“asset” means an asset as defined in paragraph 1 of the Eighth Schedule;
Category: PART III – Special rules relating to asset-for-share transactions, subsitutive share-for-share transactions, amalgamation transactions, intra-group transactions, intra-group transactions, unbundling t
“Allowance asset” definition of section 41 of ITA
(1) For the purposes of this Part, unless the context otherwise indicates, any word or expression that has been defined in section 1, shall bear the same meaning so defined, and-
‘allowance asset’ means-
(a) a capital asset in respect of which a deduction or allowance is allowable in terms of this Act for purposes other than the determination of any capital gain or capital loss; or
(b) any debt contemplated in section 11 (i) or (j);
“Equity share” definition of section 41 of ITA
“equity share”, for the purposes of sections 42 and 44, includes a participatory interest in a portfolio of a collective investment scheme in securities or in a portfolio of a hedge fund collective investment scheme;
[Definition of “equity share” deleted by section 32 of Act 8 of 2007, inserted by section 47 of Act 17 of 2009 and substituted by section 61 of Act 25 of 2015 effective on 1 April 2015]
“Domestic financial instrument holding company” definition of section 41 of ITA
“domestic financial instrument holding company” ……….
[Definition of “domestic financial instrument holding company” amended by section 49 of Act 45 of 2003 and section 32 of Act 32 of 2004, substituted by s of 37 of Act 31 of 2005, amended by section 28 of Act 20 of 2006 and section 90 of Act 31 of 2013 and deleted by section 54 of Act 43 of 2014 effective on 20 January 2015]
“Equity share” definition of section 43 of ITA
(1) For the purposes of this section-
‘equity share’ includes a linked unit;
Section 44 (ITA) – Amalgamation transactions
44. Amalgamation transactions
“Liquidation distribution” definition of section 47 of ITA
(1) For the purposes of this section ‘liquidation distribution’ means any transaction-
(a) in terms of which any company (hereinafter referred to as the ‘liquidating company) which is a resident disposes of all of its assets (other than assets it elects to use to settle any debts incurred by it in the ordinary course of its trade) to its shareholders in anticipation of or in the course of the liquidation, winding up or deregistration of that company and other than assets required to satisfy any reasonably anticipated liabilities to any sphere of government of any country and costs of administration relating to the liquidation or winding up, but only to the extent to which those assets are so disposed of to another company (hereinafter referred to as the ‘holding company’) which is a resident and which on the date of that disposal forms part of the same group of companies as the liquidating company; or
[Paragraph (a) amended by section 37 of Act 32 of 2004, section 43 of Act 31 of 2005, section 37 of Act 8 of 2007, section 58 of Act 35 of 2007, section 53 of Act 60 of 2008, section 50 of Act 17 of 2009 and section 72 of Act 24 of 2011, substituted by section 79 of Act 22 of 2012 and section 59 of Act 43 of 2014 effective on 20 January 2015]
(b) in terms of which a liquidating company which is a controlled foreign company in relation to any resident disposes of all of its assets (other than assets it elects to use to settle any debts incurred by it in the ordinary course of its trade) to its shareholders in anticipation of or in the course of the liquidation, winding up or deregistration of that company –
(i) to the extent that those assets are so disposed of to a holding company which-
(aa) is a resident and which forms part of the same group of companies (as defined in section 1) as the liquidating company immediately before that distribution; or
(bb) is a controlled foreign company in relation to any resident;
(ii) if, immediately before that transaction, each of the shares held by the holding company in the liquidating company is held as a capital asset; and
(iii) if, immediately after that transaction, where that holding company is a controlled foreign company as contemplated in subparagraph (i)(bb), more than 50 per cent of the equity shares in the holding company are directly or indirectly held by a resident (whether alone or together with any other resident that forms part of the same group of companies as that resident).
Subsections 2, 3, 4, 4A, 5, 6, 8, 9, 12, 13 and 14 of section 44 of ITA
(2) Where an amalgamated company disposes of-
(a) a capital asset in terms of an amalgamation transaction to a resultant company which acquires it as a capital asset-
(i) the amalgamated company must be deemed to have disposed of that asset for an amount equal to the base cost of that asset on the date of that disposal; and
(ii) that resultant company and that amalgamated company must, for purposes of determining any capital gain or capital loss in respect of a disposal of that asset by that resultant company, be deemed to be one and the same person with respect to-
(aa) the date of acquisition of that asset by that amalgamated company and the amount and date of incurral by that amalgamated company of any expenditure in respect of that asset allowable in terms of paragraph 20 of the Eighth Schedule; and
(bb) any valuation of that asset effected by that amalgamated company as contemplated in paragraph 29(4) of the Eighth Schedule;
: Provided that this paragraph does not apply to any asset disposed of in terms of an amalgamation transaction contemplated in paragraph (b) of the definition of ‘amalgamation transaction’ if, on the date of that disposal, the market value of that asset is less than the base cost of that asset;
(b) an asset held by it as trading stock in terms of an amalgamation transaction to a resultant company which acquires it as trading stock-
(i) that amalgamated company must be deemed to have disposed of that asset for an amount equal to the amount taken into account by that amalgamated company in respect of that asset in terms of section 11(a) or 22(1) or (2); and
(ii) that amalgamated company and that resultant company must, for purposes of determining any taxable income derived by that resultant company from a trade carried on by it, be deemed to be one and the same person with respect to the date of acquisition of that asset by that amalgamated company and the amount and date of incurral by that amalgamated company of any cost or expenditure incurred in respect of that asset as contemplated in section 11(a) or 22(1) or (2).
: Provided that this paragraph does not apply to any asset disposed of in terms of an amalgamation transaction contemplated in paragraph (b) of the definition of ‘amalgamation transaction’ if, on the date of that disposal, the market value of that asset is less than the amount taken into account in respect of that asset in terms of section 11(a) or 22(1) or (2);
(3) Where an amalgamated company disposes of-
(a) an asset that constitutes an allowance asset for that amalgamated company to a resultant company as part of an amalgamation transaction and that resultant company acquires that asset as an allowance asset or that resultant company is a REIT or a controlled company, as defined in section 25BB(1), that acquires that asset as a capital asset or an allowance asset-
[Words preceding subparagraph (i) substituted by section 52 of Act 17 of 2017 and section 56 of Act 23 of 2018 effective on 18 December 2017]
(i) no allowance allowed to that amalgamated company in respect of that asset must be recovered or recouped by that amalgamated company or included in that amalgamated company’s income for the year of that transfer; and
(ii) that amalgamated company and that resultant company must be deemed to be one and the same person for purposes of determining the amount of any allowance or deduction –
(aa) to which that resultant company may be entitled in respect of that asset; or
(bb) that is to be recovered or recouped by or included in the income of that resultant company in respect of that asset;
[Item (bb) substituted by section 52 of Act 17 of 2017 and section 56 of Act 23 of 2018 effective on 18 December 2017]
(b) a contract to a resultant company as part of a disposal of a business as a going concern in terms of an amalgamation transaction and an allowance in terms of section 24, 24C or 24P was allowable to that amalgamated company in respect of that contract for the year preceding that in which that contract is transferred or would have been allowable to that amalgamated company for the year of that transfer had that contract not been so transferred-
[Words preceding subparagraph (i) substituted by section 52 of Act 17 of 2017 effective on 18 December 2017]
(i) no allowance allowed to that amalgamated company under those sections must be included in that amalgamated company’s income for the year of that transfer; and
(ii) that amalgamated company and that resultant company must be deemed to be one and the same person for purposes of determining the amount of any allowance-
(aa) to which that resultant company may be entitled under those sections; or
(bb) that is to be included in the income of that resultant company under those sections.
[Paragraph (b) substituted by section 63 of Act 25 of 2015 effective on 1 January 2016]
(4) The provisions of subsections (2) and (3) will not apply to a disposal of an asset by an amalgamated company to a resultant company as part of an amalgamation transaction to the extent that such asset is so disposed of in exchange for consideration other than-
(a) an equity share or shares in that resultant company; or
(b) the assumption by that resultant company of a debt of that amalgamated company that was incurred by that amalgamated company, that –
(i) was incurred by that amalgamated company-
(aa) more than 18 months before that disposal; or
(bb) within a period of 18 months before that disposal, to the extent that the debt –
(A) constitutes the refinancing of any debt incurred as contemplated in subparagraph (aa); or
(B) is attributable to and arose in the ordinary course of a business undertaking disposed of, as a going concern to that resultant company as part of that amalgamation transaction; and.
(ii) was not incurred by that amalgamated company for the purpose of procuring, enabling, facilitating or funding the acquisition by that resultant company of any asset in terms of that amalgamation transaction.
(4A) For purposes of the definition of ‘contributed tax capital’, if the resultant company issues shares in exchange for the disposal of an asset in terms of an amalgamation transaction, the amount received by or accrued to the resultant company as consideration for the issue of shares is deemed to be equal to an amount which bears to the contributed tax capital of the amalgamated company at the time of termination contemplated in paragraph (a)(ii) of the definition of ‘amalgamation transaction’ in subsection (1) the same ratio as the value of the shares held in the amalgamated company at that time by shareholders other than the resultant company bears to the value of all shares held in the amalgamated company at that time: Provided that where the amalgamated company is a portfolio of a collective investment scheme in property, the price at which the participatory interests were issued shall be added to the contributed tax capital in respect of the class of shares issued by the resultant company.
(5) Where the resultant company acquires any asset, other than an asset contemplated in section 25BB(5), from the amalgamated company in terms of an amalgamation transaction that was subject to subsection (2) or (3) and that resultant company disposes of that asset within a period of 18 months after so acquiring that asset and—
(a) that asset constitutes a capital asset in the hands of that resultant company-
(i) so much of any capital gain determined in respect of the disposal of that asset as does not exceed the amount that would have been determined had that asset been disposed of at the beginning of that period of 18 months for proceeds equal to the market value of that asset as at that date, may not be taken into account in determining any net capital gain or assessed capital loss of that resultant company but is subject to paragraph 10 of the Eighth Schedule for purpose of determining an amount of taxable capital gain derived from that gain, which taxable capital gain may not be set off against any assessed loss or balance of assessed loss of that resultant company; or
(ii) so much of any capital loss determined in respect of the disposal of that asset as does not exceed the amount that would have been determined had that asset been disposed of at the beginning of that period of 18 months for proceeds equal to the market value of that asset as at that date, must be disregarded in determining the aggregate capital gain or aggregate capital loss of that resultant company for purposes of the Eighth Schedule: Provided that the amount of any capital loss so disregarded may be deducted from the amount of any capital gain determined in respect of the disposal during that year or any subsequent year of assessment of any other asset acquired by that resultant company from that amalgamated company in terms of that amalgamation transaction; or
(b) that asset constitutes-
(i) trading stock in the hands of that resultant company, so much of the amount received or accrued in respect of the disposal of that trading stock as does not exceed the market value of that trading stock as at the beginning of that period of 18 months and so much of the amount taken into account in respect of that trading stock in terms of section 11(a) or 22(1) or (2) as is equal to the amount so taken into account in terms of subsection (2)(b); or
: Provided that this subparagraph does not apply to any asset that constitutes trading stock that is regularly and continuously disposed of by that resultant company
(ii) an allowance asset in the hands of that resultant company other than a resultant company that is a REIT or a controlled company, as defined in section 25BB(1), so much of any allowance in respect of that asset that is recovered or recouped by or included in the income of that resultant company as a result of that disposal as does not exceed the amount that would have been recovered had that asset been disposed of at the beginning of that period of 18 months for an amount equal to the market value of that asset as at that date,
[Subparagraph (ii) substituted by section 52 of Act 17 of 2017 effective on 18 December 2017]
must be deemed to be attributable to a separate trade carried on by that resultant company, the taxable income or assessed loss from which trade may not be set off against or added to any assessed loss or balance of assessed loss of that resultant company.
[Subsection (5) amended by section 41 of Act 34 of 2019]
(6)
(a) This subsection applies where any person that holds an equity share in an amalgamated company acquires an equity share in the resultant company by virtue of that shareholding and pursuant to an amalgamation transaction in respect of which subsection (2) or (3) applied-
(i) as either a capital asset or trading stock, in the case where that equity share in the amalgamated company is held as a capital asset; or
(ii) as trading stock in the case where that equity share in the amalgamated company is held as trading stock.
(b) The person contemplated in paragraph (a) is deemed, subject to paragraphs (d) and (e), to have-
(i) disposed of the equity share in that amalgamated company for an amount equal to the expenditure incurred by that person in respect of that equity share which is or was allowable in terms of paragraph 20 of the Eighth Schedule or taken into account in terms of section 11(a) or 22(1) or (2), as the case may be;
(ii) acquired the equity share in the resultant company on the date on which that person acquired the equity share in the amalgamated company for a cost equal to the expenditure incurred by that person as contemplated in subparagraph (i);
(iii) incurred the cost contemplated in subparagraph (ii) on the date on which that person incurred the expenditure in respect of the equity share in the amalgamated company, which cost must be treated as-
(aa) an expenditure actually incurred by that person in respect of those equity shares for the purposes of paragraph 20 of the Eighth Schedule, if those equity shares in the resultant company are acquired as capital assets; or
(bb) the amount to be taken into account by that person in respect of those equity shares for the purposes of section 11(a) or 22(1) or (2), if those equity shares in the resultant company are acquired as trading stock; and
(iv) done any valuation of the equity share in the amalgamated company which was done by that person within the period contemplated in paragraph 29(4) of the Eighth Schedule, in respect of the equity share in the resultant company.
(c) An equity share in the resultant company that is acquired by the person contemplated in paragraph (a) is deemed not to be an amount transferred or applied by the amalgamated company for the benefit or on behalf of that person in respect of the share held by that person in that amalgamated company.
(d) Where the person contemplated in paragraph (a) becomes entitled to any consideration other than any equity share in the resultant company, the provisions of paragraph (b) must not apply in respect of the part of the equity share held by that person in the amalgamated company which bears the same ratio to that share as the amount of that other consideration bears to the amount of the full consideration in respect of that share.
(e) Where the person contemplated in paragraph (a) becomes entitled, by virtue of the equity share held by that person in the amalgamated company, to any consideration other than any equity share in the resultant company, so much of the amount of that other consideration as does not exceed the market value of all the assets of the amalgamated company immediately before the amalgamation, conversion or merger less-
(i) the liabilities; and
(ii) the sum of the contributed tax capital of all the classes of shares,
of the amalgamated company immediately before the amalgamation, conversion or merger must, for the purposes of the definitions of ‘dividend’, ‘foreign dividend’, ‘foreign return of capital’ and ‘return of capital’ in section 1, be deemed to be an amount transferred or applied by that amalgamated company for the benefit or on behalf of that person in respect of the share held by that person in the amalgamated company.
(7) ……….
(8) Where an amalgamated company disposes of any equity shares in a resultant company that were acquired by that amalgamated company in terms of an amalgamation transaction that was subject to subsection (2) or (3), to a shareholder of that amalgamated company as part of that amalgamation transaction, that amalgamated company must disregard that disposal for purposes of determining its taxable income or assessed loss.
(9) ………
[Subsection (9) amended by section 52 of Act 45 of 2003, section 69 of Act 24 of 2011, section 76 of Act 22 of 2012 and section 93 of Act 31 of 2013 and deleted by section 56 of Act 23 of 2018 effective on 17 January 2019]
(10) ……….
(11) ……….
(12) ……….
(13) The provisions of this section do not apply where the amalgamated company-
(a) has not, within a period of 36 months after the date of the amalgamation transaction, or such further period as the Commissioner may allow, taken the steps contemplated in section 41(4) to liquidate, wind up or deregister; or
(b) has at any stage withdrawn any step taken to liquidate, wind up or deregister that company, as contemplated in paragraph (a), or does anything to invalidate any step so taken, with the result that the company will not be liquidated, wound up or deregistered.
: Provided that any tax which becomes payable as a result of the application of this subsection may be recovered from the resultant company
(14) The provisions of this section do not apply-
(a) in respect of any transaction that constituted a liquidation distribution as defined in section 47(1);
(b) in respect of any transaction if the resultant company is a company contemplated in paragraph (c) or (d) of the definition of ‘company’;
(bA) in respect of any transaction if the resultant company is a portfolio of a collective investment scheme in securities and the amalgamated company is not a portfolio of a collective investment scheme in securities;
(bB) in respect of any transaction if the resultant company is a portfolio of a hedge fund investment scheme and the amalgamated company is not a portfolio of a hedge fund collective investment scheme;
[Paragraph (bB) inserted by section 63 of Act 25 of 2015 effective on 1 April 2015 – comes into operation in terms of section 63 of Act 25 of 2015 as amended by section 102 of Act 15 of 2016]
(c) in respect of any transaction if the resultant company is a non-profit company as defined in section 1 of the Companies Act;
(d) in respect of any transaction contemplated in paragraph (a) of the definition of ‘amalgamated company’ if the resultant company is a company contemplated in paragraph (b) or (e)(ii) of the definition of ‘company’ and does not have its place of effective management in the Republic;
(e) in respect of any transaction if any amount constituting gross income of whatever nature would be exempt from tax in terms of section 10 were it to be received by or to accrue to the resultant company;
(f) in respect of any transaction if the resultant company is a public benefit organisation or recreational club approved by the Commissioner in terms of section 30 or 30A; or
(g) to a disposal of an asset by an amalgamated company to a resultant company-
(i) in terms of an amalgamation transaction contemplated in paragraph (a) of the definition of ‘amalgamation transaction’ where that resultant company and the person contemplated in subsection (6) form part of the same group of companies immediately before and after that disposal; or
(ii) in terms of an amalgamation transaction contemplated in paragraph (b) of the definition of ‘amalgamation transaction ‘where that resultant company and the person contemplated in subsection (6) form part of the same group of companies (without regard to paragraph (i)(ee) of the proviso to the definition of ‘group of companies ‘in section 41) immediately before and after that disposal,
if that amalgamated company, resultant company and person jointly so elect.
“Amalgamation transaction” definition of section 44 of ITA
(1) For the purposes of this section-
‘amalgamation transaction’ means any transaction-
(a)
(i) in terms of which any company (hereinafter referred to as the ‘amalgamated company) which is a resident disposes of all of its assets (other than assets it elects to use to settle any debts incurred by it in the ordinary course of its trade and other than assets required to satisfy any reasonably anticipated liabilities to any sphere of government of any country and costs of administration relating to the liquidation or winding-up) to another company (hereinafter referred to as the ‘resultant company’) which is a resident, by means of an amalgamation, conversion or merger; and
[Subparagraph (i) substituted by section 57 of Act 43 of 2014 effective on 20 January 2015]
(ii) as a result of which the existence of that amalgamated company will be terminated;
(b)
(i) in terms of which an amalgamated company which is a foreign company disposes of all of its assets (other than assets it elects to use to settle any debts incurred by it in the ordinary course of its trade and other than assets required to satisfy any reasonably anticipated liabilities to any sphere of government of any country and costs of administration relating to the liquidation or winding-up) to a resultant company which is a resident, by means of an amalgamation, conversion or merger;
[Subparagraph (i) substituted by section 57 of Act 43 of 2014 effective on 20 January 2015]
(ii) if, immediately before that transaction, any shares in that amalgamated company are held as capital assets; and
(iii) as a result of which the existence of that amalgamated company will be terminated; or
(c)
(i) in terms of which an amalgamated company which is a foreign company disposes of all of its assets (other than assets it elects to use to settle any debts incurred by it in the ordinary course of its trade and other than assets required to satisfy any reasonably anticipated liabilities to any sphere of government of any country and costs of administration relating to its liquidation or winding-up) to a resultant company which is a foreign company, by means of an amalgamation, conversion or merger;
[Subparagraph (ii) substituted by section 55 of Act 15 of 2016 effective on 19 January 2017]
(ii) if-
(aa) mmediately before that transaction-
(A) that amalgamated company and that resultant company form part of the same group of companies (as defined in section 1);
(B) that resultant company is a controlled foreign company in relation to any resident that is part of the group of companies contemplated in subitem (A); and
(C) any shares in that amalgamated company that are directly or indirectly held by that resultant company are held as capital assets; and
(bb) immediately after that transaction, more than 50 per cent of the equity shares in that resultant company are directly or indirectly held by a resident (whether alone or together with any other person that is a resident and that forms part of the same group of companies as that resident); and
(iii) as a result of which the existence of that amalgamated company will be terminated.
Section 45 (ITA) – Intra-group transactions
45. Intra-group transactions