Page 440 - SAIT Compendium 2016 Volume2

IN 44 (2) Income Tax acT: InTeRPReTaTIon noTes IN 44 (2)
December
1 January 2007
31 December 2008
January
1 February 2007
31 January 2009
February
1 March 2007
28 February 2009
The two-year valuation period does not apply to the assets set out in the table below.
Table 2 – Assets which do not have to be valued within two years by PBOs
Participatory interests in listed foreign collective investment schemes fall under paragraph 31(1)(a) in the above table. However, where they are unlisted the PBO must, in theory at least, establish their market value within two years of its valuation date under paragraph 29(1)(b)(ii), namely –
• the last price published before valuation date at which a unit could be sold to the management company of the scheme,
or
• where there is not a management company the price which could have been obtained upon a sale of the asset between
a willing buyer and a willing seller dealing at arm’s length in an open market on that date.
However, in practice a capital gain or capital loss arising from the disposal of an unlisted participatory interest in a foreign collective investment scheme is likely to be disregarded under paragraph 63A(a). The failure by a PBO to value such an interest is therefore unlikely to have any adverse CGT consequences while the PBO remains approved by the
Commissioner under section 30(3).
The valuation submission requirements for the high-value assets listed in paragraph 29(5) do not apply where the
valuation date is after 1 October 2001 [paragraph 29(8)]. These requirements therefore do not apply to PBOs, which are simply required to lodge the valuation form (CGT 2L) under paragraph 29(6) with the tax return re ecting the disposal. In practice, however, SARS no longer insists on the submission of the form with the return of income and PBOs should therefore retain the form for a period of ve years from the date of submission of the return of income re ecting the disposal.*
5.2.2 Time-apportionment base cost
The detailed workings of the time-apportionment base cost method are explained in the Comprehensive Guide to CGT which is available on the SARS website. SARS has published a calculator for determining the time-apportionment base cost of an asset on its website (Types of Tax / Capital Gains Tax / Time-apportionment Base Cost Calculators / TAB Calculator for PBOs and Recreational Clubs). The calculator uses an Excel spreadsheet. An asset acquired by a PBO before the valuation date for no consideration (for example, by donation or inheritance) will have an acquisition cost equal to the market value of the asset at the time of its acquisition for the purposes of determining ‘B’ in the time- apportionment formula.†
5.2.3 ‘Twenty per cent of proceeds’ method
This method, which is likely to be a method of last resort, is also explained in detail in the Comprehensive Guide to CGT.
5.3 Exclusions
Under paragraph 63A a PBO approved by the Commissioner under section 30(3) must disregard a capital gain or capital loss arising on the disposal of three categories of assets as set out below.
5.3.1 Category 1: Non-trading assets [paragraph 63A(a)]
This category applies to assets which have not been used by the PBO on or after valuation date in carrying on any business undertaking or trading activity. This includes assets which have been used exclusively for non-trade purposes such as carrying on a PBA. Only the usage of the asset on or after the valuation date is taken into account. Any trade usage before that date is ignored. Also included in this non-trade category are assets which are not ‘used’ but ‘held’. This includes investments in the nature of shares and participatory interests in collective investment schemes.
* Section 29 of the Tax Administration Act No. 28 of 2011.
† See Comprehensive Guide to CGT (Issue 4) in paragraph 8.5A.
Paragraph 31(1)
Description
Market value on valuation date
(a)
Financial instrument listed on a recognised exchange for which a price was quoted on that exchange
Ruling price on last business day before valuation date
(c)(i)
A participatory interest in a local collective investment scheme in securities
A participatory interest in a local collective investment scheme in property
Price at which a participatory interest can be sold to the management company of the scheme on valuation date
Example 2 – Asset used exclusively on or after valuation date in carrying on a PBA
Facts:
The nancial year of a PBO which provides health care services to poor and needy persons ends on 30 April. The PBO acquired immovable property on 30 June 2003 from which it conducts its PBA of providing health care services. During the period 30 June 2003 to 30 April 2006, 30% of the property was let to third parties while the remaining usage was in respect of PBAs. As from the valuation date the property was used exclusively in carrying on PBAs. The property was sold on 30 September 2013 resulting in a capital gain of R100 000.
432 saIT comPendIum oF Tax LegIsLaTIon VoLume 2