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Five special timing rules you should know about to avoid errors when disposing of an asset

by , 27 September 2013
If you sell or dispose of any assets, you can't escape Capital Gains Tax (CGT). But disposing your asset at the wrong time is one sure way to trigger a SARS audit. The good news is, you can easily avoid this if you follow these five disposal timing rules...

Disposing an asset incorrectly is a sure way to trigger a SARS audit.

The consequences of this simple error are severe.

'SARS could easily find you guilty of tax evasion and smack you with a 200% penalty,' warns the Practical Tax Loose Leaf Service.

Is that a risk you're prepared to take?

Follow these five disposal timing rules to avoid errors when making disposals

#1: Use the general timing rule for regular disposals

The Practical Tax Loose Leaf Service explains that the timing rules will determine the date when the disposal occurs for CGT purposes and will define the year of assessment during which the disposal must be accounted for to SARS.

As a general rule, the time of disposal of an asset, through a change of ownership, is the date of change of ownership. In most cases, this is when the asset is delivered and the risk passes to the recipient.

#2: If you dispose of an asset to trust beneficiaries, the disposal date is the date of vesting

A trust should dispose an asset to a beneficiary when the interest in those assets vests in the beneficiary.

#3: The disposal of an asset to a shareholder is the date of the in specie distribution

The distribution of an asset by a company to a shareholder happens when asset is distributed in specie (i.e. the distribution of an asset in kind, not in cash).

#4: The disposal debt in a debt reduction is on the date the debt's reduced

Where a debt is reduced or discharged, disposal occurs when the event occurs.

#5: Special timing rules apply in special circumstances

Certain timing rules apply to special circumstances. For example, with the time of disposal, in the case of:

  • An agreement, subject to a suspensive condition (i.e. an uncertain event which must be fulfilled before the obligation of the contract arises) is the date on which the condition is satisfied;
  • Any agreement, which isn't subject to a suspensive condition. This is the  date on which the agreement is concluded;
  • A donation of an asset. This is the date of compliance with all legal requirements for a valid donation;
  • The expropriation of an asset. The date on which the person receives the full compensation agreed to or finally determined by a competent tribunal or court;
  • The conversion of an asset. This is the date on which that asset is converted;
  • The granting, renewal or extension of an option. The date on which the option is granted, renewed or extended;
  • The exercise of an option. This is the date on which the option is exercised;
  • The termination of an option granted by a company to a person to acquire a share, participatory interest or debenture of that company. The date on which that option terminates; and
  • Any other case, the date of change of ownership.

Remember, SARS could slap you with a 200% penalty if your dispose your assets at the wrong time. So follow the above mentioned rules to avoid this.

 

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