Valuation of shares and other assets

How must I value my shares on valuation date and can I use the time-apportionment basis?

South African-listed shares 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).

Note: The weighted average method is both a base cost method and an identification method. 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.
Unlisted shares 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.

How must the base cost of my demutualisation shares be determined?

The valuation date value of demutualisation shares in Old Mutual and Sanlam can be determined by using any of the four methods available for this purpose, namely, market value, time-apportionment, 20% of proceeds or weighted average. However, since these shares were acquired for an expenditure of nil the time-apportionment method is unlikely to give the best result, particularly as the number of years after valuation date increases. Since these shares were listed on the JSE the market values published by SARS on this website and in Government Gazette 23037 of 25 January 2002 must be used if the market value or weighted average method is adopted.
Example   Facts
A taxpayer received 1 000 demutualisation shares in 1998. The volume weighted average price for the five business days before valuation date as published in the Gazette  was R8,89 a share. The shares were sold after the valuation date for R80 a share.   Result   The best result in this case can be achieved by using the “20% of proceeds” method, since that yields a base cost of R16 a share (R80 × 20%) in comparison to the market value of only R8,89 a share. The capital gain is thus 1 000 shares × (R80 – R16) = R64 000  

How were unit trust investments valued on 1 October 2001?

The market values of units in domestic unit trusts on 1 October 2001 are available on this website and were also published in Government Gazette23037 of 25 January 2002. These values were based on the average of the closing prices at which units could be sold to the management companies (usually the “sell” price quoted in most newspapers) for the last five trading days before valuation date. This valuation excludes initial costs.

I hold unit trusts as well as shares on the JSE. Must the market value on valuation date for CGT purposes be calculated as at close of business on 30 September 2001 or close of business on 1 October 2001?

SARS has published the market values to be used for securities on the JSE and for domestic unit trusts on this website. These were also published in Government Gazette 23037 of 25 January 2002. These market values are based on an average of the values for the five trading days before valuation date.

Who should have done the valuation? By what date should my property have been valued? Who must hold the valuation certificates? When must valuations be submitted and to whom?

5.1 The taxpayer disposing of the asset was responsible for any valuation submitted to SARS. Depending on the nature and value of the asset concerned, the taxpayer should have considered obtaining expert advice, but this was not compulsory. If an expert was used, the same factors as would be considered when engaging an accountant, attorney, or other professional should have been considered to ensure that the expert was properly qualified to express an opinion in the relevant field.   Whether the valuation is performed by the taxpayer alone or with assistance of an expert, it must be properly documented and must indicate in detail how the market value was arrived at. These details should include the description of the asset being valued, as well as the factors and assumptions that were taken into account in arriving at the market value. In the final analysis, the valuation should be capable of standing up to scrutiny by SARS and, if necessary, a court.
5.2 Taxpayers had until 30 September 2004 to have their properties valued. These valuations should have been performed on the basis of the value of the property on valuation date, 1 October 2001. The prescribed valuation form CGT 2L must be completed and signed. This form can be downloaded from this website – see Capital Gains Tax or Forms. On the retention and submission requirements, see below.
5.3 A valuation form CGT 2L, including all supporting documentation, should be retained by the taxpayer for at least five years after the return of income reflecting the disposal has been submitted. In the event of an audit by SARS or an objection or appeal, you must retain the documents until the audit, objection or appeal is finalised.
5.4 Information on the valuation of the following three categories of assets was required to be submitted with the first tax return submitted after 30 September 2004:

Category of assets​ Applies​ When market value exceeds​
Intangible assets​ Per asset​ R 1 million​
Unlisted shares​ All shares held by the shareholder in the company​ R10 million​
All other assets​ Per asset ​ R10 million​

Can a penalty be imposed by SARS if an asset was incorrectly valued by a taxpayer? If so, under which section of the Act?

Yes – section 222 of the Tax Administration Act, 2011.

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