Disposal / Conversion of business Flashcards
What is taxation of gain on sale of assets by sole proprietor to a Company
This will not be taxable event when sale to resident Co. subject to conditions. S95
“Conversion of Sole proprietorship to LLC”, is this taxable event?
No if the LLC is resident Co, subject to conditions S95
What are conditions for No tax gain/loss u/S95 (Sole proprietorship to LLC)
8 conditions
- Resident Co
- All assets transferred
- Consideration=Shares i.e. assets=shares
- Immediately after – 100% beneficial ownership
- Transfer liabilities also
- Labilities ≯Cost of assets
- (FMV of assets – Liabilities)=FMV of shares allotted/issued (i.e market share price x no. Of shares)
- Company must not be tax exempt in year
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?
- 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
What is taxation of gain on sale of assets by an AoP to a Company?
This will not be taxable event when AoP is resident and sales to resident Co. subject to conditions. S96
“Conversion of resident AoP to LLC”, is this taxable event?
No if the LLC is resident Co, subject to conditions S96
What are conditions for No tax gain/loss u/S96 (AoP to LLC)
- Resident Co
- All assets transferred
- Consideration=Shares i.e. assets=shares
- Immediately after – same proportion of shares as in AoP
- Transfer liabilities also
- Labilities ≯Cost of assets
- (FMV of assets – Liabilities)=FMV of shares allotted/issued (i.e market share price x no. Of shares)
- Company must not be tax exempt in year
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?
- 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.
When a transfer/sale of assets b/w two companies will be tax exempt event?
Transfer of assets b/w 100 owned Cos will be exempt
What is structure in wholly owned group for Sec 97 (No gain loss on transfer of assets)
- 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
What should be consideration for tax exempt asset transfer? Shares?
Need not be shares, it can be share or in kind
In a 100% owned group asset transfer, what is treatment of UAD?
Add to current year (of transfer) in transferee books. Any UAD after that C/F.
When Two Companies merge (one acquires another) how is disposal/sale of assets taxed S751b? and how is share exchange taxed 37A? Capital gain?
Both exempt subject to conditions
What are conditions for No Assets disposal or Capital tax gain/loss u/S97A (Merger)
- Merger under approved scheme
- Transfer liabilities also
- Labilities ≯Cost of assets
- Transferee must not be tax exempt in year
- For shares exemption scheme approved by court/SBP/SECP
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
- 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.
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?
Return filing Liability– AoP (i.e. with members) at the time of filing of return
What happens if during the tax year, constitution of AoP is changed e.g members etc, Tax Calculation? & Tax recovery?
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)
Tax (payment) Liability in case AoP discontinues business/dissolves S98B
Every member at the time of dissolution and legal rep of deceased member shall be severally/jointly liable.
Succession to business (otherwise than on death) & Tax liability Generally and in the case of non-recovery? S98C
- 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
What if a person wasn’t to discontinue business, any action related to taxation? S117
- 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
