Section 45 reorganisations
Ide Louw The so-called section 45 debt push down transactions have been under scrutiny for a number of years. In the 2011/12 Budget Speech, an initial 18-month hiatus was placed on these type of transactions, where the unproductive debt from share acquisitions are pushed down to the operating companies acquire the productive assets of the company. This hiatus was later removed, and amongst others, a SARS pre-approval is required if the taxpayer wants to obtain an interest deduction.
A new proposal is made that the section 45 provisions should be extended to cross-border restructurings. In addition, a welcome change is expected in that the section 45 relief may now be available if debt is used to acquire a majority equity stake (at least 70%) in a company. Further changes to section 45 proposed (although in 2013) is a proposal of a “across the- board” percentage ceiling on interest deductions, relative to earnings before interest and depreciation, to limit excessive debt financing.
