What is base cost?
- Acquisition cost
The costs actually incurred in acquiring or creating an asset. For example, these costs could include the cost of purchasing an asset or the cost of erecting a building. The expenditure should not have been claimed against income.
- Incidental costs of acquisition and disposal
Any of the following costs actually incurred as expenditure directly related to the acquisition or disposal of an asset.
- The remuneration of a surveyor, valuer, auctioneer, accountant, broker, agent, consultant or legal advisor, for services rendered
- Transfer costs
- Stamp Duty, Transfer Duty, Securities Transfer Tax or similar duty or tax
- Advertising costs to find a seller or to find a buyer
- The cost of moving the asset from one location to another
- The cost of installing an asset, including the cost of foundations and supporting structures
- A portion of donations tax paid according to a formula
- If that asset was acquired or disposed of by the exercise of an option (other than the exercise of an option acquired before the valuation date), the expenditure actually incurred on the acquisition of the option
- Value-added tax not allowed as an input deduction (section 23C)
- Capital costs of establishing, maintaining or defending title or right to an asset
These costs would include, for instance, legal costs actually incurred in respect of a court dispute relating to maintaining your right or title to an asset you own.
- Cost of improvements or enhancements
- The improvement or enhancement must still be reflected in the asset’s state or nature at the time of its disposal.
- Valuation date value of an option
- One third of the interest incurred in acquiring listed shares or unit trusts
- Certain amounts that have been included in the person’s income and amounts arising as a result of value shifting arrangements.
Base cost – composite acquisitions
Assets are sometimes acquired with other assets as part of a composite acquisition. For example, a single contract of purchase may be entered into at an inclusive price embracing multiple assets. In these circumstances the purchase price must be apportioned to the respective assets broadly by reference to their market values at the date of acquisition. The onus rests on the taxpayer to justify any allocation.
What if an asset was acquired before the valuation date?
I hold units in a unit trust through a management company that charges me a monthly fee. Is this fee deductible from any capital gain that I may make?
I hold units that are held in income and gilt unit trusts. These pay interest (on which income tax is paid), and which is reinvested. On selling these units will I have to pay CGT on the difference between the original capital amount and the redeemed amount bearing in mind that this increased amount will include the reinvested interest amount on which income tax has already been paid?
If, after 1 October 2001, an investor were to add monthly to units in a unit trust fund acquired before valuation date and then sell all the units how would the loss/gain be calculated?
|Date||No. of units ||Cost per Unit ||Cost|
|1 October 2001||100||15.00||1500|
|1 November 2001||50||16.00||800|
|1 December 2001||150||17.00||2550|
|1 January 2002||100||13.50||1350|
|Date||No. of units||Cost per Unit||Cost|
|28 February 2002||-125||15.50||-1937.50|
|Date||No. of units ||Cost per Unit||Cost|
|1 April 2002||100||18.00||1800.00|
- Number of units disposed of by the unit holder;
- Cost of those units determined on the weighted average basis;
- Proceeds on disposal of those units; and
- Gain derived from, or loss incurred in respect of, the disposal of those units.
I bought LISTED shares in 1999 for R100 each. The average price at the starting date for CGT (1 October 2001) is R60. I then sell these shares at a date after 1 October 2001 for R70. Am I now liable for CGT on the R10 being the difference between the realised price and the valuation date value when in fact I made an actual loss of R30 per share?
Do paragraphs 26 and 27 apply to listed shares and units in a unit trust?
- foreign listed shares and foreign unit trusts for which you have not determined a market value; or
- when you have adopted the weighted average method for determining the base cost of the relevant assets.
Can interest incurred on the acquisition of shares in a private company be added to base cost?
Why does the time-apportionment method give different results in the scenarios set out below?
An individual acquired an office block 16 years before 1 October 2001 for R250 000. A set of storerooms were added at a cost of R60 000 two years before 1 October 2001. A new wing was added at a cost of R300 000, a year after 1 October 2001. The office block was sold for R2 000 000, two years after 1 October 2001.
The same facts but the cost of adding the storeroom and new wing was all incurred one year before 1 October 2001. Why is it that if you incurred it over a period your gain is higher than if you incurred it once?
Pre-valuation date expenditure is R250 000 + R60 000 = R310 000Post-valuation date expenditure = R300 000Total expenditure = R610 000Proceeds R2 000 000Period property held before valuation date = 16 years.Period held after valuation date = 2 years.Total = 18 years.Pre-valuation date proceeds = Proceeds x pre-valuation date expenditureTotal expenditure = R2 000 000 x R310 000R610 000= R1 016 393Gain produced by pre-valuation date expenditure =R1 016 393 – R310 000 = R706 393Portion of capital gain attributable to period before valuation date = R706 393 x 16 years18 years= R627 905
Valuation date value = R310 000(pre-valuation date expenditure) + R627 905 = R937 905Total base cost = R937 905 + R300 000= R1 237 905Capital gain = proceeds – base cost= R2 000 000 – R1 237 905= R762 095
Proceeds are all attributable to pre-valuation date expenditure = R2 000 000Total costs = R610 000Gain = R1 390 000Time apportionment base cost R1 3900 000 x 16/18years = R1 235 556Base cost = R610 000 + R1 235 556 = R1 845 556Capital gain = R2 000 000 – R1 845 556 = R154 444
IT-PP-02-G01 – Amounts to be withheld when non resident sells immovable property in SA – External Guide
NR02 – Declaration by Purchaser for Sale of Immovable Property in SA by Non Resident – External Form
NR03 – Tax Directive Application by Non Resident Seller of Immovable Property in SA – External Form