[Question] HOW DO WE CEDE A LOAN ACCOUNT FROM ONE MEMBER TO ANOTHER??

[Kari]

Can anyone advise me how to go about ceding my Close Corporation Loan Account to another member of the CC? My laon account is R600k. Are there any tax implications or any other implications that I should be aware of? Could anyone send me a sample of a cession form? Many thanks.

[Dave A]

Are there any tax implications or any other implications that I should be aware of?

That's less about what you're ceding and more about why you're ceding the loan account.

[Kari]

Thank you for replying. Well, I have made a purchase (not related to the CC) from the other CC member and I am paying him by way of ceding my loan account to him as payment - he is prepared to accept this method of payment.

[BusFact]

Often in business the word "cede" is used with more of a temporary meaning. Eg you would cede an asset as security to a bank until you have repaid a loan. Then the asset becomes yours again. They just keep control of it for the period of the loan.

In your case it seems you are actually paying the amount across to the other member. I believe all that is necessary here is a simple journal entry in the accounts showing his loan increasing by the amount and your decreasing by that same amount. It would also be an idea to have a copy of the agreement filed in the cc accounts books.

Cession forms are typically used by banks and are for the "temporary" version.

From a tax point of view, the other member will have to declare the purchase amount as income or capital gains to SARS.

Thats my view, perhaps others out there will disagree or add some more?

[Kari]

Many thanks BusFact.....makes perfect sense. Yes, you are correct to assume that this is not a temporary cede but rather payment for a purchase. I shall ensure that I keep the agreement safe.