The 2020 Draft Taxation Laws Amendment Bill (released on 31 July 2020) proposes to allow for a base cost in respect of debt incurred or shares issued as consideration for the acquisition of assets under certain transactions when the section 45 de-grouping provisions are triggered.
Section 45 of the Income Tax Act contains a number of anti-avoidance provisions. These include a deemed base cost of “nil” in respect of any debt incurred or shares issued as consideration for the acquisition of the assets under the transaction. Payments of the capital are, however, tax neutral while the parties remain within the group of companies.
The provisions of section 45(3A) of the Income Tax Act provide for a nil base cost in respect of any debt incurred as consideration for the acquisition of assets under a section 45 transaction (provided such debt is issued by another company within the same group of companies).
The proposed amendment to section 45 would insert a new subsection 45(3B) to deem the holder of the debt or share to have incurred an amount in respect of the debt or share equal to the market value of the instrument on the date acquired, less any amounts applied previously as a repayment of the debt or reduction of share capital.
The holder, therefore, would be placed in the position that the holder would have been in had the provisions of section 45 not been applied to the acquisition of the assets.
It is proposed that the amendment would be effective 1 January 2021 in respect of years of assessment beginning on or after that date.
Read an August 2020 report [PDF 131 KB] prepared by the KPMG member firm in South Africa
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