Category: Section 23N (ITA) – Limitation of interest deductions in respect of reorganisation and acquisition transactions

Section 23N

 

Section 23N inserted by section 63 of Act 13 of 2013 effective on 1 April 2014.

Subsection 2, 3, 4 and 5 of section 23N of ITA

Posted on by admin_kmos

(2)     Where an amount of interest is incurred by an acquiring company in terms of a debt-

[Words preceding paragraph (a) substituted by section 38 of Act 43 of 2014 effective on 1 January 2015]

(a)     directly or indirectly assumed or applied for the purpose of procuring, enabling, facilitating or funding the acquisition by that acquiring company of any asset in terms of a reorganisation transaction;

(b)     used directly or indirectly for the purpose of redeeming, refinancing or settling the debt contemplated in paragraph (a);

(c)     issued, assumed or used in terms of an acquisition transaction; or

(d)     used directly or indirectly for the purpose of redeeming, refinancing or settling the debt contemplated in paragraph (c),

the amount of interest allowed to be deducted must not exceed the amount determined in terms of subsection (3).

(3)     The amount of interest allowed to be deducted in terms of all debts owed as contemplated in subsection (2), in respect of any year of assessment in which the acquisition transaction or reorganisation transaction is entered into and in respect of five years of assessment immediately following that year of assessment, must not exceed the sum of-

(a)     the amount of interest received by or accrued to the acquiring company; and

(b)     the highest of the amounts determined by multiplying the percentage determined under subsection (4) by the adjusted taxable income of the acquiring company for each of the years of assessment-

(i)      in which the acquisition transaction or reorganisation transaction is entered into;

(ii)     in which the amount of interest is incurred by that acquiring company; or

(iii)    immediately prior to the year of assessment contemplated in subparagraph (i),

[Paragraph (b) substituted by section 38 of Act 43 of 2014 and section 40 of Act 17 of 2017 effective on 18 December 2017]

reduced by any amount of interest incurred by the acquiring company in respect of debts other than debts contemplated in subsection (2).

[Words following paragraph (b) substituted by section 38 of Act 43 of 2014 effective on 1 January 2015]

(4)     The percentage contemplated in subsection (3)(b) must be determined in accordance with the formula-

         A   =   B   x   C

                              D

in which formula-

(a)     ‘A’ represents the percentage to be determined;

(b)     ‘B’ represents the number 40;

(c)     ‘C’ represents the average repo rate plus 400 basis points; and

(d)     ‘D’ represents the number 10,

but not exceeding 60 per cent of the adjusted taxable income of that acquiring company.

[Subsection (4) substituted by section 38 of Act 43 of 2014 effective on 1 January 2015]

(5)       ……….

[Subsection (5) deleted by section 64 of Act 31 of 2013, re-inserted by section 42 of Act 15 of 2016, amended by section 40 of Act 17 of 2017 and deleted by section 42 of Act 23 of 2018 effective on 1 January 2019 and applies in respect of amounts incurred on or after that date]