As stated above, a presumption is made that an anti-avoidance agreement has been concluded where the above indicators are present, and the obligation is on the taxpayer to rebut the presumption. 

The substantive trigger for the exercise of GAAR, as provided by the Tax Court, arises where SARS forms an opinion that there is an impermissible avoidance arrangement.

To summarise the above, for an impermissible avoidance arrangement to exist, the following four requirements must be met:

• first, there must be an “arrangement”. An arrangement is defined in section 80L of the Income Tax Act as any transaction, operation, scheme, agreement or understanding (whether enforceable or not), including all steps therein or parts thereof, and includes any of the foregoing involving the alienation of property;
• second, the arrangement must result in a tax benefit. If the arrangement results in a tax benefit, then it constitutes an “avoidance arrangement”;
• third, the “avoidance arrangement” must have characteristics of abnormality and/or lack commercial substance as set out in section 80C and 80D; and
• fourth, the “avoidance arrangement” must have had as its “sole” or “main purpose” the obtaining of a “tax benefit.

The onus to rebut the presumption on the taxpayer and the onus is discharged on a balance or preponderance of probability. Below we outline cases where taxpayers attempted to rebut the presumption.

 In ITC 1388 (1983) the taxpayer bought two companies with assessed losses. The Court extracted the essence of section 80D in stating that the Commissioner may disallow an assessed loss. The taxpayer’s dominant motive in acquiring the first company was to acquire its goodwill and to continue trading in its name. In fact, no mention was made of its assessed loss in the negotiations for its purchase. The assessed loss accordingly survived. As far as the second company is concerned, however, the assessed loss was clearly visible in its financial statements; it had ceased trading three years earlier (it had been collecting its book debts since then), it had no goodwill or premises, and the only advantage it seemed to have was its assessed loss. This assessed loss was accordingly forfeited.

Ordinarily, the purchase of a company which has assessed losses would lack commercial rationale. The reason being that:

• the  transaction would result in a significant tax benefit for a party (i.e. that party would be allowed to set off the assessed loss against their current income, result in less tax liability); but 
• the purchase of that company does not have a significant effect on or net cash flows of that taxpayer;
• apart from any effect attributable to the tax benefit that would be obtained (i.e., the setoff).

In the above case the taxpayer was able to rebut the presumption in respect of the first company on account that the taxpayer was not aware of the assessed loss and, on a balance of probabilities, bought the company to continue trading using its good will as submitted by the taxpayer. 

However, the taxpayer was not able to rebut the presumption in respect of the second company because the taxpayer was aware of the assessed loss prior to the sale and purchased the company solely for the purpose of obtaining a tax benefit. 

In the case of Mariana Bosch and Ian McClelland v Commissioner for the South African Revenue Service wherein the appellants were employees of the Foschini group of companies and participants in an employee share incentive scheme run by that group. The type of scheme was what is referred to as a ‘deferred delivery scheme’. 

In essence, employees were granted options to purchase shares, which they had to exercise within 21 days. Once the option was exercised, delivery and payment in respect of the shares were delayed and would take place in three tranches, each two years apart. 

Before delivery and payment, the employees could not dispose of or encumber the shares, were not entitled to dividends and could not vote the shares. 

The risks and benefits did not pass to the employees until delivery and payment. 

The scheme was subject to a stop loss provision, which provided that employees could sell their shares back to the employer if the share price fell below the consideration that was payable on delivery. 

Further, employees were also obliged to sell their shares back to the employer for the same consideration payable on delivery if they terminated their service for any reason other than sequestration, death, superannuation, or ill health.

The scheme was subject to a stop loss provision, which provided that employees could sell their shares back to the employer if the share price fell below the consideration that was payable on delivery. Further, employees were also obliged to sell their shares back to the employer for the same consideration payable on delivery if they terminated their service for any reason other than sequestration, death, superannuation, or ill health.

The effect of the scheme was that the provisions of section 8A of the Income Tax Act were bypassed. Only gains arising within the 21-day option period would be caught by section 8A and be taxable as income in the hands of the employees, as opposed to the full gains over the longer periods until delivery and payment.

The appellants were assessed by SARS for income tax in respect of shares received in respect of the scheme. One of the arguments raised by SARS was that the scheme was a simulated transaction and that there was no real unconditional sale at the time of exercise of the option, but that the parties actually intended that the sale be subject to the suspensive condition that the employees remain employed until the date of delivery and payment. This was evidenced by the fact that an obligation to sell the shares back to the employer arose where an employee’s employment is terminated.

On assessment of the evident the Court found that there had been no simulation. The Court laid down the rule that “any transaction which has at its aim tax avoidance will be regarded as a simulated transaction irrespective of the fact that the transaction is for all purposes a genuine transaction.”