Sale of minority interest in CC

[CLIVE-TRIANGLE]

Clive, regarding point 2 under TAX, are you saying that if it is a loan to the member the interest will be deductible but if it is a loan to one of the other CC's it will be non-deductible.

What I meant there was, if any of the cc's raises a loan to in turn make a loan to the member, that interest is non-productive, at least to the extent that it exceeds the interest on from the loan to the member (or to another cc). In transactions of that nature, SARS will ignore the corporate structure and couple the loan from to the loan to, even to the extent of deeming a dividend.

As you point out the debit loan account could be regarded by SARS as a deemed dividend. How would that practically be applied? Does STC still apply to cc's? Since there are very little reserves in the CC, a dividend could effectively not be declared, is that correct?

SARS can still deem it as dividend purely to levy dividend tax and leave you with the mess that it causes

[Dave A]

Just a thought:

What if the property owning cc bought the 25% shareholding in the other two cc's (instead of the shareholding being bought in the name of the majority shareholder)?

[CLIVE-TRIANGLE]

Only natural persons and special trusts ....

But the real problem is the underlying principle that the loan is to lend the member financial assistance, regardless of how it is structured

[Briano]

Thank you gentleman. Your comments have been very useful in assisting me to deal with the various problems that have presented themselves.

[Dave A]

Only natural persons and special trusts ....

Convert to a company.

[Briano]

You are right Dave.

[Dave A]

Relieved to hear that. The situation seemed to have some potential if the numbers were in the right places.

[CLIVE-TRIANGLE]

This can be a minefield, so be careful

But the real problem is the underlying principle that the loan is to lend the member financial assistance, regardless of how it is structured

[Dave A]

Agreed. Although I'd rate avoiding a First Strut situation a more significant hazard than SARS getting grumpy about the ownership structure

[Briano]

How does SARS treat intercompany loans ie between various CC's with a common "connected" member? Does interest have to be charged on these accounts to avoid deemed dividend tax and is the interest tax deductible?