Although the law presently exempts local authorities from paying tax on
their revenues, including income tax, they might be subject to CGT on the
disposal of fixed assets because of the wording of the law.

Clegg says that local authorities are presently exempt from paying income
tax in terms of the law. The law states that local authorities, such as
municipalities and city councils, are exempt from tax on their "revenues".

But Clegg says it is questionable as to whether government departments and
sectional title body types are less exempt than others.

The wording of the law raises the question as to whether such authorities
are also subject to CGT on the disposal of their assets as the proceeds are
not classified as "revenue".

This is a question which has been raised in the context of local authorities
disposing of large amounts of surplus land.

Most companies and organisations are exempt from CGT on their receipts and
accruals which cover their infloat.

However, government departments such as local authorities are only exempt on
their "revenues".

Kosie Louw, law administration GM at the SA Revenue Service, says that local
authorities are exempt from paying income tax, including CGT on the proceeds
of the sale of fixed property.

Schedule eight of the Income Tax Act contains an exemption provision
regarding such bodies, Louw says.

The act specifically provides that such bodies must disregard a capital gain
or loss because all its receipts and accruals are exempt from income tax, he
says.

"The receipts and accruals included the concepts of revenues."

Louw says there is no uncertainty about the exempt status of such bodies
with regard to CGT.

Charles de Wet, a tax partner at PricewaterhouseCoopers, says that the term
"revenues" has been defined in the act.

De Wet says that CGT could never have been intended to have been included in
the legislation.

Local authorities should be exempt from such taxation, he says.