I’ve talked a lot about double CGT in various articles and in my books.

It generally arises when you own a company that owns growth assets. If you sell, or, on death are deemed to have sold, the shares in the company, in the first instance to your trust and in the second to your deceased estate, you will make a capital gain on the increase in value of the shares which resulted from the growth of the asset values, and you will pay CGT.

Then, if the company subsequently sells the growth assets (possibly to pay your deceased estate’s taxes), then it will also pay CGT on the growth in value of the assets. That’s double CGT on the same growth.

There is another circumstance that can lead to double CGT. It relates to the s42 asset for share provision.

s42 of the Income Tax Act basically says that if A owns assets that cost say, R500 000 and are now worth say, R4m, it can swap the assets for new shares in a company B with no tax consequences in the transaction. A then owns company B and company B owns the assets.

The catch is that A’s base cost of the shares is the base cost of the assets disposed of, that is R500 000 in this example, but B is now worth the value of its assets which is R4m.

And B’s base cost of the assets is what A’s base cost was before the transaction, that is R500 000. But the value of the assets that B now owns is R4m.

You see the catch? Even if there’s no further growth in the value of the assets (and therefore in the shares as well), if A ever sells the shares it will make a taxable capital gain of R3,5m, and if B ever sells the assets it will make a taxable capital gain of R3,5m.

Double CGT!