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Thread: Sale of IP to a new business

  1. #1
    just me duncan drennan's Avatar
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    Sale of IP to a new business

    I heard an interesting story yesterday and I was wondering how valid this particular case was. This was done before CGT was introduced.

    What this guy did was sell his know-how (which was sold as IP) to a newly formed company for R1mil (or something like that). He then had the company take a loan which was used to pay him for his IP. The company could then deduct the interest on the loan.

    Under the new(ish) CGT laws he would have had to pay a fair chunk of tax, although it would be less than if that money was paid to himself via a salary.

    Can this be done, is it a valid case? Would SARS be very unhappy when they audited the company/person?
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    Site Caretaker Dave A's Avatar
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    Funny what we wonder about.

    I was wondering - if there was external finance, what was the security?
    Or was it financed by a loan account?

    Auditors would be scrutinising if the IP was really worth R1 million if the transaction was not at arms length. Another factor in how SARS might view this?
    The trouble with opportunity is it normally comes dressed up as work.

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    just me duncan drennan's Avatar
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    Quote Originally Posted by Dave A View Post
    I was wondering - if there was external finance, what was the security?
    Or was it financed by a loan account?
    My understanding is that he signed security for a commercial loan. The point about arms length is an interesting one (which I forgot about). If it was not an arms length transaction, how would SARS view it?
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