Explain how Gains and on disposal of assets losses are calculated and give numerical examples for taxable gains and non-taxable gains. (DO NOT copy from the Law). (2 Marks).

TAX AND ZAKAT IN SAUDI ARABIA THE LAWS AS FOLLOW:

1. The gain or loss from the disposal of an asset is the difference between the compensation received and its cost base
2. No gain or loss on disposal of a depreciable asset is taken into account other than what is stated in Article 17 of this Law.

3. In determining taxable income, a natural person may not take into account gain or loss on disposal of an asset that is not for use in the activity
4. The cost base of an asset purchased, produced, manufactured, or constructed by the taxpayer is the amount paid or incurred by the taxpayer in cash or in kind in the process of acquiring the asset.

5. Where a taxpayer disposes of part of an asset, the cost base is apportioned between the part retained and the part disposed of in accordance with their market value at the time of purchase
6. Expenses incurred to alter or improve a non-depreciable asset are added to the cost base of the asset.
7. The compensation value for disposal of an asset against assets in kind is based on the market value of those assets in kind, including exemption from debt on the asset
8. Where a taxpayer disposes of an asset by gift or inheritance, the disposer is treated as having received compensation equal to the market value at the time of disposal unless paragraph (i) applies

(i) If an asset disposed of is encumbered by debt exceeding its market value, the taxpayer disposing of the asset is treated as having received compensation equal to the value of the debt

(j) In determining tax base, no gain or loss is taken into account on an involuntary disposal of an asset, to the extent that the compensation value is used to purchase of the same kind of asset within one year of the disposal.

(k) The cost base of a replacement asset described in (j) is determined with reference to the cost base of the replaced asset

(l) Where an asset owned by a taxpayer is converted to personal use or ceases to be used in the generation of income, the taxpayer is deemed to have disposed of the asset for its market value, with the recognition of the gain but not the loss.