How do I calculate the capital gain on the sale of a member’s interest in a CC?
22 April 2015
Posted by: Author: SAIT Technical
Author: SAIT Technical
Q: In 2007 four
of us started a CC. We each put in R300 000 (which is now the amount of our
loan account. I sold my share for R500 000. When we started the CC we took out
a bank loan to purchase a property and then rented the premises out. I need to
work out the CGT on the sale of my member interest. Would it just be the
difference of selling price R500 000 less loan account R300 000 which is R200
000 or can I use some of the legal fees when we purchased the property as part
of my base cost?
Is the capital gain only the difference between my sale
price and my loan account? Or may I add some of the legal fees onto my base
A: We are not
sure that we understand the facts correctly.
You state that ‘each member contributed R300 000’, but then that these
amounts are now in the loan account. Our
guidance assumes that the contribution was in fact advanced by way of a
loan. Principally there are two assets,
the member’s interest and the loan account.
The base cost of the loan account would then be R300 000 and
we don’t have any detail of the base cost of the member’s interest. The guidance / principles that follow apply
With regard to the legal fees when we purchased the
We accept that the legal fees related to the acquisition of
the property and that the property was registered in the name of the CC. As such it does not constitute an amount
actually incurred as expenditure directly related to the acquisition or
disposal of that asset (the members interest or the loan) – refer to paragraph
20(1)(c)(i) of the Eighth Schedule to the Income Tax Act that refers to the
remuneration of consultant or legal advisor for services rendered. It is expenditure incurred by the CC and not
Increase of base cost
Base cost can only be ‘increased’ by expenditure actually
incurred and listed in paragraph 20(1) of the Eighth Schedule to the Income Tax
Act. From the facts we are not sure that
you incurred any expenditure other than the R300 000.
The capital gain will be difference between the amount
received in respect of the disposal of the member’s interest and its base cost
and with respect to the loan, the amount received less the original amount of
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.