Fiasco looms as CGT deadline is ignored
08-09-2003
The looming deadline for the completion date of capital gains tax (CGT) valuations will in all likelihood bring on another drivers' licence fiasco — with the result that commercial, industrial and residential property investors who have neglected to have proper valuations done will end up paying more in CGT, says Erwin Rode, property economist.
There has been a last-minute rush by some investors to have their properties valued before the deadline of 30 September 2003. However, there is a limited number of professional valuers in South Africa, and it is therefore inevitable that the few professional valuers will not be able to accommodate many of these johnny-come-latelys. The remaining option to many of these investors is to have their properties valued by unqualified people, or DIY. But this raises the spectre of SARS rejecting valuation reports that have not been executed professionally. Either way, these owners will eventually pay more CGT.
As a generalization, in order to minimize CGT, investors who bought their investment properties before 1 October 2001, must have these properties valued by 30 September 2003. Any valuation in excess of R10 million has to be filed with the Receiver with the first tax return submitted after 30 September 2003 Those properties below R10 million need only be filed on selling the asset.
Rodney Luntz of Abro Luntz property consultants confirms this: "You can value your own assets but it’s obviously preferable to seek professional help. The valuation must be in writing and fully motivated. SARS has the right to query the valuation if it cannot be supported by properly motivated, written documentation, showing clearly the method of valuation used." Be prepared though to pay more CGT in the end, says Rode. The Receiver is likely to be far more critical in the case of owner-valued properties and may reject these if not properly motivated.
“In the case of income-producing properties, the crucial variables that need to be well motivated are capitalization rates, discount rates, operating expenses, perpetual vacancies, market rentals and floor areas,” says Rode.
Property owners will be able to get help from back copies of property publications that reflect property statistics around 1 October 2001. The best example is the property ‘bible’, Rode’s Report. These quarterly reports contain information on the crucial property variables, and there were two issues that straddle the CGT inception date, which will aid any valuation.
