Q: My client is
trading as a sole proprietor, but is going to form a partnership for this
business in the tax year. The monies he receives from the new partners for
their share in the business, will this be taxed as CGT and what would be the
A: When a new
partner joins the existing partners must be treated as having disposed of a
part of their share in the partnership assets and a capital gain or loss must
be determined in respect of the part disposed of. The base cost of the part
disposed of must be determined in accordance with para 33 of the 8th Schedule
to the Income Tax Act. The new partner will acquire a corresponding interest in
those assets and this will constitute that partner’s base cost.
When a partner introduces an asset to the partnership, this
will trigger a part-disposal of a portion of that partner’s interest in the
asset, while the other partners will acquire a corresponding interest in the
part disposed of.
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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