SECONDARY TAX ON COMPANIES

1943.  Liquidation distributions 

In terms of section 64B(5)(c) of the Act the following amounts will be exempt when distributed in the 

course of or in anticipation of  a liquidation, winding up, deregistration or final termination of the 

corporate existence of a company or close corporation, provided that certain steps are taken within 18 

months from the date of the liquidation distribution, namely; 

• pre-31 March 1993 profits; 

• pre-1 October 2001 capital profits; and 

• profits arising before the company became a South Africa resident. 

It had been expected that the exemption from Secondary Tax on Companies (STC) in respect of such 

dividends would remain intact until the implementation of the new dividends tax regime. 

The  2010 Taxation Laws Amendment Act, (TLAA) was released by National Treasury on 10 May 

2010. The TLAA2010 Draft Bill, together with its Draft Explanatory Memorandum, remained silent 

on this topic. 

On 18 May 2010 National Treasury held an initial briefing on the Draft Bill, while public hearings 

were held on 1 and 2 June in respect of many controversial proposals. Again, all of these discussions 

failed to make mention of any proposed amendment to section 64B(5)(c). 

The Taxation Laws Amendment Bill 28 of 2010 (2010 Bill) was introduced to Parliament on 24 

August 2010. The 2010 Bill was enacted as the Taxation Laws Amendment Act, 7 of 2010 (TLAA).  

It repeals section 64B(5)(c) from 1 January 2011. Accordingly the three categories of profits referred 

to above will be subject to STC when distributions are made, even where the company is in the course 

of or in anticipation of liquidation, winding up or deregistration. 

Given the apparent lack of prior notice, taxpayers had little opportunity to act before the withdrawal of 

these subsections took effect. 

However, the National Treasury recently issued an invitation in terms of which proposals could be 

made for miscellaneous and technical tax law amendments with reference to the possible inclusion 

thereof in Annexure C of the 2011/2012 Budget Cycle. It is believed that representations have been 

made by the National Law Society to reinstate the exemption, at least until the TLAA introduction of 

the new Dividends Tax regime. 

It is recognised that the profits of a non-resident company will be catered for by including same in 

Contributed Tax Capital by reason of the revised definitions contained in the  TLAA. A possible 

solution to the adverse consequences of the deletion of section 64B(5)(c) could be for the definition of 

“Contributed Tax Capital” to be amended so as to incorporate therein the amounts  that previously 

would have been exempted from STC in the same way as the revised definition has accommodated the 

profits of a company arising prior to becoming resident in South Africa.

Edward Nathan Sonnenbergs

IT Act: s 64B(5)(c)

The 2010 Taxation Laws Amendment Act 

The Taxation Laws Second Amendment Act, No. 28 of 2010