I would just like to triple check my understanding of the sale of goodwill...
My wife sold the goodwill of her business (an occupational therapy practice). She was operating as a sole proprietor since 2002. The only thing sold was the goodwill (i.e. client list, future referrals, etc.) and no assets were sold as a part of this transaction. To give it some numbers, let's just say that it was sold for R100k.
My understanding from my reading of SARS documents is that the base cost is R0, and the capital gains is R100k (of which there is a 20k exclusion), resulting in a taxable capital gains income of R20k (i.e that gets added to the total taxable income and is then taxed on the normal personal sliding scale system).
Is that correct?
One accountant advised me to "create" an asset to reflect the time, effort and work that has gone into creating the goodwill in the business and then just use the difference as the capital gains (e.g. create a "business value" asset of say R60k and put the other side against the owners loan account, then the capital gains is R40k instead of R100k). I can't find any information to support this suggestion as a legal and viable option, so I have not made use of it.
Any thoughts on that suggestion?
The only thing that I can find in support of that suggestion is that expenses which have not already been deducted against tax can form part of the base cost. There is the effort, time, etc. which is not directly compensated for or deducted for tax purposes. I can't find any clear guidelines which support this though.