Unlock Tax Efficiency
21 October 2024
AUTHOR: ALEXANDER BOUWER
How Section 42 of the ITA Empowers Smart Business Restructuring with Asset-for-Share Transactions.
Maximize tax efficiency and fuel business growth with Section 42 of the ITA! Discover how asset-for-share transactions can help defer tax liabilities during corporate restructuring, allowing for smoother transitions without immediate tax hits.
Section 42 of the ITA is designed to allow taxpayers to postpone any tax consequences that arise from business restructuring. This provision permits a legal entity to exchange a portion of its shares for the assets of another entity or individual (referred to as “the taxpayer”). In this scenario, the transfer of the assets is treated as occurring at their base cost subject to certain criteria being met.
Discover how asset-for-share transactions can help defer tax liabilities during corporate restructuring.
The primary advantage of this transaction is the application of roll-over relief, which defers tax liability until the assets are eventually sold. Consequently, neither party faces any immediate tax obligations from this Section 42 transaction and this can enhance the immediate cashflow position by facilitating a tax neutral transfer of assets with a deferred liability once those assets are dealt with at a later stage.
When utilising the Section 42 provisions of the ITA, it is essential to proceed with caution, as SARS’s interpretations are in some instances specific to individual circumstances. The nature and operations of the particular commercial entity will influence the applicability of roll-over relief. SARS has recognised the need for promoting and ensuring commercial efficacy, also emphasising however that a one-size-fits-all approach is not appropriate.

Alexander Bouwer
LLB (Stell) LLM (Rotterdam)
Candidate Legal Practitioner
Alexander exemplifies dedication and enthusiasm in expanding his legal knowledge. With a Bachelor of Laws (LLB) degree from the University of Stellenbosch and a Master of Laws (LLM) degree from the Erasmus School of Law, Erasmus University Rotterdam, he possesses a strong academic foundation in various specialised areas of law.

Stefan Le Roux
BCom LLB PG Dip Tax Law (Stell) LLM (Zurich)
Partner
Stefan Le Roux is a corporate, tax and financial practitioner, proficient in tax implications and structuring of commercial and property transactions.
He specialises in the drafting of complex property agreements, transaction tax implications, planning and advice, subdivisions, finance structures, residential and commercial- developments and sectional titles.

Mathys Briers-Louw
BCom LLB (Stell) LLM (McGeorge USA)
Executive Attorney
Mathys Briers-Louw is a distinguished attorney renowned for his expertise in cross-border transactions and International Tax Law.
With a comprehensive legal education both locally and internationally, Mathys embarked on a successful legal career upon being admitted as an attorney in 2014. His areas of specialisation include handling complex legal matters related to exchange control, international money transfers, and fiduciary services.
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