Commentary

B1.425 Considerations relating to realisation

Business tax
Business tax | Commentary

B1.425 Considerations relating to realisation

Business tax | Commentary

Realisation of assets

B1.425 Considerations relating to realisation

Profits from winding up or realisation of assets

Trading transactions may take place in the course of winding up a trade and the profit from any such transaction is assessable to tax. The mere realisation of assets does not constitute trading; it depends entirely on the operations involved in the realisation whether trading has been carried on.

Important points for consideration generally are:

  1.  

    (a)     whether purchases were made in connection with or with a view to the more advantageous disposal of the assets1;

  2.  

    (b)     whether any actions were performed or contracts entered into which complicated the matter of realisation2; or

  3.  

    (c)     whether the method of realisation adopted was the best or only method3.

Furthermore, where it is held that trading has been carried on and a liquidator, receiver, or legal personal representative is involved, the question arises as to whether there has been continuance of trading or a succession to the business (see Division B1.6).

Continuing trade

The question whether a person continues to be engaged in trading or whether trading assets are merely being realised with a view to dissolution, is a question of fact. Trade may continue even though the purpose of it is to enable the assets to be realised.

Thus, in O'Kane (J & R) & Co v IRC4, a firm sent a circular letter to its customers early in the year stating the partners' decision to retire from business. Shortly afterwards, a list of spirits for sale was issued to

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