Binding class ruling 077: Capital gains tax consequences of in specie distribution

The facts of BCR 077 are identical as those of BPR 366. A number of restructuring steps were entered into.  The final step in the restructuring is that the applicant will distribute all the shares it holds in Company C (a non-resident company) to its shareholders, with the distribution occurring from the applicant’s contributed tax capital (“CTC”). 

SARS ruled that:

• the in specie distribution by the Applicant of the Company C shares to its shareholders falls within the ambit of paragraph 75 i.e. a disposal by the applicant of the Company C shares for an amount equal to market value on date of distribution.
• the shareholders will be treated as having acquired the Company C shares for expenditure equal to the market value on date of distribution in terms of paragraph 74, which expenditure will be treated as expenditure incurred in terms of paragraph 20(1)(a) i.e. base cost;
• In terms of paragraph 76B(2) the shareholders must reduce their base cost in respect of shares held in applicant by the amount of the market value of the Company C shares;
• Only where the market value of the Company C shares exceed the shareholders base cost for the shares held in applicant, must the excess amount be treated as a capital gain.

Find a copy of the draft BCR 077 here.

02/07/2021