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LAWCOMM 403 long notes.docx
LAWCOMM_403_long_notes.docx
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LAWCOMM 403 long notes.docx-CONTENTS Tips ...........
LAWCOMM_403_long_notes.docx-CONTENTS Tips ......................................................................................................................................................................................... 4 Introducon ............................................................................................................................................................................
LAWCOMM 403 long notes.docx-CONTENT...
LAWCOMM_403_long_notes.docx-CONTENTS Tips ......................................................................................................................................................................................... 4 Introducon ............................................................................................................................................................................
Page 73
The tax consequence – the proceeds of sale of shares is a capital receipt (unless you bought the
business with the intenon of selling it, or you are in the business of buying and selling businesses), so
it is not taxable
o
Selling assets used by the company in carrying on the business – this is what secon CB 2 applies to
Doing this transfers ownership of the assets, but not ownership of the company – the company sells
the assets
The assets might include a list of customers and other documentaon (e.g. list of suppliers,
restraint of trade, name of the business/IP) in order to account for the business goodwill
This is a beer method if:
The vendor company has more than one business and only wants to sell one business – you
sell the assets for that business only and keep your other businesses
The purchaser does not want the liabilies or debts of the company
The tax consequence – some assets will be of a capital nature while others (trading stock) will be of a
revenue nature because it is expenditure of a revenue nature that is deducble; therefore, the
proceeds of sale of assets aributable to trading stock will be of a revenue nature and taxable
What is the point of secon CB 2?
o
If this rule were not in existence, the purchaser can argue that this is one transacon about the sale of a whole
business, and it is of a capital nature and not taxable
o
Secon CB 2 provides that even if the transacon as a whole is of a capital nature, the part of the proceeds of
sale aributable to the sale of trading stock will count as income and is taxable – the reason is that when the
vendor company inially acquired the trading stock, it would have been expenditure of a revenue nature and
deducble, so selling the trading stock is of a revenue nature and counts as income
PROFIT-MAKING UNDERTAKINGS AND SCHEMES
CB 3
Profit-making undertaking or scheme
An amount that a person derives from carrying on or carrying out an undertaking or scheme entered into or devised for
the purpose of making a profit is income of the person.
Note that secon CB 3:
o
Does not expressly exclude capital receipts
o
Does not expressly confine itself to short-term undertakings and schemes – even long-term ones are taxed
What is the point of secon CB 3?
o
Secon CB 1 imposes tax on profits of a business
o
Secon CB 3 imposes tax on undertakings and schemes, which may not be a business and is rather a one-off
kind of deal
PERSONAL PROPERTY
PROPERTY ACQUIRED FOR THE PURPOSE OF SELLING IT
CB 4
Personal property acquired for purpose of disposal
An amount that a person derives from disposing of personal property is income of the person if they acquired the
property for the purpose of disposing of it.
Note that secon CB 4:
o
Does not expressly exclude capital receipts – the point of it is to capture receipts that would tradionally have
been thought of as of a capital nature
o
Is not subject to any express me limit – you might hold the asset for a long me and then sell it, but sll be
held to have acquired it for the purpose of disposing of it
o
Is not subject to any express de minimis limit
What is meant by “personal property”?
o
Personal property means non-real property – chaels, shares, intellectual property
If you sell things over the internet (for example, on Trade Me) are the proceeds of sale taxable?
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