ceding of credit loan accounts

[marcus@iafrica.com]

What are the tax implications if the seller of an entity (Pty) Ltd cedes his credit loan account to the purchaser?

[CLIVE-TRIANGLE]

It is a capital gains item on it's own. Base cost is the balance and I presume the proceed is the balance, so there is no gain.

[Justloadit]

From your wording it sounds as if the seller sold the company or his shares including the loan account to some one. Just remember to subtract the amount of the loan account from the selling price, to work out the CGT on the sale.

[CLIVE-TRIANGLE]

Actually they are two separate CG transactions and cannot be offset.

[Justloadit]

Clive, can you elaborate.
Lets use some numbers, business sold for R100K, however included in the sale price is the loan account of R10K, effectively the business value was R90K, and R10K loan account.

[CLIVE-TRIANGLE]

For example it is a pre-2008 Act company, and the shareholder is the original subscriber for 1000 par value shares, with a credit loan account of R1,200,000.
He sells for R2,000,000 and cedes his loan account

CG transaction 1.
Base cost = 1000 shares at R1 each
Proceeds = R2,000,000 therefore gain is R1,900,000 (before exemptions and so on)

CG transaction 2.
Base cost of the LAC is R1,200,000
Proceed = nil therefore capital loss is R1,200,000

The point to bear in mind is that the share disposal is one capital gain/loss transaction. The loan account disposal is another.

The gain and loss, if related, are offset on assessment. You are not entitled to sum the base costs and proceeds.