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Two ways to reorganise your business and save your company money without triggering immediate capital gains tax

by , 10 June 2014
Tired of paying thousands to SARS every year? Well I have some good news for you. There are two ways you can reorganise your business without triggering an immediate Capital Gains Tax bill. Let's have a look at them...

1. You can make use of a company formation transaction where you dispose of your capital assets to another company within South Africa in exchange for equity shares in that company; or
2. You can use share swaps where you introduce a holding company.

Now let's look at each one in detail to see how it works

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Two ways to reorganise your business without triggering an immediate Capital Gains Tax bill
 
  1. Dispose of your capital assets in exchange for equity shares
 
If you conduct business as a sole proprietor and want to set up a company, you can transfer your business assets to that company. This way you won't incur any Capital Gains Tax liability using a company formation transaction.
 
Another way you could reorganise your business is through a share swap. Let's have a look.
 
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  1. How to use a share swap to minimise your Capital Gains Tax bill
 
A share swap happens when you introduce a holding company. For example, you own 100% of the equity shares of company A, the target company. You then transfer these shares to company B, the acquiring company, in exchange for 100% of the equity shares in company B.
 
After the transaction, the acquiring company (B) must hold at least 50% of the equity shares or ordinary voting rights of the target company (A). You must own at least 20% of the shares of the acquiring company (B). You and the acquiring company can't dispose of the acquired or target shares within 18 months after the share swap, else you'll be regarded as having disposed of the shares at the market value of the shares at the time of the share swap and will pay capital gains tax.
 
The rollover relief is similar to company formation where you rollover the base cost of the shares to the transferee.
 
Use these two tips to start saving your company money. If you'd like more tips, solutions, and practical examples of how to save on Capital Gains Tax, turn to chapters: C01, C12, C13 and C16 in your Practical Tax Loose Leaf. If you don't have a copy yet, order yours now.
 
Until next time

Natalie Cousens
Managing Editor: The Practical Tax Loose Leaf
 
PS. There are a few CGT loopholes that can save you thousands of rands every single year and, in some cases, let you off the CGT hook completely… Click here to get your hands on them




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