Enter going concern
One can sell the shares of a company and that is completely divorced from going concern sales. A going concern sale is simply the sale of the whole business and its assets or part of it without the disposal of the shares. For example, a retail giant with branches across the country can decide to sell the Gaborone branch as a going concern, i.e., only that part of the business is sold and the shares remain intact. It is commonly known that for a business to be regarded as a going concern, it must be able to generate income soon after sale. Using our retail chain as above, once the Gaborone branch is sold, the new owner must be able to run that shop as any other business.
CGT is levied on the disposal of, among others, ‘any property.’ That phrase is wide and effectively brings to CGT the disposal of almost anything on which capital allowances cannot be claimed. Therefore, a business is ‘any property’ which is potentially subject to CGT.
As alluded to above, a disposal of a going concern involves the transfer of any business capable of separate operation. Additionally, we now know that a business may be disposed as a whole or in part. Therefore, the transfer or disposal of a business or part of a business as a going concern effectively triggers CGT. To put this into perspective, the CGT is determined by looking at the difference between the selling price and what it took to build the business. The quandary that befalls most business-owners is how to determine the cost of building a business or part of a business. It is very easy to determine how much it cost to build a shopping complex from the accounts of any company but it is never easy to tell how much it took to put up a business. However, the professionals in business valuations may easily assist with such cost. Assuming that a business was built at a cost of P3m and it is now valued at P7m at the time of sale, then the capital gain will be P4m, which is then discounted by a statutory 25% to arrive at the taxable capital gain. From our example, the taxable capital gain would then be P3m. If the seller is a business, the CGT is levied at 22% or 30% for resident and non-resident companies, respectively. Individuals are taxed by applying 25% on the excess of the gain over P156 00 and then adding P13650 to that amount. Lastly, such disposals may be exempted from CGT if the sale is triggered by a reconstruction or merger of two or more resident companies. BURS’ pre-approval of such a transaction is required.
Well folks, I hope that was insightful. As Yours Truly says goodbye, remember to pay to Caesar what belongs to him. If you want to join our Tax WhatsApp group or to know about our 9 Tax e-books, send me a text on the cell number below.