In this context, a purchase and sale agreement is an agreement between Paul and Maria, under which they agree to sell their shares in PM (Pty) Ltd. in the event of the death (and generally of prior disability) of one of the two. The agreement is reciprocal insofar as it also accepts that the survivor buys the shares of the deceased (or disabled) partner. At the time of the deceased`s death, he was a party to a purchase and sale agreement and, after his death, R10.4 million R10.4 million was paid by the insurer to the survivor under the two life insurances. As agreed in the purchase and sale agreement, the survivor paid the amount received to the executor of the deceased. This was done to acquire the shares of the two companies held by the deceased at the time of his death. This situation is the same as any situation in which a borrower wishes to sell an asset to a buyer. When a company has a large number of shareholders, a purchase and sale agreement provides the mechanism to provide the means that the remaining shareholders need to acquire the shares of the deceased shareholder. This has a significant impact on the sustainability of the business, because it is not always a good idea to transfer these shares to the heirs – they may not necessarily have the skills or desire to work in business. We regularly receive questions about commercial insurance and have found that some of the effects of purchase and sale contracts on capital gains tax (CGT) are not well understood. If the purchase and sale contract financing policy complies with the requirements of Section 11, point w), itA, premiums may be deductible and revenue may be subject to income tax depending on the type of receipt. If pure risk guidelines are used to finance the purchase and sale of shares/interest on your business/partnership/practice, revenues are exempt from capital gains tax [CGT] within the meaning of paragraphs 55 (1)a) and (c) and paragraph 55 (1)e) of the 8th annex of the Income Tax Act [ITA].
According to Kobus Barnard, these agreements in his article „Buy and sell – pactum estate or not“ are based on two parts, that is, a sales contract is a legally binding document between key people in a business (i.e. business partners). Purchase and sale insurance is generally used to finance a purchase and sale agreement. The purchase and sale agreement itself contains several important provisions to facilitate the orderly transfer of ownership of the business if one of the owners were to die prematurely, become disabled or become seriously ill, which may include provisions (etc.): the deceased may not have paid any of the policy premiums. If a deceased person has paid premiums for a purchase and sale policy, it is likely that he is the asset considered to be the property of the deceased and, in this case, he cannot be eligible for the aforementioned exemption. The executor will make the purchase and sale contract effective by transferring the shares of Paul`s estate to Mary. The basic costs of the property are the market value at which the estate acquired the shares and amount to R200,000. There is therefore no CGT to pay for this assignment. With regard to the purchase and sale contract, the purchase price of the deceased`s interest or the „seller`s interest“ with respect to the agreement is greater: the clause relating to the purchase price of the deceased`s interest, to the sale and sale agreement, is not a „provision … to determine or below the value of the deceased`s or another member`s shares … It was only when the value of the shares exceeded the product that the value was to be determined as part of the agreement. While this is not a good-faith purchase and sale in connection with the liquidation of the deceased`s estate, it is a price made by a sale for the purchase and sale contract. In this example, the CGT will be R95,000 – that is, R95,000, to which surviving family members will have to give up.