SARS rules on the consequences of an unbundling transaction


In terms of the Tax Administration Act, the South African Revenue Service (“SARS”) can issue Binding Class Rulings (“BCR”) in response to an application by a class or group of persons and clarifies how the Commissioner would interpret and apply the provisions of the tax laws relating to a specific proposed transaction. BCR70 deals with the tax consequences of recipients of listed shares in a company after an unbundling of its shares from the holding company. Although the ruling only applies to members of a specific class, it is relevant to take note thereof, since it offers guidance on how SARS interprets relevant provisions of tax acts. The ruling refers to the interpretation and application of section 46 of the Income Tax Act (the ITA) and section 8(1)(a)(iv) of the Securities Transfer Tax Act (the STT Act).


The class members to which this ruling applies are all resident and non-resident shareholders of listed shares in the applicant company and reflected as such on the applicant’s securities register on the last day to trade.

Parties to the proposed transaction

In the current instance, the applicant was a resident listed company and an entity referred to as “ListCo” was a resident company and a wholly-owned subsidiary of the applicant, which is to be listed in due course.

Description of the proposed transaction

The applicant company comprises of three main business units. The purpose of the proposed transaction is to demerge one of these business units and separately list the unit on a recognised stock exchange. ListCo will have a primary listing on the JSE, whilst the listing of the applicant will be retained (i.e. the applicant will not de-list). To implement the transaction, the applicant will take several transaction steps, being the following:

  • The applicant establishes ListCo;
  • The applicant will distribute all its shares in ListCo to its shareholders (class members) as a distribution in specie as contemplated in section 46 of the ITA. This will happen after market closure on the last day to trade;
  • ListCo will be admitted to trade on the JSE and will make an initial public offering of shares on the listing date; and
  • The applicant will distribute its shares in ListCo to the class members who will be recorded and finalised on the record date.


Although not a comprehensive list, the following are some of the more pertinent rulings that SARS made, which will bind the class members:

  • The distribution of the ListCo shares to the class members will constitute an “unbundling transaction”, as defined in the ITA.
  • Each class member must reduce the expenditure and market value attributable to its applicant shares by the amount so allocated to the ListCo shares. In other words, a proportionate allocation of costs needs to be made from the base cost of the Class’s share previously held.
  • No dividends tax will apply to the transaction.
  • The transfer of the ListCo shares to the class members or realisation agent will be exempt from STT under section 8(1)(a)(iv) of the STT Act.

Although taxpayers might not be members of the relevant class, it is always insightful to consider SARS’s interpretation of tax acts, as it could similarly apply in their circumstances.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your adviser for specific and detailed advice. Errors and omissions excepted (E&OE).





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IC Marais

Professional experience:

IC Marais is a certified CA (SA) with public sector and private sector technical knowledge based on 5 years’ Public Sector accounting, auditing and financial management experience and 5 years audit, tax and accounting experience. Detailed knowledge of private and public sector accounting and auditing standards (GRAP, IPSAS, IFRS, IAS, ISA) and public sector financial legislation (MFMA, etc.)

He enjoys the outdoors, hunting and fishing.


Professional experience:

In 1995, Schalk started as a trainee at Warner and Newton (which became Moores Rowland in 1997 and then Mazars Moores Rowland in 2007) in Bloemfontein. In 1998, Schalk was appointed as manager at Moores Rowland, where he became a partner in 2003. Schalk received his Postgraduate Certificate in Advanced Taxation in 2006 and in 2009 he received his Certificate in the Administration of Estates.


Professional experience:

Cedric started as a trainee at Warner and Newton (which became Moores Rowland in 1997 and Mazars Moores Rowland in 2007), Bloemfontein, in 1986. After completion of his articles, he joined the Special Investigations Division of the Department of Finance (SA Revenue Services) as a senior inspector from 1990 to 1991.


Professional experience:

Lucha started her career as a tax inspector at the Inland Revenue Department of New Zealand. After this she worked in commerce in Canada, Mexico and the United States.

On her return to South Africa, she completed her CA training contract with us and has been with Newtons ever since. She became a Partner in 2012.

Apart from her CA(SA) qualification she also holds a postgraduate certificate in Advanced Taxation (2005) and has the overall responsibility for training as our Training Officer.