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All capital gains and capital losses made on the disposal of assets must be taken into account in determining a taxable capital gain or assessed capital loss unless excluded by specific provisions.
CGT forms part of the income tax system and a taxable capital gain must be included in taxable income. A body corporate, a share block company and an association of persons have an inclusion rate of 80%. This means that 80% of a capital gain will be included in the taxable income of a company. In practice it would be unusual for a body corporate, a share block company or an association of persons to derive a capital gain during the normal course of its operations as illustrated by the following examples:
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Movable depreciable assets such as washing machines used in a common laundry room are unlikely to yield capital gains on disposal because this would require a consideration in excess of the original cost.
- The common property in a development scheme is owned by the sectional title holders jointly in undivided shares and not by the body corporate. Thus the sale of a portion of the common property will not have CGT consequences for the body corporate; rather the unit holders must account for any capital gain or capital loss.
- The transfer of immovable property in a share block company to a holder of shares in the company will not give rise to a capital gain or capital loss in the company. Such a transfer could involve a conversion to sectional title or a transfer of freehold title. In this regard paragraph 67B(3)(a) of the Eighth Schedule provides that the share block company must disregard any capital gain or capital loss determined on the disposal. Likewise, paragraph 67B(3)(b)(i) provides that the holder of shares must disregard any capital gain or loss on disposal of the share, which of necessity includes the right of use and occupation attaching to the share. The capital gain or capital loss made by the person acquiring the immovable property is deferred until the person actually disposes of it. This roll-over treatment is achieved by carrying across to the immovable property details of the cost and date of acquisition of the shares, cost and date of effecting improvements, usage, and any market valuation performed on valuation date.
