This article is based on tax law for the year ending 28 February 2021.
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:
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.
Further webinar commentary on Capital Gains Tax Series can be accessed here.