Allocating Asset Allowances in an Amalgamation Transaction

30 September 2026
Corporate Tax
The Tax Faculty

Interpretation Note 146 and the allocation of allowances under sections 11(e), 12C and 44(3)(a) of the Income Tax Act.

At a glance

Question	Treatment
Effect of “deemed to be one and the same person”	Continuity of allowance history in a qualifying transaction
Section 11(e) wear-and-tear allowance	Apportioned between transferor and transferee for their respective periods of use
Section 12C example	Full annual allowance for the transferor in the transfer year; no second allowance for the transferee that year
Future section 12C allowances	Continue by reference to the original cost and existing allowance history
Related provisions mentioned	Sections 42, 45 and 47 contain similar continuity provisions

In the examples discussed under Interpretation Note 146, the transfer of an allowance asset under an amalgamation preserves its tax history. The allocation of the allowance for the year of transfer nevertheless depends on the allowance provision itself. Wear and tear under section 11(e) is apportioned in the example; the section 12C allowance is allocated in full to the transferor for that year (SARS Interpretation Note 146; Income Tax Act, s 44(3)(a)).

That difference gives practical content to the phrase “deemed to be one and the same person” in section 44(3)(a) of the Income Tax Act. The transferee continues the relevant allowance treatment. The transaction does not create a fresh original cost or an additional annual allowance merely because ownership changes.

The continuity provision has a defined purpose

Interpretation Note 146 operates within the corporate restructuring rules. Those rules include asset-for-share transactions under section 42, substitutive share-for-share transactions under section 43, amalgamations under section 44, intra-group transactions under section 45, unbundling under section 46, and liquidation, winding-up and deregistration transactions under section 47.

The specific enquiry is narrower: which party is entitled to an allowance in the year in which an allowance asset is transferred in an amalgamation? The examples assume that the transaction qualifies for the restructuring relief. In that setting, the asset rolls over with continuity of tax treatment, and allowances already claimed are not recouped merely because that qualifying transfer occurs.

Continuity in the nature and use of the asset also matters. In the section 12C example, the machinery remains used in a process of manufacture after transfer. Qualification under section 44 must be established separately; not every asset transfer is tax-neutral.

Practice point: For an amalgamation involving allowance assets, carry the asset's original cost, use and allowance history into the analysis. Establish the applicable allowance before allocating the transfer-year deduction.

Apportioning wear and tear by the period of use

In the wear-and-tear example, Company A purchases an asset in 2022 for R500 000 and writes it off over four years, with reference to Interpretation Note 47. It transfers the asset to Company B in an amalgamation on 1 July 2024. The allowance is allocated to A up to the end of June and to B from July onwards. The tax value at transfer is R187 500 (Income Tax Act, s 11(e); SARS Interpretation Note 47).

The schedule uses full-year allowances for 2022 and 2023 and six-month allocations to A and B for 2024. Those period assumptions are integral to the calculation. A different acquisition date or year-end would require attention to the relevant periods of use.

Period and claimant	Calculation	Allowance	Remaining tax value
2022, Company A	R500 000 ÷ 4	R125 000	R375 000
2023, Company A	R500 000 ÷ 4	R125 000	R250 000
January to June 2024, A	R125 000 × 6/12	R62 500	R187 500
July to December 2024, B	R125 000 × 6/12	R62 500	R125 000
Remaining full year, B	Balance of the four-year write-off	R125 000	Nil

The calculation reconciles to a transfer value of R187 500. B continues the write-off from that value using the existing allowance basis. It does not restart a four-year write-off of the transferred balance.

Practice point: Reconcile the transferor's final allowance and the transferee's opening tax value in one schedule. The two six-month amounts in this example should equal one annual allowance.

Section 12C and the annual allowance

The second example concerns new and unused machinery purchased by Company C in January 2023 for R500 000 and used in a process of manufacture. The allowance is 40% in the first year and 20% thereafter. Company C transfers the machinery to Company D on 1 July 2024 under an amalgamation; D continues the manufacturing use. Both companies have a 31 December year-end (Income Tax Act, s 12C).

This allowance is not apportioned for part-year use. In the example, C claims the full allowance for 2024 despite using the machinery for only six months. D claims no further allowance for that same year and continues the allowance from 2025. The schedule applies those rates to the R500 000 original cost.

Year	Company C allowance	Company D allowance	Remaining tax value
2023	R200 000 at 40%	Not applicable	R300 000
2024, transfer on 1 July	R100 000 at 20%	Nil	R200 000
2025	Not applicable	R100 000 at 20%	R100 000
2026	Not applicable	R100 000 at 20%	Nil

Each later R100 000 allowance is calculated on the original R500 000 cost, not on the declining tax value. The aggregate allowances are R500 000. There is one allowance for 2024, and the transfer does not generate a second first-year 40% allowance for D.

In this example, the transfer-year allowance is allocated to the company using the asset at the beginning of the year. The facts concern an existing asset, a transfer during the year, identical year-ends and continued qualifying use. The result should not be recast as an exhaustive rule for every acquisition date, differing year-end or altered use.

Practice point: Where both parties might otherwise claim an annual allowance, agree and document the allocation reflected in the asset schedule. Preserve the original cost and avoid duplicating the allowance in the transfer year.

The comparison with other restructuring provisions

Sections 42, 45 and 47 contain similar continuity provisions. The distinction between apportioned allowances and full annual allowances is also relevant when considering other assets, including assets qualifying for building allowances. Each extension requires examination of the particular provision and its conditions.

The resulting practice discipline is to begin with the particular allowance and the particular restructuring provision. The distinction between an allowance that is apportioned and one that is not must be carried through the computation. The section 12C example should not be copied into another restructuring transaction without examining those features.

Practitioner action checklist

Client or issue	Action flowing from the article	Timing
Transfer of an allowance asset	Establish original cost, previous allowances and continued use	Before finalising the tax schedule
Section 11(e) asset	Allocate the allowance over the respective periods of use	In the transfer year
Section 12C facts matching the example	Prevent a duplicate allowance and continue the existing cost basis	In the transfer year and thereafter
Other restructuring provision	Identify the applicable continuity wording and allowance characteristics	Before extending the example

The examples preserve one asset history through a change of taxpayer. Their different transfer-year results follow from the difference between the allowance provisions, making the classification and reconciliation of the allowance essential to the computation.

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