Q: A client disposed
of several motor vehicles. The vehicles were thus not trading stock. When I am
completing the ITR14, one question is whether there was there a capital gain or
loss in the financial year. My question is does the disposal of motor vehicles
result in CGT?
A: The base cost of an asset
must be reduced by an allowance claimed (e.g. s11(e) ITA wear& tear) per
para 20(3)(a) Eighth Schedule of the Income Tax Act (ITA). On disposal of the
asset the amount recouped on sale (i.e. exceeds base cost) must be reduced from
base cost unless it was included in income in terms of section 8(4)(a) of the
ITA. The recouped amount will also not form part of proceeds on disposal if
included in income.
For example, a car
purchased for R100, is kept for 2 years and R40 wear& tear claimed (i.e.
base cost is now R100-R40 ito para 20(3)(a)). It is sold for R70 proceeds. A
recoupment of R10 will be included income as an amount recovered of a previous
allowance (i.e. amount in excess of base cost) in terms of section 8(4)(a) of
the ITA. R10 will then also be deducted off the proceeds which makes the
proceeds R60 which is the same as the base cost resulting in no capital gain.
If the car had been sold for R110, then R40 would be a taxable recoupment and
the proceeds would be reduced by R40. Therefore a capital gain of R10 would be
realised (R70 proceeds – R60 base cost).
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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