This report was commissioned by Smart & Clever Ltd . Its purpose is to advise the shareholders and the company on the tax implications of their transactions or intended decisions. Smart & Clever was formed in 2003 to buy, subdivide land and construct houses for sale. There has been a capital gain of $300,000 in the 2005 income year and the company gave a loan of $50,000 and brought a boat. There are also some questions over the sale of other property not owned by the company and also questions concerning the family trust. Research has been made on the relevant primary and secondary resources. This report analyses the problems and offers recommendations on how handle them.
Profits made on the sale of shares can be taxed primarily according to the three situations set out in IT04 ss CB 2, CB 3, CB 4. These situations occur when the taxpayer is in the business of dealing in personal property, the personal property had been acquired for the purpose of resale and any amount derived from the transactions has arisen from a profit making undertaking or scheme. Company shares are a form of personal property for the purposes of IT04 ss CB 2, CB 3, CB 4 as s OB 1 defines personal property in relation to ss CB 3 and CB 4 as not including land or an interest in land personal property lease asset and means any personal property subject to a lease; and does not include any livestock or bloodstock. In the case of C of IR v National Distributors Ltd (1989) 11 NZTC 6,346 (CA) the tests to apply when determining whether shares were acquired for the purpose of resale were considered.
The key issues to come out this case are
- was the taxpayers dominant purpose in acquiring the shares was that of resale
- & ...