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Thread: Selling my 100% in a CC

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    Selling my 100% in a CC

    Hi Guys.

    I need some assistance with the Tax implications of selling my 100% share in a CC.

    Currently, lets say my members contribution is R100 (just an assumed figure). This amount isn't actual money I put in alone, but rather also the value of the time I spent building the CC and creating and adding to it ... time that wasn't paid by salary. I have essently created a Members Contribution as the Credit, and an Intangible Asset as a debit.

    My question is this ... I am planning to sell the my share for R100 i.e. the equivalent value of my members contribution. Now, because this is the value of what I have "invested" in the entity ... is it tax exempt ... can the other company just buy the Interest for R100 and I don't have to worry about paying tax or what?

    Regards

    Itai
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    Site Caretaker Dave A's Avatar
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    So essentially you capitalised unpaid salary - which means you would have paid income tax on that salary income (if applicable).

    I can't see SARS getting excited about you declaring a nil capital gain unless you did a whole bundle of such transactions.
    The trouble with opportunity is it normally comes dressed up as work.

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    Quote Originally Posted by Dave A View Post
    So essentially you capitalised unpaid salary - which means you would have paid income tax on that salary income (if applicable).

    I can't see SARS getting excited about you declaring a nil capital gain unless you did a whole bundle of such transactions.
    I didn't pay income tax on it, should I have, I can't afford the income tax on that because I never took the cash.

    I'm not making any gains on the sale of the company, I'm selling it for the value I put in ... i.e. that 300,000
    If you need any Accounting, Tax or even Financial Management advice, PM me and I'll try help and keep your information confidential.

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    So if I pay 18% on that amount (because it was 300,000 over 3 years), will sars be happy ... there is no capital appreciation on it.
    If you need any Accounting, Tax or even Financial Management advice, PM me and I'll try help and keep your information confidential.

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    Site Caretaker Dave A's Avatar
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    That changed the complexion of the question somewhat. Tough to say where to start, but this looks as good a place as any -
    Quote Originally Posted by eitai2001 View Post
    I'm not making any gains on the sale of the company, I'm selling it for the value I put in ... i.e. that 300,000
    That would be money you took out of your pocket and paid into the company or undrawn profits from the trading of the CC?
    The trouble with opportunity is it normally comes dressed up as work.

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    Quote Originally Posted by Dave A View Post
    That changed the complexion of the question somewhat. Tough to say where to start, but this looks as good a place as any -

    That would be money you took out of your pocket and paid into the company or undrawn profits from the trading of the CC?
    Well I didn't have cash to put in, so I did everything myself only withdrew a little money, and I believe R300k is the equivalent value of what I put in over 3 years.

    I think the easiest way to structure the sale will be to sell the website itself at a profit of R300k, and being an SBC I won't pay tax because profit will be <300k as I have a 20k loss on books, and then I take the profits as Dividend and pay 10% STC and it will be exempt income for me.
    If you need any Accounting, Tax or even Financial Management advice, PM me and I'll try help and keep your information confidential.

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    Site Caretaker Dave A's Avatar
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    Quote Originally Posted by eitai2001 View Post
    I think the easiest way to structure the sale will be to sell the website itself at a profit of R300k, and being an SBC I won't pay tax because profit will be <300k as I have a 20k loss on books, and then I take the profits as Dividend and pay 10% STC and it will be exempt income for me.
    Sounds like a good plan.
    The trouble with opportunity is it normally comes dressed up as work.

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    Hi Guys.

    An update with the sale of my company.
    We are signing the contracts this weekend if the lawyer brings the final draft by then.

    We have decided on the following transaction:
    I am selling 100% of the members interest in the CC to the new owner in his personal capacity.

    The proceeds from the sale are 250k.
    They are taking over the business as is with all liabilities and assets at the moment.

    The business itself has got a loss in the books due to the recession of the current year and a bad call on my part.

    My question ... what is the tax I will pay, as I am selling my 100% interest for the proceeds ... so no transaction actually takes place in the CC aside from just changing names and stuff ... am I correct on assuming there are no tax implications for the CC itself?

    For myself personally, am I correct in calculating the tax this way:

    Proceeds: R 250,000
    Base Cost: (R 5000) (R500 and a R4500 cell phone are what I started the CC with.)
    ----
    Capital Gain: R245000
    Less Natural Person Exclusion (R15000)
    Capital Gain: R230000
    25% Inclusion therefore 230,000 x 0.25 = 57500
    CGT at 18% = R 10350 (18% because I did not meet the second tax bracket even with salary).

    So am I correct to say I am liable to pay R10350 ... are there any taxable amounts I may have missed or calculated wrong?

    Regards

    Itai
    Last edited by Dave A; 18-Feb-10 at 07:53 AM.
    If you need any Accounting, Tax or even Financial Management advice, PM me and I'll try help and keep your information confidential.

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    Site Caretaker Dave A's Avatar
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    Quote Originally Posted by eitai2001 View Post
    am I correct on assuming there are no tax implications for the CC itself?


    From the cc's point of view, all that has changed is the member.
    The trouble with opportunity is it normally comes dressed up as work.

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    Quote Originally Posted by Dave A View Post


    From the cc's point of view, all that has changed is the member.
    Ok cool ... any idea if my CGT calc is right for myself?
    If you need any Accounting, Tax or even Financial Management advice, PM me and I'll try help and keep your information confidential.

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