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Chapter 7 - Coggle Diagram
Chapter 7
Section 7.4 - Disposal of Assets (s 11(o))
Who Qualifies
Taxpayers disposing of depreciable assets
Must have previously qualified for allowances (s 11(e), 11D, 12B, etc.)
Scope
Applies when asset is sold, given away, or destroyed
Excludes assets with a tax life > 10 years
Allowance & Calculation
s 11(o) Deduction = Cost of Asset - (Total allowances claimed + Proceeds)
Example: Delivery van cost R120k, allowances R90k, sold for R10k -> s 11(o) = R20k deduction
Exceptions
Asset never used in trade
Disposal occurred in prior year or has not yet occurred
Asset acquired for no consideration (cost = Rnil)
Disposal to a connected person
Notes
Taxpayer must elect to use s 11(o)
Both actual and deemed allowances count (e.g., exempt trade use treated as deemed allowance)
Section 7.11.1 - General Recoupment (s 8(4)(a))
Who Qualifies
Taxpayers disposing of allowance assets
Scope
Selling price > tax value
Difference (up to original cost) = taxable recoupment
Allowance & Calculation
Recoupment = Selling price (limited to cost) - Tax value
Limited strictly to allowances previously claimed
Example: Vehicle cost R180k, tax value R63k, sold for R200k -> Recoupment = R117k (limited to allowances)
Notes
Excess above original cost -> capital gain (CGT)
Recoupment amount is included directly in gross income
Section 7.11.2 - Deferred Recoupment (s 8(4)(e)-(eE))
Who Qualifies
Taxpayers electing rollover relief under Eighth Schedule paras 65/66
Scope
Recoupment is deferred if proceeds are reinvested in replacement asset(s)
Allowance & Calculation
Para 65: Involuntary disposal (law, theft, destruction). Proceeds >= base cost, reinvest within 3 years.
Para 66: Voluntary disposal of depreciable asset. Contracts within 12 months, replacement asset brought into use within 3 years.
s 8(4)(eA): Apportion recoupment between multiple replacement assets
s 8(4)(eB): Recognise recoupment annually in proportion to allowances on replacement asset
s 8(4)(eC): If replacement asset is disposed -> remaining recoupment taxed immediately
s 8(4)(eD): If replacement asset ceases trade use -> remaining recoupment taxed immediately
s 8(4)(eE): If replacement asset not brought into use -> full recoupment + interest taxed
Example: Machine 1 cost R100k, tax value R40k, sold for R82k, replaced with machine 2 costing R200k. Recoupment R42k deferred. Portion recognised annually based on wear & tear ratio.
Notes
Full proceeds must be reinvested
Election is possible even if no capital gain is realised