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Reduce your CGT obligations by reducing the base cost of your assets - it's legal!

by , 27 March 2013
Capital gains tax or CGT is usually a nightmare for accountants. Not only do you need to keep accurate records of each capital asset in the business, but also notes of the assets' condition, date of disposal, and any profits made when you dispose of it. Luckily, there are two perfectly legal ways to lower the amount of CGT you pay over to SARS...

Sheep-farming business Konsortium Holdings is offering 10 million shares at R50 apiece, says Moneyweb
That's because Konsortium is expected to post a R10.5 million loss in the 2013 financial year.
Now, this tax cost is expected to be deferred almost indefinitely and will only be slowly incurred when the operations of the company shrink.
If your business is suffering from financial difficulties, don't forget your capital gains tax obligations to SARS…
If your business is in a similar situation, don't forget that this is an accounting loss.
So Konsortium will pay more in taxes if it sells more of its flocks, as positive cash flow is only what remains after capital gains tax has been paid, explains Moneyweb.
Because remember that the sale, donation, scrapping, or distributing of your company's assets all counts as capital gains.
But if you make a profit when disposing of the asset, capital gains applies then too.
One way to lower your CGT: Lower the base cost of your assets
Luckily, capital gains tax is expected to be less of a nightmare to figure out in future as a change to the Taxation Laws Amendment Bill means you'll effectively pay over less capital gains tax when you cancel or reduce a debt, says the Business Day's BD Live website.
You can do so by reducing the base cost of an asset on which capital gains will be levied in future, says FSP Business.
That's one option Konsortium can try if it doesn't get enough interest from investors.
The valuation date of your asset disposal could help you pay less CGT!
And SARS says that if an asset was acquired before the valuation date and disposed of thereafter, CGT will only be payable on the capital gain attributable to the period after the valuation date, so you won't pay over CGT on any gain before the valuation date!
You can use this to your advantage by only valuing an asset on the valuation date, or by adopting time-apportionment base cost, explains SARS
It's a great legal way to pay over less capital gains tax!

There is so much more to Capital Gains Tax which is covered in detail in Capital Gains Tax 101: Your ultimate guide to slashing Capital Gains Tax. Get your copy of it today!


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