TAX3703: Taxation of Capital Gains Study Guide (UNISA BCom Taxation)

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This study guide provides comprehensive exam-oriented notes for TAX3703: Taxation of Capital Gains as offered in the UNISA BCom (Taxation) and BCompt streams. It consolidates key concepts, legislation, calculations, and exam strategies relevant to South African capital gains tax (CGT). The focus is on practical application to typical exam questions for UNISA and related courses at South African universities such as CUT and NWU that align with SA income tax and CGT content.

1. Overview of Capital Gains Tax in South Africa

1.1 Position of TAX3703 in UNISA and Related Modules

UNISA’s TAX3703: Taxation of Capital Gains typically builds on earlier tax modules (e.g. TAX2601, TAX2602) and feeds into advanced modules such as TAX3701, TAX3704, and postgraduate options. Many students doing BCom (Taxation), BCompt, or PGDA/CTA programmes use TAX3703 as a bridge between introductory tax and advanced income tax.

Comparable modules at other South African institutions include:

  • CUT (Central University of Technology):
    • TAX30AT – Taxation 3A (often includes sections on CGT in SA context).
  • NWU (North-West University):
    • TAXE 321 – Taxation (or similar code, depending on curriculum year).
  • UJ (University of Johannesburg):
    • TXC3A1 – Taxation 3A.

These modules typically use the Income Tax Act 58 of 1962, specifically the Eighth Schedule (Capital Gains Tax) and related sections such as section 26A.

Key exam implication: Exam questions are often drafted so they are compatible with multiple South African curricula. Mastering TAX3703 content thus also supports success in modules like TAX3701, TAX4862, and CTA-level tax.

1.2 Legal Foundation of South African CGT

Capital gains tax in South Africa is not a separate tax; it is part of normal income tax, introduced with effect from 1 October 2001.

Core legislative references:

  • Section 26A of the Income Tax Act:
    • Requires that the taxable capital gain of a person (if any) must be included in that person’s taxable income.
  • Eighth Schedule to the Income Tax Act:
    • Sets out detailed rules for determining:
      • Capital gains and capital losses.
      • Which assets are subject to CGT.
      • Events that trigger CGT (disposals, deemed disposals).
      • Exemptions, roll-overs, and valuation rules.

The Eighth Schedule must be studied together with section 26A, and often in combination with other sections such as:

  • Section 1 (definitions: “asset”, “disposal”, “resident”, etc.).
  • Section 9H (deemed disposals on ceasing to be a resident).
  • Section 45, 47 (roll-over relief in company reorganisations—relevant mainly in advanced modules but sometimes examined at overview level in TAX3703).
  • Paragraphs 2–68 of the Eighth Schedule (core exam territory).

1.3 Purpose and Scope of CGT

Purpose of CGT:

  • Broaden the tax base by taxing capital gains that were previously untaxed.
  • Align South Africa with international practice (most developed countries have some form of CGT).
  • Improve equity in the tax system by taxing both income and capital growth.

Scope:

CGT potentially applies to:

  • Individuals (natural persons).
  • Companies (including close corporations; for tax purposes, CCs are treated as companies).
  • Trusts (including special trusts types A and B).
  • Non-residents to a limited extent (only on certain SA-sourced assets such as immovable property).

The taxpayer’s type is crucial because:

  • The inclusion rate differs (portion of net capital gain that is taxable).
  • Some exemptions or annual exclusions are only available to individuals and special trusts.
  • Rates of tax differ due to different normal income tax rates.

1.4 Basic Framework: From Disposal to Taxable Capital Gain

Although the Eighth Schedule is complex, most exam questions can be broken into these steps:

  1. Identify the disposal:

    • Has there been a disposal as defined in para 11?
      Includes sale, donation, exchange, destruction, expropriation, etc.

  2. Identify the asset:

    • Is there an asset per para 1?
      Includes property of any kind, corporeal or incorporeal, and any right or interest.

  3. Determine proceeds:

    • Calculate proceeds per para 35: amount received or accrued, excluding specific items.
    • Adjust for exclusions (e.g. amounts already in gross income, certain taxes, etc.).

  4. Determine base cost:

    • Calculate base cost per para 20:
      • Acquisition cost.
      • Incidental costs of acquisition and disposal.
      • Improvements and enhancements.
      • Certain holding costs in limited circumstances.

  5. Calculate capital gain / loss:

    • Capital gain = Proceeds − Base cost (if positive).
    • Capital loss = Base cost − Proceeds (if negative).

  6. Apply exclusions and roll-overs:

    • Exempt assets (primary residence exemption, personal-use assets, etc.).
    • Specific roll-over provisions (e.g. para 65 – involuntary disposal).

  7. Aggregate across all disposals:

    • Sum all gains and losses for the year of assessment to get:
      • Aggregate capital gain or
      • Aggregate capital loss.

  8. Apply annual exclusion (where applicable):

    • For individuals and special trusts:
      • Annual exclusion for ordinary years.
      • Larger exclusion in year of death.

  9. Apply inclusion rate:

    • Multiply net capital gain by the inclusion rate:
      • Individuals & special trusts: 40%
      • Companies & other trusts: 80%
        (Rates current at many recent exam cycles; confirm for your exam year.)

  10. Include in taxable income:

    • Result = taxable capital gain (s 26A).
    • Add to other taxable income to get taxable income for the year.
    • Apply normal tax tables for that taxpayer category.

1.5 Key Exam Themes in TAX3703 and Related Courses

Exams in UNISA’s TAX3703, CUT’s TAX30AT, and related modules often centre on the following recurring themes:

  • Differentiating capital vs. revenue (important even though CGT is capital-related—distinguish whether gain goes to gross income vs. CGT).
  • Correctly identifying disposals and deemed disposals.
  • Correct determination of base cost (including valuations as at 1 October 2001).
  • Application of primary residence exemption (paras 44–49).
  • Treatment of personal-use assets (para 53).
  • Small business relief for active business assets (para 57).
  • CGT consequences for non-residents (immovable property and shares in property-rich companies).
  • CGT in estate planning and death (para 40; deemed disposals at death).
  • Integration with income tax (how taxable capital gain plugs into section 26A and the overall tax calculation).

For exam preparation:
Lecturers commonly draw integrated scenario questions that cover multiple paragraphs of the Eighth Schedule in one scenario. Practice is crucial to identify all potential CGT consequences for each event.

2. Key Concepts: Assets, Disposals, and Proceeds

2.1 Definition of an “Asset” (Eighth Schedule)

Per paragraph 1 of the Eighth Schedule, an asset includes:

  • Property of whatever nature, whether movable or immovable, and
  • Whether corporeal or incorporeal,
  • Including any right or interest in such property.

Examples of assets subject to CGT:

  • Immovable property: land and buildings, including primary residences and holiday homes.
  • Movable property: vehicles (if not personal-use), boats, aircraft, business equipment.
  • Financial assets: shares, units in unit trusts, debentures, crypto assets (treated as financial instruments in many SARS interpretations).
  • Intangible assets: goodwill, trademarks, patents, copyrights.
  • Rights and interests: rights in mineral resources, rights of use, usufructs, options, and similar.

Some assets may be exempt or partially exempt from CGT, but they still fall within the broad definition of “asset”.

2.2 Excluded Assets and Special Categories

Certain assets are entirely or partly excluded from CGT:

  1. Personal-use assets (para 53):

    • Assets mainly used for non-trade (personal enjoyment).
    • Examples:
      • Furniture, clothing, private-use vehicles, household appliances, sporting equipment.
    • CGT rule:
      • Capital losses on personal-use assets are disregarded.
      • Capital gains are still recognised (but often small or nil in practice).
    • Common exam trap: Correctly identify that capital loss on personal-use assets (e.g. selling own clothing or personal laptop) is not deductible.

  2. Certain insurance policies:

    • Proceeds under life insurance policies payable on death or disability may be exempt depending on policyholder/beneficiary structure.

  3. Personal effects with base cost < R1 000:

    • Not usually a big exam focus but may appear in detail-oriented questions.

  4. Retirement interests and certain long-term insurance products:

    • Transfer between retirement funds may be exempt.

Exam tip: Always first check if an asset is exempt or falls into a special category (primary residence, personal-use, retirement interest) before performing detailed CGT calculations.

2.3 What Constitutes a “Disposal”? (Para 11)

A disposal is any event, act, forbearance, or operation that results in the creation, variation, transfer, or extinction of an asset. It includes:

  • Sale, donation, exchange, or any other alienation.
  • Scrapping, loss, destruction, or expropriation.
  • Cancellation or termination of rights.
  • Distribution of assets in specie by a company or trust.
  • Certain corporate transactions (mergers, unbundlings, share-for-share exchanges).

Also includes deemed disposals, such as:

  • Emigration / ceasing to be a resident (section 9H).
  • Death of a taxpayer (para 40).
  • Granting of options or rights (para 11(2)).

Non-disposals (para 11(2)(b) and others) may include:

  • Transfer of assets between spouses in certain circumstances (subject to roll-over).
  • Certain corporate roll-overs (sections 42–47).

Example (UNISA-style):

  • Thabo owns shares in XYZ Ltd (listed). He sells them on 31 March 2025.
    • This is a disposal under para 11.
  • He also cancels an option to buy shares that he had previously acquired.
    • This cancellation may itself be a disposal of a right (para 11).

Exams often embed multiple disposals in one narrative; students must list them all and treat each separately where required.

2.4 Time of Disposal (Para 13)

The time of disposal is important for:

  • Determining year of assessment in which gain/loss is recognised.
  • Determining whether asset was held before/after 1 October 2001 (valuation date).
  • Applying foreign exchange rates and time-based apportionment.

General rule (para 13):

  • Disposal time = earliest of:
    1. When the agreement is concluded, or
    2. When the asset is transferred.

Contracts often govern disposal date:

  • If there is a suspensive condition, disposal occurs when condition is fulfilled, not when contract is signed.
  • If contract is not conditional, disposal date is usually the contract signature date.

Example:

  • Lindiwe sells her investment property on 15 February 2025; transfer only happens in May 2025.
    • If no suspensive condition, time of disposal = 15 February 2025 (within 2025/06 tax year depending on her year-end).
  • If sale is subject to “subject to bond approval” as suspensive condition, and bond is approved on 10 March 2025, time of disposal = 10 March 2025.

2.5 Determining “Proceeds” (Para 35)

Proceeds from a disposal = amount received or accrued (in money or otherwise) in respect of the disposal, reduced by any amount:

  • Already included in gross income, or
  • That is otherwise specially excluded (e.g. VAT amounts where seller is VAT-registered, certain taxes, etc.).

In practice, proceeds include:

  • Selling price of asset (Rands).
  • Market value if disposed of by donation or for inadequate consideration (connected persons rules may deem consideration to market value).
  • Compensation for loss, destruction, or damage (e.g. insurance payouts).
  • Consideration for granting, waiving, or renouncing a right.

Proceeds exclude:

  • Transfer duty, VAT, or other included taxes (to the extent they are payable by the seller and effectively reduce the seller’s proceeds).
  • Amounts already taxed as revenue under gross income (to avoid double taxation).

Example Calculation:

Nomsa sells an asset for R500 000 (including VAT of R65 217). She is a VAT vendor and the consideration is subject to VAT at 15%.

  • Selling price excluding VAT = R500 000 / 1.15 = R434 782.61 (rounded).
  • VAT = R500 000 − R434 782.61 = R65 217.39.
  • Proceeds for CGT = R434 783 (rounded to nearest rand; exam solutions usually round to the nearest rand).

Remember to follow rounding instructions given in the exam paper; UNISA examiners may accept minor rounding differences if clearly explained.

2.6 Connected Persons and Market Value Rules

When assets are disposed of to or from a connected person, the Eighth Schedule often requires market value to be used as proceeds or base cost instead of actual consideration.

Connected persons (simplified, Section 1 and para 1):

  • For an individual:
    • Their spouse, minor children, and trusts of which they (or any relative) are beneficiaries.
  • For a company:
    • Any person holding more than a specified percentage of shares (e.g. 20% or more, depending on context), as well as companies in the same group.

Common exam situations:

  1. Donation or sale at undervalue to a child:

    • Proceeds deemed at market value.
    • May trigger both CGT and donations tax.

  2. Transfer of business asset to a family trust at below-market price:

    • Proceeds may be deemed to be market value.
    • Connected person rules prevent shifting capital gains outside of the tax net.

Example:

Siphiwe sells a rental property to his daughter for R200 000. Market value is R450 000; base cost is R250 000.

  • For CGT, proceeds = R450 000 (market value).
  • Capital gain = R450 000 − R250 000 = R200 000.
  • Donations tax may also apply on the difference between R200 000 (consideration) and R450 000 (value), i.e. R250 000, subject to donations tax exemptions.

2.7 Disposal vs Non-Disposal in Exams

Students often lose marks by:

  • Treating events as disposals when they are not (e.g. pure revaluation without sale).
  • Missing disposals such as:
    • Cancelling a right.
    • Receiving insurance compensation for destroyed assets.
    • Deemed disposals at death or emigration.

In TAX3703, carefully read each line of a scenario. Highlight:

  • Sale events.
  • Donations or gifts.
  • Involuntary disposals (fire, theft, expropriation).
  • Transfers to connected persons.
  • Emigration or death.

Make a short list:

  1. Date.
  2. Asset.
  3. Parties involved (connected or not).
  4. Proceeds (cash, market value).
  5. Any special rule (primary residence, personal use, para 65 roll-over, etc.).

Then perform CGT calculations asset-by-asset.

3. Base Cost, Valuation Date & Calculation of Capital Gains/Losses

3.1 Components of Base Cost (Para 20)

Base cost of an asset is essentially the amount spent to acquire, improve, and dispose of the asset. It includes:

  1. Acquisition cost:

    • Purchase price or cost of creation (for self-created assets like a building).
    • Market value if acquired by donation, inheritance, or similar (subject to specific rules).

  2. Incidental costs of acquisition and disposal:

    • Transfer costs (conveyancing fees, transfer duty where not claimed as a deduction elsewhere).
    • Stamp duty, securities transfer tax (for shares).
    • Broker’s fees, agent commission.
    • Advertising, valuation fees paid to effect disposal/acquisition.

  3. Improvement or enhancement costs:

    • Capital improvements that enhance value or extend asset’s useful life.
    • Examples:
      • Building an extra room on a house.
      • Major renovations of commercial property.
    • Must be of a capital nature (not routine repairs deductible as revenue).

  4. Certain holding costs (limited circumstances):

    • Interest and other borrowing costs may be included if:
      • Incurred to acquire the asset, and
      • The asset is not used in producing income, and
      • The taxpayer is not a company (specific rules apply).
    • This is detailed and seldom examined at high complexity in TAX3703 but know that:
      • For income-producing assets, interest is typically a deduction under s 11(a); therefore not added to base cost.

  5. Costs of establishing, maintaining, and defending title to the asset:

    • Legal fees to register ownership.
    • Legal costs to defend ownership in court.

Base cost excludes:

  • Depreciation (wear-and-tear) previously claimed as deduction.
  • Repairs and maintenance claimed as revenue deductions.
  • Cost already allowed as deduction under any other section of the Act.

3.2 Valuation Date and Pre-1 October 2001 Assets

CGT applies only to capital gains accruing on or after 1 October 2001. The valuation date is 1 October 2001. For assets acquired before this date, only growth after this date is taxed.

Taxpayers must determine a valuation date value for pre-valuation date assets using one of the following methods:

  1. 20% of proceeds method (para 26):

    • Base cost = 20% of proceeds (for assets acquired before 1 October 2001).
    • Easy to apply but may not always be beneficial.

  2. Time-apportionment method (para 30):

    • Applies when actual cost is known, and asset acquired before 1 October 2001.

    • Capital gain is apportioned between pre- and post-valuation date periods based on time held.

    • Formula (simplified):

      • Capital gain = Proceeds − (expenditure allowable before valuation date + expenditure after valuation date).
      • Then apportion pre-valuation date portion to be excluded.

    • UNISA exams often provide a formula; read the question carefully.

  3. Market value as at 1 October 2001 (para 29):

    • Taxpayer could obtain a valuation as at 1 October 2001 (subject to SARS rules).
    • This value becomes de facto “cost” as at the valuation date.

Which method to choose?

  • Taxpayer must select the method that gives the best tax outcome (lowest gain).
  • In exams, you may be instructed to use a specific method or asked to compare two methods.

3.3 Example: Time-Apportionment Method

Assume:

  • Lerato acquired an investment property on 1 October 1995 for R100 000.
  • She sold the property on 30 September 2025 for R900 000.
  • Improvements:
    • R50 000 in 2000 (before valuation date).
    • R80 000 in 2010 (after valuation date).

Step 1: Determine periods:

  • Date acquired: 1 October 1995.

  • Valuation date: 1 October 2001.

  • Date sold: 30 September 2025.

  • Total holding period: 30 years (approx; more precisely 30 years less 1 day).

  • Pre-valuation period: 6 years (1995–2001).

  • Post-valuation period: 24 years (2001–2025).

(Exam solutions might use exact months/days; always follow the exam method.)

Step 2: Total cost (pre and post valuation date):

  • Pre-valuation: R100 000 (original cost) + R50 000 (improvement) = R150 000.
  • Post-valuation: R80 000.

Step 3: Calculate “total gain”:

  • Proceeds: R900 000.
  • Less total cost: R150 000 + R80 000 = R230 000.
  • Total capital gain (unapportioned) = R900 000 − R230 000 = R670 000.

Step 4: Apportion pre-valuation date portion (non-taxable):

  • Pre-valuation portion of gain = (Pre-period / Total period) × Total gain.
    = (6 / 30) × R670 000 = 0.2 × R670 000 = R134 000 (non-taxable).

Step 5: Post-valuation portion (taxable):

  • Taxable gain = Total gain − Pre-valuation gain
    = R670 000 − R134 000 = R536 000.

This R536 000 is then subject to further reliefs (e.g. primary residence exclusion if applicable).

Exam tip: Always show each step clearly:

  • Periods.
  • Pre- and post-valuation cost.
  • Apportionment.

Many marks are awarded for process rather than just the final number.

3.4 Market Value and 20%-of-Proceeds Examples

20% of proceeds method:

  • If Tshepo acquired shares before 1 October 2001 for an unknown or negligible cost and later sells them for R200 000 in 2025, and chooses the 20% method:

    • Base cost = 20% of proceeds = 20% × R200 000 = R40 000.
    • Capital gain = R200 000 − R40 000 = R160 000.

This method works well where:

  • Original cost is low or unknown.
  • Market value at 1 October 2001 is unknown or uncertain.

Market value method:

  • Suppose Nandi’s holiday home:

    • Original cost in 1990: R100 000.

    • Market value at 1 October 2001: R300 000 (proper valuation obtained).

    • Sold in 2025 for R1 000 000.

    • No improvements before or after valuation date.

    • If using market value method:

      • Base cost = R300 000.
      • Capital gain = R1 000 000 − R300 000 = R700 000.

    • If using 20% method:

      • Base cost = 20% × R1 000 000 = R200 000.
      • Capital gain = R800 000.

    • Market value method is better here (R700 000 < R800 000 capital gain).

Examiners may ask you to compute both and indicate which method is preferable (and why).

3.5 Treatment of Improvements, Repairs, and Holding Costs

Distinguish between:

  • Capital improvements (added to base cost).
  • Repairs and maintenance (deductible as revenue if asset produces income, but not added to base cost).

Example:

Alfred owns a rental property:

  • Replaces a broken window (R2 000) – repair (revenue; not added to base cost).
  • Builds a new garage (R50 000) – improvement (capital; added to base cost).
  • Repaints the house as regular maintenance (R15 000) – repair (revenue; not added to base cost).

For CGT calculation:

  • Base cost includes R50 000 (garage).
  • Excludes R2 000 and R15 000 (already deducted or deductible as revenue).

Holding costs:

  • Interest on bond used to acquire primary residence generally not capitalised to base cost (unless special conditions met).
  • Exams at TAX3703 level often provide explicit instructions if interest is to be included in base cost.

3.6 Calculation of Capital Gain/Loss: Basic Example (Individual)

Suppose a UNISA student, Kabelo, sells two assets in the same year of assessment:

  1. Listed shares (investment):

    • Proceeds: R120 000.
    • Base cost: R80 000.
    • Capital gain: R40 000.

  2. Personal-use car:

    • Proceeds: R50 000.
    • Base cost: R90 000.
    • Capital loss (if considered purely): R40 000 loss.

Because the car is a personal-use asset:

  • Capital loss on the car is disregarded (para 53).
  • Only the share disposal is relevant to CGT.

Aggregate capital gain:

  • R40 000 (shares) – R0 (no allowable loss) = R40 000.

Apply annual exclusion (assuming ordinary year, not year of death, and that Kabelo has no other CGT events):

  • Annual exclusion (e.g. R40 000, depending on exam year – use figure given by exam question).
    Assume R40 000.

  • Net capital gain = R40 000 − R40 000 = R0.

  • Taxable capital gain = R0 × inclusion rate (40%) = R0.

Conclusion: No CGT is payable even though there was a gain on shares, because the annual exclusion covered the gain.

4. Specific CGT Reliefs and Exemptions (Individuals, Companies, Trusts)

4.1 Annual Exclusion (Individuals & Special Trusts)

The annual exclusion is one of the most important CGT reliefs for individuals and special trusts (type A).

  • Available per year of assessment, not per disposal.
  • Deducted from aggregate capital gain or aggregate capital loss (whichever is applicable).

Typical values (subject to legislation updates; confirm for exam):

  • Ordinary year: e.g. R40 000.
  • Year of death: e.g. R300 000.

Application order:

  1. Aggregate all capital gains and losses for the year.
  2. Deduct annual exclusion.
  3. Remaining amount (if positive) = net capital gain → apply inclusion rate.
  4. Remaining amount (if negative) = assessed capital loss carried forward (after exclusion).

Example:

Samke (individual) has:

  • Capital gain on shares: R60 000.
  • Capital loss on unit trust: (R10 000).

Aggregate capital gain:

  • R60 000 − R10 000 = R50 000.

Apply annual exclusion (R40 000):

  • Net capital gain: R50 000 − R40 000 = R10 000.

Inclusion rate for individual (40%):

  • Taxable capital gain = R10 000 × 40% = R4 000.

This R4 000 is included under s 26A in Samke’s taxable income.

4.2 Primary Residence Exemption (Paras 44–49)

A primary residence is a dwelling in which a natural person or his/her spouse ordinarily resides and which they use mainly for domestic purposes.

Key conditions:

  • Must be owned by a natural person or a special trust.
  • Must be the person’s primary residence (subject to periods of absence rules).
  • Land size not exceeding 2 hectares; excess land may be treated differently.

Relief mechanisms:

  1. Exclusion of first portion of capital gain:
    • A certain amount of capital gain on disposal of a primary residence is excluded (e.g. first R2 million of capital gain).
  2. Exclusion if proceeds ≤ R2 million (simplified rule):
    • If total proceeds from sale of primary residence do not exceed R2 million, the entire capital gain may be excluded, assuming the residence was always used as primary residence and not for business use.

Calculation steps:

  1. Calculate capital gain:
    Proceeds − Base cost.
  2. Adjust for periods of non-primary use or business use (apportion gain).
  3. Apply primary residence exclusion (e.g. R2 million).
  4. Apply annual exclusion (after primary residence deduction).

Example:

Ayanda sells her primary residence for R3 500 000.

  • Base cost: R1 000 000.
  • Capital gain before relief = R3 500 000 − R1 000 000 = R2 500 000.
  • Primary residence exclusion (R2 000 000) → net gain = R500 000.
  • Annual exclusion R40 000:
    • Remaining gain = R500 000 − R40 000 = R460 000.
  • Inclusion rate 40%:
    • Taxable capital gain = R460 000 × 40% = R184 000.

This amount is included in Ayanda’s taxable income.

Periods of absence and mixed use:

  • If part of the house is used for trade (e.g. a home office) or if taxpayer lets the property for certain periods, the exemption may be apportioned.
  • Exams often provide a simple formula or state that the residence was exclusively used as primary residence, making calculations easier.

4.3 Personal-Use Assets (Para 53)

As discussed earlier:

  • Personal-use assets = assets mainly used for non-trade, personal enjoyment.
  • Capital losses on personal-use assets are disregarded.
  • Capital gains are still recognised, but in practice rarely large.

Examples:

  • Private motor vehicle (not used in business).
  • Personal jewellery, artworks, TVs, furniture.

Exam favourite:

  • Student buys a personal laptop for R20 000 and sells it after a few years for R5 000.
    • Capital loss (R15 000) is not allowed.
  • If the laptop was used 100% for business and claimed wear-and-tear under s 11(e), the situation changes (treated as a business asset rather than personal-use).

4.4 Small Business CGT Relief (Para 57 – Active Business Assets)

For small businesses owned by individuals over a certain age (e.g. 55), special CGT relief may apply:

Conditions (simplified):

  • Individual disposes of active business assets of a small business or their interest in a small business.
  • Market value of business interests and active assets must not exceed a specified threshold (e.g. R10 million).
  • Taxpayer must be at least 55 years old, or disposal must be due to ill health, disability, or death.
  • Asset or interest must have been active in carrying on business.

Relief:

  • A lifetime exemption of a large amount (e.g. R1.8 million, though this value is subject to change in law) against capital gains on active business assets.

This is more advanced and sometimes examined in overview form in TAX3703. For UNISA BCom Taxation:

  • Be familiar with:
    • Eligibility criteria (age, asset type, business size).
    • Lifetime nature of the exemption.

4.5 Corporate and Trust CGT Features

Companies:

  • No annual exclusion.
  • Inclusion rate = 80%.
  • CGT is integrated into company income tax (flat rate, e.g. 27% for recent years).
  • Effective CGT rate for companies = 80% × company tax rate (e.g. 0.8 × 27% = 21.6% effective rate, subject to law at exam date).

Trusts:

  • Inclusion rate = 80% (except special trusts – same as individuals).
  • Often pay tax at a flat trust rate (e.g. 45% in some years).
  • Effective CGT rate = 0.8 × trust rate (e.g. 0.8 × 45% = 36%).

Special trusts (type A):

  • Trusts created solely for the benefit of a person with a disability (and certain relatives).
  • Treated similarly to individuals for CGT:
    • Inclusion rate = 40%.
    • Annual exclusion available.

Distributions of capital gains to beneficiaries:

  • Para 80–82 (at more advanced level) detail how capital gains can be attributed to beneficiaries of trusts.
  • TAX3703 may require only a general understanding:
    • If capital gain is vested in a beneficiary in the same year as it arises, it may be taxed in the beneficiary’s hands, not the trust’s.

4.6 Non-Residents and CGT

Non-residents are only subject to CGT in South Africa on:

  1. Immovable property in South Africa, or
  2. Shares in a company where:
    • At least 80% of market value is attributable to SA immovable property, and
    • The shareholder holds at least 20% of the equity (property-rich companies).

For non-residents:

  • Inclusion rates are the same as for residents for their taxpayer type (individual, company, trust).
  • Double tax agreements (DTAs) may assign taxing rights between SA and the non-resident’s home country.

Example:

  • A German resident owns a holiday home in Cape Town (immovable property).
  • He sells it with capital gain of R600 000.
  • South Africa may tax this gain under CGT rules (subject to DTA provisions).

5. Integrated CGT Examples, Exam Technique & Cross-University Relevance

5.1 Integrated Individual Example (UNISA TAX3703 Focus)

Scenario:

Zanele, a South African resident individual, is a UNISA BCom (Taxation) student. During the 2025 tax year, she has the following transactions:

  1. Primary residence:

    • Bought in 2010 for R800 000.
    • Improvements in 2015: R200 000.
    • Sold in 2025 for R3 000 000.
    • Always used as her primary residence, entirely for domestic purposes.

  2. Investment shares on JSE (not trading stock):

    • Bought in 2020 for R150 000 (brokerage R3 000 included in cost).
    • Sold in 2025 for R260 000 (brokerage R4 000).

  3. Personal-use car:

    • Bought in 2022 for R300 000.
    • Sold in 2025 for R180 000.

Assume:

  • Annual exclusion: R40 000.
  • Inclusion rate (individuals): 40%.

Required: Calculate Zanele’s taxable capital gain for 2025.

5.1.1 Step 1: Calculate Capital Gain/Loss per Asset

(a) Primary residence

  • Proceeds: R3 000 000.
  • Base cost: R800 000 + R200 000 = R1 000 000.
  • Capital gain before relief: R3 000 000 − R1 000 000 = R2 000 000.

Apply primary residence exclusion (R2 000 000):

  • Net gain on primary residence = R2 000 000 − R2 000 000 = R0.

(b) Investment shares

  • Proceeds: R260 000 − R4 000 (brokerage) = R256 000.
    • Some examiners treat full R260 000 as proceeds and R4 000 as part of base cost; both yield same net gain. Here, simplify by adjusting proceeds.
  • Base cost: R150 000 (including R3 000 initial brokerage).
  • Capital gain = R256 000 − R150 000 = R106 000.

(c) Personal-use car

  • Proceeds: R180 000.
  • Base cost: R300 000.
  • Capital loss (if considered gross) = R120 000 loss.

However, this is a personal-use asset (private car):

  • Capital loss on personal-use asset is disregarded (para 53).
  • No gain or loss recognised for CGT purposes.

5.1.2 Step 2: Aggregate Capital Gains and Losses

Only include:

  • Shares: R106 000.
  • Primary residence: R0.
  • Personal car: R0.

Aggregate capital gain: R106 000.

5.1.3 Step 3: Apply Annual Exclusion

Annual exclusion: R40 000.

  • Net capital gain = R106 000 − R40 000 = R66 000.

5.1.4 Step 4: Apply Inclusion Rate

Inclusion rate for individuals: 40%.

  • Taxable capital gain = R66 000 × 40% = R26 400.

This R26 400 is included in Zanele’s taxable income under s 26A and taxed using the individual income tax tables.

5.2 Integrated Example with Pre-2001 Asset and Emigration (Advanced)

Scenario draws on content typical in UNISA TAX3703, CUT TAX30AT, and NWU TAXE 321:

Scenario:

Mandla, a South African resident individual, acquired an investment property (not primary residence) on 1 October 1998 for R300 000. He spent R100 000 on improvements in 2005 and R50 000 in 2015. On 30 June 2025, Mandla emigrates and ceases to be a South African tax resident. The property is deemed disposed of at market value of R1 500 000 on that date, but he retains ownership (actual sale may occur later overseas).

Assume:

  • No valuation was performed on 1 October 2001.
  • Mandla chooses the time-apportionment method.
  • Annual exclusion: R40 000.
  • Inclusion rate for individuals: 40%.

Required: Determine Mandla’s taxable capital gain for 2025 in respect of this property.

5.2.1 Identify Disposal Event

  • Under section 9H and the Eighth Schedule, ceasing to be a resident triggers a deemed disposal at market value for CGT purposes.
  • Disposal date: 30 June 2025.
  • Proceeds deemed = market value at that date: R1 500 000.

5.2.2 Determine Base Cost Using Time-Apportionment

  1. Pre-valuation date cost (before 1 October 2001):

    • Original cost: R300 000 (acquired on 1 October 1998).

    • No improvements before 1 October 2001.

    • Pre-VD cost = R300 000.

  2. Post-valuation date cost:

    • Improvement in 2005: R100 000.

    • Improvement in 2015: R50 000.

    • Post-VD cost = R150 000.

Total expenditure = Pre-VD (R300 000) + Post-VD (R150 000) = R450 000.

  1. Calculate total (unapportioned) gain:

    • Proceeds: R1 500 000.
    • Less total expenditure: R450 000.
    • Total gain = R1 050 000.

  2. Determine pre- and post-VD periods:

    • Acquisition: 1 October 1998.
    • Valuation date: 1 October 2001.
    • Deemed disposal: 30 June 2025.

    Approximate holding:

    • Pre-VD: 3 years (1998–2001).
    • Post-VD: about 23 years and 9 months (2001–2025).
    • Total: about 26 years and 9 months (rounded for exam; often use exact months).

    For simplicity, use:

    • Pre-VD period = 3 years.
    • Total period = 27 years (approx).

    Apportionment ratio:

    • Pre-VD portion = 3/27 = 1/9.
    • Post-VD portion = 8/9.

  3. Pre-VD gain (non-taxable):

    • Pre-VD gain = 1/9 × R1 050 000 = R116 666.67 (~R116 667).

  4. Post-VD gain (taxable portion):

    • Taxable portion = Total gain − Pre-VD gain
    • = R1 050 000 − R116 667
    • ≈ R933 333 (rounding may vary slightly).

For exam purposes, write clearly:

  • Post-valuation date capital gain ≈ R933 333.

5.2.3 Apply Annual Exclusion and Inclusion Rate

Annual exclusion: R40 000.

  • Net capital gain = R933 333 − R40 000 = R893 333.

Inclusion rate: 40%.

  • Taxable capital gain = R893 333 × 40% ≈ R357 333.

This amount is included in Mandla’s taxable income for 2025 in respect of the deemed disposal on emigration.

5.3 Example Involving Company and Trust (Cross-Module Relevance)

Scenario relevant to TAX3703, advanced UNISA modules like TAX3704, and CTA courses at UNISA and other universities:

Scenario:

  • BrightTech (Pty) Ltd, a South African resident company, disposes of a factory building used in its manufacturing trade.
  • Acquisition cost (2010): R2 000 000.
  • Improvements (2018): R500 000.
  • Depreciation (building allowances) claimed under s 13quin: R600 000 in total.
  • Disposal in 2025 for R4 500 000.
  • Company tax rate: 27%.
  • Inclusion rate for companies: 80%.

Required: Determine the capital gain and tax consequences, ignoring recoupments for simplicity except as they affect base cost.

5.3.1 Base Cost for Company

Base cost of building:

  • Acquisition: R2 000 000.
  • Improvements: R500 000.
  • Total: R2 500 000.

However, depreciation claimed as allowances under s 13quin:

  • R600 000 has been allowed as deduction from income tax.

Per Eighth Schedule rules:

  • Any amount already deducted from income (e.g. capital allowances) generally reduces base cost.

Thus, adjusted base cost:

  • R2 500 000 − R600 000 = R1 900 000.

5.3.2 Capital Gain

Proceeds: R4 500 000.
Base cost (adjusted): R1 900 000.

  • Capital gain = R4 500 000 − R1 900 000 = R2 600 000.

5.3.3 Taxable Capital Gain and Corporate Tax

Inclusion rate: 80%.

  • Taxable capital gain = R2 600 000 × 80% = R2 080 000.

This R2 080 000 is added to BrightTech’s taxable income for 2025 and taxed at 27%.

  • CGT portion of tax = R2 080 000 × 27% = R561 600.

Effective CGT rate = 21.6% of capital gain (561 600 / 2 600 000).

Note: In a full exam question, you might be expected to also calculate any recoupment of s 13quin allowances, but TAX3703 may focus only on CGT aspects.

5.4 Exam Technique: UNISA TAX3703, CUT TAX30AT, and Others

1. Time Management:

  • For an exam like UNISA TAX3703, typical structure:
    • 2 or 3 long scenario questions.
    • 1 or 2 shorter theory/definition questions.
  • Allocate time proportional to marks:
    • 1 mark ≈ 1 minute (as a rough guide).
  • Start with the question where you feel strongest (often the main CGT scenario).

2. Read the facts twice:

  • First reading: general understanding.
  • Second reading: underline or highlight:
    • Each disposal event.
    • Acquisition dates, costs, improvements.
    • Whether asset is primary residence, personal-use, investment.
    • Indications of connected persons.
    • Emigration, death, or corporate events (possible deemed disposals).

3. Identify the taxpayer:

  • Individual, company, or trust?
    • Determines inclusion rate.
    • Determines whether annual exclusion applies.
    • Determines availability of primary residence or small business relief.

4. Structure your answer:

For each asset:

  1. Heading: “Asset 1 – Investment property” (for example).
  2. Proceeds calculation.
  3. Base cost calculation (with notes on which items are included or excluded).
  4. Capital gain or loss.
  5. Apply any specific relief (primary residence, para 53 personal-use, roll-over).
  6. Move to the next asset.

At the end, summarise:

  • Aggregate capital gains and losses.
  • Annual exclusion (if applicable).
  • Net capital gain / assessed capital loss.
  • Apply inclusion rate.
  • Calculate taxable capital gain.

Examiners often give marks for the layout and clear stepwise approach, even if numbers or minor details differ.

5. Show workings clearly:

  • Use sub-headings and bullet points.
  • Label each part (a), (b), etc., in line with question.
  • Use intermediate subtotals.

6. Link to theory:

  • Briefly reference relevant paragraphs/sections where appropriate, for example:
    • “(primary residence exclusion per para 45)”
    • “(personal-use asset loss ignored per para 53)”
    • “(annual exclusion per para 5)”

This demonstrates theoretical understanding, which is especially important for PART-B style written questions in UNISA exams.

5.5 Cross-University Relevance and Further Study

UNISA TAX3703:

  • Core CGT module focusing on capital gains of individuals, companies, and trusts.
  • Forms base for advanced modules such as:
    • TAX3704 – Taxation of Business Entities.
    • TAX4862 – Advanced Taxation (CTA-level).

CUT (Central University of Technology) – TAX30AT:

  • Often integrates CGT as part of a broader third-year Taxation syllabus.
  • CGT coverage is usually similar in principle:
    • Valuation date.
    • Base cost.
    • Primary residence.
    • Annual exclusion.
    • Company CGT.

NWU, UJ, and other universities:

  • Courses such as TAXE 321, TXC3A1, or similar codes may:
    • Cover CGT at a comparable depth.
    • Use different textbooks but rely on the same Income Tax Act provisions.

For students progressing to postgraduate tax or CTA (e.g., at UNISA, UJ, NWU, UP):

  • CGT content will be extended to:
    • Detailed corporate roll-over relief (sections 42–47).
    • Share-for-share transactions.
    • Group company reorganisations.
    • Trust CGT planning and attribution rules.

Strengthening CGT understanding in TAX3703 is crucial preparation for modules like:

  • UNISA: TAX4862 – Advanced Taxation.
  • UNISA: CTA-level taxation in HCTA/CTA programmes.
  • UNISA: BCTA bridging programmes that target PGDA entry (similar to students searching for “TAX3703 exam notes” or “UNISA BCom Taxation CGT study notes”).

5.6 Common Pitfalls and How to Avoid Them

  1. Confusing revenue with capital:

    • Trading stock or shares held as part of business (e.g., dealer in shares) may be on revenue account, not capital.
    • Exams sometimes ask you to justify why a transaction is capital, which is then brought into CGT.

  2. Ignoring personal-use asset rules:

    • Claiming capital loss on a personal car or household furniture.
    • Always test: was the asset used mainly for personal enjoyment?

  3. Wrong inclusion rate or forgetting annual exclusion:

    • For individuals: 40% inclusion, annual exclusion applies.
    • For companies: 80% inclusion, no annual exclusion.
    • For ordinary trusts: 80% inclusion, no annual exclusion.

  4. **Forgetting to adjust base cost for:

    • Capital allowances (e.g., s 11(e), s 13, s 13quin).
    • Improvements vs repairs.

  5. Misapplication of primary residence relief:

    • Applying relief to more than 2 hectares.
    • Ignoring business use portion (e.g., part of house used as office or rental).

  6. Overlooking deemed disposals:

    • Death (para 40).
    • Emigration (section 9H and Eighth Schedule).
    • Transfers to spouses on death (roll-over), which may be CGT-neutral at that point but can affect future base cost.

  7. Not reading the question carefully:

    • Many UNISA and CUT exam questions explicitly say:
      • “Ignore VAT.”
      • “Ignore donations tax.”
      • Or “All amounts are VAT-exclusive.”
    • Missing such instructions can cause incorrect proceeds/base cost.

5.7 Final Exam-Ready Checklist for TAX3703 (UNISA and Similar Modules)

Before your exam or test, ensure you can:

  1. Define and explain:

    • Asset, disposal, proceeds, base cost, valuation date.
    • Primary residence.
    • Personal-use asset.
    • Annual exclusion.
    • Taxable capital gain, assessed capital loss.

  2. Apply valuation date methods:

    • Time-apportionment.
    • 20% of proceeds.
    • Market value.

  3. Calculate base cost:

    • Distinguish between acquisition cost, incidental costs, and improvements.
    • Exclude revenue expenses and allowances already deducted.

  4. Work through integrated scenarios:

    • Multiple disposals over different years.
    • Pre- and post-2001 acquisitions.
    • Individuals vs companies vs trusts.
    • Emigration or death.

  5. Explain reliefs and exemptions:

    • Primary residence exclusion (R2 million).
    • Annual exclusion.
    • Personal-use asset rules.
    • Overview of small business CGT relief.

  6. Structure answers clearly:

    • Stepwise calculations.
    • Reference to relevant paragraphs/sections.
    • Brief explanations alongside numbers.

  7. Handle short theory questions:

    • “Briefly discuss the treatment of personal-use assets for CGT.”
    • “Explain how capital gains are taxed in the hands of non-residents.”
    • “Discuss the purpose of the primary residence exclusion.”

By integrating these skills with solid understanding of South African tax law, students enrolled in UNISA’s TAX3703, CUT’s TAX30AT, or similar university modules can approach CGT exam questions with confidence and accuracy.

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