BUY AND SELL: ASSESSMENT

Where a trustee of a trust, where the trust is a partner in a partnership, takes out a buy and sell policy on the life of an individual (natural person) who is also a partner in the partnership, the policy will be: Select the correct statement

Deemed property in the trustee’s estate for estate duty purposes

Correct Incorrect Correct answer

The policy will be deemed property in the individual’s deceased estate for estate duty purposes

Correct Incorrect Correct answer

The policy will be excluded from the trustee’s estate for estate duty purposes

Correct Incorrect Correct answer

The policy will be excluded from the individual’s estate for estate duty purposes

Correct Incorrect Correct answer

None of the above

Correct Incorrect Correct answer

Tom and Hank have been members of ABC Close Corporation for 15 years. Tom is considering retiring and selling his member’s interest in the Close Corporation to Hank. Which costs, expenses and or taxes will apply to this transaction. Select the correct statement.

Transfer duty and capital gains tax

Correct Incorrect Correct answer

Income tax, capital gains tax, donation tax

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Capital gains tax, securities transfer tax

Correct Incorrect Correct answer

All of the above

Correct Incorrect Correct answer

None of the above

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In a buy and sell arrangement one can include a loan account. If this arrangement is funded with life insurance policies, which statement would be correct in relation to the policy and the estate duty exemption.

It is irrelevant which business entity is involved

Correct Incorrect Correct answer

Only where it is a company

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Only where it is a company and a partnership

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Only where it is a company which includes a close corporation

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Bob and Sally have entered into a buy and sell arrangement with life policies funding the agreement. They each have a 50% shareholding in the company which is valued at R5 000 000 in total. On Sally’s death, the policy pays out an amount of R 7 500 000 to Bob. A provision in the buy and sell agreement obligates Bob to purchase Sally’s shares at the greater value of either policy proceeds or market value of the shares.

Which of the following statement is false.

The transaction could trigger the provisions of donations tax

Correct Incorrect Correct answer

The full amount of R 7 500 000 could be estate dutiable

Correct Incorrect Correct answer

There would be no donations tax & the dutiable amount is R 2 500 000

Correct Incorrect Correct answer

Sally has disposed of her shares at R5 000 000 and not R7 500 000 when calculating capital gain tax.

Correct Incorrect Correct answer

Where the shareholder is also the employee of the company and, the company is seen to be paying the premiums on behalf of the shareholder, the tax implications are:

Select the correct statement:

Fringe benefit tax only

Correct Incorrect Correct answer

Deemed dividend only

Correct Incorrect Correct answer

Fringe benefit and capital gain tax

Correct Incorrect Correct answer

Fringe benefit and dividend tax

Correct Incorrect Correct answer

None of the above

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Trustee Tom, on behalf of the TOMMY Trust, effected a policy on the life of Gavin, the trustee of GAVIN Trust. Trustee Gavin, effected a policy on the life of Tom in his capacity as Trustee of the TOMMY Trust. The TOMMY Trust and GAVIN Trust are equal shareholders in GAVTO Pty Ltd.

Select the correct statements:

A: The policy on the life of Tom will attract estate duty

B: The policy on the life of Gavin will attract estate duty

C: The policy on the life of Tom will not attract estate duty

D: The policy on the life of Gavin will not attract estate duty

a and b

Correct Incorrect Correct answer

b and c

Correct Incorrect Correct answer

c and d

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a and d

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b and d

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There are 3 shareholders involved in a buy and sell arrangement. As a result, the premiums are collected from the company’s bank account with the intention to clear the loan account on a regular basis. 5 years down the line nothing has been done to clear the premiums from the loan account. Select the correct statements

A: There is no adverse effect as long as the loan account is cleared before a death occurs

B: This could be deemed to be the shareholder’s contributions and fall short of the estate duty requirement

C: There could be fringe benefit implications

D: There could be possible dividend tax implications.

E: Policies will remain exempt from estate duty

F: Policies could be estate dutiable

a and d

Correct Incorrect Correct answer

a and e

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b, c and f

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b, d and f

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a, d and f

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ALL Shareholders in a company who are considering a buy and sell arrangement, are obligated to enter into the agreement. The agreement is not valid where one or more shareholders do not enter into the buy and sell arrangement.

True

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False

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It is of immense importance that the Trust Deed, where a Trust is involved in a buy and sell arrangement, allows for the selling of its shares to 3rd parties. If this is not the case, the agreement will be near impossible to enforce.

True

Correct Incorrect Correct answer

False

Correct Incorrect Correct answer

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