BUYING A BUSINESS – BEWARE THE TAX IMPLICATIONS!
Business sale agreements often provide for allocation of the purchase price between the various assets of the business – so much for goodwill, so much for stock, so much for fixed assets etc. Make sure that the allocation is both made and recorded correctly – not only does any imprecision risk litigation in the event of a dispute, but you could also face a substantial tax downside.
The buyer who lost an R82m tax deduction – don’t let it happen to you!
A recent Supreme Court of Appeal case illustrates the tax risk. The agreement of sale of a business had allocated the purchase price between six categories of asset, with specific maximum amounts to be allocated to “Immovable Property”, “Other Fixed Assets” and “Trademarks”. But no maximum amounts were specified for stock in trade or debtors, leading to doubt as to what had actually been agreed.
The purchaser then claimed a tax deduction of R103m. Its argument was that the stock had been acquired for “no consideration” and that therefore its opening tax value was deemed to be the “current market price” i.e. R103m. SARS however contended that the stock had in fact been acquired for a consideration of only R21m, which was accordingly its actual cost price to the purchaser, and therefore its “opening value” for tax purposes.
Both the Tax Court and the SCA ultimately agreed with SARS in its interpretation of the allocation provisions in the sales agreement, so the purchaser is down R82m in lost deductions.
Don’t let that happen to you – have the sale agreement professionally drawn to accurately reflect the agreed price allocation!
NOISY NEIGHBOURS – COURTS TO THE RESCUE
You buy a house in an area zoned for agricultural use, dreaming of a quiet and peaceful life ‘far from the madding crowd’. Then the neighbours decide to turn their farm into a conference and wedding venue, and your rural peace and quiet is shattered by boisterous events featuring loud music, singing, shouting, and hooting.
You go to court, and obtain an order restraining the neighbours from organising or hosting any “wedding functions, receptions, conferences and/or similar noise generating events”. But to no avail – the neighbours carry on arranging events in breach of the court order.
Your remedy is another approach to the courts which will, as illustrated in a recent High Court case, brook no nonsense in penalising any deliberate and intentional violation of court orders. The offenders in the case in question were not only fined R20,000 or 6 months’ imprisonment (with a further 6 months’ imprisonment conditionally suspended for 3 years), but were ordered to pay their long-suffering neighbour’s legal costs on the punitive attorney and client scale.
Note that most municipalities can also assist with nuisance neighbours via noise by-laws. But don’t suffer in silence if you get no joy from local law enforcement – go to court!
“WATER, WATER, EVERYWHERE”: WHEN CAN COUNCIL CUT YOU OFF?
“Water, water, everywhere, nor any drop to drink.” (The Rime of the Ancient Mariner, Coleridge)
What are your rights when you are fighting with your local municipality over a municipal services account, and they cut off your water?
The Supreme Court of Appeal recently clarified the legal principles applicable –
· Water supply is not just a personal right in terms of your supply contract with the municipal supplier – it is also underpinned by
statutory and basic Constitutional rights.
· Any “limitation or discontinuation” of water services must therefore be “fair and equitable”.
In the case in question, a caravan park owner disputed a claim by the municipality for R182,000 arrears on a water account. Nonetheless the municipality demanded full payment and then – relying on its water and debt collection by-laws – cut off the park’s water supply when the owner failed to pay.
The park owner rushed off to the local magistrate’s court and obtained an order directing the municipality to reconnect the water supply. This order was upheld twice on appeal, the Supreme Court of Appeal ultimately holding that in light of the municipality’s decision to summarily disconnect the water supply without first following its own dispute resolution procedures, the disconnection was not “fair and equitable”.
Note that a dispute as to arrears will not absolve you from the duty to pay for normal ongoing monthly consumption, and that the outcome of this particular case would in all likelihood have gone Council’s way had it followed its own dispute resolution procedures properly before disconnection. Take advice in doubt!