Intra-group transactions and tax benefits

The Income Tax Act contains various provisions in terms of which transactions can occur between specified parties without adverse tax consequences being incurred in respect of those transactions. These provisions are contained in sections 41 to 47 of the Income Tax Act and are generally known as the “group relief provisions”.

Apart from certain value-shifting and general anti-avoidance provisions, the group relief mechanisms override all other sections of the Income Tax Act to the extent that there are any inconsistencies. These transactions are asset-for-share transactions, amalgamations, intra-group transactions, and liquidation distributions. It is critical to know in which circumstances which transactions apply.

In what follows, we highlight one of the particular types of transactions with reference to its purpose, working and certain clawbacks which may apply in respect of this transaction.


In terms of a section 45 intra-group transaction, companies that form part of the same group of companies are allowed to transfer assets between those companies without incurring an immediate tax cost. The tax that would have arisen on the disposal of such an asset is deferred until such a time that the receiving company eventually disposes of that asset.

The basic requirement is that those companies must form part of the same group of companies, which entails sharing at least a 70% shareholding with a common shareholder company.

The transferor company does not recognise a capital gain in respect of the asset transferred, or where the asset was an allowance asset, or an asset held as trading stock, the tax consequences attached to the disposal of that asset would also not be incurred in the same way, as when such a transaction takes place outside of the group relief provisions. Any cost basis of the asset is rolled forward along with that asset to the transferee company.

The exchange mechanism for the asset can either be a debt issued by that company (i.e. on loan account), non-equity shares, or a donation (section 45 notes that any transaction between such a group of companies can be regarded as an intragroup transaction).

When it comes to clawbacks, section 45 is arguably the most onerous of the group relief provisions in that the relevant clawbacks can apply for up to six years in respect of such a transaction. Most notably, where such a transferor and transferee company should seize to form part of the same group of companies within six years after the transaction, a so-called de-grouping charge triggers, which is essentially a realisation of the tax that would have been paid in respect of that asset that was previously transferred on tax neutral basis.

Although section 45 is a mechanism to achieve specific outcomes within groups of companies, its mechanics are very complex, and we strongly advise that professional tax advice be sought before implementation of any such transactions.

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 financial 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.