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What are the CGT consequences for a sole trader who receives capital from new partners?

Tuesday, 10 March 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

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 base cost?

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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