1. CAPITAL PROFIT LIQUIDATIONS
I am what I am
National Treasury

2. Current Law From the company’s perspective:
Distribution of capital profits is exempt from STC.
From the shareholder’s perspective:
If a distribution subject to STC takes place, the dividend received is tax-free.
CGT applies on the surrender of share:
However, the capital profits reduce the base cost of the share.
This reduction currently has a minimal impact because the base cost in the share refers to the post-October 2001 value; and
The gain applies only when the base cost is reduced to a negative amount.

3. I Example of current law Liquidating Company’s capital profit R100
Shareholder’s historical base cost R20
Shareholder’s October 2001 value R90
Result under current law (15%/10%) CGT on R10
Result under proposed law (12.5%) STC on R10
Liquidating
Company
Distribution to shareholder I
-Tax free
Shareholder surrenders shares
-CGT payable if SA resident
-Tax free if foreign person

4. Remedy
STC applies only to post-October 2001 capital profits and matches CGT.
Therefore all capital profits prior to October 2001 will be “grand-fathered”.
Applies only to the appreciation on the sale of assets occurring after October 2001.

5. Bankruptcy Reorganisations- Problem Exaggerated
No impact under current law because all capital profits are shifted from the share-holder.
As a practical matter, it is doubtful if a STC distribution will otherwise take place:
Due to losses in the company.
Little or no proceeds to distribute to the shareholders.