The Rules that Override Roll-Over Relief

Section 24BA polices the exchange rate between assets and shares. It applies where a company issues shares for an asset and the values are mismatched — different from what independent parties dealing at arm’s length would have agreed:

The consequences cut both ways. If the asset is worth more than the shares issued for it, the excess is deemed a capital gain in the company and the shareholder’s base cost in the shares is cut (s 24BA(3)(a)) — value slipped into the company is taxed. If the shares are worth more than the asset, the excess is deemed a dividend in specie subject to dividends tax (s 24BA(3)(b)) — value slipped out to the shareholder is taxed.

Two escape hatches matter in family structures (s 24BA(4)): the section stands down where the parties are in the same group of companies immediately after the acquisition, or where the person holds all the shares in the company immediately afterwards — a founder taking 100% of a Newco is safe on this score. But the moment a s 42 roll-in happens alongside other shareholders (a trust, a partner, children), the values must genuinely balance. Sloppy valuations are not a technicality; they are a deemed gain or a deemed dividend.

Note — s 40CA(b), also on the carve-out list, is s 24BA’s companion: it fixes the company’s expenditure for the asset acquired in exchange for shares (broadly, the market value of the shares issued, adjusted by any s 24BA deemed gain). Together the two sections define the arithmetic of every asset-for-share exchange. The conceptual backdrop comes from CSARS v Labat Africa Ltd [2011] ZASCA 157: an issue of a company’s own shares is not “expenditure” by the company, because it does not diminish the company’s assets — which is precisely why the Act needed express rules for this territory.

Part IIA of Chapter III — the general anti-avoidance rule — is the biggest name on the list. It targets an impermissible avoidance arrangement:

Where the GAAR bites, s 80B lets the Commissioner re-characterise or disregard steps, treat parties as one person, reallocate amounts — in short, tax the arrangement as if the clever parts were not there. Section 80G adds a presumption of purpose: once a tax benefit exists, the taxpayer must prove that obtaining it was not the sole or main purpose. And “lack of commercial substance” (s 80C) expressly includes round-trip financing (s 80D) and accommodating or tax-indifferent parties (s 80E) — the anatomy of most engineered restructures.

This is not theoretical. In Company AF (Pty) Ltd v CSARS [2026] ZATC 6, shareholders who had rolled their shares into holding companies under s 42 later exited through a subscription-funded pre-sale dividend scheme; the Tax Court applied the GAAR and taxed the “exempt” dividends as proceeds. And in Absa Bank Ltd v CSARS [2026] ZACC 15 the Constitutional Court held that even a party who did not see the whole structure can be caught:

The practical rule for restructures: every step must have a commercial answer to “why?” that does not begin with tax. Where a step exists only to manufacture a tax outcome — a dividend that replaces a price, a loop that returns the money whence it came — assume the GAAR is in play. The judgments are unpacked in What the Courts Actually Say.

An assessed loss is valuable — it shelters future profits. Section 103(2) exists to stop people trading in that value:

Notice the trigger: a change in shareholding (or an agreement) plus income diverted into the loss entity, done solely or mainly to use the loss — the purpose test is part of the provision, so not every profitable business moved into a loss company is disallowed. But s 103(4) reverses the onus: once it is shown that loss-utilisation would result, the taxpayer must prove the purpose was otherwise. Remember too that the corporate rules never transfer losses: an amalgamated company’s assessed loss cannot be carried to the survivor, and the 18-month rules in ss 42, 44, 45 and 47 quarantine rolled-over gains (and equivalent income amounts) from set-off against the recipient’s assessed losses, with capital losses restricted under matching rules. The Act is consistent on the theme: restructure businesses, not tax attributes.

Not every transfer of wealth looks like a transaction. Change the rights attaching to shares — voting, dividends, liquidation preferences — and value can migrate from one shareholder to another without a single share changing hands. The Eighth Schedule calls this a value shifting arrangement and taxes it as a disposal (para 11(1)(g)), out of reach of the corporate rules:

The family-structure relevance is direct: issuing new shares to the trust at a soft price, converting the founder’s ordinaries into low-value preference shares, re-slicing classes so the children’s entity grows while Dad’s shrinks — these are value shifts to connected persons, and paras 23 and 35(2) of the Schedule contain special base-cost and proceeds rules to tax them. A restructure should move value only through properly valued transactions supported by the applicable statutory relief — and any change to the rights attaching to shares between connected persons must be tested against these rules, market value or not.

Section 24I (foreign exchange). Currency gains and losses on loans and balances are taxed on their own cycle; a roll-over does not suspend them. Moving a foreign-currency loan or asset in a restructure can trigger an exchange item’s reckoning even while the CGT is deferred.

Section 24J (interest instruments). Adjusted gains and losses on the transfer or redemption of interest-bearing instruments stay taxable. A loan claim is not a share: transferring debt instruments inside a reorganisation carries its own tax account.

Section 25BB(5) (REITs). The REIT regime’s rules for financial instruments trump Part III — several of the roll-over sections carve REITs and their controlled companies out of the allowance-asset machinery, and s 46(6A) bars a REIT from being an unbundling company.

Section 40CA (cost of assets acquired for shares). The flip side of s 24BA — it sets the acquiring company’s expenditure where it pays in its own shares, and para (b) sits on the s 41(2) list so its arithmetic cannot be overridden.

Section 8G (contributed tax capital), an honourable mention. Not on the s 41(2) list, but aimed at the same territory: where shares are issued to a non-resident group company and the consideration consists of (or funds) the acquisition of shares in a resident target, the issuing company’s contributed tax capital is limited to the target’s own CTC rather than the (higher) subscription value. It closes the manufacture of CTC — the pool from which shareholders can later be repaid “capital” free of dividends tax — through internal share issues.

Before any of these sections is reached, a more basic question can be asked: are the agreements real? South African courts have long held that where parties dress a transaction up as something it is not, the tax falls on the real transaction — the disguise is ignored. The modern position, settled in Roshcon v Anchor Auto Body Builders [2014] ZASCA 40, is that a tax motive alone does not make a transaction simulated: the question is whether the parties genuinely intend, and implement, the legal rights and obligations their documents record, judged on all the circumstances. Within that frame, CSARS v NWK Ltd [2010] ZASCA 168 supplies the substance enquiry:

Sasol Oil v CSARS [2018] ZASCA 153 applied the calibrated test to uphold a group restructure that was implemented exactly as documented. The combined lesson: a roll-over must be done for real — shares actually issued, assets actually delivered, resolutions passed, registers updated, and the parties living with the legal consequences afterwards. Paper that tells one story while the parties act out another is worse than no relief at all. (Keep simulation and the GAAR distinct: simulation asks whether the agreements are genuine; the GAAR applies its own statutory tests to arrangements that are genuinely implemented.)