Reinvestment intention rendered insufficiently plausible

The levying of tax on the book profit realised in the context of an operating asset being divested can be deferred by creating a reinvestment reserve, which reserve is then charged to the purchase value of (subsequent) investments in other operating assets. It is essential that the entrepreneur in question should have a reinvestment intention in order for it to be permissible for him or her to create a reserve of this kind. An existing reinvestment reserve will be released by the end of the third year – extension of which term may be granted in special circumstances – of the year during which the reserve was originally created.

Any entrepreneur who wishes to create a reinvestment reserve must be able to back up his or her reinvestment intention. The mere fact that a private limited-liability company forms part of a conglomerate whose focus lies on the purchase cum sale and operation of immoveable properties, for example, is not enough to prove that the company in question intends to reinvest, nor is it a relevant argument in such a context that a number of properties have been offered for sale to the conglomerate of which the company forms part, as it does not necessarily follow from this that the company itself has a reinvestment intention, particularly not where owing to lack of financial resources it has refrained from actually proceeding with reinvestment. If the existence of a reinvestment intention has not been rendered sufficiently plausible, the conditions for being granted extension of the three year term cannot be satisfied.