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The sale of a business - the assumption of liabilities in part settlement of the purchase price and the VAT implications where the corporate rules apply

The recent Supreme Court of Appeal decision in Ackermans Limited v C : SARS has decisively dealt with the question of whether the seller is entitled to any deduction in respect of the purchase price settled by the purchaser assuming certain debts of the business being disposed of. Ackermans had argued that, to the extent that it had accepted a reduced purchase price by virtue of the purchaser assuming such liabilities, it had incurred expenditure equal to the assumed liabilities and that such expenditure was accordingly allowable under the so-called general deduction formula. The Supreme Court of Appeal found that the taxpayer had not incurred any expenditure in relation to either the underlying assumed liabilities or the assumption by the purchaser of the contingent liabilities. While questioning whether Ackermans had incurred any liability, the Tax Court held that the other requirements of the general deduction formula, namely that the expenditure must have been incurred in the production of the taxpayer's income, not have been of a capital nature and must have been expended for the purpose of the taxpayer's trade, were not met. The article takes a critical look at the dicta of the Courts and argues that the issue was incorrectly decided. The sale of a business will of course trigger VAT implications. Should the sale of the business meet the requirements of a supply of a qualifying going concern, then the supply may be either zero-rated (section 11(1)(e) of the VAT Act), or disregarded for VAT purposes (section 8(25) of the VAT Act). While the provisions of section 11(1)(e) are generally correctly applied, that is not necessarily the case with section 8(25), a fairly new provision. This article explores the intricacies of section 8(25).