Recently one of the shares in an investment portfolio unbundled their investment in a subsidiary company and gave these shares in the unbundled company to the shareholders such that now instead of one investment they as shareholders now have shares in the
Author: Peter Surtees
Important:
This answer is based on tax law year ending 28 February 2021.
Answer:
Relevant tax law Section 46(3)(a) of the Income Tax Act. The shareholder must allocate a portion of the market value of, in the case of your client, the Naspers holding to the new Prosus holding. This is done in terms of the market values of the two shares at the end of the day of distribution. The date and base cost of the Prosus shares are deemed to be those of the Naspers shares. There is no immediate tax effect. Simple example using hypothetical values. Base cost of Naspers holding = 1 000 Market values at the end of the distribution day: Naspers = 4 000 Prosus = 1 000 Total market value of investment = 5 000 Apportionment of base cost: Naspers: 4 000/5 000 x 1 000 = 800 Prosus: 1 000/5 000 x 1 000 = 200 So you carry the two holdings at these respective base costs.