Page 438 - SAIT Compendium 2016 Volume2

IN 44 (2) Income Tax acT: InTeRPReTaTIon noTes IN 44 (2)
INTERPRETATION NOTE: NO. 44 (Issue 2) Public Bene t Organisations: Capital Gains Tax
DATE: ACT: SECTION: SUBJECT:
CONTENTS
Preamble
1. Purpose
2. Background
3. The law
4. General meaning of certain terminology
5. Application of the law
5.1 Valuation date 5.2 Base cost
5.2.1 Market value
5.2.2 Time-apportionment base cost
5.2.3 ‘Twenty per cent of proceeds’ method
5.3 Exclusions
5.3.1 Category 1: Non-trading assets [paragraph 63A(a)]
5.3.2 Category 2: Minimal trading assets [paragraph 63A(b)(i)] 5.3.3 Category 3: Permissible trading assets [paragraph 63A(b)(ii)]
(a) Related trade [section 10(1)(cN)(ii)(aa)]
(b) Occasional trade [section 10(1)(cN)(ii)(bb)] (c) Ministerial approval [section 10(1)(cN)(ii)(cc)]
6. Practical examples
7. Donations or bequests to PBOs [paragraphs 40(1)(b) and 62(b)]
8. Transfer duty
9. General
10. Conclusion
Annexure – The law
Preamble
In this Note unless the context indicates otherwise –
• ’CGT’ means capital gains tax, being the portion of normal tax attributable to the inclusion in taxable income of a
taxable capital gain;
• ‘Eighth Schedule’ means the Eighth Schedule to the Act;
• ‘paragraph’ means a paragraph of the Eighth Schedule;
• ‘PBA’ means a public bene t activity as de ned in section 30(1);
• ‘PBO’ means a public bene t organisation as de ned in section 30(1);
• ‘section’ means a section of the Act;
• ‘the Act’ means the Income Tax Act 58 of 1962; and
• any word or expression bears the meaning ascribed to it in the Act.
1. Purpose
This Note –
• provides guidance on the application and interpretation of paragraph 63A which deals with the disregarding of a capital
gain or capital loss on the disposal of an asset by a PBO; and
• must be read with Interpretation Note 24 (Issue 3) ‘Income Tax: Public Bene t Organisations: Trading Rules – Partial
Taxation of Trading Receipts’ dated 4 February 2014.
2. Background
PBOs became subject to a system of partial taxation with effect from years of assessment commencing on or after 1 April 2006. Under this system a PBO conducting trading activities falling outside the parameters of the prescribed exemptions in section 10(1)(cN), is taxable on receipts and accruals from those activities but retains exemption for its PBAs.
For earlier years of assessment PBOs, once approved under section 30, were generally fully exempt from normal tax on their receipts and accruals and taxable capital gains, regardless of the source from which they were derived. The two key provisions giving effect to the system of partial taxation are section 10(1)(cN) and paragraph 63A (capital gains and capital losses). For more information on the background to CGT and PBOs before the insertion of paragraph 63A, see issue 1 of this Note which can be found on the SARS website www.sars.gov.za under Legal & Policy / Archive / Interpretation Notes.
Under paragraph 63A any capital gain or capital loss made on the disposal of an asset, substantially the whole of which has not been used in the carrying on of a PBA, will be taken into account for CGT purposes.
4 February 2014
INCOME TAX ACT 58 OF 1962
Paragraph 63A of the Eighth Schedule
Public Bene t Organisations: Capital Gains Tax
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