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No capital gains tax? Ruling on the disposal of property by a PBO
- 19 December 2019
- Corporate Tax
- Louis Botha
Monday, 08 October 2018
Important:
This article is based on tax law for the tax year ending 28 February 2019.
Author: Louis Botha
On 31 August 2018, SARS published Binding Private Ruling 309 (BPR 309), which deals with the disposal of an asset by a public benefit organisation (PBO). Specifically, the ruling dealt with the application of the definition of “gross income” in s1 of the Income Tax Act, No 58 of 1962 (Act) and the capital gains tax exemption in paragraph 63A of the Eighth Schedule to the Act.
Legal context
“Gross income” in s1(1) of the Act, in relation to any year or period of assessment, means, the total amount, in cash or otherwise, received by or accrued to or in favour of a South African resident, excluding receipts or accruals of a capital nature.
Paragraph 63A of the Eighth Schedule to the Act states that a PBO, approved by SARS in terms of s30(3) of the Act, must disregard any capital gain or capital loss realised in respect of the disposal of an asset if:
- that PBO did not use that asset on or after valuation date (1 October 2001) in carrying on any business undertaking or trading activity; or
- substantially the whole of the use of that asset by that PBO on and after valuation date was directed at a purpose other than carrying on a business undertaking or trading activity, or carrying on a business undertaking or trading activity contemplated in s10(1)(cQ)(ii)(aa), (bb) or (cc) of the Act.
In Binding General Ruling 20 (Issue 2) (BGR 20), SARS stated that in the strict sense the term “substantially the whole” is regarded by SARS to mean 90% or more. However, BGR 20 states that SARS would accept a percentage of not less than 85%. BGR 20 further states that the percentage must be determined using a method appropriate to the circumstances.
Please click here to read more.
This article first appeared on cliffedekkerhofmeyr.com.