CATEGORIES
- (1) Negotiating Tax Debt and Payment Arrangements with SARS
- (14)Accounting
- (2)Accounting for Income Tax
- (7)Administration of Estates
- (1)Application of tax rates, s6(2) rebates
- (1)Assessed losses
- (4)Audit, Reviews & Other Services
- (9)Blogs
- (8)Capital Gains Tax
- (1)Capital Gains Tax - Individuals Tax
- (1)Capital Gains Tax Implications of Trusts
- (2)Case study: Home office expense
- (1)Case study: Travel allowances
- (1)Company Formations
- (117)Corporate Tax
- (9)Customs and Excise
- (2)Deceased Estate
- (1)Deductions Pre-trade and prepaid expenses
- (1)Deferred tax assets and deferred tax on equity
- (1)Deregistration
- (2)Employer and Employee (PAYE and UIF Specific)
- (1)Estate Duty
- (8)Faculty News
- (2)Farming
- (142)Individuals Tax
- (1)Input - Customs Duty
- (3)Interest
- (13)International Tax
- (17)Legislation
- (1)Low interest rate loans and loan subsidies
- (1)Nature of the rights of beneficiaries
- (1)Notional input tax
- (8)Payroll
- (2)Practical Payroll
- (2)Provisional tax (Link with other Taxes)
- (1)SARS Dispute Resolution
- (4)SARS Issues
- (1)Salaried Employees
- (127)Tax Administration
- (2)Tax Administration Part 2B: Resolving Problems with SARS using the Tax Ombud
- (1)Tax Administration Part 3B Dispute Resolution - Objection and appeal
- (2)Tax Update
- (2)Tax implications of loans to trusts
- (1)Tax residence
- (1)Tax returns and payments
- (1)Transfer-Pricing
- (1)Trust Income / Gain Allocations
- (1)Trust types and income allocations
- (5)Trusts
- (66)VAT
- (3)VAT periods
- (1)Wear and tear allowances
- (1)Zero Rated
- Show All
Base Cost For Shares
- 16 February 2024
- Accounting for Income Tax
- The Tax Faculty Tax Specialist
This FAQ article is based on tax law for the year ending 29 February 2024.
1. Background
A trust invests in shares and earns dividend income on those shares. Every year, fair value adjustments are made to ensure that the investment in the balance sheet matches the fair value on the investment statement at the end of the financial year.
2. The Problem / Facts
Determine the base cost of the shares acquired for R500 on 1 March 2023 and revalued to R800 at the end of the year, resulting in a R300 fair value adjustment through P&L. The shares were sold for R900.
3. Applicable Law
The Income Tax Act No. 58 of 1962, Section 22
4. Application of the Law to the Facts
There are three permissible methods for identifying disposed shares to determine their base cost: specific identification, first-in, first-out, and weighted average.
The base cost of a share encompasses its acquisition cost, related taxes and duties, option costs (with exceptions), broker's fees, and a portion of interest on borrowed funds for acquisition or refinancing.
Your base cost for the shares will remain R500. The fair value adjustment of R300 is processed through the profit and loss statement and does not affect the base cost of the shares. The base cost represents the original cost of acquiring the shares and does not change due to fair value adjustments.
Join Mandy Graaf next week Thursday for an afternoon session where she will unpack trending PAYE issues experienced by you in practice
- Click Here to watch intro video
- Click Here to book your seat