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What are the CGT implications if you distribute an asset in kind to a shareholder?

by , 03 September 2014
According to Investopedia, 'distribution in kind' means you make a payment in the form of securities or other property, rather than in cash.

The site adds that the most common form of a distribution in kind occurs when a company pays a dividend in stock, rather than in cash.

What you need to know is that distributing an asset in kind to a shareholder comes with Capital Gains Tax (CGT) implications.

Keep reading to find out what these are so you'll be able to calculate your CGT liability correctly...


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If you distribute an asset in kind to a shareholder, the following Capital Gains Tax consequences apply:


#1: For your company: There's a deemed disposal of the asset by your company at market value on the date of the distribution, which means your company will pay Capital Gains Tax on the positive difference between the market value of the asset and its base cost; and

#2: For the shareholder: The base cost of the asset received in the distribution is considered to be the market value of the asset.

The Practical Tax Loose Leaf Service says you must just be clear to your shareholder that the distribution of an asset is considered 'in kind' as opposed to 'in cash.' And that even if it's a dividend for normal tax purposes, it'll result in a capital gain if the market value of the asset exceeds its base cost.

That means if your company declares a dividend and withholding tax is payable on the dividend, but you distribute the asset instead of a cash settlement, Capital Gains Tax is payable on the disposal of the asset. It doesn't matter if the dividend was taxed.

It's that simple.

Knowing the CGT implications if you distribute an asset in kind to a shareholder will help ensure you calculate your liability correctly and avoid harsh penalties.

PS. Here are three instances where you don't have to pay Capital Gains Tax... And eight other ways to LEGALLY beat the taxman!


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