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The disregarding of a capital gain on the sale of a farm

25 November 2014   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: We act as accountants to an individual in the farming industry. He is married in community of property and both husband and wife are over the age of 55. Turnover for the period march 2013 to February 2014 was nil. Please advise if both taxpayers will qualify for the additional rebate of 1.8 million as the farm is being sold?

A: Whilst this was not part of your request we must point out that the exclusion is only available in respect of ‘an interest in each of the active business assets’.  In terms of the definition in paragraph 57(1)(a) of the Eighth Schedule and ‘active business asset’ means ‘an asset which constitutes immovable property, to the extent that it is used for business purposes’.  You mention that there was no ‘turnover’ and we don’t know if this requirement is met.  

In terms of paragraph 14, in the case of spouses married in community of property, where any asset is disposed of by one of the spouses and that asset—

(a) falls within the joint estate of the spouses, that disposal is treated as having been made in equal shares by each spouse; and

(b) was excluded from the joint estate of the spouses, that disposal is treated as having been made solely by the spouse making the disposal.

The next requirement (of paragraph 57) is then that the disposal must be of—

(a) an active business asset of a small business owned by that natural person as a sole proprietor; or

(b) an interest in each of the active business assets of a business, which qualifies as a small business, owned by a partnership, upon that natural person’s withdrawal from that partnership to the extent of his or her interest in that partnership.  

We submit that the only instance where the exclusion will apply in respect of both spouses would be where the two spouses have been carrying on the business in partnership.  

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.


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