Valuations: A Quiet Cornerstone of Tax Compliance
While valuations are typically associated with sales or M&A activity, they play a significant role in the tax space. SARS continues to scrutinise transactions involving shares, intra-group transfers, and disposals between connected persons. When values are not properly substantiated, this can lead to understatement penalties, interest, or a prolonged review process.
Some of the most common areas where valuations are required or advisable include:
- Capital Gains Tax (CGT) reporting on disposals, especially where historical base costs are unclear or assets have appreciated materially.
- Donations Tax implications for share transfers between related parties or into trusts.
- Share buybacks or redemptions, particularly involving founder shares or variable rights.
- Section 42/45 transactions and other corporate restructures requiring market value confirmation.
- Estate duty and late estate submissions where SARS expects current fair market values.
- Exit tax and deemed disposals for South Africans ceasing tax residency.
Getting Ahead of the Curve
SARS has signalled its intent to become more data-driven and risk-based. Where valuations are inconsistent with market norms or unsupported by appropriate methods, flags are likely to be raised. In contrast, a properly documented valuation which is grounded in accepted valuation principles, can prevent disputes and streamline tax compliance.
In a period where both compliance pressure and enforcement intensity are growing (particularly as South Africa undergoes FATF review), proper documentation and defensible reporting are more important than ever.
Closing Thought
As we move through the 2025 tax season, businesses and advisors should ensure that valuation requirements don’t become an afterthought. Where uncertainty exists—particularly around the value of unlisted shares or assets—a formal valuation may provide clarity, protect against penalties, and strengthen the overall quality of tax submissions.
