Capital Gains Tax: At what point in time is it triggered?
Mr. S concludes an agreement to sell fixed property (“Property S”) to Mr. P on 20 January 2021, subject to Mr. P concluding an unconditional agreement of sale to sell his own fixed property (“Property P”) by 20 February 2021. Mr P concludes an unconditional agreement for the sale of Property P on 2 February 2021. The Deeds Office registers the transfer of Property S on 20 May 2021.
At what point in time does Mr. S trigger capital gains tax? The importance and detailed consideration of this question is at times overlooked – with potentially drastic implications for Mr. S (or any other taxpayer realising a capital gain on the sale of property).
To take a step back - capital gains tax may be triggered in respect of the disposal of assets in the event that the proceeds realised by the seller exceeds the base cost of such asset in the hands of the seller. The Eighth Schedule of the Income Tax Act No. 58 of 1962 contains rules which stipulate the time of a disposal for capital gains tax purposes – which is therefore the time at which capital gains tax is triggered.