Client wants to do an asset for share transaction transferring livestock into a company. At what value must it be transferred and how is it treated in terms of the movement between opening and closing values at standard values?
Important:
This answer is based on tax law for the year ending 28 February 2020.
Answer:
In terms of section 41, for the purposes of the special rules, unless the context otherwise indicates, any word or expression that has been defined in section 1, shall bear the same meaning so defined, and –
‘trading stock’ for purposes of sections 42, 44, 45 and 47, includes any livestock or produce contemplated in the First Schedule and any reference to an amount taken into account in respect of an asset in terms of section 11(a) or 22(1) or (2) shall, in the case of such livestock or produce, be construed as a reference to the amount taken into account in respect thereof in terms of paragraph 5(1) or 9 of the First Schedule, as the case may be …
It therefore is the paragraph 5(1) or 9 of the First Schedule-value that must be used – see section 42(1)(a)(i) of the Act.
The cost is relevant for the individual (to determine the base cost of the shares acquired).
Remember that value-mismatches should be considered where the qualifying interest, after the asset-for-share transaction, is less than 100%. Irrespective of the value of the ‘contributed tax capital’, where there is a difference between the value of the asset and the value of the shares, determined on an arm’s length basis, there will be tax consequences for the parties.