Page 16 - F6 - Capital Gains Tax - Debt Reduction
P. 16
Example
Mr A borrowed R5 million from ABC Bank to acquire two
vacant lots. Vacant Lot 1 was purchased for R3 million and
Vacant Lot 2 was purchased for R2 million. Vacant Lot 2
was sold for R1,2 million, generating a R800 000 capital
loss. Due to circumstance outside Mr A’s control, Vacant
Lot 1 has also significantly declined in value. In order to
alleviate Mr A’s circumstances, ABC Bank cancels R3
million of the debt. Of this amount, R2 million of the debt
reduction is attributable to formerly held Vacant Lot 2 and
R1 million of the debt reduction is attributable to Vacant
Lot 1.
Explain the CGT consequences of the cancellation
of the debt on Mr A.
