Determining Basecost when selling business

[AndreH]

Hi there

How would the base cost calc work for this scenario ?

A CC in the service industry sold part of its operations for R750,000 in 2012
Fixed assets acquired before Oct 2001 @ cost R200,000
Accumulated profit of R200,000
Member loan account of R400,000 CR

The operations started in 1999, so the business is 14 yrs old. So then the value as at OCT 2001 must be deducted (base cost) ?
1999 - 2001 (3 yrs proportion of R750 000 total value) = R 160 714

Remaining gains accumulated to sales date = R 589 286

Is this how it works ?

[wynn]

As I have said before Mark Corke is the business valuing 'guru' http://www.prepareyourbusinessforsale.co.za/

[CLIVE-TRIANGLE]

Hi AndreH

If I understand you correctly, it is the CC that sold part of it's business, as opposed to the member that sold part of his interest?

If that is the case it is far simpler. The base cost is the tax values of the fixed assets, plus purchased goodwill, plus any other assets included in the sale (less any tax allowances previously claimed)

[AndreH]

Thanks Clive-triangle
In a case where after 5 years a member sells 49% for R900K
Cgt would be on this amount ?
Min initial contribution
thanks again

[CLIVE-TRIANGLE]

Is he a founding member or did he buy a share?

If he is a founding member and the CC started after 2001 then the initial contribution is all that will be a base cost. None of the valuations methods will be available and only that which he physically paid e.g. the contribution. So it will typically be R100 or whatever the members contribution is. If he bought his share then it is whatever he paid for it.

Loan accounts are not to form part of any base cost calculation because they are a separate asset for CGT purposes.