Transcript Winning in a converging world

Budget
and
Tax
Update
PwC
What we will cover
•Budget speech
•Taxation Laws Amendment Act (no 30 of 2002)
•Revenue Laws Amendment Act (no 74 of 2002)
2
PricewaterhouseCoopers
BUDGET
2003
BEGROTING
KNOWING
THE SCORE
PwC
Taxation Proposals
BUDGET 2003
KNOWING
THE SCORE
 General comment
 Changes proposed
 Individuals
 Other changes
 Business
 International Tax
4
PricewaterhouseCoopers
BUDGET 2003
Overview
KNOWING
THE SCORE
 “The right thing to do”
- Trevor Manuel, Minister of Finance
Administration
• Net Revenue Gain/(loss)
5
01/02
02/03
03/04
(13 213)
(15 889)
(15 057)
PricewaterhouseCoopers
Proposed changes
PwC
Individuals
PwC
BUDGET 2003
Individuals
KNOWING
THE SCORE
02/03
03/04
Primary
4 860
5 400
Secondary
3 000
3 100
Below 65
27 000
30 000
65 and over
42 640
47 222
Rebates
Threshold
8
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BUDGET 2003
Individuals
KNOWING
THE SCORE
Taxation reduction (under 65 years old)
INCOME
9
REDUCTION
30 000
Per year
R540
50 000
Per year
R1 240
80 000
Per year
R2 640
150 000
Per year
R5 640
500 000
Per year
R6 240
PricewaterhouseCoopers
Individuals
BUDGET 2003
KNOWING
THE SCORE
 Spread of Relief




10
Income Group
R0 – R150 000
R150 001 – R250 000
R250 001 and above
56%
23%
21%
PricewaterhouseCoopers
BUDGET 2003
Individuals
KNOWING
THE SCORE
 Effective tax burden on households
Income Group
 30 000
 50 000
 100 000
 200 000
11
R5 400
R9 000
R20 100
R53 200
PricewaterhouseCoopers
BUDGET 2003
Individuals – Interest
income exemption
KNOWING
THE SCORE
02/03
03/03
Under 65
6 000
10 000
Over 65
10 000
15 000
Foreign dividends and interest limited to R1 000
12
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BUDGET 2003
Individuals
Transfer duty
KNOWING
THE SCORE
Exempt level increased from R100 000 to R140 000
Value of property
Reduction
R140 000 – R320 000
R2 000
R320 000 and above
R2 600
Effective 1 March 2003
13
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Individuals
BUDGET 2003
KNOWING
THE SCORE
 What was not included?
 Structuring of Salary packages
 Car allowances
 Lower maximum marginal rate
14
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Retirement fund tax
BUDGET 2003
KNOWING
THE SCORE

1996
17%

1998
25%

2003
18%
Detailed discussion document
15
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Stamp duties
BUDGET 2003
KNOWING
THE SCORE
 Insurance policies
 Removes interpretation problems
 Fixed deposits
Effective 1 April 2003
16
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Other Changes
BUDGET 2003
KNOWING
THE SCORE

Secondary trades
 Ring-fenced


PAYE for directors
Transfer duty
 Nominee transactions
PAYE, VAT and UIF
Plastic bags
 Environmental duty




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Secrecy provisions
 Collections
Liquidations
 Shareholder liability
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VAT
BUDGET 2003
KNOWING
THE SCORE
Small businesses
 Pre-incorporation expenses
 Transfer payment
 Public-Private-Partnerships
 VAT invoices
 Customer VAT number
 Export definition
18
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Public Benefit
Organisations
BUDGET 2003
KNOWING
THE SCORE
List of activities to be extended to include :
 Low-income housing
 Regeneration of urban areas
19
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Business
PwC
BUDGET 2003
Companies
KNOWING
THE SCORE
 Tax rate unchanged
 STC unchanged
BUT
 Taxation of foreign dividends
 Designated country list
21
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Companies (cont.)
BUDGET 2003
KNOWING
THE SCORE
 Accelerated depreciation for
urban development
 Excon relaxation
22
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Small Businesses
BUDGET 2003
KNOWING
THE SCORE
 Start-up expense
 Double deduction first R20 000
 Increased turnover limit – increased to R5m (prev
R3m)
 Compliance still the issue
23
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Business assets
BUDGET 2003
KNOWING
THE SCORE
 Rollover relief for moveable business assets:
• Re-investment of sale proceeds
• Within “an 18-month period”
 Loss relief for sale of devalued short life business
assets
• Replaces scrapping allowance
24
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International Tax
PwC
PwC
Introduction
BUDGET 2003
KNOWING
THE SCORE
• Encouraging capital inflows
– Tax exemption for qualifying dividends
– Abolition of “designated country” exemption
• Other proposed amendments
– Emigrating tax residence
– International Headquarter Companies
• Remaining concerns
• Exchange control
• Conclusion
26
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Tax exemption for qualifying
foreign dividends
BUDGET 2003
KNOWING
THE SCORE
• SA foreign policy, tax legislation and exchange control finally aligned!
• What was the problem?
• Abolition of the designated country exemption
• Participation exemption for qualifying foreign dividends (“meaningful
interest”)
– No indirect foreign tax credits for non-qualifying shareholdings
– Anti-avoidance measures to eliminate possible return of round-tripping
transactions
• Simplify administration and compliance
• Expansion of reporting requirements for Controlled Foreign Companies
27
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Tax exemption for qualifying
foreign dividends
BUDGET 2003
KNOWING
THE SCORE
• Uncertainties:
– STC credits for exempt dividends?
– Effective date of legislation?
– Meaningful interest?? Other requirements?
– Special rules limiting or eliminating remaining forms of excess foreign
tax credits?
– What about CFC provisions?
• Critisism
– Disruptive and regular changing of national tax policy
– Hybrid tax system (partly imputation, partly classical)
• Strategy for SA multinationals
– Await detailed legislation – assess tax efficiency of structure
– CFC: Increased focus on business establishments and inter group
exemptions?
28
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BUDGET 2003
Sundry amendments
KNOWING
THE SCORE
• Residence migration:
– Deemed disposal for CGT
– STC
• Abolition of International Headquarter Company regime
(harmful tax practice)
• Increased disclosure requirements (CFC, tax structures)
• Exchange of information between SARS and the Reserve Bank
• More targeted audits
• Advance rulings
29
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BUDGET 2003
Remaining concern:
CGT for foreign groups
KNOWING
THE SCORE
• No re-organisation, share-for-share, intra-froup rules/relief
as for residents
• Limited exemptions, especially for holding companies
• Even if relief is available, potential 30% effective tax rate
on capital gains
• No cash
30
PricewaterhouseCoopers
BUDGET 2003
Remaining concern:
Transfer Pricing
KNOWING
THE SCORE
• Focused approach from SARS
• Provision of service or finance
• Structured finance arrangements
• Inbound multinationals with losses
• Sophisticated risk analysis - Industry
focus
• Detailed questionnaires sent out by
SARS
• Transfer Pricing Audit team at SARS
• Settlement
• CFC look-though
31
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Exchange control
BUDGET 2003
KNOWING
THE SCORE
• Relaxation of exchange controls – move toward prudential
system
• Institutional investors
– Invest up to foreign asset limit of:
– 15% of total assets (long term insurers, pension funds and
fund managers)
– 20% for unit trusts
• Investment into Africa – R2bn; Investment elsewhere – R1bn
• Exchange control “credit” for qualifying foreign dividends from
subsidiaries – re-export on application for approved projects
32
PricewaterhouseCoopers
BUDGET 2003
Exchange control
KNOWING
THE SCORE
Abolished for emigrants (ie blocked Rands)
Any amount above R750 000
BUT
Subject to 10% exit charge
Amnesty period
 5% charge applied to funds repatriated (if funds held illegally)
 10% charge on foreign assets remaining offshore (if funds held
illegally)
33
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Any questions re the Budget?
34
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Taxation Laws Amendment Act
•Donations tax:
– Levied @ 20%
– Annual allowance: R20 000 to R30 000 (wef 1/3/2002)
– Incidental allowance: R5 000 to R10 000 (wef 1/3/2002)
• Estate Duty: R1m to R1.5m (wef 1/3/2002)
• IP minimum R3 000 to R5 000 (s11gA)
• Bravery and long service awards: R2 000 to R5 000
• Medical aid: R1 000 minimum scrapped
35
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Skills Development Levies
•Implemented 1 April 2000
@0.5%
•Increased to 1% on 1 April 2001
•Now spend – granting of tax
allowances (Learnership
Agreements)
36
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Learnership agreements (s12G)
Allowance at commencement of contract post 1 October 2002
•Existing employees (if learnership agreement) – lesser of 70% of
remuneration or R17 500
•New employee (if learnership agreement) – lesser of 70% of
remuneration or R25 000
Allowance on completion of contract post 1 October 2002
•New/existing employee – lesser of 70% of remuneration or R25
000
37
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Revenue Laws Amendment Act
Overview of changes
•Transfer duty on transfer of shares/members’ interest
•Amendments to dividend definition
•Amendments to sections 9D,9E and 6 quat
•Amendments to section 24I
•Corporate restructuring rules – revamp
•CGT amendments esp individuals
•Various other amendments
•Date of promulgation: 13 December 2002
38
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Revenue Laws Amendment Act
Transfer duty amendment
•Defintion of property now includes share or member’s interest in
a residential property company
•“Residential property” includes any dwelling, house, holiday
home, apartment or similar abode zoned for residential use other
than:
– Apartment etc consisting of 5 or more units for rent to 5 or
more persons (not connected persons); or
– Fixed property of a vendor
39
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Transfer duty (cont)
•“Residential property company” defined as any company that
holds residential property (including a CC), where the fair value of
such property >50% of the aggregate fair value of the all the
assets
•“Transaction” includes disposal of shares or member’s interest
and includes substituion or addition of beneficiaries with a
contingent right to the property
•Dutiable value – fair market value of the share or member’s
interest (loans may not be taken into account)
•Effective date: 13 December 2002
40
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Dividend definition
•Previously
– Dividends paid from capital reserves on
liquidation/deregistration exempt from STC – not a dividend
per definition
• Amendment
– With effect from 1 January 2003
– Capital reserves on or after 1 October 2001 subject to STC
– Now part of the definition of a dividend
41
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Liquidation dividends (cont)
Summary:
•Pre 1993 reserves – STC free
•Post 1993 revenue reserves - STC
•Pre 1 October 2001 capital reserves – STC free
•Post 1 October 2001 capital reserves distributed prior to 1
January 2003 – STC free
•Post 1 October 2001 capital reserves distributed on/after 1
January 2003 – STC
42
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Sections 9D, 9E and
6 quat
Taxation of Foreign Dividends Definition
1. a foreign company as defined in S
9D, or
2. a resident company - dividend
declared out of profits before the
company became resident
3. dividends deemed to have been
distributed by a CFC in terms of
s.64C
44
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Calculation of the amount included in
gross income
• Shareholding of at least 10 percent
– Proportionate amount of profits from which dividend is declared
– LIFO
– Different forms of income
45
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Calculation of the amount included in
gross income
• Shareholding of at least 10 percent
– Amount of dividend declared
46
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Proportionate allocation of income from
affected companies
– LIFO
– Different types of income
47
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Election net income
At least 10 per cent
– Profits after foreign corporate
and withholding tax
Less than 10 per cent
– Dividend after withholding tax
48
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Deductions allowed against foreign
dividend income
– Interest incurred, limited to
amount of foreign dividends
included
– Excess: reduced by amount of
exempt dividends
– Balance of deductible interest
carried forward
49
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Exempt foreign dividends
– By companies listed on the JSE
– From designated countries (temporarily)
– From profits taxed otherwise in SA
– From profits derived from exempt foreign dividends
– By unbundling company
50
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Conversion of dividends in foreign
currencies
– Appears to be regulated by
Section 25D
51
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Controlled Foreign Companies Definitions
– CFC: any foreign company, 50%
participation by residents
– Net income: as if CFC was a taxpayer
– Business establishment
– Foreign Financial Instrument Holding
company: market assets or market
value more than 50% financial
instruments
52
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Net income taxable in SA
– Proportional amount in relation to
participation held
– Election if held as CFC for part of year
53
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Exemptions
– Holdings of less than 10%
– Designated country: taxed at qualifying statutory rate
– Dividends received by CFC from another CFC, if it relates to a
taxable amount
– Interest, rents & royalties from a company in the same group
– Capital gains attributable to a business establishment or group
CFC
– Participation exemption:
- dividends
- capital gains
54
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Business establishment exemption
– Net income attributable to
a business establishment
outside SA exempt
55
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Business establishment exemption Exceptions:
– Goods & services between CFC and
connected resident at non-arm’s
length
– Sale of goods to connected resident
by CFC, unless:
– purchased from unconnected
person
– more than minor assembly etc
– sells goods at comparable prices
56
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Business establishment exemption Exceptions (continued):
– Goods purchased from connected
residents, unless:
– insignificant portion
– more than minor assembly
– sold for delivery in CFC country
– Services by CFC to connected
resident, unless:
– relates to creation, assembly,
repair etc outside SA
– relate to sale & marketing in
CFC country
57
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Business establishment exemption Exceptions (continued):
– Dividends etc, capital gains &
currency gains, unless:
– not more than 5%
– principal trading activity of bank
etc.
58
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Reporting requirements
– Exemptions do not apply
unless adhered to
– Any resident who:
– holds more than 10%
– 50% together with
connected persons
must submit information to:
– Commissioner
– Connected resident who
holds at least 10%
59
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Double Taxation Relief
Credits for foreign tax on
foreign income taxed in SA
– Rebate against normal tax, not
STC
60
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Qualifying income
Only income included in ‘taxable income’:
–
–
–
–
–
–
61
Foreign source income
CFC proportional income
Foreign dividends
Capital gains on assets outside SA
Income/capital gains attributed to another person
Trust distributions deemed income or capital gains
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Sum of foreign taxes
– Any taxes on income
– proved to be payable
– to any sphere of
government
– without right of recovery
(excluding loss carry back)
62
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Foreign trusts or partnerships
– If taxed as separate entity in foreign
jurisdiction
– SA members deemed to suffer
portion of foreign tax
63
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Qualifying foreign taxes
– Paid by SA resident on:
– foreign source income
– foreign dividends
– capital gains on asset outside
SA
– Paid by CFC
– Underlying foreign tax paid by
declaring company
– taxed as foreign dividend
– dividend received by CFC
64
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Qualifying foreign taxes (continued)
– By Collective Investment Scheme
where dividends on-declared to
resident
– Foreign tax on income or capital
gains attributed to a resident
– Underlying foreign tax of a Trust re
deemed income or capital gains
distributions
65
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Calculation of DTR credit
– Total credit may not exceed SA
total normal tax on attributable
income
– excess carried forward, up to
seven years
– Terms ‘aggregate’ (rebate) and
‘total’ (taxable income) confirms
mixing of credits
– Subsequent foreign tax on
previous CFC income, claimed
against any SA normal tax
66
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Exclusions
– No credit for underlying taxes unless:
– SA shareholder
– together with group of companies
holds at least 10% or ‘qualifying interest’
– Shareholder elects to be taxed on ‘net’ basis
– No credit in addition to Tax Treaty relief, may be ‘in substitution’
to
67
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Foreign exchange rates
– On last day of assessment
– At average exchange rate for that
year
68
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Subsequent changes to credit
– If prior year claim for credit is
– understated (onus taxpayer)
– overstated (onus Commissioner)
– may be re-opened
– 6 year limit
69
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Foreign currency
differences
New Tax Dispensation on Currency Differences
Introduction
• One of the most complex features of the Income Tax Act
• All-encompassing because foreign currency gains and losses
involve all forms of foreign related transactions
• Introduces complex currency pooling system for currency
assets for individuals
• Extends rules for capital assets, introducing relative currency
tests
• Interpretation complicated by different implementation dates
71
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Real gain vs full gain
Mr A buys an asset 10 October 2001 - $ 100. He sells asset on 30
November 2003 for $150
Average exchange rates:
10 October 2001 : $1 / R9
30 November 2003: $1 / R10
Translate expenditure on date of incurral of expenditure
Gain = ($150x10) - ($100x9) = R600 – full gain ie taxed on forex
difference
vs ($150x10) - ($100 x 10) = R 500 – real gain ie not taxed on forex
difference
72
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Types of Foreign Currency Gains
• Section 25D governs translation
of directly earned income /
expenditure
• Section 9D(6) governs CFC net
income
• Section 24I deals with all
differences on foreign debt,
currency and derivatives as held
by companies and trading trusts
(capital and revenue)
73
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Types of Foreign Currency Gains
(continued)
• Section 24I now includes
currency and debt instruments
held by individuals as trading
stock and currency derivatives
held by trusts and individuals
• Part XIII of the Eighth Schedule
deals with foreign currency and
debt of individuals and
partnerships, mainly on capital
account
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Types of Foreign Currency Gains
(continued)
• Foreign equity instruments are
covered under Section 9G (trading)
and par. 43(4) of the Eighth
Schedule (capital)
• Intention: paragraph 43(1) and (2)
of the Eighth Schedule covers the
remainder of foreign capital assets
BUT includes ef trading stock
(seems as if they will change this
again – Budget 2003)
• Note the amended definitions, for
example local / foreign currency
75
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Translations of Directly Earned Foreign Income
• Rationalises the currency rules
into one basic system (section
25D)
• All foreign denominated income /
expenditure is translated into
Rands at the “average exchange
rate” for the tax year – see next
slide
• Taxpayers with branches can now
use the financial reporting
currency of that branch
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Average Exchange Rate
• Translation at the average exchange rate for the year, not
the spot rate on the transaction date (Section 1)
• The average exchange rate allows a choice between:
– Average daily, weekly or monthly rate for the year
– A daily weighted average (based on net income or net
loss)
77
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Foreign Cash and Debt: Companies (1)
• Section 24I subjects differences
on foreign cash and debt (plus
currency forwards and option
contracts) on a mark-to-market
system if held by:
– Companies
– Trusts carrying on trade
– Natural persons with foreign
currency items held as trading
stock (revised)
– Individuals and trusts who
hold currency derivatives
(new)
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Foreign Cash and Debt: Companies (2)
• Exchange differences with CFC in
same company group deferred for
both the holding company and the
CFC until realisation (Section
24I(10) (effective 1 October 2001)
• Exchange differences not
recognised on loans / debts and
derivatives to fund p 43(1) and (2)
assets not exposed to full gains
(intention but includes trading
stock for example)
• Uncertainty on the impact of the
average rate on Section 24I
applications
79
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Foreign Cash and Debt: Individuals (1)
• All foreign cash and debt (assets
and liabilities) are al taxed on a
“pooling system” if held by
– Individuals and partnerships
that do not hold exchange
items as trading stock
– Non-trading trusts
• Currency gains and losses are
only triggered for currency items
converted out of the pool into a
different currency
• Transfers within the same
currency are ignored
80
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Foreign Cash and Debt: Individuals (2)
• Foreign currency gain / loss not
recognised for
– All domestic or private
expenses (other than for
immovable property such as
homes)
– All travelling or maintenance
expenses
– All involuntary disposals (such
as theft)
– One personal checking
account of taxpayer’s choice
81
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Foreign Cash and Debt: Individuals (3)
• Averaging system for measuring
currency gains fully applies
• An average system of applying
base cost to disposals is used
based on the relative value of
disposals to the asset portfolio
value before disposal
• Effectively full differences are
subjected to CGT on a realisation
basis using average rates
• All these rules will apply
prospectively, i.e. from 1 March
2003
82
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Liquid Foreign Equity Shares
• The currency gain / loss remains taxable, regardless of whether
the shares are held as capital assets or as trading stock
• Definition was clarified to include shares on
– Any listed exchange, regardless of whether that exchange is
national, regional or local
– Any interdealer quotation system
83
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Basic Capital Gains for Foreign Assets
• Taxpayers that purchase and
sell foreign assets with the
same foreign currency
determine all gains and losses
in that currency and then
translate those gains and losses
at the “average exchange rate”
(Section 43(1))
• Certain South African sourced
assets are included
84
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Basic Capital Gains for Foreign Assets
(continued)
• Special rules for conversion
apply when a taxpayer
purchases an asset in one
foreign and sells in another
(Section 43(2))
85
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Basic Capital Gains for Foreign Assets
(continued)
• Generally speaking only the real
gain on these assets is recognised,
subject to relative currency position
except for the following:
– Foreign equity instruments
– South African fixed property
– Movables of non-residents linked
to a South African permanent
establishment
• Amendments are effective for
disposals after 13 December 2002
86
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Capital Gains Tax
•Effective from 1 October 2001
•Inclusion rates:
– 25% for individual and special trust
– Other taxpayers – 50%
• Definition of a disposal very wide
• Capital losses are ring-fenced
• Rollover relief may apply in certain instances
87
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Capital Gains Tax
Practical issues:
•Valuation on or before 30 September 2003
•Which assets to value
•Sale of business/business units – think about goodwill element
•Liquidations – in hands of shareholder potential CGT
•Write-off of loans – potential CGT as well as income tax
consequences
88
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Corporate Restructuring Rules
PwC
General
Specific tax relief measures in the following qualifying
circumstances:
•Company formations (s 42)
•Share for share transactions (s 43)
•Amalgamation transactions (s 44)
•Transfers between group companies (s 45)
•Unbundling transactions (s 46)
•Transactions re liquidation, winding-up or deregistration (s 47)
90
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Definitions
Definitions:
•Allowance asset = capital asset qualifying for a deduction or
allowance
•Qualifying interest = equity shares in a company:
– If listed company/listed within 12 months – any # of shares
– In any other case > 25% of the equity shares
91
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Definitions (cont)
•Group of companies: 2 or more companies in which one
company (“controlling group company”) directly or indirectly holds
shares in at least one other company (“controlled group
company”) to the extent that:
– At least 75% of the equity shares of each controlled group
company are directly held by the controlling group company,
one or more controlled group companies or any combination
thereof; and
– The controlling group company directly holds 75% or more
of the equity in at least one controlled group company
92
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Definitions (cont)
Group of companies
Parent
75%
75%
Sub 1
75%
Sub 2
75%
Sub 3
Sub 4
All companies qualify as one group
93
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Definitions (cont)
Group of companies
A
100%
100%
B
50%
C
50%
D
All companies qualify as one group
100%
94
E
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Definitions (cont)
•Domestic financial instrument holding company (“DFIHC”) :
– Resident company
– >50% MV or cost of own assets + assets of controlled group
companies in relation to that co = financial instruments
EXCLUDES:
– Debt due iro goods/services included in income, integral part of
business as going concern
– FI of certain other companies eg regulated ito Banks Act, Long
Term Insurance Act etc
– Provided that, in determining 50% ratio, the following will be
disregarded:
– Share of controlled group company (in relation to that company)
– FI = loan, advance or debt if both debtor and creditor are
members within same group
95
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Definitions (cont)
•Foreign financial instrument holding company (“FFIHC”) (as defined in s
9D):
– Foreign company where > 50% of MV or actual cost of own assets
+ asset of controlled group company in relation to that foreign co =
FI
– Excludes:
– Debt due to foreign co or controlled group company in relation to
foreign company iro goods or services. Debt is or was included in
income and debt integral part of business as conitnuing
independent operation
– FI of banks, insurers, dealers, brokers (local/ unconnected party
trading requirement)
– Provided that indetermining 50% ratio, the following must be
disregarded:
96
– Shares in other co in the same group of companies
– FI – loan, advance or debt if both creditor and debtor
form part of
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same group of companies
Company formations (s 42)
Asset
Person (not a trust)
Equity shares
(qualifying
interest)
Resident company
Elective
Market value of asset > base cost (only inherent gain assets)
Person must hold qualifying interest in company (ie if company listed, one
share, if unlisted > 25%)
If consideration other than shares – part disposal
Anti-avoidance rules
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Company formations (s 42) cont
Asset
Person (not a trust)
Equity shares
(qualifying
interest)
Resident company
No election if FI unless:
•Debt due iro goods/services carrying on business
•Total MV of FI < 5% total MV of all assets transferred
•Transfer to regulated industries eg banks
N/A if asset acquired within 18 months ito s42
Registration of share transfer exempt from stamp duty (not
original issue)
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Transfer duty applies unless acquirer is VAT vendor
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Share for share transactions (s43)
Before
Person (not a trust)
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Target co
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Share for share transactions (s43)
After
•Mandatory
•Part disposal if non-shares received
Person (not a trust)
Qualifying
interest
Acquiring co
(resident)
•Only inherent gain assets
•Certain anti-avoidance rules
•N/A if target = DFIHC/FFIHC
•N/A if share acquired ito s43 within 18 months
•Stamp duty exemption on transfer of shares (not
If target co listed: >25% or 35% issueby acquiring co)
If target co unlisted: >50%
Target co
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Amalgamation transactions (s44)
Before and when
transaction takes place
Shareholder
Shares
Amalgamated co
Assets
Resultant co
(resident)
Amalgamated co disposes of all its assets to resultant co by way of
Amalgamation, conversion or merger
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Amalgamation transactions (s44)
After
Shareholder
Shares
Amalgamated co
Assets
Resultant co
(resident)
Amalgamated co disposes of investment in resultant co with corresponding
STC exemption (Dt Reserves, Ct Investment in resultant co)
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Amalgamated co liquidated
Amalgamation transactions (s44)
•Mandatory
•Qualifying interest requirement if person needs exemption
•Part-disposal of non-shares received
•N/A if asset = FI unless:
– Debt due ordinary course of business
– FI = Equity share in or debt owed by a controlled group co in
relation to amalgamated co and controlled group co is not a
DFIHC or FFIHC
– Total market value of all FI <5% of MV of all assets
– Specific industries
– Tax exempt
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Amalgamation transactions (s44)
•Amalgamated co must take steps to liquidate within 6 months
after amalgamation transaction
•STC exemption when transferring shares in resultant co to
shareholder
•No other STC exemption ie normal rules apply
•Stamp duty exemption on transfer of shares (not issue)
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Intra-group transactions (s45)
Company
(transferor)
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Asset(s)
Company (resident
Transferee)
•Elective
•Transferor and transferee must form part of the same group of co’s (ie 75%
shareholding)
•Applies iro capital assets, trading stock and allowance assets
•N/A if asset = FI unless:
•Debt due ordinary course of business
•Total MV of FI transferred < 5% of MV if all assets transferred
•Specific industries
•FI= equity share in controlled group co in relation to transferor
company
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and controlled group co not a DFIHC or FFIHC
Intra-group transactions (s45)
Company
(transferor)
Asset(s)
Company (resident
Transferee)
•If transferee disposes of asset within 18 months: ring-fencing of capital gains
or losses
•If asset = trading stock/depreciable asset and disposal within 18 months:
deemed to be attributable to a separate trade (ie ring-fencing)
•Infinite claw back if transferee and transferor cease to form part of the same
group of companies except if liquidated ito s 47
•Transfer duty exemption
•Stamp duty exemption on transfer
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Unbundlings (s46)
Shareholders
Unbundling co
Unbundled co
(Resident)
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•If unbundling co listed: disposal
of all the equity shares to
shareholders as long as shares of
unbundled co listed within 12
months after disposal
•If unbundling co unlisted:
disposal to any shareholder of
unbundling co which forms part of
the same group of co’s as
unbundling co
•If unbundled co listed: > 25% if no
other shareholder holds 25% or
more otherwise 35%
•If unbundled co unlisted: >50%
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Unbundlings (s46)
Shareholders
Unbundling co
Unbundled co
(Resident)
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•Mandatory
•Only shares in residents
•Disposal of distributable shares not a
dividend for s 64B(3) purposes for both
unbundling co and company acquiring
shares
•Distribution deemed to take place first
from share premium
•N/A if unbundled co is DFIHC or where
shareholder is a non-resident where
shareholder acquires >5% of the shares
•Stamp duty exemption on transfer of
shares
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Liquidation, winding-up or
deregistrations (s47)
Holding co
(resident)
75% or more
shareholding
Liquidating co
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•Elective
•Must be a 75% holding company
•18 month holding period for
acquirer – otherwise ring-fencing
•Normal STC rules apply
•N/A if liquidating co = DFIHC
or FFIHC
•N/A if holdco exempt from tax
•N/A if liquidating co has not,
within 6 months, taken such steps
to liquidate etc
•Stamp duty exemption on
transfer
•Transfer duty exemption
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Any questions?
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Disclaimer
Although we have taken great care in preparing this presentation,
we do not accept any responsibility for any inaccuracies that may
exist. We suggest you use it as a guide only and do not accept
any responsibility for any loss or damage that may arise out of the
reliance by a person upon any of the information contained
herein.
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