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Vendor beware: capital gains tax on instalment sales

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By Ben Strauss, Director in Cliffe Dekker Hofmeyr's Tax and Corporate and Commercial practices Taxpayers should take great care when selling assets where the price is paid in instalments as the transaction may trigger some tricky capital gains tax (CGT) consequences. Consider the case of New Adventure Shelf 122 (Pty) Ltd vs The Commissioner of the South African Revenue Service (7007/2015) [2016] ZAWCHC 9 (17 February 2016). In this case the taxpayer acquired immovable property in 1999. In the taxpayer’s 2007 tax year it sold and transferred the property to a third party for a profit. The buyer had to pay the price of the property in instalments over more than one tax year. The taxpayer accounted for CGT on the entire purchase price in its 2007 tax return. The South African Revenue Service (SARS) assessed it accordingly. However, in its 2012 tax year the taxpayer and the buyer agreed to cancel the sale agreement as the buyer could not proceed with the intended development...