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Section 24BA (ITA) – Transactions where assets are acquired as consideration for shares issued

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24BA.  Transactions where assets are acquired as consideration for shares issued

(1)     For the purposes of this section, ‘asset’ means an asset as defined in paragraph 1 of the Eighth Schedule or a number of such assets.

(2)     Subject to subsection (4), this section applies where-

(a)     in terms of any transaction, a company, for consideration, acquires an asset from a person in exchange for the issue by that company to that person of shares in that company; and

(b)     the consideration contemplated in paragraph (a) is (before taking into account any other transaction, operation, scheme, agreement or understanding that directly or indirectly affects that consideration) different from the consideration that would have applied had that asset been acquired in exchange for the issue of those shares in terms of a transaction between independent persons dealing at arm’s length.

(3)     Notwithstanding paragraph 11(2)(b) of the Eighth Schedule, where a company acquires an asset from a person in exchange for the issue by that company to that person of shares in that company as contemplated in subsection (2) and the market value of-

(a)     that asset immediately before that disposal exceeds the market value of the shares immediately after that issue, the amount of the excess must-

(i)      be deemed to be a capital gain in respect of a disposal by that company of the shares; and

(ii)     where those shares are acquired by that person as-

(aa)   a capital asset, be applied to reduce any amount of expenditure incurred by that person in acquiring those shares that is allowable in terms of paragraph 20 of the Eighth Schedule; or

(bb)   trading stock, be applied to reduce any amount that must be takan into account by the person in respect of the shares in terms of section 11(a) or 22(1) or (2); or 

(b)     the shares immediately after that issue exceeds the market value of that asset immediately before the disposal, the amount of the excess must, for the purposes of Part VIII, be deemed to be a dividend as defined in section 64D that-

(i)      consists of a distribution of an asset in specie; and

(ii)     is paid by the company on the date of that issue.

(4)     This section must not apply where a company acquires an asset from a person as contemplated in subsection (2)(a) if-

(a)

(i)      that company and that person form part of the same group of companies immediately after that company acquires that asset; or

(ii)     that person holds all the shares in that company immediately after that company acquires that asset; or

(b)     paragraph 38 of the Eighth Schedule applies.

Section 24A (ITA) – Transactions whereby fixed property is or company shares are exchanged for shares

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24A.    Transactions whereby fixed property is or company shares are exchanged for shares

 

(1)     If, under any transaction entered into before 1 October 2001 for the disposal by any person (hereinafter referred to as the trader) of any trading stock consisting of fixed property or any shares in any company, the consideration received by or accrued to the trader for such trading stock in effect consists of or includes –

 

(a)     shares in a public company; or

 

(b)     company shares quoted by a recognized stock exchange at the time of such transaction or within six months thereafter; or

 

(c)     shares in any other company, if such shares are, under a scheme for the consolidation or merger of the interests of two or more persons, issued or transferred to the trader,

 

the value of the shares which constitute or are included in such consideration shall, if the trader and the Commissioner agree thereto, be excluded from the trader’s income for the year of assessment during which such consideration is received by or accrues to him.

 

(2)     For the purposes of this Act –

 

(a)     the shares which constitute or are included in the said consideration and any capitalization shares issued in respect of such shares (which shares and capitalization shares are hereinafter referred to as new trading stock) shall be deemed to be trading stock of the trader; and

 

(b)     the cost price to the trader of the shares which constitute or are included in the said consideration shall be deemed to be the cost to him of the trading stock referred to in subsection (1) or, if such last–mentioned trading stock was held by him and had not been disposed of by him at the beginning of the year of assessment, the amount taken into account under section 22(2) as the value thereof, less an amount which bears to the said cost or the amount so taken into account, as the case may be, the same ratio as the value of such portion (if any) of the said consideration as does not consist of the said shares bears to the total value of the said consideration (including the said shares).

 

(3)     Any amount (including the value of any benefit or advantage) which is received by or accrues to the trader from the disposal of new trading stock (or a portion thereof) shall be included in the trader’s income, whether such amount is derived in carrying on any trade or otherwise or is derived from a source within or outside the Republic: Provided that the provisions of this subsection shall not be construed so as to prevent the provisions of subsection (1) being applied in respect of such amount.

 

(4)     If on or after the date of promulgation of the Income Tax Act, 1971, the trader disposes of or ceases to be the owner of new trading stock for any reason other than his death or insolvency or, in the case of a company, the winding–up or liquidation thereof and no consideration accrues to him in respect of such new trading stock or a consideration accrues to him in respect of such new trading stock which in whole or part is not measurable in terms of money (the part of the consideration which is so measurable being less in value than the market value of such new trading stock at the date on which it was disposed of or on which the trader ceased to be the owner thereof), he shall for the purposes of this Act be deemed to have disposed of such new trading stock for a consideration equal to the market value thereof at the date on which it was disposed of or on which the trader ceased to be the owner thereof) or the market value thereof on the date of the transaction referred to in subsection (1), whichever value is the lower, reduced by the amount (if any) included in the trader’s income under subsection (3) in respect of the disposal, and such value, as so reduced, shall be included in his income: Provided that the foregoing provisions of this subsection shall not apply where the trader disposes of or ceases to be the owner of new trading stock by reason of the carrying out of any scheme referred to in section 22A and the trader is a transferor company as contemplated in that section.

 

(5)     Where the trader has until his death or the prior sequestration of his estate or, in the case of a company, the commencement of the winding–up or liquidation thereof, continued to hold new trading stock, the trader shall for the purposes of this Act be deemed to have disposed of such new trading stock on the day preceding the date of his death or the sequestration of his estate (whichever first occurs) or, in the case of a company the date on which the winding–up or liquidation thereof commenced, for a consideration equal to the market value on the said day of such new trading stock or the market value thereof on the date of the transaction referred to in subsection (1), whichever value is the lower, and such value shall be included in his income for the period of assessment within which the said day falls.

 

(6)     For the purposes of this section –

 

(a)     “fixed property” means property as defined in section 1 of the Transfer Duty Act, 1949 (Act No. 40 of 1949); and

 

(b)     a company which has not yet been recognized under the provisions of this Act as a public company, may at the request of the taxpayer, be deemed to be a public company, if the Commissioner is satisfied that such company will be so recognized.

Section 24 (ITA) – Credit agreements and debtors allowance

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24.    Credit agreements and debtors allowance

(1)     Subject to the provisions of section 24J, if any taxpayer has entered into any agreement with any other person in respect of any property the effect of which is that, in the case of movable property, the ownership shall pass or, in the case of immovable property, transfer shall be passed from the taxpayer to that other person, upon or after the receipt by the taxpayer of the whole or a certain portion of the amount payable to the taxpayer under the agreement, the whole of that amount shall for the purposes of this Act be deemed to have accrued to the taxpayer on the day on which the agreement was entered into.

(2)     In the case of such an agreement, other than a lay-by agreement as contemplated in subsection (2A), in terms of which at least 25 per cent of the said amount payable only becomes due and payable on or after the expiry of a period of not less than 12 months after the date of the said agreement, taking into consideration any allowance made under section 11(j), there shall be made such further allowance as under the special circumstances of the trade of the taxpayer, as set out in a public notice issued by the Commissioner, is reasonable, in respect of all amounts which are deemed to have accrued under such agreements but which have not been received at the close of the taxpayer’s accounting period: Provided that any allowance so made shall be included as income in the taxpayer’s returns for the following year of assessment and shall form part of the taxpayer’s income.

[Subsection (2) substituted by section 13(1)(a) of Act 20 of 2022 with effect from 1 January, 2023 and applicable in respect of years of assessment ending on or after that date (section 13(1)(a) of Act 20 of 2022 as substituted by section 68(1) of Act 17 of 2023)]

(2A)   In the case of a lay-by agreement as contemplated in section 62 of the Consumer Protection Act, 2008 (Act 68 of 2008), the Commissioner may make an allowance in respect of all amounts which are deemed to have accrued under such agreement but which have not been received by the end of the taxpayer’s year of assessment.

[Subsection (2A) inserted by section 13(1)(b) of Act 20 of 2022 effective on 1 January, 2023 and applicable in respect of years of assessment ending on or after that date]

(2B)   Any allowance made under subsection (2A) shall be included in the income of that taxpayer in the immediately following year of assessment.

[Subsection (2B) inserted by section 13(1)(b) of Act 20 of 2022 effective on 1 January, 2023 and applicable in respect of years of assessment ending on or after that date]

Subsection 2, 3, 4 and 5 of section 23N of ITA

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(2)     Where an amount of interest is incurred by an acquiring company in terms of a debt-

[Words preceding paragraph (a) substituted by section 38 of Act 43 of 2014 effective on 1 January 2015]

(a)     directly or indirectly assumed or applied for the purpose of procuring, enabling, facilitating or funding the acquisition by that acquiring company of any asset in terms of a reorganisation transaction;

(b)     used directly or indirectly for the purpose of redeeming, refinancing or settling the debt contemplated in paragraph (a);

(c)     issued, assumed or used in terms of an acquisition transaction; or

(d)     used directly or indirectly for the purpose of redeeming, refinancing or settling the debt contemplated in paragraph (c),

the amount of interest allowed to be deducted must not exceed the amount determined in terms of subsection (3).

(3)     The amount of interest allowed to be deducted in terms of all debts owed as contemplated in subsection (2), in respect of any year of assessment in which the acquisition transaction or reorganisation transaction is entered into and in respect of five years of assessment immediately following that year of assessment, must not exceed the sum of-

(a)     the amount of interest received by or accrued to the acquiring company; and

(b)     the highest of the amounts determined by multiplying the percentage determined under subsection (4) by the adjusted taxable income of the acquiring company for each of the years of assessment-

(i)      in which the acquisition transaction or reorganisation transaction is entered into;

(ii)     in which the amount of interest is incurred by that acquiring company; or

(iii)    immediately prior to the year of assessment contemplated in subparagraph (i),

[Paragraph (b) substituted by section 38 of Act 43 of 2014 and section 40 of Act 17 of 2017 effective on 18 December 2017]

reduced by any amount of interest incurred by the acquiring company in respect of debts other than debts contemplated in subsection (2).

[Words following paragraph (b) substituted by section 38 of Act 43 of 2014 effective on 1 January 2015]

(4)     The percentage contemplated in subsection (3)(b) must be determined in accordance with the formula-

         A   =   B   x   C

                              D

in which formula-

(a)     ‘A’ represents the percentage to be determined;

(b)     ‘B’ represents the number 40;

(c)     ‘C’ represents the average repo rate plus 400 basis points; and

(d)     ‘D’ represents the number 10,

but not exceeding 60 per cent of the adjusted taxable income of that acquiring company.

[Subsection (4) substituted by section 38 of Act 43 of 2014 effective on 1 January 2015]

(5)       ……….

[Subsection (5) deleted by section 64 of Act 31 of 2013, re-inserted by section 42 of Act 15 of 2016, amended by section 40 of Act 17 of 2017 and deleted by section 42 of Act 23 of 2018 effective on 1 January 2019 and applies in respect of amounts incurred on or after that date]

“Adjusted taxable income” definition of section 23N of ITA

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“adjusted taxable income” means taxable income calculated before applying this section and before setting off any balance of assessed loss that has been carried forward from the preceding year of assessment: Provided that the result of the calculation may not be less than zero-

(a)     reduced by-

(i)      any amount of interest received or accrued that forms part of taxable income;

[Subsection (i) substituted by section 42 of Act 23 of 2018 effective on 17 January 2019]

(ii)     any amount included in the income of a person as contemplated in section 9D(2);

(iii)    any amount recovered or recouped in respect of an allowance contemplated in this Act in respect of a capital asset as defined in section 19; and

[Subparagraph (iii) amended by section 38 of Act 43 of 2014 effective on 1 January 2015]

(b)     with the addition of-

(i)      any amount of interest incurred that has been allowed as a deduction from income;

[Subsection (i) substituted by section 42 of Act 23 of 2018 effective on 17 January 2019]

(ii)     any amount allowed as a deduction in terms of this Act in respect of a capital asset as defined in section 19 for purposes other than the determination of any capital gain or capital loss;

[Subparagraph (ii) amended by section 38 of Act 43 of 2014 effective on 1 January 2015]

(iii)    75 per cent of the receipts or accruals derived from the letting of any immovable property; and

[Subparagraph (iii) amended by section 38 of Act 43 of 2014 effective on 1 January 2015]

(iv)    any assessed loss or balance of assessed loss allowed to be set off against income in terms of section 20;

[Subparagraph (iv) added by section 38 of Act 43 of 2014 effective on 1 January 2015]

[Definition of “adjusted taxable income” amended by section 42(1)(a) of Act 23 of 2018 and by section 19(1)(a) of Act 42 of 2024 effective on 1 January, 2025 and applicable in respect of years of assessment commencing on or after that date. Subparagraph (iv) added by section 38(1)(d) of Act 43 of 2014 effective on 1 January, 2015 and applicable in respect of years of assessment commencing on or after that date]