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
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
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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