My client is 75 years old and sold his 33.33% shares in a company as he retired. Does he qualify for the R1 800 000 capital tax exclusion? Does it only apply for small businesses or any company? I do see the criteria of the total assets that must be below
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
The relevant law is found in paragraph 57 of the Income Tax Act. The SARS CGT guide explains it well – in paragraph 12.6.
Paragraph 57(2)(c) is relevant to your request – it refers to “an entire direct interest in a company (which consists of at least 10 percent of the equity of that company), to the extent that the interest relates to active business assets of the business, which qualifies as a small business, of that company”.
It then applies “if that person at the time of that disposal held for his or her own benefit that … interest in the company … for a continuous period of at least five years prior to that disposal and was substantially involved in the operations of the business of that small business during that period, and … has attained the age of 55 years …”
For purposes of paragraph 57, ‘small business’ means a business of which the market value of all its assets, as at the date of the disposal of the asset or interest contemplated in subparagraph (2), does not exceed R10 million and ‘active business asset’ means --
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an asset which constitutes immovable property, to the extent that it is used for business purposes; or
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an asset (other than immovable property) used or held wholly and exclusively for business purposes,
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but excludes –
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a financial instrument; and
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an asset held in the course of carrying on a business mainly to derive any income in the form of an annuity, rental income, a foreign exchange gain or royalty or any income of a similar nature.
It is unlikely that the disposal of shares in other companies will qualify – unless the interest relates to an active business asset in these companies.