CATEGORIES
- (1) Negotiating Tax Debt and Payment Arrangements with SARS
- (14)Accounting
- (2)Accounting for Income Tax
- (7)Administration of Estates
- (1)Application of tax rates, s6(2) rebates
- (1)Assessed losses
- (4)Audit, Reviews & Other Services
- (9)Blogs
- (8)Capital Gains Tax
- (1)Capital Gains Tax - Individuals Tax
- (1)Capital Gains Tax Implications of Trusts
- (2)Case study: Home office expense
- (1)Case study: Travel allowances
- (1)Company Formations
- (117)Corporate Tax
- (9)Customs and Excise
- (2)Deceased Estate
- (1)Deductions Pre-trade and prepaid expenses
- (1)Deferred tax assets and deferred tax on equity
- (1)Deregistration
- (2)Employer and Employee (PAYE and UIF Specific)
- (1)Estate Duty
- (5)Faculty News
- (2)Farming
- (141)Individuals Tax
- (1)Input - Customs Duty
- (3)Interest
- (13)International Tax
- (17)Legislation
- (1)Low interest rate loans and loan subsidies
- (1)Nature of the rights of beneficiaries
- (1)Notional input tax
- (8)Payroll
- (2)Practical Payroll
- (2)Provisional tax (Link with other Taxes)
- (1)SARS Dispute Resolution
- (4)SARS Issues
- (1)Salaried Employees
- (126)Tax Administration
- (2)Tax Administration Part 2B: Resolving Problems with SARS using the Tax Ombud
- (1)Tax Administration Part 3B Dispute Resolution - Objection and appeal
- (2)Tax Update
- (2)Tax implications of loans to trusts
- (1)Tax residence
- (1)Tax returns and payments
- (1)Transfer-Pricing
- (1)Trust Income / Gain Allocations
- (1)Trust types and income allocations
- (5)Trusts
- (66)VAT
- (3)VAT periods
- (1)Wear and tear allowances
- (1)Zero Rated
- Show All
[FAQ] Capital Gains Tax on the sale of shares
- 16 March 2021
- Capital Gains Tax
- Piet Nel
This article is based on tax law for the year ending 28 February 2021.
Background
A taxpayer is a South African citizen. He is a director of a company in South Africa as well as the holding company in the United Kingdom (UK). He is also a shareholder of the company in the UK, along with 10 other shareholders. He is selling some of his shares in the UK company, to another shareholder, also a South African citizen. He paid £1 for per share.
Please advise on the following:
- How will he be taxed on the proceeds of his shares?
- Is this a capital gain transaction? If it is, how is the base cost calculated.
Answer
You are reminded that The Tax Faculty’s technical query system policy prescribes that only guidance should be provided in relation to requests submitted. Guidance implies that sources or references relevant to the request are provided, but that ultimately the tax practitioner’s own professional judgment is required to be applied to the specific circumstances.
We accept that you mean the taxpayer and the other shareholder are both resident in the RSA – see the definition of resident in section 1(1) of the Income Tax Act read with the paragraph 4 of the RSA / UK treaty.
This would be a capital gain transaction if the taxpayer didn’t acquire and hold the shares for speculative purposes or section 9C applies. The calculation of the capital gain (or loss) in this instance is to be done in terms of paragraph 43 of the Eighth Schedule to the Income Tax Act. See Chapter 19 – Assets disposed of or acquired in foreign currency – in the SARS CGT guide for a comprehensive explanation of this.
Proceeds, for the purposes of paragraph 43, is determined in the foreign currency in the same as if the amount was received in RSA currency.
The same principle applies with respect to base cost. It is determined under paragraph 20 of the Eighth Schedule. It is once the amount of the capital gain is determined that one then applies paragraph 43. Paragraph 43(1) applies to natural persons. Paragraph 43(1A) applies when the currency of acquisition differs from the currency of disposal.
Webinar Commentary
Further webinar commentary on Capital Gains Tax Series can be accessed here.