A taxpayer is in the process of closing down his business. The business will be dormant going forward and he would therefore like to deregister. Section 42 has not yet been implemented as he is still in planning phase. His plan was to implement a Section
Author: Graham Walker
Important:
This answer is based on tax law year ending 28 February 2021.
Answer:
Relevant law: Step 1: Possible application s 47(3A) of the Income Tax Act No.58 of 1962 (“ITA”) to the liquidation, there are others. Comment on member’s query: We need additional information on the s 42 of the ITA, transaction. Values and the possible consequences of the claw back provision of s 42 of the ITA. Is Co. B is the holding company of company A? How fresh is the s 42 of the ITA transaction and what has triggered the need to liquidate A? We have not dealt with A’s position. Additional Thank you for your diagram, which unfortunately has not given us total clarity on the transaction. Firstly, we can’t see how s 42 of the ITA can apply to your facts. If Y already owns 100% of B, how does B issue more shares to Y in return for the shareholding in A. We respectfully submit that this is an impermissible tax avoidance arrangement in terms of s 80A of the ITA, as the only outcome is that Y is temporarily shielded from WHT on dividends.