Top Tip: For a definition of ‘connected person’ see Interpretation Note No. 67
Transactions between connected persons that are not at an arm’s length price must be treated as taking place at market value. It frequently happens in large partnerships that new partners are not required to pay for goodwill on entry nor are retiring partners paid for goodwill by the remaining partners. An amount would be received for goodwill only if the partnership were dissolved or sold as a going concern. SARS accepts that in these circumstances the partners are acting at arm’s length and that the proceeds derived by a retiring partner should not be artificially increased to include goodwill for which no consideration has been received. Likewise a retiring partner who has not paid for goodwill on entry must not include goodwill in market value on 1 October 2001 unless it is disposed of for a consideration. This would in any event preclude the claiming of a market value loss on disposal of an asset acquired and disposed of for no consideration and it also precludes the claiming of a loss in respect of goodwill acquired before valuation date from a connected person.
Disposal by way of donation, consideration not measurable in money and transactions between connected persons not at an arm’s length price
What do we mean by ‘not measurable in money’?
These words refer to a consideration which does not have a pecuniary or economic value. Also falling into this category are rights arising in the sphere of the law of persons, such as personal liberty, parental authority and rights flowing from the marital relationship.
The person disposing of the asset is treated as having disposed of the asset for an amount received or accrued equal to the market value of the asset at the date of disposal. The acquirer is treated as having acquired the asset at the same market value. The market value is treated as an amount of expenditure actually incurred and paid for the purposes of para 20(1)(a).
The market value of the asset is also substituted for the actual consideration to which the parties agreed.