Disposal / Conversion of business Flashcards

1
Q

What is taxation of gain on sale of assets by sole proprietor to a Company

A

This will not be taxable event when sale to resident Co. subject to conditions. S95

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2
Q

“Conversion of Sole proprietorship to LLC”, is this taxable event?

A

No if the LLC is resident Co, subject to conditions S95

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3
Q

What are conditions for No tax gain/loss u/S95 (Sole proprietorship to LLC)

8 conditions

A
  1. Resident Co
  2. All assets transferred
  3. Consideration=Shares i.e. assets=shares
  4. Immediately after – 100% beneficial ownership
  5. Transfer liabilities also
  6. Labilities ≯Cost of assets
  7. (FMV of assets – Liabilities)=FMV of shares allotted/issued (i.e market share price x no. Of shares)
  8. Company must not be tax exempt in year
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4
Q

What will be cost of transferred assets? cost of acquisition of shares for the owner? How to determine no. of shares to be issued? If UAD will be allowed?

A
  • Cost of assets – Dep asset=WDV, Stock=NRV, others=cost
  • Cost of Acquired shares – (Cost of assets-liabilities)/No. of shares i.e. Net assets
  • No. of shares= (FMV of assets-liabilities)/MV per share
  • UAD is allowed
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5
Q

What is taxation of gain on sale of assets by an AoP to a Company?

A

This will not be taxable event when AoP is resident and sales to resident Co. subject to conditions. S96

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6
Q

“Conversion of resident AoP to LLC”, is this taxable event?

A

No if the LLC is resident Co, subject to conditions S96

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7
Q

What are conditions for No tax gain/loss u/S96 (AoP to LLC)

A
  1. Resident Co
  2. All assets transferred
  3. Consideration=Shares i.e. assets=shares
  4. Immediately after – same proportion of shares as in AoP
  5. Transfer liabilities also
  6. Labilities ≯Cost of assets
  7. (FMV of assets – Liabilities)=FMV of shares allotted/issued (i.e market share price x no. Of shares)
  8. Company must not be tax exempt in year
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8
Q

What will be cost of transferred assets? cost of acquisition of shares for the owner? How to determine no. of shares to be issued? If UAD will be allowed?

A
  • Cost of assets – Dep asset=WDV, Stock=NRV, others=cost
  • Cost of Acquired shares – (Cost of assets-liabilities)/No. of shares i.e. Net assets
  • No. of shares= (FMV of assets-liabilities)/MV per share
  • UAD is allowed - Add to current year (of transfer) in transferee books. Any UAD after that C/F.
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9
Q

When a transfer/sale of assets b/w two companies will be tax exempt event?

A

Transfer of assets b/w 100 owned Cos will be exempt

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10
Q

What is structure in wholly owned group for Sec 97 (No gain loss on transfer of assets)

A
  • Transferor/Transferee owns 100% share in other;
  • another Co. owns 100% in two Cos e.g one parent and two subsidiaries. Transfer among all three will be exempt
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11
Q

What should be consideration for tax exempt asset transfer? Shares?

A

Need not be shares, it can be share or in kind

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12
Q

In a 100% owned group asset transfer, what is treatment of UAD?

A

Add to current year (of transfer) in transferee books. Any UAD after that C/F.

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13
Q

When Two Companies merge (one acquires another) how is disposal/sale of assets taxed S751b? and how is share exchange taxed 37A? Capital gain?

A

Both exempt subject to conditions

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14
Q

What are conditions for No Assets disposal or Capital tax gain/loss u/S97A (Merger)

A
  1. Merger under approved scheme
  2. Transfer liabilities also
  3. Labilities ≯Cost of assets
  4. Transferee must not be tax exempt in year
  5. For shares exemption scheme approved by court/SBP/SECP
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15
Q

What will be cost of transferred assets? cost of acquisition of shares for the owner? How to determine no. of shares to be issued? If UAD will be allowed

A
  • Cost of assets – Dep asset=WDV, Stock=NRV, others=cost
  • Cost of Acquired shares – (Cost of assets-liabilities)/No. of shares i.e. Net assets
  • No. of shares= (FMV of assets-liabilities)/MV per share
  • UAD is allowed - Add to current year (of transfer) in transferee books. Any UAD after that C/F.
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16
Q

What happens if during the tax year, constitution of AoP is changed e.g members etc, who will file return? Whose liability to pay tax?

A

Return filing Liability– AoP (i.e. with members) at the time of filing of return

17
Q

What happens if during the tax year, constitution of AoP is changed e.g members etc, Tax Calculation? & Tax recovery?

A

tax calculation according to entitlement of income at particular time (old); Tax assessed not recoverable from a member can be recovered from AoP as constituted at the time of filing of return (new)

18
Q

Tax (payment) Liability in case AoP discontinues business/dissolves S98B

A

Every member at the time of dissolution and legal rep of deceased member shall be severally/jointly liable.

19
Q

Succession to business (otherwise than on death) & Tax liability Generally and in the case of non-recovery? S98C

A
  • Predecessor – for year of succession upto date of succession
  • Successor – after succession
  • In case of non-recovery from predecessor – successor shall be liable not only for year of succession but for any previous years also
20
Q

What if a person wasn’t to discontinue business, any action related to taxation? S117

A
  • Notice to commissioner within 15 days of discontinuance
  • File Separate tax year return (year of discontinuance up to date of discontinuance)
  • Commissioner may also take suo moto