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Is a tax directive needed for paragraph 57, 8th Schedule purposes?

17 April 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: One of my clients is preparing to sell their small business and I was wondering how I should go about using the small business exemption of R1.8Mil in practise. The facts are:

               2 members 50% share each.

               Assets less than R10Mil

               Business is being sold in one piece as a going concern.

Must I first apply for a tax directive from SARS? Must I then show it on the final return for the year and where do I fill this in?

A: Paragraph 57 exclusion

The exclusion provided for in paragraph 57 of the Eighth Schedule to the Income Tax Act applies to ‘small business’ which means a business of which the market value of all its assets, as at the date of the disposal of the asset or interest contemplated in subparagraph (2), does not exceed R10 million. 

You state that the business is being sold as a going concern, but the two members hold 50%.  From those facts it is not clear if the business is in a company (or close corporation).  If that is the case, the paragraph 57 exclusion will not apply. 

The Act does not require that a directive be obtained from SARS for purposes of paragraph 57.  If the parties need confirmation from SARS regarding the interpretation of the Act in this regard they can request a binding ruling from SARS or ask for a non-binding opinion. 

The tax practitioner can also provide an opinion in this regard.

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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