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Whether a foreign capital loss can be set-off against a local capital gain

21 October 2014   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: Our South African resident client sold his shares in a UK company and realised a capital loss thereon. In the same tax year he sold his shares in a South African company and realised a capital gain. Can the foreign capital loss be offset from the local capital gain in the calculation of capital gains tax?

A: The ‘prohibition’ that you refer to may well be to the fact that a taxable capital gain may not be set off against a foreign assessed loss or balance of a foreign assessed loss brought forward from the preceding year of assessment. This follows from the definition of the term ‘taxable income’ read with paragraph (b) of the proviso to section 20(1).  

The Eighth Schedule, in contrast, contains no restriction on the set-off of foreign capital losses against domestic capital gains. Nor does it restrict the set-off of domestic capital losses against foreign capital gains. Thus, subject to the clogged loss rule in paragraph 39 and the anti-avoidance provisions of section 103/Part IIA, there is nothing to prevent the set-off of a foreign capital loss against a local capital gain.  

Disclaimer: Nothing in this query and answer should be construed as constituting tax advice or a tax opinion. An expert should be consulted for advice based on the facts and circumstances of each transaction/case. Even though great care has been taken to ensure the accuracy of the answer, SAIT do not accept any responsibility for consequences of decisions taken based on this query and answer. It remains your own responsibility to consult the relevant primary resources when taking a decision.


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