ACCA Advanced Taxation (ATX) Practice Exam

What are the conditions that determine the availability of incorporation relief?

1. The business must be sold to a rival company

2. All assets will be transferred, and the business will be transferred as a going concern

3. Shareholders must hold the majority of shares before incorporation

4. The business should have a history of at least five years

The correct answer is: All assets will be transferred, and the business will be transferred as a going concern

Incorporation relief is a tax relief that allows business owners to transfer their business assets to a newly formed company without incurring immediate capital gains tax. The correct choice focuses on the crucial condition that for incorporation relief to be available, all assets must be transferred and the business as a whole must be transferred as a going concern. This means that the business is operational, and the essential assets that constitute the business itself, such as goodwill, equipment, and potentially customer lists, need to be included in the transfer. This condition ensures that the transferring individuals can effectively continue the business in the new corporate structure without stressing over immediate tax liabilities on any gains that may have accrued. By defining that the business is transferred as a going concern, it emphasizes that the business remains operational and intact, which is a fundamental principle for incorporation relief to apply. The other choices pertain to conditions that do not align with the specific criteria for incorporation relief. For instance, the stipulation regarding transferring to a rival company overlooks the essence of incorporation relief, which is centered on forming a new corporate entity. Additionally, the requirement concerning shareholder majority or business history is not a prerequisite for obtaining incorporation relief under tax law. Thus, focusing on the comprehensive transfer of assets and continuity of the business