Untitled Flashcards Set

CONSIDERATION RECEIVED The consideration received on the disposal of an asset includes the market value of any consideration in kind. Usually this will be the cash received. However, there will be circumstances where cash in not the consideration for a disposal, e.g. a swap or barter arrangement, therefore the need to create a fair market value rule. DEPRECIABLE ASSET This term means any tangible movable property or an industrial building used wholly or partly in the production of income subject to tax. An office building, being immovable property does not qualify. DISPOSAL This term is defined in relation to an asset. The definition is broad and extends beyond the ordinary meaning of the term. Under general principles, a disposal of an asset involves a change in ownership whereby one person loses title in the asset and another gains it. Consequently, the definition includes a sale or exchange of an asset, the transfer of an asset by way of gift, and the distribution of an asset in specie by a company. A disposal also occurs in situations where no person acquires the asset; in particular, the redemption of an asset (for example, shares in a company or units in a unit trust), and the destruction, loss, or extinction of an asset. A disposal also occurs where a trustee makes an in specie distribution to a beneficiary, although there in no change in beneficial ownership of the asset in this situation. A disposal includes a disposal of part of an asset. For example, a single block of land subdivided into two blocks one of which is sold constitutes a disposal of part of the land. The creation of a lesser interest in an asset, particularly, land ( For example, a lease, easement, profit or a life estate) would not be a disposal; although any amount received for the creation of the lesser interest would be treated as property income under S20. 21 The death of taxpayer does not give rise to a disposal of the assets of the taxpayer. Consequently, the passing of an asset to the personal representative of the deceased or to a beneficiary (either directly or through the deceased `s personal representative) does not give rise to a disposal of the asset by the deceased. There is, however, a disposal of the asset by the personal representative or the beneficiary of the deceased if the dispose of the asset to a third party. The cost base of the asset to the personal representative or the beneficiary is its adjusted cost base in the hands of the deceased at the date of death of the deceased.