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Help needed..Tax implications

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john_1
Super Contributor
I have a Pattent pending.. which I have agreed to sell to a company....The payment will take the form of a lump sum and a royalty...question...do I register the patent in my own name or in the name of my CC..which is going to be most tax efficient...the numbers are not small to me.
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19 REPLIES 19
john_1
Super Contributor
the royalty may be ongoing for quite some time.
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Werner_1
Super Contributor
Interesting, patent on what grounds? whats it about, my dad registered several of them over the past 30 years, here and internationally. but he did it together with another institution so i guess his situation was different to yours. could ask him though.
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DST
Super Contributor
Are you sure its unique? Some people have been growing potatoes for quite a while.
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john_1
Super Contributor
LOL I was waiting to see who the smart a$$ would be. No it has nothing to do with potatoes...It is more like the car tyres full of Carcinogenics
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divz
Super Contributor
difficult to say without looking at your whole tax situation, estate plan and future objectives. Generally a CC could work in saving tax if you are already in the max tax bracket.In addition a CC gives you limited liability however i cannot see it being an advantage where you are only receiving an income stream with no risk of liquidation etc. Alternatively you could consider a trust where you can make family members beneficiaries thereby spreading the tax risk and saving estate duty, still best to see your financial advisor to plan effectively
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john_1
Super Contributor
Do you think I can start as an individual and then sell it into a trust if it starts to make sense.
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SD
Contributor
I think to able to answer that question you will need to know the amounts involved as a cc has a fixed tax percentage where as individual has different tax brackets with different tax percentages. The highest tax you will pay as an individual will be 40%(if not mistaken) and for a cc it will be 29% plus secondary tax on dividends which will bring it to plus minus 32%. As for the lumpsum.. I believe that will be capital gain(CGT) and taxed accordingly. I think CGT percentage is different for individual and cc so just look it up. Just note that CGT is once off on the lumpsum, where as the tax on royalties will be on a yearly basis. I would base my final decision on whether the tax on the royalties would be less in a cc or individual and not if the CGT would be less in cc or individual
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Not applicable
depends on the amount, members beneficiaries ( R37000 p/p/p/y )and if you trust them lol ... after that I think it +- 40% tax i think
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john_1
Super Contributor
thanks for the input... the thinkng of my tax consultant was sell the rights(lump sum as an individual..then sell the royalty rights to a cc then on sell them through the cc. What is your thinking on this approach?
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SD
Contributor
I think the reason he told you that was because the CGT on individuals is less than CC, but the income tax on your royalties will be less in a CC. So by doing what he said you will be getting the benefit of both,i.e least CGT and least income tax. I think it's a good idea..
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SIMBA
Super Contributor
My advice would be to load it into a pty company formed for this purpose. You would be the manager of that company, place the shares of the company into a trust, where by your dependents would be the trustees. You can draw on funds and expenses as and when you require. when you peg out you dont need to get involved with wills or capitol gains and your dependents can amend the trust rules to suit the changing times of their lives. THIS IS NOT MEANT AS A WAY OF AVOIDING PAYING TAX AS YOU AS MANAGER MUST KEEP THE PTY 100% KOSHER AND PAY WHAT EVER IS DUE it only makes living a much simpler way of life.
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ws
Frequent Contributor
Co/cc tax rate is now 28%, after stc the effective tax rate is about 34,5%.
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ws
Frequent Contributor
Co/cc tax rate is now 28%, after stc the effective tax rate is about 34,5%.
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john_1
Super Contributor
here is an interesting piece of info..if you have deisgned the pattent within a group of individuals, it is best to register the IP in a CC as the founding statment describes the share holding...if you do it as individuals the law subscibes equal ownership..which almost always leads to heartache...
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saash
Super Contributor
How long have you got to register new cc's with the new companies act in place, which does away with cc's?
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Not applicable
dont forget to get the 28% tax rate for cc not more than 20% of the gross income can come from investment income (ie. royaltys...)
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john_1
Super Contributor
so what do investment companies use..PTY?
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saash
Super Contributor
Soon there will only be Pty's. There is no difference in tax etc in a cc vs pty. In a cc, the shareholders and directors are one in the same, which is not always ideal. A Trust can't hold shares in a cc.
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SIMBA
Super Contributor
The above info is correct, what i have recomended to you is designed to make you life and affairs run smoothly and leagly. I am sure plastak or one of the other legal people can confirm this.
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