A client has done a section 42 share for asset transfer. They have backdated the transaction the effective date to March 2017. The contract was signed March 2019. The consideration in the a42 sale agreements are also less than the market value as determin
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
Backdating a contract really involves putting an earlier date to the contact than the actual one. It in principle, is not a tax related question, but a legal one. There probably is a difference between backdating the agreement, and recording a date in the past, which is the date the parties agreed on the transaction. In other words, the contract, which is done later, merely records what was agreed on earlier.
We submit that, from a tax point of view, the effective date may well not be relevant. Section 41, or 42, uses the word ‘disposed’, but doesn’t actually define it. It must therefore take its ordinary meaning. From a capital gain point of view, the timing of a disposal of an asset is dealt with in paragraph 13, the date of the agreement unless there is a suspensive condition. This may well also be the same for section 42 purposes.
But all of this will be irrelevant if the market value of the asset in question is less that the base cost – this is for assets other than trading stock, or otherwise, the cost of the trading stock.
The fact that consideration is less than the market value would not be relevant for section 42 purposes, but would be relevant for section 24BA purposes.