Page 87 - P6 Slide - Taxation - Lecture Day 1

Solution

• X (Pty) Ltd must disregard the capital loss of R7 000 000

in Year 1, since Z (Pty) Ltd is its connected person, but it

may carry forward the capital loss and set it off against

the capital gain of R5 000 000 made on the subsequent

disposal of shares to Z (Pty) Ltd. The capital gain of R5

000 000 will, therefore, be tax-free, while X (Pty) Ltd

may carry forward the balance of the capital loss of R2

000 000 (R7 000 000 – R5 000 000) to set off against

capital gains on future disposals to Z (Pty) Ltd. If Z (Pty)

Ltd had ceased to be a connected person of X (Pty) Ltd

before Year 4, X (Pty) Ltd’s capital loss of R7 000 000

would have fallen away (par 39(2)).