Contingent Liabilities Assumed As Part Of A Going Concern

The tax implications of assuming contingent liabilities as part of a sale of business present uncertainties for both sellers and purchasers. The South African Revenue Service issued Interpretation Note 94 during December 2016 to provide guidance in this regard. The approach set out in this note require taxpayers to pay careful attention to, amongst other, the classification of contingent liabilities assumed, values attached and allocation of these items as purchase consideration as these factors have a significant effect.

The tax treatment of contingent liabilities assumed by a purchaser when acquiring a business as a going concern has been an area of uncertainty for a number of years following the Ackermans v C:SARS case in 2010 and legislation proposed in this regard by the National Treasury during 2011 that was ultimately not implemented. The proposals were withdrawn on the basis that the matter could be resolved by issuing an interpretation note. The long awaited