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Calculating CGT? Make sure you understand these two key concepts first

by , 15 January 2014
Capital Gains Tax (CGT) is a tax you pay on the profits you make on the disposal (sale) of your assets. And there are two key concepts you must understand before you calculate your CGT. Continue reading to find out what they are.

You must understand two key concepts before you take charge of your business's CGT.

  1. Assets; and
  2. Disposals.

Let's take a closer look at each of these key concepts.

Understand these two concepts before you start to calculate your CGT

#1: Assets

An asset is any property, or any interest in that property, for example houses, cars and machinery.

The following assets are subject to CGT:

  • Residence that's owned by a company, close corporation or trust, other than a special trust;
  • Holiday homes or second homes and properties let to tenants;
  • A boat exceeding 10m;
  • Caravans;
  • An aircraft, the empty mass of which exceeds 450kg;
  • Shares, unit trusts and private investments, and second-hand policies;
  • Krugerrands or other silver, platinum, or gold-minted coins, or any other coin, which market value is mainly in the metal it's made of;
  • The sale of your business, other than on retirement;
  • All other capital assets.

#2: Disposals

'A disposal is an event, act, forbearance or operation of law that triggers CGT,' says the Practical Tax Loose Leaf Service.

It includes any:

  • Sale, donation, expropriation, conversion, grant, cession, exchange, any other alienation or transfer of ownership of an asset;
  • Forfeiture, termination, redemption, cancellation, surrender, discharge, relinquishment, release, waiver, renunciation, expiry or abandonment of an asset;
  • Scrapping, loss or destruction of an asset;
  • Vesting an interest in a trust's asset, which is further vested in a beneficiary;
  • Distribution of an asset by a company to a shareholder;
  • Granting, renewing, extending or exercising an option;
  • Decrease in value of a person's interest in a company, trust or partnership because of a value shifting arrangement.

Note: There's no disposal of an asset where you transfer an asset as security for a debt or you transfer that asset back when a security is released.

When calculating CGT, you'll come across these key concepts. So make sure you understand them well. This'll go a long way in ensuring you calculate your CGT correctly.

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