# General Business Category > General Business Forum >  Selling member interest in CC

## Martinco

If I should sell my interest in a CC that is currently a going concern, are there taxes to be paid on the proceeds of this sale ?

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## eitai2001

Yes, Capital Gains Tax.

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## eitai2001

And also a 0.25% Securities Transfer Tax unless you meet one of the following criteria:




> 1)    The tax is not payable in respect of a transfer of a security—
> 
> a)    if the security is transferred to a person—
> 
> i)     in terms of an asset-for-share transaction referred to in section 42 of the Income Tax Act;
> 
> ii)    in terms of an amalgamation transaction referred to in section 44 of the Income Tax Act;
> 
> iii)   in terms of an intra-group transaction referred to in section 45 of the Income Tax Act;
> ...

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Dave A (25-Oct-10), Martinco (19-Oct-10)

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## Martinco

> Yes, Capital Gains Tax.


How much would the CGT be on say R 3 Mil ?

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## eitai2001

Hi.

It all depends ... various factors that go into it.

*Some of the factors that might apply:*
-Did you first get the interest before or after 1 October 2001?
-Have you got any other Capital Gains for the year (Because you get a 17500 deduction off the Capital Gain before the inclusion in Taxable Income)
-What will your Taxable Income for this year be (Because you are taxed on the sliding scale)
-What is the Base Cost of the shares ... i.e. what did you invest into the members interest?
-Does it constitute a Connected Persons transaction?

*Let's make some assumptions:*
-You have no other Capital Gains or Losses for the year
-Your final Taxable income for the year is R300,000 (Including all incomes and deductions, etc)
-You purchased the interest in the CC after 1 October 2001 and you put in an amount of R100,000 as your total capital for the CC.
-This is not a connected person transaction




> *1. Your Income Tax Payable before the Capital Gain:*
> (Using 2010/11 SARS Sliding Scale)
> 
> (R300,000 - R221,000) x 30% = R23,700 
> Plus: R45,450
> <hr />
> *Total Tax Payable: R69150*





> *2. Your Capital Gain to be included in Taxable Income:*
> 
> Capital Gain: R3,000,000 - R100,000 = R2,900,000
> Annual Exclusion: - R17,500
> Total Capital Gains: R2,882,500
> <hr />
> *Amount to be included in taxable income: R2,882,500 x 25% = R720,625*





> *3. Your Income Tax Payable after the Capital Gain:*
> 
> Taxable Income to Date: R300,000
> Plus Capital Gain: R720,625
> Total Taxable Income: R1,020,625
> 
> (Using 2010/11 SARS Sliding Scale)
> 
> (R1,020,625 - R552,000) * 40% = R187,450
> ...





> *4. Effective Incremental Tax Payable due to Capital Gains:
> *
> Your Income Tax Payable after the Capital Gain: R348,180
> Your Income Tax Payable before the Capital Gain: (R69,150)
> <hr />
> *Incremental Tax due to Capital Gain: R279,030*


As you can see, this calculation can get very complex, especially if you don't know what's going on ... and I have assumed some things to make the calculation easy for me to show you. I would definitely suggest a tax practitioner to assist you with this.

Regards

Itai

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Dave A (25-Oct-10), Martinco (19-Oct-10)

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## Martinco

Point taken............shall involve my accounting officer.
Thanks for the indication. I started the business in 1991 and bought my brothers interest in 2002 and have subsequently sold 20 % to my daughter 4 years ago. But as you indicated there are quite a couple of things to work on.

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## eitai2001

> Point taken............shall involve my accounting officer.
> Thanks for the indication. I started the business in 1991 and bought my brothers interest in 2002 and have subsequently sold 20 % to my daughter 4 years ago. But as you indicated there are quite a couple of things to work on.


Yup, especially because you started prior to October 2001 and bought additionally after October 2001 (and sold after Oct 2001 which should also have had CGT consequences) ... just to give you an idea ... your Base Cost for the shares would need to be valued in terms of Paragrah 26 and 27 of the 8th Schedule of the CGT act ... Proceeds will have to go through the rules in Paragraph 39, etc ... this is going to be one ugly calculation  :Wink:

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## AmithS

What would be your capitals gains implications then if you are given shares in a cc, you dont pay anything and the cc is worth nothing now.  But 1 day you decide to sell and its worth alot? is the entire amount it is worth up for CGT?

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## eitai2001

> What would be your capitals gains implications then if you are given shares in a cc, you dont pay anything and the cc is worth nothing now.  But 1 day you decide to sell and its worth alot? is the entire amount it is worth up for CGT?


Well basically the value at the time you get it is it's base cost ... so if the market value is 0, it will be R0 ... which means when you sell one day, the full proceeds from the sale will be CGT ... but if you put money in, keep a record of it as this will add to your base cost making the CGT in future less.

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