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Thread: Selling member interest in CC

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    Gold Member Martinco's Avatar
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    Selling member interest in CC

    If I should sell my interest in a CC that is currently a going concern, are there taxes to be paid on the proceeds of this sale ?
    Martin Coetzee
    Supplier of Stainless Steel Band and Buckle and various fastening systems. Steel, Plastic, Galvanized, PET and Poly woven.
    We solve your fastening problems.
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    Yes, Capital Gains Tax.
    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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    And also a 0.25% Securities Transfer Tax unless you meet one of the following criteria:

    1) The tax is not payable in respect of a transfer of a security—

    a) if the security is transferred to a person—

    i) in terms of an asset-for-share transaction referred to in section 42 of the Income Tax Act;

    ii) in terms of an amalgamation transaction referred to in section 44 of the Income Tax Act;

    iii) in terms of an intra-group transaction referred to in section 45 of the Income Tax Act;

    iv) in terms of an unbundling transaction referred to in section 46 of the Income Tax Act;

    v) in terms of a liquidation distribution referred to in section 47 of the Income Tax Act; or

    vi) in terms of any transaction which would have constituted a transaction or distribution referred to—

    A) in subparagraphs (i) to (v) regardless of whether or not an election has been made in terms of the relevant section; or

    B) in subparagraph (i) or (ii) regardless of the market value of the asset disposed of in exchange for that security; or

    C) in subparagraphs (i) to (v) regardless of whether or not that person acquired that security as a capital asset or as trading stock,

    where the public officer of the relevant company has made a sworn affidavit or solemn declaration that the acquisition of that security complies with the provisions of this paragraph;

    b) if the transfer is from a lender to a borrower, or vice versa, in terms of a lending arrangement and the person to whom that security has been transferred has certified to the participant that the change is in terms of that lending arrangement;

    c) if the transfer is from a pension fund to another pension fund both of which are registered under the Pension Funds Act, 1956 (Act No. 24 of 1956), and that change is made in pursuance of a scheme referred to in section 14(1) of that Act;

    d) if that security is transferred to a public benefit organisation which is exempt from income tax in terms of section 10( 1 )(cN) of the Income Tax Act, if the tax thereon would be legally payable and borne by that public benefit organisation;

    e) if that security is transferred to an institution, board or body, which is exempt from income tax in terms of section 10(l)(cA)(i) of the Income Tax Act, and which has as its sole or principal object the carrying on of any public benefit activity referred to in section 30 of that Act, if the tax thereon would be legally payable and borne by that institution, board or body;

    f) to the extent that that security is a participatory interest in a collective investment scheme regulated in terms of the Collective Investment Schemes Control Act, 2002 (Act No. 45 of 2002);

    g) if that security is transferred to a beneficiary entitled thereto under a trust created in accordance with a will;

    h) if the person to whom that security is transferred is an heir or a legatee who has acquired that security ab intestatio or by way of testamentary succession or as a result of a redistribution of the assets of a deceased estate in the process of liquidation;

    i) if the person to whom that security is transferred is a spouse in a marriage in community of property who acquires an undivided half-share in that security by operation of law by virtue of the contraction of such marriage, if that security was acquired by the other spouse prior to the date of that marriage;

    j) if the person to whom that security is transferred is a surviving or divorced spouse who acquires a security from his or her deceased or divorced spouse where that security is transferred to that surviving or divorced spouse as a result of the death of his or her spouse or dissolution of their marriage or union;

    k) transferred to any sphere of the Government of the Republic or to any sphere of the government of any other country;

    l) transferred to any "water services provider" as defined in section 1 of the Income Tax Act;

    m) transferred to any "regional electricity distributor" as defined in section 1 of the Income Tax Act, on or before 1 January 2014 or a later date that may be determined by the Minister by notice in the Gazette;

    n) if that security is an unlisted security which in terms of the Transfer Duty Act, 1949 (Act No. 40 of 1949), constitutes a transaction for the acquisition of property that is subject to transfer duty;

    o) if that security is a share in a share block company as defined in section 1 of the Share Block Control Act, 1980 (Act No. 59 of 1980), which confers a right to or an interest in the use of immovable property;

    p) transferred to any traditional council as referred to in the Communal Land Rights Act, 2004 (Act No. 11 of 2004), on or before a date that may be determined by the Minister by notice in the Gazette;

    q) if the person to whom that security is transferred is a member who has purchased the security for the account and benefit of that person; or

    r) if that security was transferred during a month in respect of which—

    i) in the case of an unlisted security, the company which issued that security; or

    ii) in the case of a listed security, the relevant member, relevant participant or the company that issued that security where that security is not held in custody by either a member or a participant, would have had to pay tax of less than R100 to the Commissioner.
    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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    Gold Member Martinco's Avatar
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    Quote Originally Posted by eitai2001 View Post
    Yes, Capital Gains Tax.
    How much would the CGT be on say R 3 Mil ?
    Martin Coetzee
    Supplier of Stainless Steel Band and Buckle and various fastening systems. Steel, Plastic, Galvanized, PET and Poly woven.
    We solve your fastening problems.
    www.straptite.com

    You may never know what results will come from your actions, but if you do nothing, there will be no results... Rudy Malan 05/03/2011

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    Hi.

    It all depends ... various factors that go into it.

    Some of the factors that might apply:
    -Did you first get the interest before or after 1 October 2001?
    -Have you got any other Capital Gains for the year (Because you get a 17500 deduction off the Capital Gain before the inclusion in Taxable Income)
    -What will your Taxable Income for this year be (Because you are taxed on the sliding scale)
    -What is the Base Cost of the shares ... i.e. what did you invest into the members interest?
    -Does it constitute a Connected Persons transaction?

    Let's make some assumptions:
    -You have no other Capital Gains or Losses for the year
    -Your final Taxable income for the year is R300,000 (Including all incomes and deductions, etc)
    -You purchased the interest in the CC after 1 October 2001 and you put in an amount of R100,000 as your total capital for the CC.
    -This is not a connected person transaction

    1. Your Income Tax Payable before the Capital Gain:
    (Using 2010/11 SARS Sliding Scale)

    (R300,000 - R221,000) x 30% = R23,700
    Plus: R45,450
    <hr />
    Total Tax Payable: R69150
    2. Your Capital Gain to be included in Taxable Income:

    Capital Gain: R3,000,000 - R100,000 = R2,900,000
    Annual Exclusion: - R17,500
    Total Capital Gains: R2,882,500
    <hr />
    Amount to be included in taxable income: R2,882,500 x 25% = R720,625
    3. Your Income Tax Payable after the Capital Gain:

    Taxable Income to Date: R300,000
    Plus Capital Gain: R720,625
    Total Taxable Income: R1,020,625

    (Using 2010/11 SARS Sliding Scale)

    (R1,020,625 - R552,000) * 40% = R187,450
    Plus: R160,730
    <hr />
    Total Tax Payable: R348180
    4. Effective Incremental Tax Payable due to Capital Gains:

    Your Income Tax Payable after the Capital Gain: R348,180
    Your Income Tax Payable before the Capital Gain: (R69,150)
    <hr />
    Incremental Tax due to Capital Gain: R279,030
    As you can see, this calculation can get very complex, especially if you don't know what's going on ... and I have assumed some things to make the calculation easy for me to show you. I would definitely suggest a tax practitioner to assist you with this.

    Regards

    Itai
    Last edited by eitai2001; 19-Oct-10 at 03:56 PM.
    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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    Gold Member Martinco's Avatar
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    Point taken............shall involve my accounting officer.
    Thanks for the indication. I started the business in 1991 and bought my brothers interest in 2002 and have subsequently sold 20 % to my daughter 4 years ago. But as you indicated there are quite a couple of things to work on.
    Martin Coetzee
    Supplier of Stainless Steel Band and Buckle and various fastening systems. Steel, Plastic, Galvanized, PET and Poly woven.
    We solve your fastening problems.
    www.straptite.com

    You may never know what results will come from your actions, but if you do nothing, there will be no results... Rudy Malan 05/03/2011

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    Quote Originally Posted by Martinco View Post
    Point taken............shall involve my accounting officer.
    Thanks for the indication. I started the business in 1991 and bought my brothers interest in 2002 and have subsequently sold 20 % to my daughter 4 years ago. But as you indicated there are quite a couple of things to work on.
    Yup, especially because you started prior to October 2001 and bought additionally after October 2001 (and sold after Oct 2001 which should also have had CGT consequences) ... just to give you an idea ... your Base Cost for the shares would need to be valued in terms of Paragrah 26 and 27 of the 8th Schedule of the CGT act ... Proceeds will have to go through the rules in Paragraph 39, etc ... this is going to be one ugly calculation
    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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    Gold Member Singhms's Avatar
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    What would be your capitals gains implications then if you are given shares in a cc, you dont pay anything and the cc is worth nothing now. But 1 day you decide to sell and its worth alot? is the entire amount it is worth up for CGT?

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    Quote Originally Posted by JWalker View Post
    What would be your capitals gains implications then if you are given shares in a cc, you dont pay anything and the cc is worth nothing now. But 1 day you decide to sell and its worth alot? is the entire amount it is worth up for CGT?
    Well basically the value at the time you get it is it's base cost ... so if the market value is 0, it will be R0 ... which means when you sell one day, the full proceeds from the sale will be CGT ... but if you put money in, keep a record of it as this will add to your base cost making the CGT in future less.
    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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