A person buys shares in a private company. The terms of the purchase are a portion in cash and the balance to be paid over a period of 4 years, with the payment determined with reference to the profits of the company. After 3 years, the person emigrates.
Important:
This answer is based on tax law year ending 28 February 2017.
Answer:
Section 24N of the Income Tax Act applies where a person (‘the seller') during a year of assessment disposes of equity shares to any other person (‘the purchaser') in the circumstances contemplated in section 24N(2). This would be where more than 25 per cent of the amount payable for those shares becomes due and payable by the purchaser after the end of the year of assessment of the seller and the amount payable is based on the future profits of that company. If not, section 24M may well apply.
In principle, any quantified or quantifiable amount payable by the purchaser to the seller must to the extent that it is not due and payable to the seller during that year, be deemed for the purposes of this Act not to have been incurred by the purchaser during that year. Effectively not base cost.