in respect to section 8(4)(a) and paragraph 66 of the eighth schedule? Recoupments. How the calculation of the recoupment should be done? When recoupment is calculated on a depreciated asset it correct to say (1) that the cost price will be the tax value
Important:
This answer is based on tax law year ending 28 February 2017.
Answer:
If there is a ‘loss’, as you say, and the asset is a ‘depreciable asset’ (as defined in section 1(1)), the taxpayer would be entitled to elect to make the section 11(o) deduction. The cost (of acquisition) will then exceed the sum of the amount received or accrued from the alienation, loss or destruction of that asset and the amount of any allowance or deduction allowed in respect of that asset in that year or any previous year of assessment or which was deemed to have been allowed in terms of section 12B(4B), 12C(4A), 12DA(4) or 37B(4) or taken into account in terms of section 11(e)(ix), as the case may be. No paragraph 66 election would be possible because the proceeds then would not exceed the base cost.
In calculating the proceeds one must indeed deduct any amount of the proceeds that must be or was included in the gross income of that person or that must be or was taken into account when determining the taxable income of that person before the inclusion of any taxable capital gain – see paragraph 35(2) of the Eighth Schedule.
The same applies to base cost. One must deduct from the expenditure, any amount which is or was allowable or is deemed to have been allowed as a deduction in determining the taxable income of that person - paragraph 20(3)(a) of the Eighth Schedule.
Note, an election under paragraph 66 would be available where the proceeds and base cost are the same (very common). See the SARS CGT guide for some good examples of this.