses from certain connected‑person transactions (delayed or ring‑fenced).
Losses from wash sales or transactions lacking economic substance in terms of anti‑avoidance provisions.

3.8 Integrated Example with Multiple Assets (Individual)

Consider Lethabo, an individual (SA resident) in the 2025 year of assessment:

Sold listed shares:
- Proceeds: R150 000.
- Base cost: R90 000.
- Capital gain: R60 000.
Sold a personal‑use motor vehicle:
- Proceeds: R80 000.
- Base cost: R120 000.
- Capital loss: R40 000 (but this is a personal‑use asset).
Sold an investment painting (not personal use):
- Proceeds: R50 000.
- Base cost: R30 000.
- Capital gain: R20 000.

Assume:

Annual exclusion: R40 000.
Inclusion rate: 40%.

Step 1: Identify personal‑use assets

Motor vehicle: personal‑use asset.
- Capital loss (R40 000) is ignored (para 53).
- If there had been a gain, it would also be disregarded (for PUA).

Step 2: Calculate other gains/losses

Shares gain: R60 000.
Painting gain: R20 000.

Aggregate capital gain = 60 000 + 20 000 = R80 000.

Step 3: Annual exclusion

Net capital gain = 80 000 − 40 000 = R40 000.

Step 4: Taxable capital gain

Taxable capital gain = 40 000 × 40% = R16 000.

This R16 000 is added to Lethabo’s taxable income. The motor vehicle loss is completely outside the CGT system due to the personal‑use asset rule.

4. Special CGT Rules: Primary Residence, Personal‑Use Assets, Small Business Relief, and Shares

4.1 Primary Residence Exclusion (Para 44–49)

A primary residence is a residence:

Owned by a natural person or a special trust.
Used as the ordinary residence of that person or a beneficiary.
Where the person (or spouse) ordinarily resides and uses it mainly for domestic purposes.

Key points:

The first R2 million of a capital gain (or loss) on disposal of a primary residence may be disregarded (primary residence exclusion), subject to conditions.
The base cost is limited to R2 million plus any improvements.
Where proceeds exceed R2 million and the gain exceeds R2 million, CGT arises on the excess.

Important conditions and limitations:

The exclusion only applies if:
- The property qualifies as the primary residence during the relevant period.
- It is not wholly used for trade.
Mixed‑use property:
- If part of the property is used for business (e.g. a home office) or rented out:
  - Apportion the gain between private use and business use.
  - The primary residence exclusion applies only to the private‑use portion.
Periods of non‑occupation:
- Certain periods where the residence is temporarily not occupied can still qualify (e.g. construction or sale periods), subject to specific rules and limits (e.g. four‑year or two‑year rules).

Worked example (simplified):

Naledi, an SA resident individual, acquired a house in 2010 for R1 000 000 and sells it in 2025 for R3 800 000.
She incurred capital improvements of R400 000.
No business use; fully a primary residence.
Ignore transaction costs for simplicity.

Step 1: Base cost

Base cost = purchase price + improvements
= 1 000 000 + 400 000 = R1 400 000.

Step 2: Capital gain

Capital gain = proceeds − base cost
= 3 800 000 − 1 400 000 = R2 400 000.

Step 3: Primary residence exclusion

The first R2 000 000 is excluded:
Taxable capital gain (pre‑inclusion) = 2 400 000 − 2 000 000 = R400 000.

Step 4: Annual exclusion

Assume this is Naledi’s only capital transaction; apply R40 000 annual exclusion:

Net capital gain = 400 000 − 40 000 = R360 000.

Step 5: Inclusion rate (40%)

Taxable capital gain = 360 000 × 40% = R144 000.

Naledi includes R144 000 as taxable capital gain in her taxable income.

4.2 Personal‑Use Assets (Para 53)

Personal‑use assets (PUA):

Assets used mainly for non‑trade personal purposes by an individual or special trust.
Examples:
- Personal motor vehicles.
- Personal furniture.
- Clothing, personal belongings.
- Recreational equipment.

Rules:

Capital gains and losses on PUAs are disregarded for CGT purposes.
This avoids administrative complexity for everyday items.

Exceptions (not treated as PUAs):

Gold and platinum coins.
Certain collectables (art, antiques) — these may still fall within CGT.
Assets used partly for trade may not qualify fully as personal‑use assets; apportionment may be required.

Exam relevance:

Quickly identify personal‑use assets and remove them from CGT calculation.
Avoid wasting time calculating gains or losses on personal cars, furniture, etc., unless the question indicates a business or rental use.

4.3 Small Business CGT Relief (Para 57 and Related)

At more advanced levels (often TAX 300 (UP) and beyond), small business relief is examinable conceptually:

Applies to natural persons (aged 55 or older) disposing of small business assets or active business interests.
Subject to strict conditions:
- Qualifying small business with market value of assets not exceeding a specified limit (e.g. R10 million, subject to law year).
- Lifetime maximum of gains exempted (e.g. R1.8 million or R10 million, again depending on legislation).
Relief allows certain capital gains to be excluded from CGT.

For UP BCom Taxation:

Be aware that:
- This relief is available but narrow.
- Many exam questions may state “Assume small business relief does not apply” to keep calculations focused.
If examined:
- Identify the qualifying conditions step‑by‑step.
- Apply the lifetime limit.
- Exclude qualifying portion from gains before annual exclusion.

4.4 CGT on Shares and Financial Instruments

Shares (listed and unlisted) are frequent topics in TAX 200 and TAX 300 exams because:

They test understanding of capital vs revenue classification.
They involve weighted average base cost rules for identical financial instruments.

4.4.1 Listed vs Unlisted Shares

Listed shares (on an exchange like the JSE):
- Acquisition and disposal may be treated as capital if held as long‑term investment.
- Traders, stockbrokers, or taxpayers frequently dealing in shares may be trading on revenue account.
Unlisted shares:
- Often associated with ownership in private companies.
- Disposal may trigger CGT if held as an investment.

Exam hint:

Identify intention and pattern of dealing:
- Occasional sale of long‑held shares → likely capital.
- Frequent share trading, financed by short‑term borrowings → likely revenue.

4.4.2 Weighted Average Base Cost (WABC)

For identical listed shares (same class, same company), the weighted average base cost method usually applies:

You calculate a single per‑share base cost for all identical shares based on:
- Total cost of all shares held.
- Total number of shares.

Formula:

[
\text{Weighted average cost per share} = \frac{\text{Total base cost}}{\text{Number of shares}}
]

Each disposal reduces:

The number of shares.
The total base cost (by WABC × number of shares sold).

Example:

Thabo acquires:
- 100 shares in Company X @ R10 each (R1 000).
- Later, another 50 shares @ R16 each (R800).
Total shares: 150.
Total base cost: R1 800.

Weighted average cost per share = 1 800 / 150 = R12 per share.

If he sells 60 shares at R20 per share:

Proceeds: 60 × R20 = R1 200.
Base cost: 60 × R12 = R720.
Capital gain: 1 200 − 720 = R480.

New holding:

Shares left: 90.
New base cost: 1 800 − 720 = R1 080.
WABC remains R12 per share for remaining shares unless additional acquisitions or corporate actions occur.

UP exam questions often:

Provide a transaction schedule.
Require you to apply WABC systematically to sequence of purchases and disposals.

4.4.3 Corporate Actions and CGT

Certain corporate events (e.g. share splits, consolidations, unbundlings) can affect base cost:

Share splits:
- Number of shares increases.
- Total base cost remains the same.
- Base cost per share becomes lower.
Consolidations:
- Number of shares decreases.
- Base cost per share becomes higher.

For BCom Taxation:

At TAX 200, you may only need to handle simple splits or consolidations by adjusting the WABC.
At TAX 300, you might also encounter unbundling rules or group restructures, sometimes referencing section 46 or other rollover reliefs.

4.5 Other Notable Special Rules

While not always core in second‑year exams, UP students should be aware of the existence of:

CGT on foreign currency assets (e.g. foreign bank accounts held as capital).
Unit trusts and collective investment schemes:
- Disposal of units may trigger CGT.
Trusts and CGT attribution rules:
- Gains may be attributed to donors or beneficiaries under anti‑avoidance provisions, depending on distributions and terms of trust.

These topics become more prominent in advanced taxation and CTA, but early familiarity helps when reading integrated exam questions in TAX 300.

5. CGT for Different Taxpayers and Integrated Exam‑Style Scenarios (UP Focus)

5.1 Individuals vs Companies vs Trusts

Understanding how CGT applies differently to individuals, companies, and trusts is essential for UP BCom Taxation students.

Key differences:

Individuals and special trusts:
- Enjoy an annual exclusion (e.g. R40 000).
- Benefits from primary residence exclusion.
- Lower inclusion rate (e.g. 40%).
Companies:
- No annual exclusion.
- No primary residence exclusion (companies don’t have “residences” in the natural person sense).
- Higher inclusion rate (e.g. 80%).
- Combined with a lower company tax rate, gives an effective CGT rate similar to, but generally higher than, individuals due to no annual exclusion.
Trusts (other than special trusts):
- No annual exclusion.
- 80% inclusion rate.
- Typically taxed at the trust marginal rate (often high).
- But gains may be vested in beneficiaries in the same year, potentially shifting tax to the beneficiary (conduit principle), where lower effective rates may apply.

Exam tip for UP:

When given a scenario involving a trust:
- Identify whether it is a special trust (e.g. created for a disabled person, or testamentary trusts for minor children).
- Apply appropriate inclusion rates and consider whether gains are distributed in the same year.
For companies:
- Pay attention to whether gains are on investment assets or trading stock (if property dealers, for example).

5.2 Step‑by‑Step Individual CGT Example (Integrated)

Consider a comprehensive individual scenario typical of TAX 300 (UP) single‑question totals:

Scenario:

Sipho is a South African resident individual for the 2025 year of assessment. During the year he:

Sold his primary residence for R4 000 000.
- Purchased in 2012 for R1 500 000.
- Improvements since purchase: R500 000.
- 20% of the house was used exclusively as a home office from 2016 onward.
Sold listed shares (held as investment) with:
- Proceeds: R300 000.
- Base cost (including all related costs): R220 000.
Donated a vacant plot of land (investment property) to his sister:
- Market value at date of donation: R800 000.
- Cost in 2010: R300 000.
- No improvements.

Assume:

Annual exclusion: R40 000.
Inclusion rate for individuals: 40%.
Ignore donations tax and other taxes for this exercise.

Step 1: Primary residence calculation

Proceeds: R4 000 000 (assume selling costs negligible for simplicity).

Base cost: R1 500 000 + R500 000 = R2 000 000.

Total capital gain: 4 000 000 − 2 000 000 = R2 000 000.

But the property has 20% business use (home office).

Private‑use portion: 80%.
Business‑use portion: 20%.

Apportion gain:

Private portion gain: 2 000 000 × 80% = R1 600 000.
Business portion gain: 2 000 000 × 20% = R400 000.

Apply primary residence exclusion (max R2 000 000) to private portion only:

Private gain (R1 600 000) < R2 000 000, so private gain reduced to R0 (completely excluded).
Business‑use portion does not qualify for primary residence exclusion.

So the primary residence contributes:

Capital gain from business‑use portion = R400 000.
Private portion = R0.

Step 2: Listed shares

Capital gain = 300 000 − 220 000 = R80 000.

Step 3: Donation of plot

Donation triggers disposal at market value:

Proceeds deemed = R800 000.
Base cost = R300 000.

Capital gain = 800 000 − 300 000 = R500 000.

Step 4: Aggregate capital gain

Add all gains:

Primary residence (business portion): R400 000.
Shares: R80 000.
Donated plot: R500 000.

Aggregate capital gain = 400 000 + 80 000 + 500 000 = R980 000.

Assume no capital losses.

Step 5: Annual exclusion

Annual exclusion: R40 000.

Net capital gain = 980 000 − 40 000 = R940 000.

Step 6: Taxable capital gain

Taxable capital gain = 940 000 × 40% = R376 000.

This R376 000 is included in Sipho’s taxable income and taxed at his marginal income tax rate.

Exam notes:

You need to show clearly:
- Apportionment of primary residence gain.
- Application of the R2m exclusion.
- Application of the annual R40k exclusion.
Marks are available for structure and correct referencing (e.g. indicating the private vs business portion, referencing para 45–49).

5.3 Company CGT Example

A simplified company scenario, as might appear in TAX 200/300:

Scenario:

Makgosi (Pty) Ltd, a South African resident company, disposes of two capital assets in the 2025 year of assessment:

An office building (investment property):
- Proceeds: R5 000 000.
- Base cost: R3 200 000.
Shares in another company (investment):
- Proceeds: R1 500 000.
- Base cost: R1 900 000.

Assume inclusion rate for companies: 80%. Company tax rate: 27%. No other capital transactions.

Step 1: Capital gains and losses

Office building:
- Gain = 5 000 000 − 3 200 000 = R1 800 000.
Shares:
- Loss = 1 500 000 − 1 900 000 = −R400 000.

Step 2: Aggregate capital gain

Aggregate capital gain = 1 800 000 − 400 000 = R1 400 000.

Step 3: No annual exclusion

Companies do not enjoy an annual exclusion. So:

Net capital gain = R1 400 000.

Step 4: Taxable capital gain

Taxable capital gain = 1 400 000 × 80% = R1 120 000.

This amount is added to the company’s taxable income and taxed at 27%.

Step 5: Effective CGT tax

Effective CGT on net capital gain:

Company tax on CGT portion = 1 120 000 × 27% = R302 400.
Effective CGT rate = R302 400 / R1 400 000 ≈ 21.6%.

Exam commentary:

You may be asked to comment briefly on the effective rate.
Show that CGT is effectively taxed at 21.6% in this case (subject to law year).

5.4 Trust CGT Example (Conduit Principle)

Trusts can be a common exam feature in TAX 300 (UP) because they test understanding of attribution and distribution of capital gains.

Scenario:

The Khumalo Family Trust (discretionary inter vivos trust) is a resident trust. In the 2025 year of assessment:

It sells an investment property for:
- Proceeds: R3 000 000.
- Base cost: R1 200 000.
It then distributes the R1 800 000 capital gain to its beneficiary, Nomsa, in the same year of assessment according to the trust deed.

Assume:

Inclusion rate for trusts (other than special trusts): 80%.
Inclusion rate for individuals: 40%.
Annual exclusion applies to individuals, not to the trust.
Ignore other trust and beneficiary income.

Step 1: Capital gain in trust

Capital gain = 3 000 000 − 1 200 000 = R1 800 000.

Step 2: Application of conduit principle

Since the gain is vested in Nomsa in the same year:

The gain is attributed to Nomsa (beneficiary) under the conduit principle.
Trust effectively acts as a conduit; the capital gain is taxed in the hands of the beneficiary, not in the trust.

Step 3: Tax in Nomsa’s hands

Nomsa is an individual:

Trust’s R1 800 000 capital gain flows to Nomsa.
Nomsa applies:
- Annual exclusion (R40 000).
- Inclusion rate (40%).

Net capital gain (Nomsa) = 1 800 000 − 40 000 = R1 760 000.
Taxable capital gain = 1 760 000 × 40% = R704 000.

This R704 000 is added to Nomsa’s taxable income.

Exam hint:

Show both potential outcomes:
- Taxation in trust (if not distributed).
- Taxation in beneficiary (if distributed).
Conclude with whichever scenario the question specifies.
Demonstrate understanding that no annual exclusion applies in trust, but applies in individual’s hands.

5.5 Typical UP Exam‑Style Integrated Question Features

In UP modules like TAX 200 / TAX 300, integrated CGT questions often include:

Multiple asset types:
- Primary residence with partial business use.
- Investment property.
- Shares and unit trusts.
- Vehicles (both personal‑use and business‑use).
- Assets acquired before 1 October 2001 with valuation date complications.
Different taxpayers:
- Individual with employment income.
- Small family company.
- Discretionary family trust.
Timing issues:
- Disposals near year‑end.
- Death of a taxpayer during the year.
- Ceasing to be resident (emigration).
Other taxes:
- Donations tax.
- Estate duty (conceptually).
- VAT on commercial property disposals.

When approaching such an integrated question:

Step 1: Identify all disposals and classify assets (capital vs revenue).
Step 2: Determine base cost correctly (check for improvements, transaction costs).
Step 3: Apply special rules (primary residence, personal‑use assets, valuation date).
Step 4: Aggregate gains and losses and apply annual exclusion if an individual/special trust.
Step 5: Use correct inclusion rates and slot the taxable capital gain into the taxable income calculation.
Step 6: If question asks, provide brief commentary on tax planning or anti‑avoidance aspects.

5.6 Study Strategy for UP BCom Taxation Students (CGT Focus)

To excel in CGT questions across TAX 200 and TAX 300 at the University of Pretoria:

Master the structure:
- Write out the generic CGT calculation framework several times until it becomes automatic.
Practise valuation date problems:
- Use past UP papers and tutorial questions where tabs, market values, or the 20% rule appear.
Focus on special exclusions:
- Primary residence: conditions, R2m exclusion, mixed use, periods of absence.
- Personal‑use assets: fully out of CGT system, both gains and losses.
- Annual exclusions vs. no exclusion (companies and ordinary trusts).
Work through integrated examples:
- Aim to do full exam‑length questions under time constraints.
- Check your layout explicitly: show each disposal clearly with proceeds, base cost, and resulting gain/loss.
Link CGT with other tax topics:
- Employment income, business income, and investment income.
- Donations and estate planning.
- International taxation (residence vs non‑residence).
Use UP resources:
- Prescribed textbook chapters on CGT.
- Lecture slides and workshop notes.
- Past exam and test questions supplied via clickUP / Blackboard.

Strong CGT competence is not only essential to pass TAX 200 / TAX 300 but also forms a foundational skill set for advanced taxation studies and professional exams. By repeatedly practising the core mechanics and understanding the rationale behind special rules, UP BCom Taxation students can handle even complex scenarios confidently and systematically.