Conditions under which an election to defer a capital gain may be made

• The asset must have qualified for a capital deduction or allowance.
• The proceeds must be equal to or exceed the base cost of the asset. Capital losses are unlikely to arise, as in most cases the person would claim a revenue loss.
• The relief applies when an amount at least equal to the receipts and accruals from the asset disposed of ‘has been’ or ‘will be’ spent to acquire one or more replacement assets all of which will qualify for a deduction or allowance. It is possible to acquire a replacement asset before disposing of the old asset, although if this is done too far in advance it will be questionable whether the asset so acquired is a ‘replacement’. There is no requirement that the replacement asset must fulfil the same function as the old asset. The only requirement is that the replacement asset must qualify for an allowance under the specified sections of the Act. For example, a person could dispose of a machine qualifying for a deduction, and use the proceeds to acquire a motor vehicle which also qualifies for a deduction.
• All the replacement assets must be from a South African source. A replacement asset comprising immovable property must be situated in South Africa, for example, a depreciable environmental waste disposal asset.
  A replacement asset comprising a movable asset of a non-resident must form part of a permanent establishment in South Africa.
  A replacement asset comprising a movable asset of a resident will be disqualified if it is effectively connected with a permanent establishment outside South Africa or if the proceeds on its disposal are subject to income tax by a foreign country.
• The relief applies when the contract for the replacement asset has been or will be concluded within 12 months of the disposal of the asset.
• All the replacement assets must be brought into use within three years of the disposal of the asset. A replacement asset may be acquired (contract concluded) and brought into use before the disposal of the asset being replaced.
• The Commissioner may extend the 12-month and three-year periods by no more than six months if all reasonable steps were taken to conclude those contracts or bring those assets into use. 
• The asset must not be deemed to have been disposed of and to have been reacquired by the person. For example, the relief will not apply in a ‘degrouping’ situation in which a deemed disposal and immediate reacquisition is triggered.  

Recognition of any remaining untaxed portion of a capital gain in year of disposal

Cessation of trade

Failure to conclude contract or bring replacement asset into use

Compensation for the loss of interest to the fiscus