Budget 2022 - Contributed tax capital clarified?

In 2021, an amendment was proposed in the Taxation Laws Amendment Bill to address tax avoidance concerns and to clarify the definition of contributed tax capital (‘CTC’).  

The amendment was then proposed to become effective immediately, but following a barrage of criticism and concerns against it, its effective enactment date was postponed to 1 January 2023.

The effect of the amendment is that, with effect from 1 January 2023, a company will only be able to return CTC if all shareholders participate in their respective shareholdings in the CTC distribution at the same time.  This is problematic as companies regularly, and legitimately, need to return CTC only to specific shareholders such as in limited share buy-back scenarios.

While welcomed as a temporary relief, the postponement does not deal with the concerns. This appears to be acknowledged by Government with the announcement in the 2022 Budget Speech that the postponement gives both the National Treasury and affected stakeholders more time to consider the impact of the proposed amendments and to provide further commentary.

We certainly welcome this development and together with active participation by BDO and other learned commentators, we are hopeful that this overly restrictive amendment can be aligned to allow legitimate transactions.

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