RECENT TAX DEVELOPMENTS WHICH REQUIRE YOUR ACTION

1. Public Benefit Organisations and CGT

PBO’s which came into existence before 1 April 2006 are required to determine the “valuation date value” of all their capital assets. If a PBO wishes to have the opportunity to adopt the market value method of valuation (as opposed to the percentage of proceeds or time apportionment base cost methods), they must have the valuations prepared within 2 years of the valuation date.

The following assets do not need to be valued within the prescribed time periods as these values are published and readily available -

• Quoted financial instruments.
• Interests in collective scheme investments (unit trusts) in equities or property which are listed on a local or foreign stock exchange.

Very briefly, when CGT was introduced with effect from 1 October 2001, the value of capital assets at that date (known as the base cost) could be determined by any one of the following three methods -

• Market valuation
• 20% of disposal proceeds
• Time apportionment base cost

It was only if the subsequent net sale proceeds were in excess of this base cost, that was there a taxable capital gain.

Public Benefit Organisations are now being brought into the CGT net and market valuations need to be undertaken. If not done within the above time limits, this one of the three methods will not be available to be used by the PBO. That would be a lost opportunity which can not be made up later. The eventual choice of method need only be made after disposal of the asset in question.

Consult us should you need further guidance.

2. Share Transfer Duty

When shares in a company are transferred, stamp duty at the rate of 0,25% of the consideration is payable.

With effect from 1 July 2008 –

• The “tax” will be known as the Securities Transfer Tax
• The rate will remain the same
• Securities Transfer Tax will also be payable on the consideration passing for the transfer of a member’s interest in a close corporation.

Any pending transfers of close corporation interests, should (if possible) be finalised before 1 July 2008. If the close corporation owns residential property as its main asset, then normal property transfer duty is payable on the transfer instead of Securities Transfer Tax.

The above is a very brief summary of the position. Please consult us for further information.

3. STC and the new Dividend Tax

It is anticipated that, early in 2009, STC will fall away and be replaced by a new Dividend Tax. Whereas STC was a tax on the company/close corporation at the rate of 10% of dividends declared/distributions made, the new tax will be payable by the shareholder – probably at the same 10% rate.

It will be collected by the paying company withholding 10% of the amount payable to shareholders (natural persons and non-resident entities) and pay it over to SARS.

STC was payable on the dividends declared in excess of dividends received from other local companies/close corporations. If dividends received were in excess of dividends paid, the excess credit was carried forward for set-off against future dividends paid.

In the new tax system, there will be no accumulation of credits (as is the case with the current STC system). In regard to existing STC credits (i.e. dividends received in excess of dividends declared), there are administrative complications. It has been decided and is accordingly proposed that STC credits accumulated prior to the implementation of the new system will be forfeited and fall away. As the new system will only come into effect next year, current STC credits can be used until then.

The effect of this is obvious. All companies and close corporations must urgently consider whether they have (or will have this year) any unutilised STC credits. If so, dividends must be declared this year to use these credits. The dividends declared will be free of STC (up to the amount of the credits) and the new dividend tax will also not apply as it has not yet come into force. This matter must be given your urgent consideration. Please contact the partner handling your affairs to assist you in this regard.