I started a small company with a friend a year ago, she recently needed money and although our company is not profitable yet I offered to buy her out at double her original investment. I paid her in cash. She is requesting a IT3 tax certificate for the money I paid her, how do I do this?
You paid her a capital amount for her investment correct? Is she trying to include capital gains tax in her tax return?
Nicholassays: 22 September 2015 at 7:10
Hi, I think so. I paid her a lump sum and did not deduct any tax. She says she needs the It3 to do her tax return?
TaxTimsays: 22 September 2015 at 7:14
She does not need an IT3, her tax return was a capital gain so she would need to include this under the capital gains section at the amount you paid her less the amount she put into the business.
Nicholassays: 22 September 2015 at 7:18
Thank you, last question, how do I explain to her why it is classified as a capital gain?
TaxTimsays: 22 September 2015 at 7:20
Use the example of a property, it is an investment in an asset which generates income. So the business would have earned income and she would have paid normal tax on that similar to a house which you rent out and pay tax on rental income. When you sell the house though it attracts capital gains tax. Or alternatively shares on the stock market attract capital gains tax, your company is not listed, but it is still a transfer of shares.
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