Should I sell the company or should my company sell the property?
Simple answer – If you can find somebody stupid enough to buy the company, sell them your shares. Here’s why:
If you sell your shares, then you will make a capital gain probably about equal to the increase in value of the property. You will pay a maximum of 18%. And that’s it!
Why is the buyer stupid?
Because he/she doesn’t know what skeletons may be in the cupboard. For example, the company could have signed surety on another debt.
Now let’s look at the other option.
The company sells the property. It makes a capital gain and pays CGT at 21,6%.
The proceeds are sitting in its bank account, not in yours.
It has to declare a dividend to you, its shareholder to shift the money. Dividends Withholding Tax 20%. Not good.
Then you’re left with a dormant company.
You will stop submitting Annual CIPC returns, wait for CIPC to eventually de-register the company (after at least 2 years, sometimes 6), prove this to SARS and request SARS to suspend the company as a tax payer.
In the meantime it must still submit Annual Tax Returns and Annual Beneficial Ownership returns. Oh man!
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I am a long term shareholder (pre 2001) in an property owning company along with other shareholders who wish to now sell their shares based on the current market value of the property. (approx R5m). The company has no debt or loan accounts or other assets.
For the departing shareholders – what is their base cost of their shares for CGT calculation.
For incoming shareholder – what would their base cost be in the circumstance that in the future the company sells the property (not the shares)
Is there a way of structuring the purchase transaction so future base cost of the property for incoming shareholders equates to the purchase price of the shares?
Hi Marek,
The shares were most likely of R1 each par value. So, if one of them owns say, 30 shares, then his base cost is R30
If the company sells the property, then it will make a capital gain at that time and this capital gain will have nothing to do with the above sale of shares.
Its shares will then be worth its Net Asset Value after it has paid the CGT.
This is the Double CGT trap that I discuss in my book 16 Steps to Wealth here https://www.16steps.co.za
If it distributes the cash as a dividend, withholding 20%, it’s shares will be worth zero.