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Distributing an 'asset in kind'? Beware of these CGT consequences

by , 08 April 2014
If you distribute an asset in kind, it triggers Capital Gains Tax (CGT). You must make sure you get the CGT treatment right. If you don't, SARS will punish you harshly. Is that a risk you're prepared to take? Read on to find out how to distribute an asset in kind correctly...

Revealed: The CGT consequences of distributing an asset in kind

Distributing an asset in kind is sometimes referred to as distribution in specie (in kind).

The Practical Tax Loose Leaf Service explains that if you distribute an asset in kind to a shareholder, the following Capital Gains Tax consequences apply:

  • For your company: There's a deemed disposal of the asset by your company at market value on the date of the distribution, which means your company will pay Capital Gains Tax on the positive difference between the market value of the asset and its base cost; and
  • For the shareholder: The base cost of the asset received in the distribution is considered to be the market value of the asset.

But do you know how to deal with these correctly…


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If you want to deal with CGT correctly, keep these points in mind when you distribute an asset in kind

The Loose Leaf Service says the distribution of an ordinary cash dividend doesn't trigger Capital Gains Tax consequences because withholding tax on dividends at 15% is payable on the net amount of the dividend declared by your company.

But, you must be clear that the distribution of an asset is considered 'in kind' as opposed to in cash. Even if it's a dividend for normal tax purposes, it'll result in a capital gain if the market value of the asset exceeds its base cost.

So if your company declares a dividend and withholding tax is payable on the dividend, but you distribute the asset instead of a cash settlement, CGT is payable on the disposal of the asset. It doesn't matter if the dividend was taxed.

Now that you know the CGT consequences of distributing an asset in kind, make sure you comply so you can avoid SARS penalties.

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