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Income Tax Act, 1962 (Act 58 of 1962)

Chapter II: The Taxes

PART III: Special rules relating to asset-for-share transactions, substitutive share-for-share transactions, amalgamation transactions, intra-group transactions, unbundling transactions and liquidation distributions

46. Unbundling Transactions

 

(1)        For purposes of this section ‘unbundling transaction’ means any transaction-

(a)
(i) in terms of which the equity shares in a company (hereinafter referred to as the 'unbundled company'), which is a resident that are held by a company (hereinafter referred to as the 'unbundling company'), which is a resident, are all distributed by that unbundling company to any shareholder of that unbundling company in accordance with the effective interest of the shareholders in the shares of that unbundling company, and if-
(aa) all of the equity shares of the unbundled company are listed shares or will become listed shares within 12 months after that distribution;
(bb) that shareholder to which that distribution is made by that unbundling company forms part of the same group of companies as that unbundling company; or
(cc) that distribution is made pursuant to an order in terms of the Competition Act, 1998 (Act No. 89 of 1998), made by the Competition Tribunal or the Competition Appeal Court; and
(ii) if the equity shares distributed as contemplated in subparagraph (i) constitute-
(aa) where that unbundled company is a listed company immediately before that distribution-
(A) and no shareholder of the unbundled company other than the unbundling company holds the same number of equity shares as or more equity shares than the unbundling company of that unbundled company, more than 25 per cent of the equity shares of the unbundled company; or
(B) and any shareholder of the unbundled company other than the unbundling company holds the same number of equity shares as or more equity shares than the unbundling company of that unbundled company, at least 35 per cent of the equity shares of that unbundled company; or
(bb) where that unbundled company is an unlisted company immediately before that distribution, more than 50 per cent of the equity shares of that unbundled company; or

(b)        

(i) in terms of which all the equity shares in an unbundled company which is a foreign company that are held by an unbundling company which is a resident or a controlled foreign company are all distributed by that unbundling company to any shareholder of that unbundling company in accordance with the effective interest of that shareholder in the shares of that unbundling company-
(aa) if that shareholder is a resident and that shareholder forms part of the same group of companies (as defined in section 1); or
(bb) if that shareholder is not a resident and that shareholder is a controlled foreign company in relation to any resident that forms part of the same group of companies (as defined in section 1),

as that unbundling company;

(ii) if, immediately before the distribution of the equity shares of an unbundled company by an unbundling company to any shareholder of that unbundling company as contemplated in subparagraph (i)-
(aa) the unbundling company holds more than 50 per cent of the equity shares of the unbundled company; and
(bb) each of those equity shares of that unbundled company are held by the unbundling company as a capital asset.
(cc) [Subsection (1)(b)(ii) (cc) was deleted by the Taxation Laws Amendment Act, 2013 (Act No. 31 of 2013) Government Gazette 37158 dated 12 December 2013]
(iii) [Subsection (1)(b) subparagraph (iii) was deleted by the Taxation Laws Amendment Act, 2013 (Act No. 31 of 2013) Government Gazette 37158 dated 12 December 2013]

 

(2) Where an unbundling company distributes shares in terms of an unbundling transaction, that unbundling company must disregard that distribution for purposes of determining its taxable income or assessed loss, or its net income as contemplated in section 9D.

 

(3)        

(a) If a shareholder acquires equity shares (hereinafter referred to as ‘unbundled shares’) in terms of an unbundling transaction—
(i) that shareholder must—
(aa) allocate a portion of the expenditure and any market value attributable to the equity shares held in the unbundling company (hereinafter referred to as the ‘unbundling shares’) to the unbundled shares in accordance with subparagraph (v); and
(bb) reduce the expenditure and market value attributable to the unbundling shares by the amount so allocated to the unbundled shares;
(ii) the unbundled shares must, other than for purposes of determining whether a share is a ‘qualifying share’ as defined in section 9C, be deemed to have been acquired on the same date as the unbundling shares;
(iii) the unbundled shares must be deemed to have been acquired as—
(aa) trading stock, if the unbundling shares were held as trading stock;
(bb) capital assets, if the unbundling shares were held as capital assets;
(iv) any expenditure allocated to the unbundled shares must be deemed to have been incurred on the date on which the expenditure was incurred in respect of the unbundling shares; and
(v) the proportionate amount of the expenditure and market value to be allocated to the unbundled shares in terms of subparagraph (i)(aa) must be determined in accordance with the ratio that the market value of the unbundled shares, as at the end of the day after that distribution, bears to the sum of the market value, as at the end of that day, of the unbundling shares and of the unbundled shares.

(b)        For the purposes of this subsection—

‘expenditure’ means in relation to unbundled shares acquired as—

(i) trading stock, the amount taken into account prior to the unbundling transaction in respect of the unbundling shares for the purposes of section 11(a) or 22(1) or (2); and
(ii) capital assets, the expenditure incurred prior to the unbundling transaction in respect of the unbundling shares that is allowable in terms of paragraph 20 of the Eighth Schedule;

‘market value’ in relation to unbundling shares acquired prior to the valuation date as defined in paragraph 1 of the Eighth Schedule, means any market value adopted or determined by the shareholder in respect of those shares within the period contemplated in paragraph 29(4) of the Eighth Schedule.

 

(3A)        If shares are distributed in terms of an unbundling transaction, the contributed tax capital of—

(a) the unbundling company immediately after the distribution is deemed to be an amount which bears to the contributed tax capital of that company immediately before distribution the same ratio as the aggregate market value, immediately after the distribution, of the shares in that company bears to the aggregate market value of the shares immediately before distribution; and
(b) the unbundled company immediately after the distribution is deemed to be an amount equal to the sum of—
(i) an amount which bears to the contributed tax capital of the unbundling company immediately before the distribution the same ratio as the aggregate market value of the distributed shares before the distribution bears to the aggregate market value of the shares in the unbundling company immediately before the distribution; and
(ii) an amount which bears to the contributed tax capital of the unbundled company immediately before the distribution the same ratio as the shares held in that company immediately before the distribution by persons other than the unbundling company bear to all shares held in that company immediately before the distribution.

 

(4) Where those shares are distributed by an unbundling company to a shareholder in terms of an unbundling transaction and that shareholder held the unbundling shares as a result of the exercise, by that shareholder, of a right contemplated in section 8A, a portion of any gain made by that shareholder in the exercise of that right to acquire those unbundling shares must be included in the income of that shareholder—
(a) in the year of assessment during which that shareholder becomes entitled to dispose of those shares, which portion shall be an amount which bears to such gain the same ratio as that contemplated in subsection (3)(a); and
(b) in the year of assessment during which that person becomes entitled to dispose of the unbundling shares, which portion shall be calculated by reducing such gain by the amount which has been determined or is to be determined in terms of paragraph (a).

 

5) Where shares are distributed by an unbundling company to a shareholder in terms of an unbundling transaction, the distribution by that unbundling company of the shares must be disregarded in determining any liability for dividends tax.

 

5A) Where shares are distributed by an unbundling company to a shareholder in terms of an unbundling transaction, paragraph 76B of the Eighth Schedule does not apply to that distribution.

 

(6)        [Subsection (6) deleted by the Taxation Laws Amendment Act No. 7 of 2010].

 

(6A) This section does not apply in respect of an unbundling transaction where the unbundling company is a REIT or a controlled company as defined in section 25BB(1).

[Subsection (6A) amended by section 65 of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015]

(7)        

(a) In the case of an unbundling transaction contemplated in subsection (1)(a)(i), this section does not apply if immediately after any distribution of shares in terms of an unbundling transaction 20 per cent or more of the shares in the unbundled company are held by a disqualified person either alone or together with any connected person (who is a disqualified person) in relation to that disqualified person.
(b) For the purposes of paragraph (a), a ‘disqualified person’ means—
(i) a person that is not a resident;
(ii) the government of the Republic in the national, provincial or local sphere, contemplated in section 10(1)(a);
(iii) a public benefit organisation as defined in section 30 that has been approved by the Commissioner in terms of that section;
(iv) a recreational club as defined in section 30A that has been approved by the Commissioner in terms of that section;
(v) a company or trust contemplated in section 37A;
(vi) a fund contemplated in section 10(1)(d)(i) or (ii); or
(vii) a person contemplated in section 10(1)(cA) or (t).

 

(8) Where an unlisted unbundling company disposes of shares in an unlisted unbundled company in terms of an unbundling transaction to a shareholder and that unbundled company is a controlled group company in relation to that shareholder immediately before and after that disposal, the provisions of this section will not apply to that disposal if that shareholder and that unbundling company agree in writing that this section does not apply to that disposal.