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Did you know you can roll over the tax effect of a stolen or destroyed asset?

by , 05 April 2013
Did you know SARS allows you to transfer the tax effect of a stolen or destroyed asset to a future date? Deferring payments is a very flexible option to have because it can help you manage your company's cash flow. Read on to find out how to use this option to your company's benefit.

'When an asset is stolen or destroyed a disposal takes place in terms of Capital Gains Tax (CGT). If your asset is disposed of by either an operation of law, theft or destruction, other than financial instruments, you have the right to have the tax effect deferred or rolled-over, such as when the replacement asset is sold,' says The Practical Tax Loose Leaf Service.

But before you use this handy option to efficiently manage your company's cashflow, you must satisfy the SARS commissioner by meeting certain requirements.

Ensure you meet these requirements to roll over the tax effect of a stolen or destroyed asset

  1. An amount equal to, or more than, the amount received from the disposed asset has been or will be spent to acquire one or more replacement assets.
  2. All the replacement assets constitute assets according to the Income Tax Act.
  3. Any contract to acquire the replacement assets have to be completed within 12 months from the date of the involuntary disposal
  4. The replacement assets will be brought into use within three years of the involuntary disposal.

It's important to note that 'the period mentioned in 3 and 4 above, can be extended by a maximum of six months at the discretion of the Commissioner. If the contract of replacement has not been completed on time, the deferred capital gain will be recognised as a capital gain at the date of the prescribed period end-date,' the Loose Leaf explains.

Here's an example from The Practical Tax Loose Leaf Service of how this works:

ABC Ltd has one of its company cars stolen. The insurance company gives them the choice to either have the vehicle replaced, or to receive the cash payout. ABC Ltd chooses to have the vehicle replaced. So CGT will only be considered when the replacement vehicle is sold.

'This means the capital gain or loss would be disregarded for now, and will only be considered when the replacement asset is disposed of. If ABC Ltd opted to receive the cash payment instead, and didn't replace the vehicle, the CGT implications would have been considered,' explains the Loose Leaf.

Depending on your requirements, knowing that you have this option could make a big difference in your decision making when it comes to replacing stolen or damaged assets.



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