The client sold her members interest of the closed corporation for a repayment plan over 3 years. Are there any way that one can spread capital gains tax over a period of 3 years?
Important:
This answer is based on tax law for the tax year ending 28 February 2017.
Answer:
It is outside the scope of the service offered by us – which is limited to guidance only – to give advice. Your request may well relate to the time of disposal. We don’t have enough information to provide the guidance here. The law relevant to the time of disposal is found in paragraph 13(1) of the Eighth Schedule to the Income Tax Act. It reads as follows:
“The time of disposal of an asset by means of—
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a change of ownership affected or to be affected from one person to another because of an event, act, forbearance or by the operation of law is, in the case of—
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an agreement subject to a suspensive condition, the date on which the condition is satisfied;
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any agreement which is not subject to a suspensive condition, the date on which the agreement is concluded;”
It is unlikely that payment terms relating to the transfer of the disposal of the member’s interest constitute a suspensive condition. Judge Wallis, in the recent CSARS v Bosch, said:
“A suspensive condition is one that suspends the exigible content of a contract, either in whole or in part, pending the occurrence of an uncertain future event.”
From a commercial point of view, also outside the scope of our services, it in most cases don’t make good commercial sense to postpone the accrual date. That is why sellers insist on initial payments being sufficient to cover the tax resulting from the capital gain.