Dear

I received this email from Andrew Wellsted of Denys Reitz:

Our Tax Alert of 5 December 2008 drew your attention to an amendment, in the Revenue Laws Amendments Bill 2008, to Section 42 of the Income Tax Act, 1962 dealing with asset-for-share transactions.

 A concern was raised that the amendment could be interpreted to compel an acquiring company which is not in the same group of companies as the transferor to acquire the asset as trading stock even if the transferor person had previously held the asset on capital account.

We have subsequently conferred with National Treasury and can confirm that Treasury’s intention is to affect only asset-for-share transactions between companies within the same group of companies, as defined.

 An acquiring group company entering into an asset-for-share transaction with a transferor group company will no longer be able to acquire as trading stock, the asset that the transferor group company held on capital account.

 This amendment rectifies the current inconsistency between sections 42 and 45.

 A person may continue to enter into an asset-for-share transaction with a non-group acquiring company where such acquiring company acquires the asset as:  

• trading stock from the person which held it as trading stock;
• capital assets from the person which held it as capital; and
• trading stock from the person which held it as capital.

We will liaise with Treasury on suggested wording changes to place the intention of the amendment beyond doubt.