Tax consequence on the disposal of one spouse’s interest in a company to the other spouse
06 November 2014
Posted by: Author: SAIT Technical
Author: SAIT Technical
manufacturing company that commenced business in 1998 was formed by a husband
and wife as members. Since it was a start-up business, there was no goodwill.
In 2014 the spouses decided to divorce, resulting in the wife relinquishing her
50% membership to the husband. This 50% equated to R2m where R50 000 per month
is to be paid to the wife until fully settled.
How would she be taxed on this amount? In my opinion she
will be subject to capital gain tax annually on the R50 000 payment.
A: Based on the
facts our guidance assumes that payment of R50 000 per month does not
constitute an annuity. It is therefore
merely a repayment of the debt.
We are not sure why you believe that the capital gain in
this instance is not rolled over in terms of paragraph 67 of the Eighth
Schedule. For the purposes of paragraph
67(1) a person must be treated as having disposed of an asset to his or her
spouse, if that asset is transferred to that spouse in consequence of a divorce
order or, in the case of a union contemplated in paragraph (b) or (c) of the
definition of ‘spouse’ in section 1 of this Act, an agreement of division of
assets which has been made an order of court.
Paragraph 67(3) provides an exception to the rule.
If the capital gain does not roll over we submit that the
full amount accrued on disposal and not when the R50 000 payments are
made. It is therefore ‘taxed in full’ in
the year of disposal.
Disclaimer: Nothing in this query and answer should be construed as
constituting tax advice or a tax opinion. An expert should be consulted for
advice based on the facts and circumstances of each transaction/case. Even
though great care has been taken to ensure the accuracy of the answer, SAIT do
not accept any responsibility for consequences of decisions taken based on this
query and answer. It remains your own responsibility to consult the relevant
primary resources when taking a decision.