What section 47 is for
Groups accumulate companies: old acquisition vehicles, dormant subsidiaries, entities left over from earlier plans. Each one costs audit fees, CIPC returns and directors’ time — and each is a small governance risk. The clean answer is to collapse the company into its parent: move the assets up, settle the debts, deregister the shell.
Without relief, that collapse is a tax minefield. The subsidiary’s asset transfers are disposals at market value; distributions to the parent are potential dividends in specie; and the parent’s shares in the subsidiary are themselves disposed of on winding-up. Section 47 (working together with the dividends-tax exemption for distributions between resident group companies) neutralises the lot — provided the group plays by its rules.
The definition — everything, upward, in a group
“‘liquidation distribution’ means any transaction— (a) in terms of which any company (hereinafter referred to as the ‘liquidating company’) which is a resident disposes of all of its assets (other than assets it elects to use to settle any debts incurred by it in the ordinary course of its trade) to its shareholders in anticipation of or in the course of the liquidation, winding up or deregistration of that company … but only to the extent to which those assets are so disposed of to another company (hereinafter referred to as the ‘holding company’) which is a resident and which on the date of that disposal forms part of the same group of companies as the liquidating company;”
Three requirements stand out. All of the assets must be distributed (with a carve-out for assets used to settle ordinary-course debts and, per the full text, assets held back for anticipated government liabilities and winding-up costs). The distribution must be in anticipation of or in the course of liquidation, winding-up or deregistration — this is an exit, not a reshuffle. And the recipient must be a resident holding company in the same group of companies — for the Part III group definition, broadly the 70% chain, tested with the s 41(1) exclusions in mind. Distributions to minority or non-group shareholders fall outside the relief (“only to the extent” — the section splits a mixed distribution and relieves only the group leg). A para (b) limb covers foreign liquidating companies inside a group.
Note — s 47 and s 44 are cousins: both end with a company disappearing. The difference is direction and shareholders. In a s 44 amalgamation the assets can go to any resident company and the shareholders take new shares in the survivor. In a s 47 liquidation the assets go up to the existing group parent and no new shares are issued — the parent already owns the subsidiary. Where a group could use either, s 44(14)(a) gives s 47 right of way: a transaction that meets the liquidation-distribution definition is excluded from s 44.
Step 1 of 5 · Before
How the roll-over works
The engine is the same as the rest of Part III. Capital assets are deemed disposed of at base cost, and the liquidating company and holding company are treated as one and the same person for the asset’s acquisition date, expenditure and valuations (s 47(2)). Trading stock rolls at tax value. Allowance assets move without recoupment, with the holding company continuing the allowance history (s 47(3)). The deferred gains simply ride up one level and wait.
The holding company’s side: shares and returns of capital
A liquidation destroys the parent’s shares in the subsidiary — normally itself a CGT event, and liquidation distributions can also arrive as returns of capital. Section 47(5) switches both off:
“Where— (a) a holding company disposes of any equity share in a liquidating company as a result of the liquidation, winding up or deregistration of that liquidating company; or (b) in anticipation of or in the course of the liquidation, winding up or deregistration of a liquidating company, a return of capital by way of a distribution of cash or an asset in specie by that company is received by or accrues to a holding company, the holding company must disregard that disposal or return of capital for purposes of determining its taxable income, assessed loss, aggregate capital gain or aggregate capital loss.”
The practical meaning: the parent’s investment in the subsidiary disappears without a capital gain or loss — including the case where the shares stood at a loss. A group cannot use a s 47 collapse to bank a capital loss on a failed subsidiary; the loss is disregarded along with the gain.
The conditions — s 47(3A)
Section 47(3A) attaches two conditions to the asset roll-over. First, the relief applies only to the extent that the holding company’s shares in the liquidating company are disposed of as a result of the liquidation — the parent must actually surrender its investment; a “liquidation” in which the shareholding quietly survives gets no roll-over. Second, a debt condition:
“…that holding company has not assumed any debt of that liquidating company which was incurred by that liquidating company within a period of 18 months before that disposal, unless that debt— (i) constitutes the refinancing of any debt incurred in more than 18 months before that disposal; or (ii) is attributable to and arose in the normal course of a business undertaking disposed of, as a going concern, to that holding company as part of that liquidation distribution.”
The target is last-minute gearing: loading the subsidiary with fresh debt shortly before the collapse (so the parent “pays” for the assets by assuming liabilities) would smuggle consideration into what is supposed to be a pure distribution. Old debt, the refinancing of old debt, and debt that is attributable to and arose in the normal course of the business undertaking transferred as a going concern are permitted; other debt incurred within the 18 months is not.
The 36-month termination requirement
Like s 44, the relief is conditional on the company actually going away — and the recovery mechanism aims upward:
“The provisions of this section do not apply where— … (c) the liquidating company— (i) has not, within a period of 36 months after the date of the liquidation distribution, or such further period as the Commissioner may allow, taken the steps contemplated in section 41 (4) to liquidate, wind up or deregister; or (ii) has at any stage withdrawn any step taken to liquidate, wind up or deregister that company … Provided that any tax which becomes payable as a result of the application of this paragraph shall be recoverable from the holding company…”
The s 41(4) “steps” are concrete paperwork: the special resolution for voluntary winding-up lodged under s 80(2) of the Companies Act, or the deregistration request under s 82(3)(b)(ii) filed with the CIPC; all assets disposed of and liabilities settled (with the permitted hold-backs); the resolution or request copied to SARS; and the company’s tax filings brought up to date or arranged. Note the requirement precisely: the steps must have been taken within 36 months (and never withdrawn or invalidated) — the CIPC need not have completed the process by then. But because the steps include having the returns submitted or arranged, a deregistration file that cannot even be lodged because of outstanding returns is a tax problem, not just an administrative one. Run the tax deadline and the CIPC process on one project plan from day one.
The 18-month rule and exclusions
The 18-month rule (s 47(4)). If the holding company disposes of a rolled-over asset within 18 months of the collapse, the historic amount (up to the asset’s value at the start of the period) is calculated separately and restricted from set-off against its assessed losses — a capital gain’s resulting taxable capital gain is quarantined, early capital losses are restricted under a matching rule, and trading-stock and allowance amounts are deemed to belong to a separate trade. The same pattern runs through ss 42, 44 and 45.
The exclusions (s 47(6)). No relief where the holding company is a public benefit organisation, recreational club or other exempt person (s 47(6)(a)) — and, as with s 45, the parties may simply agree in writing that the section does not apply (s 47(6)(b)). Groups elect out where, for example, they want the subsidiary’s capital loss on the assets to be realised (subject to the loss-limitation rules) or a market-value base cost in the parent. The election trades away the transfer-duty and STT exemptions that follow the section.
Worked example · the Nkosi family
Frequently asked questions
It is the roll-over for collapsing a subsidiary into its group parent: a resident company distributes all its assets to a resident holding company in the same group, in anticipation or in the course of liquidation, winding-up or deregistration. Assets move at tax cost, the parent disregards the loss of its shares in the subsidiary, and the deferred gains carry on one level up.
Either exit works — the section covers liquidation, winding-up and deregistration. For a solvent shell, the usual route is the CIPC deregistration request under s 82(3)(b)(ii) of the Companies Act (or a voluntary winding-up resolution under s 80(2)). What matters for the tax relief is that the s 41(4) steps are actually taken within 36 months, and never withdrawn — otherwise the relief falls away and the tax is recoverable from the holding company.
No. Section 47(5) makes the parent disregard the disposal of its shares (and any liquidation return of capital) for gains and losses alike. A group hoping to bank a loss on a failed subsidiary would need to consider electing out of s 47 in writing (s 47(6)(b)) — and then reckon with the ordinary rules, including the connected-person loss limitations, before assuming the loss is usable.
The definition relieves the distribution “only to the extent” the assets go to the resident group holding company. Assets distributed to minorities or non-group shareholders are ordinary taxable distributions — a mixed liquidation therefore splits into a relieved leg and a taxable leg, and dividends tax needs its own analysis on the taxable leg.
Where a wholly-owned subsidiary is collapsing into its existing parent, s 47 is the purpose-built tool — no new shares are needed because the parent already owns the company, and s 44 in fact stands aside for transactions that meet the liquidation-distribution definition (s 44(14)(a)). Section 44 is for mergers where shareholders must end up holding shares in a different, surviving company.
Before signing
Roll-over relief depends on the exact parties, share rights, asset tax classification, values, residence, VAT status, debt assumed, consideration received and the order of steps. Obtain transaction-specific tax and legal advice before agreements or resolutions are signed — a later correction may not restore the relief.