In the second of her articles on valuing your assets for capital gains tax (CGT), Deborah Tickle, a tax partner at KPMG, discusses which assets you should have valued and which ones you can exclude.
You probably know that you must have your assets valued for the purposes of capital gains tax (CGT). But which assets should you value?
Recently, I drew your attention to the importance of having your assets valued as at the date when CGT was introduced: October 1, 2001.
The next question that arises is: "Must I value all my assets?" The answer is "no".
So, which assets should you value?
The first thing you need to do is establish which of your assets warrants spending the money to have them valued. Clearly, large capital assets such as your home, a holiday house, or any other fixed property should be valued.
Your perception of these assets' current value - and by how much their value may increase over time - may determine how you choose to have them valued.
You may want to have the property valued by a valuer registered with the Institute of Valuers, if you think its current - and future - value is substantial. On the other hand, a valuation by an estate agent may suffice. You may consider having the property valued by two different agents to ensure you have sufficient proof of its value - provided they substantially agree!
Other large capital assets that you may want to have valued include shares in private companies or memberships in close corporations (CCs). There is no need to have shares in listed companies valued, because the South African Revenue Service has a schedule of these values.
Other assets you may want to have valued include any rights you own in intellectual property. Do you own the copyright to a book you have written? Have you written any successful music or computer programs? Do you own the patent of an invention?
All these things may warrant the cost of a formal valuation, and you would need to ensure that a properly qualified person performs the valuation for you.
This is quite a lengthy list E what don't you need to value?
The main category of assets that you don't need to value is called "personal use assets". This category of assets only applies to special trusts and natural persons - not companies or CCs.
Special trusts are trusts that:
- Are constituted for the benefit of mentally or physically disabled people; or
- Are created in terms of a will for the benefit of the testator's relatives. The beneficiaries must be alive when the testator dies, and the youngest beneficiary must be younger than 21 at the end of the tax year.
In terms of the above requirements, most trusts would not qualify to disregard personal use assets.
Personal use assets are the assets of a natural person or a special trust that are used primarily for purposes other than trade.
Personal use assets include: your car (receiving a travel allowance from a company does not change this from being a personal use asset); Persian carpets and paintings; your television and hi-fi; jewellery and clothing; and most of the other items you own and use but do not trade with.
Specific items are excluded from the category of personal use assets, and consequently, you will need to have them valued. These items are:
- Gold or platinum coins.
- Immovable property.
- Aircraft whose empty mass exceeds 450kg - so don't worry about your hang-glider or para-glider.
- A boat longer than 10 metres.
- Financial instruments such as shares or bonds.
- Any fiduciary, usufructuary or similar interest, the value of which decreases over time. Usufructuary rights are rights you are granted to use an asset that you do not own. For example, if in his will your great uncle has left you the right to use his farm for the next 10 years, but the ownership has been left to his son, your cousin, you would have a usufruct of the farm for 10 years and your cousin would have the "bare dominium". The value of this right of use would need to be determined.
- A right or interest of whatever nature to, or in any of, these assets. For example, if you have an option over a fixed property - say, a house - this would be a right or interest in that property, and that right would need to be valued.
Although the list of excluded items may seem long, the personal use assets exclusion means you may take a lot of the assets you thought you might have to value for CGT purposes off your list.