Page 20 - F6 - Capital Gains Tax - Debt Reduction

Solution (cont.)

From the information provided it is clear that B (Pty)

Ltd’s debt has been reduced by R1 000 000, which

represents the reduction amount. This debt was used to

fund the acquisition of an allowance asset. In terms of

par 12A(3) the reduction amount of R1 000 000 must

firstly be applied against the base cost of R1 400 000.

The plant and machinery will therefore have a new base

cost of R400 000 (R1 400 000 – R1 000 000). If the

reduction amount was more than the base cost (> R1

400 000), the balance of the reduction amount (after

applying it against the full base cost) will be dealt with in

terms of s 19 of the Act (firstly applying it against any

assessed loss and then taxing any balance as a

recoupment).