Cancelling a sale can be risky business

South Africa - Gibbs & Dold

“Payment of tax is what the law prescribes, and tax laws are not always regarded as ‘fair’. The tax statute must be applied even if in certain circumstances a taxpayer may feel aggrieved at the outcome.” These were the words of the Supreme Court of Appeal (SCA) in the recent judgment New Adventure Shelf 122 (Pty) Ltd v Commissioner of SARS. This case examined the consequences of Capital Gains Tax (CGT) where the sale of a property was cancelled before the seller had been paid in full.

In the 2007 year of assessment a property was sold and a substantial capital gain was taken into account in the seller’s tax assessment for that year. Unfortunately, the purchaser defaulted, only paying a portion of the purchase price, resulting in an agreement to cancel the sale several years later. The property was returned to the seller, who also retained the payments made to it as pre-determined damages for breach of contract