FAQs: Company Distributions

If your CGT question is not dealt with in this list of FAQ's, please address your query to cgt@sars.gov.za  

1.I have a 100% shareholding in a company which owns a property. The company bought the property at a cost of R 100 000 in 1997 with the purchase price being funded by share capital of R1 000 and a shareholder’s loan of R99 000. The property was valued on 1 October 2001 at R 600 000. In July 2003 the company sold the property for R1 million where after it made a capital distribution to me in anticipation of deregistration. What will the CGT effect be on the company and me?

The company

Assuming that the company determines the valuation date value of the property on the market value basis, it will have a capital gain of R 1 000 000 – R 600 000 = R 400 000.
The CGT payable will be R 400 000 x 50% x 30% = R 60 000.
The portion of the capital profit derived after valuation date will be subject to STC.
This is calculated as follows:

Post-1.10.01 reserves available for distribution R 1 000 000 – R 600 000 – R 60 000 = R 340 000

STC = R 340 000 x 12,5/112,5 = R37 778 (to nearest R1)

Therefore the shareholder will receive the following amounts:

The Shareholder

It is assumed that the market value of the shares on valuation date was R 501 000, and that the shareholder has adopted the market value basis for determining their valuation date value.

In terms of para 76(1)(b) of the Eighth Schedule, the capital distribution of R 501 000 is treated as proceeds on disposal of the shares. Since the base cost is R 501 000 the shareholder will make neither a gain nor a loss on disposal of the shares. In terms of para 77(1)(a) the disposal will occur on deregistration of the company.

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