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CGT on sale of farm, where proceeds are paid to spouse as part of a divorce settlement

Thursday, 15 January 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: A client of mine sold his farm in the 2014 tax year as he got divorced. He is older than 65 years of age and was married out of community of property. He was VAT registered and therefore paid VAT on the selling price of the farm. After paying the VAT, agents commission, etc. He paid his wife R2.6 million and was left with just under R1,5 million for himself from the proceeds. After the deducting cost price of farm, selling expenses, R2 million primary residence exclusion, he is left with approximately R870,000 capital gain, one third of which would be included in his taxable income. Does the R2,6 million paid to his wife on divorce have any tax consequences? Should it be disclosed on his tax personal tax return at all?

A: With regards to the query we assume the amount was paid in terms of the accrual arrangement as the parties were married out of community of property in terms of the divorce settlement and is therefore not gratuitous in nature.

As the property was separately owned by the taxpayer and not jointly, such payment would in our view be capital in nature in the form of a claim of money (See also pg. SARS CGT Guide issue 4 at 6.5 pg 117) and therefore not result in tax consequences for either the taxpayer or his wife. Please note that even revenue payments of alimony and maintenance on divorce are exempt from tax in terms section 10(1)(u) ITA. 

In terms of disclosure, SARS merely states that in your next ITR12 you should indicate that you are not married.

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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