Capital gain arising from recovery or recoupment of base cost

Example 1 – Base cost recovery through repossession

Facts:
In the 2003 year of assessment Debbie’s brand new delivery van that cost her R150 000 was stolen. It was uninsured and she claimed a capital loss for the cost of the vehicle in her 2003 return of income. She was unable to claim a scrapping allowance as the vehicle had not been ‘scrapped’. During the 2005 year of assessment the police recovered the badly damaged vehicle, which at that point had a market value of R10 000.
Result:
The market value of the recovered vehicle is an ‘amount’ (it has a money value) which has been received by or has accrued to Debbie. The R10 000 represents a recovery of part of the base cost of the vehicle and must be treated as a capital gain in 2005. Note: Under the current law Debbie would be entitled to elect to claim a revenue loss in respect of the theft of the vehicle.
 

Example 2 – Base cost recovery through reduction in purchase price

Facts:
Bryan purchased a beach cottage in 2009 and shortly thereafter discovered that it was infested with white ants. The seller had not informed him of the infestation. He sold the property in 2010 and realised a capital gain of R15 000 on which he was assessed in that year. In the meanwhile he sued the seller of the property for misrepresentation and after a protracted legal battle received a discount on the purchase price of R18 000 during the 2013 year of assessment.
Result:
The recovery of R18 000 will be reflected as a capital gain in his 2013 return of income.