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At what value must assets be transferred from a sole proprietor to a CC?

28 January 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Q: A client of ours has been trading as a sole proprietor. He has since transferred the business into a close corporation of which he is the sole member. Do we transfer all the balance sheet items from the sole proprietorship to the CC at carrying value or do the assets need to be revalued accounting for any recoupments? 

A: The tax implications are dependent on how the transfer occurred. If the assets are sold by member to CC then there is a disposal and the sale price is the proceeds, however as these are connected persons the proceeds are deemed to be the market value of the assets (par 38 Eighth Schedule). If the assets were donated then the consequences are similar other than for donations tax also applying and as part of base cost. If the assets ate transferred using the section 42 of the Income Tax Act rollover provisions then the tax base remains the same irrespective of whether the assets are captured at market value or net value for accounting purposes.  

Disclaimer: Nothing in this query and answer should be construed as constituting tax advice or a tax opinion. An expert should be consulted for advice based on the facts and circumstances of each transaction/case. Even though great care has been taken to ensure the accuracy of the answer, SAIT do not accept any responsibility for consequences of decisions taken based on this query and answer. It remains your own responsibility to consult the relevant primary resources when taking a decision.



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