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R1.8 million capital gain exclusion for the disposal of small business assets by a person over 55

Friday, 21 November 2014   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

R1.8 million capital gain exclusion for the disposal of small business assets by a person over 55 years old

Q: According to the 2014 tax guide, a person over the age of 55 qualifies for a deduction of R1.8 million in capital gain when selling a small business. What qualifies as a small business? I have a case where a farmer over the age of 55 who traded as a sole proprietor, sold his farm and made a capital gain. Does he qualify for this R1.8m deduction?

A: The relevant exclusion (note not a deduction) is found in paragraph 57 of the Eighth Schedule.  It is covered in paragraph 12.6 of the SARS CGT guide.  

Paragraph 57(2) provides that a natural person must, when determining an aggregate capital gain or aggregate capital loss, disregard a capital gain determined in respect of the disposal 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; or

(c) an entire direct interest in a company (which consists of at least 10 per cent of the equity of that company), to the extent that the interest relates to active business assets of the business, which qualifies as a small business, of that company,

if that person at the time of that disposal held for his or her own benefit that active business asset, interest in the partnership, or interest in the company (as the case may be) for a continuous period of at least five years prior to that disposal and was substantially involved in the operations of the business of that small business during that period, and—

(i) has attained the age of 55 years; or

(ii) the disposal is in consequence of ill-health, other infirmity, superannuation or death.

The sum of the amounts to be disregarded by a natural person as contemplated above may not exceed R1,8 million during that natural person’s lifetime.  

So the exclusion is not in respect of the sale of the business, but each active business asset or interest in a partnership or company (CC included).  The farm would be an ‘active business asset’ to "the extent that it is used for business purposes, but excludes an asset held in the course of carrying on a business mainly to derive any income in the form of an annuity, rental… " – see paragraph 57(1).

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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