Page 116 - P6 Slide - Taxation - Lecture Day 1

Solution

The R1 million amount of debt cancelled that is

attributable to Vacant Lot 1 reduces the base cost in that

lot from R3 million down to R2 million as the asset is still

held at the date of debt reduction (par 12A(3)). The

other R2 million cancelled cannot be applied against the

base cost of Vacant Lot 2 because the asset is no longer

held at the date of debt reduction. Instead, the R2

million is applied to eliminate the R800 000 assessed

capital loss created by the disposal of Lot 1 (par

12A(4)(b)(ii)). No further impact arises (i.e. the R1,2

million of unallocated debt reduction does not give rise

to a capital gain).