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SARS issues binding class ruling regarding unbundling transaction

Friday, 21 June 2019   (0 Comments)
Posted by: Authors: Tsanga Mukumba and Louis Botha
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Authors: Tsanga Mukumba and Louis Botha (Cliffe Dekker Hofmeyr)

Section 46 of the Income Tax Act, No 58 of 1962 (Act) provides tax relief where a company (Unbundling Co) wishes to unbundle its shareholding in a subsidiary (Unbundled Co), to the company’s own shareholders. The Unbundling Co’s shareholders’ indirect shareholding in the Unbundled Co is converted to a direct shareholding, in proportion to their shareholding in the Unbundling Co.

Where an unbundling takes place outside the scope of s46 of the Act, as set out above, several tax consequences would ordinarily apply:

  • Shareholder A would receive the shares in SubCo as a dividend in specie, which may result in liability for dividends tax under Part VIII of the Act;
  • The disposal of the shares in SubCo, would constitute a disposal under the Eighth Schedule to the Act, potentially leading to a capital gain for HoldCo; and
  • Securities transfer tax (STT) would be payable on the transfer of all the shares under the Securities Transfer Tax Act, No 25 of 2007.

On 24 May 2019, the South African Revenue Service (SARS) published Binding Class Ruling 066 (BCR 066). BCR 066 provides the income tax consequences and applicability of s46 to the receipt of shares in a listed company by resident and non-resident shareholders, following an unbundling of that company by its listed parent company. It is binding only on the parties to the ruling.

  • The ruling dealt, among other things, with the following aspects of s46:
  • The definition of “unbundling transaction” in s46(1)(a); and
  • The anti-avoidance provisions in s46(3)(a)(v).

Please click here to read more.

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