Why SARS does not allow this

1️⃣ What a ring-fenced assessed loss is (Section 20A)

When SARS ring-fences a loss under section 20A of the Income Tax Act, that loss:

• Can only be used against future income from the same trade; and
• Cannot be set off against any other income, including:
  • Salary
  • Business income from another trade
  • Capital gains

So once the loss is ring-fenced, it is effectively locked into that specific trade.

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2️⃣ Capital gains are not “trade income”

A taxable capital gain arises under the Eighth Schedule, not under normal income tax rules.

Even though:

• The taxable capital gain is included in taxable income,
  it does not qualify as income from the same trade that generated the ring-fenced loss.

SARS’ position is that:

Capital gains are not trading profits, and therefore ring-fenced trading losses cannot reduce them.

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3️⃣ Disposal of immovable property doesn’t change the rule

Even if:

• The immovable property was part of the ring-fenced activity (e.g. rental property), and
• You sell it at a capital gain,

the result is still:

• The capital gain is dealt with separately under CGT rules
• The ring-fenced assessed loss remains ring-fenced

There is no provision in the Income Tax Act allowing ring-fenced losses to be offset against:

• Capital gains, or
• Taxable capital gains included in taxable income

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Practical example

• Rental property losses were ring-fenced under section 20A
• You sell the property and realise a capital gain of R1 000 000
• Taxable capital gain (after inclusion rate) = say R400 000

➡️ You must pay tax on the R400 000
➡️ The ring-fenced rental loss cannot reduce it
➡️ The ring-fenced loss is carried forward, but may now be useless if the trade has ceased

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Important nuance ⚠️

If the property was:

• Trading stock (property developer), and
• Sold as part of a trade (revenue account),

then the profit would be ordinary income, not a capital gain — but ring-fencing still only applies if section 20A applies to you (natural person at the threshold).

For most rental property disposals, the gain is capital → no set-off allowed.

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Bottom line

Item	Allowed?
Set off ring-fenced loss against salary	❌ No
Set off against business income (other trade)	❌ No
Set off against taxable capital gain	❌ No
Carry forward against same trade income	✅ Yes