The preamble of the word disposal
- para 11(1) shows that it is to be construed very broadly - refer SARS CGT Guide edition 4 page 66.
Anyway here is my offering for
what it’s worth ,I would think that the proposed transaction would result in
the loan capital being extinguished(disposed of) resulting in a capital
gain to the company and a capital loss to the shareholder.
Depending on the company’s
financial position, I suppose Co. could pay a dividend to square loan account –
no CGT implications but dividends tax would be triggered – less than CGT
consequences for co. Alternatively loan account could be repaid via its cash
resources resulting in both no CGT and dividends tax consequences.
However apart from the tax
consequences, if the commercial and economic reasons outweigh the tax consequences,
it would possibly make sense to go ahead with the envisaged transaction. .
I would also suggest that you
familiarise yourself with Chapter 6 of SARS’ CGT Guide(pages 66 to 117).
Another option would be,is to
consult a CGT Specialist.