Mergers And Acquisitins

Question 1

Principles

Corporate reorganization

Answer 1

• CTC increased by base cost of asset

- s45 applies automatically to the transaction (eg parent gives something to sub)

Question 3

Buy Assets or shares?

Answer 3

1. Buyer wants to buy assets, step up in base cost
2. Company has assessed loss, beneficial to buyer
3. Buying shares is a risk as you’re buying history of company
4. Rather buy shares soon to start trading
5. Interest used to acquire assets is deducted as the interest is incurred in acquiring income generating asset

Question 4

Income TAX at acquisition

Answer 4

1. If individual you may choose between spot or average
2. Individual will aim for highest base cost (choose highest)
   - see if asset used in production of income to allocate allowances

Question 5

Income TAX at disposal

Answer 5

• Disposal of an allowance asset will trigger CGT and recoupment
• s42 applies automatically (apply scope)

Question 6

Implication of Comapany

Answer 6

1. s42 applies automatically
   - Mention Company issued shares in exchange of qualifying interest
2. Assets deemed to be acquired at TV
3. Company is deemed to step in the shoes of the previous asset owner

Question 7

S45

Answer 7

-The acquisition of an asset from PSG (Pty) Ltd by MANC (Pty) Ltd represents an intra-group transaction (1/2) as it is an asset sold by a company, PSG, to a resident company, MANC (1/2), who form part of the same group of companies (1/2)(stated in the question) and the asset was used in the same manner by the acquiree, MANC, being used as a capital asset in the production of income (1/2). As such the roll over provisions of section 45 will be applicable

• All the information relevant to the asset, is transferred to the transferee (SS), e.g. original cost price, original date of acquisition, use during the period of ownership, etc.
• Section 45 will be applicable unless PS and SS opt out of its application by specifically agreeing to it in writing.