My client, a farmer, sold a portion of his farm as a servitute to Eskom. What will the tax implications be?
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
The right (the servitude) is an asset for purposes of the Eighth Schedule. The creation of this right will give rise to a disposal of part of the full right in the property that the owner previously enjoyed. In other words, there has been a part-disposal.
When part of an asset is disposed of, it is necessary to allocate part of the base cost of the asset to the part disposed of in order to determine the capital gain or loss in respect of that part. Paragraph 33 contains rules that
• determine the base cost attributable to the part disposed of; and
• prevent the allocation of a portion of the base cost for certain part-disposals.
The standard part-disposal formula [paragraph 33(1)]
The portion of the expenditure allowable under paragraph 20 and any valuation date market value adopted or determined under paragraph 29(4) attributable to the part disposed of is determined in accordance with the following formula:
|
Market value of part disposed of Market value of entire asset immediately before disposal |
× Expenditure under para 20 or market value under para 29(4) in respect of entire asset |