GAAR After Absa: A Wake-Up Call for Structured Transactions – past, present and somewhere in the pipeline…

What the Constitutional Court’s landmark ruling — and a fast-following Tax Court decision — mean for taxpayers

On 22 April 2026, the Constitutional Court handed down judgment in Absa Bank Ltd and Another v Commissioner, SARS [2026] ZACC 15 – the first time our apex court has interpreted the General Anti-Avoidance Rule (GAAR) since it was introduced in 2006. SARS won on every point. Barely two months later, on 3 July 2026, the Cape Town Tax Court applied the same reasoning to strike down a dividend-stripping structure. Together, these judgments materially widen SARS’ practical reach under the GAAR and, in our view, in ways that go further than many taxpayers (and, frankly, than Parliament) may have anticipated. Below, we summarise what happened, why it matters, and what we recommend you do about it.

The Absa case, in brief

Between 2011 and 2015, Absa invested in preference shares issued by a Macquarie Group vehicle. The funds moved downstream through entities Absa said it knew nothing about, ultimately buying Brazilian government bonds whose interest was tax-exempt under a tax treaty. That tax-free income flowed back up the chain to Absa as exempt preference dividends. SARS invoked the GAAR and recharacterised the dividends as taxable interest.

Absa raised two defences: (1) it could not be a “party” to an arrangement it knew nothing about, and (2) it had never personally “obtained” a tax benefit, since the benefit arose in entities downstream. By a majority of nine to one (Rogers J dissenting), the Constitutional Court rejected both arguments.

Three findings that matter most

• Knowledge of every step is not required to be a “party.” A taxpayer may constitute a “party” where it objectively participates in a constitutive step of the wider arrangement, notwithstanding that it lacks knowledge of all of the arrangement’s downstream steps.

• A taxpayer may be found to have obtained a tax benefit even where that benefit depends on steps occurring elsewhere in a wider arrangement. In applying the “but-for” test, the Court looked beyond the transaction in its actual form and considered the commercially equivalent position once the avoidance features were removed.

• The majority treated the “sole or main purpose” enquiry under the current GAAR as objective, marking a departure from the predominantly subjective approach under the former section 103(1). Although the precise reach of those observations has been debated, the Tax Court subsequently treated the objective approach as binding, while confirming that evidence of a taxpayer’s subjective intention remains relevant (see the discussion below in respect of the recent dividend stripping case).

Why this should concern you

• Limited knowledge of the wider structure may not protect a taxpayer. A lack of knowledge of downstream steps does not, on its own, prevent a taxpayer from being a “party” to the arrangement.

• Diligence must extend beyond your own leg of a deal to the full arrangement, including counterparties, arrangers, and downstream entities.

• Under the GAAR, the legal form of individual steps may not protect a transaction where the statutory requirements for an impermissible avoidance arrangement are met and the arrangement, viewed as a whole, produces the relevant tax benefit.

• This is not confined to banks or big structured finance. The same reasoning applies to sale structures, group reorganisations, and any multi-party or multi-step funding arrangement.

• Existing structures are also potentially affected. SARS may rely on the Constitutional Court’s interpretation when considering earlier years of assessment that remain open to adjustment or assessment under the applicable limitation rules.

Practical steps: reviewing your existing structures

☐ Map the full structure, not just your leg – who else is involved, and what happens to funds and returns before and after your involvement?

☐ Identify anything that converts one type of return into another (e.g. interest into exempt dividends, revenue into capital).

☐ Check whether your return is genuinely equity-like (real commercial risk) or economically resembles interest despite its legal form.

☐ Look for circular or back-to-back cash flows, guarantees, or built-in exit mechanisms that remove genuine risk.

☐ Revisit existing tax opinions: Do they deal only with your own leg of the transaction, or with the arrangement as a whole and the GAAR specifically?

☐ Gather or refresh contemporaneous documentation (board minutes, correspondence) evidencing the actual commercial rationale for each step, not just the transaction overall.

Practical steps: structuring new transactions

☐ For each material step, identify both its commercial rationale and its tax consequences. Where a step would have little or no rationale apart from the tax outcome, treat this as a GAAR risk indicator requiring further analysis.

☐ Test the arrangement against a realistic commercial alternative and understand what tax outcome would arise without the identified avoidance features. A materially different tax result is a risk indicator, but tax efficiency alone does not make an arrangement impermissible.

☐ Document the commercial reason for each individual step before implementation, not after the fact.

☐ Obtain tax input on the whole structure, not only on your own leg of it.

☐ Where a bank, promoter or adviser designs the structure, ask hard questions and insist on a full step plan and funds-flow diagram and not just an assurance that “it’s tax efficient.”

☐ Ensure that the structure reflects genuine commercial substance and risk, and that these features are supported by the transaction’s actual implementation and contemporaneous documentation.

The sequel: dividend stripping under the GAAR

Just over two months after Absa, the Cape Town Tax Court applied its reasoning in Company AF (Pty) Ltd and Others v CSARS (3 July 2026). The first reported case to test a classic dividend-stripping structure post-Absa.

Seven shareholders in a self-storage business implemented a pre-sale restructuring: the target declared a large dividend, funded by the purchaser’s own share subscription, after which the shareholders sold their now near-worthless shares for R1,000. The effect was to convert what would otherwise have been a taxable capital gain into a largely exempt dividend.

Applying Absa, the Tax Court:

• used the same “strip-out-the-avoidance-features but-for” test to find a substantial tax benefit;

• treated the “main purpose” enquiry as objective, while recognising that subjective evidence remains relevant; importantly, it distinguished the legitimate commercial purpose of doing the deal from the purpose of giving the deal the particular form it took;

• found the dividend/subscription mechanism abnormal, lacking commercial substance, and an abuse of the dividend exemption; and

• upheld the CGT assessment, though it remitted the understatement penalties given genuine legal uncertainty and full disclosure.

This case matters less for its facts than for what it signals: within months, Absa’s reasoning was already being deployed well beyond banking and structured finance, into ordinary M&A and pre-sale planning. Pre-sale dividends, internal restructurings, and any transaction that converts one type of receipt into a more favourably taxed one now warrant fresh scrutiny.

Where we stand

We share the unease amongst several respected tax practitioners and advisors that the Constitutional Court’s majority may have applied the GAAR in a manner that goes beyond what was legislated – particularly on knowledge and the objective purpose question. This is, in our view, a real and legitimate problem with how the GAAR is now being applied, and one we expect the matter to be tested further in the courts. But until Parliament or a future judgment revisits it, SARS has a powerful new tool at its disposal, and prudent planning should proceed based on the judgment as it currently stands, not as we might wish it to be.

If you have structured finance arrangements, are in the throes of pre-sale dividend planning or group reorganisations or are considering any multi-step or multi-party transaction that reduces your tax liability, we recommend reviewing it sooner rather than later.