Capital vs revenue: Part 2

2008-01-30 00:00

In Capital versus Revenue Part 1, I discussed the first part of the amendments with regard to shares. In this week’s article, I examine other relevant issues relating to the proposed amendment.

The deemed capital disposals under Section 9C must work in combination with the deemed disposal of trading stock in terms of the provisions of Section 22(8) of the Income Tax Act No. 58 of 1962, as amended. In the absence of special rules, the deemed disposal would trigger an ordinary gain upon the deemed capital conversion at the time of disposal. There are certain issues in place that prevent the provisions of Section 22(8) of the Act from undermining the benefits of Section 9C. Therefore, taxpayers must recoup only the Section 11(a) cost upon the Section 9C disposal. This implies that no market value recoupment as set out in Section 22(8) is applicable.

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