The Termination of Personal Rights

• Jurisdiction: South Africa
• Author: David Clegg
• DOI: 10.10520/ejc-btclq_v12_n1_a2
• Published date: 01 March 2021
• Date: 01 March 2021
• Pages: 1-5
• Published By: Siber Ink

1

© Siber ink

The Termination of Personal

Rights

A CGT DISPOSAL?

DAVID CLEGG

AbstrAct

The nature of Capital Gains Tax (‘CGT’) is that it is imposed on any gains

arising on the disposal of an ‘asset’, a term which is defined to include incor-

poreal rights. Thus, SARS’s practice for many years has been to recognise the

personal rights to performance arising from the entering into of contracts and

other events, as assets for purposes of CGT. When such a right passes without

consideration between connected persons, CGT may become due if its value

has increased. A lack of awareness of this possibility has led in the past to

penalties and interest for the parties concerned.

SARS’s practice has not been without opposition from the tax commen-

tariat and it now seems that some arguments raised against the recognition

of these rights have been partially acknowledged. Without pretending to be

an exhaustive analysis, this article deals with the issues and the position going

forward.

The extinction (?) and disposal of personal rights: A shift in SARS’s

CGT stance

As noted above, SARS has historically treated all personal rights as dispos-

able ‘assets’ for purposes of CGT but many commentators have contested

that stance without, until recently, much success. In order to understand

the issues, some technical background is necessary.

In what follows, references to the Schedule are to the Eighth Schedule

to the Income Tax Act 58 of 1962 (as amended) (‘the Act’) and references to

paragraphs are to paragraphs of that schedule.

Essential definitions

An ‘asset’ includes:1

(a) ‘property of whatever nature, whether movable or immovable, corpo-

real or incorporeal … and

(b) a right or interest of whatever nature to or in such property…’

There is no doubt that an incorporeal right of any kind constitutes

property under our common law.2 Thus paragraph (a) of the definition is

1 Definitions para 1 .

2 See, inter alia and for an overview, Wille Principles of SA Law chapter 19; CIR v Estate

Crewe 1943 AD 656, 12 SATC 344.