SA Budget 2024/25 – Tax policy – Refining contributed tax capital provisions

The contributed tax capital of any company is a notional and ring‐fenced tax amount derived from a deemed market value amount when a foreign company becomes a South African tax resident and the consideration for the issue of a class of shares by a company. It is reduced by any amounts referred to as capital distributions, transferred by the company to the shareholders. It has come to governments attention that the following amendments are needed to further refine the contributed tax capital provisions.

Effect on legitimate transactions due to contributed tax capital anti‐avoidance measures

Section 8G of the Income Tax Act is an anti‐avoidance measure that limits the contributed tax capital of a resident company in a share‐for‐share transaction with a non‐resident group company.

The taxation consequences of this anti‐avoidance measure may affect legitimate corporate finance practices and limit South Africas attractiveness as an investment destination. Government proposes that further refinements be considered to minimise any inadvertent tax consequences.

Translating contributed tax capital from foreign currency to rands

In 2023, amendments were proposed in the draft Taxation Laws Amendment Bill to clarify the translation of contributed tax capital, denominated in a foreign currency, to rands. The initial effective date for these proposed amendments was 1 January 2024. After reviewing stakeholder comments on the draft bill, government decided to postpone the effective date for these amendments to 1 January 2025 to give both the National Treasury and affected stakeholders more time to consider the impact of the proposed amendments. Government proposes reviewing the impact of the 2023 amendments during the 2024 legislative cycle.