The following valuation date values may be adopted for South African-listed shares:
- Market value which is the volume weighted average price of all the relevant shares traded during the five business days preceding 1 October 2001 and which has been published in the Government Gazette
- Time-apportionment base cost
- 20% of the proceeds after first deducting any qualifying expenditure incurred after the valuation date
- Weighted average method – market value of shares at valuation date plus subsequent additions or expenditure at cost
Persons adopting market value or time-apportionment must select an asset identification method to determine which shares they have disposed of, namely –
- specific identification; or
- first in, first out (FIFO).
Paragraphs 26 and 27 lay down fairly complex rules which can restrict a taxpayer’s right to choose freely amongst these methods in certain circumstances. These gain and loss limitation rules do not, however, apply where the weighted average method of determining the valuation date value of a share has been adopted.
Example – paragraph 26:
Cost of SA-listed share: R100, market value on 1 October 2001:R150, proceeds: R120. In this case the taxpayer will not be allowed the market value loss of R120 – R150 = R30 and the base cost of the share will be treated as R120 resulting in neither a gain nor a loss.
Example – paragraph 27:
Cost of SA listed share: R100, market value on 1 October 2001:R50, proceeds: R70. In this case the taxpayer will not be taxed on the market value gain of R20 (R70 – 50) nor will that person be allowed to use time based apportionment to claim part of the historical loss of R70 – R100 = R30. The base cost of the share will be treated as R70 resulting in neither a gain nor a loss.
Foreign listed shares
The valuation date value of shares listed on a foreign recognised exchange that are not listed on the JSE must be determined on the same basis as local shares. However, unlike local shares the market value of such shares is based on the ruling price on the last business day preceding valuation date. These values must be obtained by the shareholder as they have not been published by SARS. The market value on valuation date must be translated into rand at the ruling exchange rate on valuation date. The ruling exchange rate is the rate at which a bank will buy foreign currency.
The valuation date value of unlisted shares may be determined using market value, time apportionment or 20% of proceeds after first deducting post-CGT costs. The market value is the price a willing buyer would pay a willing seller if dealing at arm’s length in the open market.