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Tax implications of liquidating a company dinner dating in bristol

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The shareholder must calculate a capital gain or loss on the part-disposal by apportioning the base cost of the share according to the ratio of the market values of both the capital distribution and the share, and treating the capital distribution as the proceeds on the part-disposal.

The method of calculation may have the anomalous effect of creating taxable capital gains upon the receipt of, for example, a liquidation distribution comprising retained earnings and a portion of the originally contributed capital.

The Ruling sets out the tax consequences of a ‘liquidation distribution’, as defined in s47(1)(a) of the Income Tax Act, No 58 of 1962 (Act), followed by an ‘amalgamation transaction’ as contemplated in s44(1)(a) of the Act.

Liquidation is also sometimes referred to as winding–up or dissolution, although dissolution technically refers to the last stage of liquidation. In law, liquidation is the process by which a company is brought to an end, and the assets and property of the company redistributed.

The main purpose of a liquidation where the company is insolvent is to collect in the company’s assets, determine the outstanding claims against the company, and satisfy those claims in the manner and order prescribed by law.  at [[email protected]] or call us at 91 88208208 11. Liquidation is also sometimes referred to as winding–up or dissolution, although dissolution technically refers to the last stage of liquidation.

Consider the example of an individual shareholder who subscribed for the only share issued by a company for R10, represented by R1 of share capital and R9 of contributed share premium.

The company has since accumulated R2 of retained income, giving the share a market value of R12, and is now being liquidated.

he shareholder consequences of a complete liquidation of an S corporation are governed by Secs. The dividend rules that otherwise apply to corporate distributions are not applicable to distributions in complete liquidation.

Distributions received by the shareholder are treated as payment in full for the exchange of stock. The shareholder recognizes gain when the adjusted basis of each block has been recovered, while loss is not recognized until the corporation has made its final distribution.

By way of background, s47(1)(a) of the Act defines a ‘liquidation distribution’ as any transaction in terms of which a liquidating company, which is a resident (as defined), distributes all of its assets to its shareholders in anticipation of or in the course of the liquidation, winding-up or deregistration of the liquidating company, to another company which forms part of the same group of companies on the date of that disposal; whereas, the definition of ‘amalgamation transaction’ in s44(1)(a) envisages an amalgamation transaction in terms of which a South Africa resident company disposes of its assets to another resident company by means of an amalgamation, conversion or merger and as a result of which the amalgamated company’s existence will be terminated.

The Ruling concerns two South African resident companies (Applicant and Co-Applicant) who are fellow subsidiaries and have common shareholders.

58 of 1962 (the Act) (such as returns of share capital) are automatically characterised as “capital distributions” under the Eighth Schedule to the Act.

The receipt or accrual of a capital distribution gives rise to a deemed part-disposal by the shareholder for capital gains tax purposes.