Donations tax implications of subscribing for shares at a discount

Income Tax Act 58 of 1962 sections 55(1) and 58(1)

SARS released a private binding ruling (BPR343) in May 2020 explaining the outcome of a request from an applicant as to tax treatment of shares issued at a discount value and should serve as a guideline for businesses encountering a similar situation. Note that you would still need to approach SARS if you require clarity as your situation may be slightly different to that of the applicants below.

The ruling determined that there are no donations tax implications resulting from a broad-based black economic empowerment trust subscribing for shares at a discount.

Relevant tax laws
References to sections of the Act are applicable as at 9 December 2019 and is a ruling on the interpretation and application of section 55(1) and section 58(1).

Background info:

Parties to the proposed transaction are

1.) The applicant, a resident company,
2.) A Trust to be established by the Applicant. This is done in order to comply with B-BBEE Codes published under legislation regulating black economic empowerment.

Company A is a resident company that owns all the shares in the Applicant.
Company B is a resident company to be incorporated by Company A

Proposed transaction

The applicant wishes to introduce a minority shareholder, the trust, in order to enhance its broad-based black economic empowerment status.
The object of the trust will be to facilitate the education, training, development and/or upskilling of the eligible beneficiaries.
The trust will be entirely funded by the applicant.
Eligible beneficiaries of the trust will be black women under the age of 35 who are studying or will be studying at higher-education or tertiary institutions in South Africa.
The trust is not a public benefit organisation as envisaged in section 30(1).

The transaction will be implemented as follows:

  1. Disposal of the applicant’s export business.

a. Company A will subscribe for 100% of the ordinary shares in company B.
b. The applicant will dispose of its export business to company B at market value in terms of an intra-group transaction as contemplated in section 45, with the purchase consideration left outstanding on loan account.
c. The loan will be repaid from available cash reserves.

  1. The trust and subscription for ordinary shares in the applicant.

a. The applicant will settle the trust and fund it by way of a donation.
b. The trust will subscribe for a minority interest in the applicant at a nominal value compared to the current market value of the shares.


The ruling made in connection with the proposed transaction is that the subscription for shares at a discount by the trust will not constitute a “donation” as defined in section 55(1) and will not be deemed to have been disposed of under a donation by the Applicant as envisaged in section 58(1).

This binding private ruling is valid for a period of three years from 9 December 2019.

Author Craig Tonkin

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