Finance Minister Tito Mboweni delivered his third annual budget address on 24 February 2021. The corporate tax rate reduction from 28% to 27% for years of assessment commencing on or after 1 April 2022 was arguably the most significant windfall for corporate taxpayers, although the actual cash benefits thereof will only be seen in the 2023 calendar year. Below, we highlight some of the other significant proposals, which will likely be contained in the Draft Taxation Laws Amendment Bill to be published for public comment in June or July this year.
Refining the interaction between anti‐value shifting rules and corporate reorganisation rules
The Income Tax Act curbs the use of structures that shift value between taxpayers free of tax. The anti-value shifting rules apply to transactions involving asset‐for‐share exchanges. Asset‐for‐shares base cost rules prescribe that a base cost for assets acquired by a company in exchange for its shares should be equal to the sum of the market value of the shares it issued and the amount of the capital gain triggered by the application of the anti‐value shifting rule to ensure that there is no double taxation on the future disposal of the assets.
Clarifying the interaction between early disposal anti‐avoidance rules and de‐grouping anti‐avoidance rules in intra‐group transactions
In addition to the early disposal anti‐avoidance rules outlined above, the intra‐group transaction rules contain de‐grouping anti‐avoidance rules, which apply when the acquirer and the party disposing of an asset in terms of an intra‐group transaction cease to form part of the same group of companies within six years of the transaction. The de‐grouping anti‐avoidance rules apply to reverse the tax benefit that was obtained in terms of the intra‐group transaction by triggering the greatest capital gain, gross income, or taxable income that would have arisen between the date of the intra‐group transaction and the date of de‐grouping. Because both of these anti‐avoidance rules apply to reverse the deferred tax benefit of an intra‐group transaction, it is proposed that changes be made to the tax legislation so that if one of the anti‐avoidance rules applies in respect of an asset, the other will not subsequently apply.
Reviewing the venture capital company tax incentive regime
National Treasury has determined that the incentive has not adequately achieved its objectives. The incentive has instead provided a generous tax deduction to wealthy taxpayers and most support has gone to low-risk ventures that would have attracted funding without the incentive. The incentive will therefore not be extended beyond its current sunset date of 30 June 2021.
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