Taxpayers should take great care when selling assets where the price is paid in instalments, as the transaction may trigger tricky capital gains tax consequences.


New Adventure Shelf 122 (Pty) Ltd v The Commissioner of the South African Revenue Service(1) started when a taxpayer acquired immovable property in 1999. In its 2007 tax year it sold and transferred the property to a third party for profit. The buyer paid the price of the property in instalments over more than one tax year.

The taxpayer accounted for capital gains tax on the entire purchase price in its 2007 tax return. The South African Revenue Service (SARS) assessed it accordingly.

However, in its 2012 tax year the taxpayer and the buyer agreed to cancel the sale agreement, as the buyer could not proceed with the intended development of the property. Under the cancellation agreement, the buyer transferred the property back to the taxpayer, which kept the amount already paid by the buyer. The amount kept by the taxpayer was significantly less than the initial price.

Put simply, the taxpayer disputed the 2007 assessment on the basis that the sale had been cancelled and, accordingly, no capital gains tax was payable.

The taxpayer and SARS agreed that the 2007 assessment was correct. However, the taxpayer contended that SARS had to amend the assessment on the grounds that the proceeds on the disposal of the property had been reduced in 2007 as a result of the cancellation of the sale agreement in 2012; in other words, SARS had to change the amount of capital gains tax due in the 2007 tax year.


The court held that the original assessment could not be altered and the taxpayer had to account for the full capital gains tax for the 2007 tax year.

The case was based on legislation that has since been amended. However, the position remains the same, as follows.

Capital gains tax

Capital gains tax is triggered on the disposal of an asset. A taxpayer must account for capital gains tax on the difference between the proceeds on the disposal of the asset and the base cost of the asset. The proceeds from the disposal of an asset are equal to the amount received by or accrued to the taxpayer.

Where a taxpayer becomes entitled to an amount which is payable in a subsequent tax year, the full amount must be treated as having accrued to the taxpayer in the current tax year. A taxpayer is considered to be entitled to an amount if the entitlement is unconditional. For instance, in New Adventure, while the second instalment of the price was due in a tax year after the sale and transfer of the property, the full price had accrued to the taxpayer in the 2007 tax year as the taxpayer had become unconditionally entitled to the amount.

Where the taxpayer has no unconditional entitlement to the proceeds in the current tax year, it must account for capital gains tax in the tax year during which the proceeds accrue. However, a capital loss realised by a taxpayer in the year of disposal must be carried forward and deducted in the year that the proceeds accrue, subject to certain rules relating to the determination of capital losses. For instance, a taxpayer sells immovable property to a purchaser for R2 million in tax year one. Of the price, R500,000 is only payable in tax year two if the purchaser is successful in rezoning the property. The taxpayer will account for capital gains tax on R1.5 million in tax year one only and will account for capital gains tax on R500,000 in tax year two, if the condition of rezoning is fulfilled. Conceivably, the parties in New Adventure could have made the payment of the second instalment contingent on the purchaser being successful with the development, in which case the taxpayer would only have had to account for the part of the price received during the 2007 tax year.

If a party disposes of an asset for consideration that cannot be quantified in full during that tax year, then as much of the consideration as cannot be quantified is deemed not to have accrued to the party in that tax year. If and when the amount becomes quantifiable during a later tax year, it is deemed to have accrued to the party from the disposal in that year. For example, a taxpayer agrees to sell shares in a company to the purchaser for a price of R1 million in tax year one. The parties agree that the purchaser will pay an additional amount determined as a percentage of the net profits of the company in tax year two. The taxpayer would need to account for capital gains tax on the amount of R1 million in tax year one, and the 'earn-out' amount (if any) in tax year two.

A similar special rule applies when a party sells equity shares and more than 25% of the price is payable in subsequent tax years.

A question arises as to what happens where (as in New Adventure):

  • a taxpayer sells an asset for a price which accrues unconditionally on disposal, but which is payable in instalments over two or more tax years;
  • the sale agreement is cancelled in a later tax year – for example, due to the default of the purchaser; and
  • the purchaser must return the asset to the taxpayer.

In this case, the taxpayer must account for capital gains tax on the full proceeds in the year of disposal of the asset. In the tax year in which the agreement is cancelled, to the extent that the taxpayer suffers a loss (in that the full price is less than the value of the property), the taxpayer will suffer a capital gains tax loss. This means the purchaser must account for capital gains tax on the value of the property transferred back to the taxpayer.

However, the taxpayer can offset that capital loss only against other capital losses in the same or later years. In other words, the taxpayer will have paid capital gains tax on the full sale price in the year of disposal but cannot recover the loss unless and until it realises other capital gains.


A taxpayer must obtain professional tax advice and plan carefully before concluding an agreement for the sale of an asset where the price is paid in instalments over more than one tax year.

For further information on this topic please contact Ben Strauss at Cliffe Dekker Hofmeyr by telephone (+27 21 481 6300) or email ( The Cliffe Dekker Hofmeyr website can be accessed at


(1) 7007/2015 [2016] ZAWCHC 9, February 17 2016.

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