Section 11(j) of ITA

(j)      an allowance in respect of any debt due to the taxpayer, if that debt would have been allowed as a deduction under any other provision of this Part had that debt become bad, of an amount equal to-

(i)      if IFRS 9 is applied to that debt by that person for financial reporting purposes, other than in respect of lease receivables as defined in IFRS 9 that have not been included in income, the sum of-

(aa)   40 per cent of the aggregate of-

(A)    the loss allowance relating to impairment that is measured at an amount equal to the lifetime expected credit loss, as contemplated in IFRS 9, in respect of debt; and

[Sub-item (A) substituted by section 13(1)(b) of Act 23 of 2020 deemed effective on 28 October, 2020 and applicable in respect of years of assessment commencing on or after that date]

(B)    the amounts of debts included in the income of the taxpayer in the current or any previous year of assessment that are disclosed as bad debt written off for financial reporting purposes and that have not been allowed as a deduction under section 11(a) or (i) for the current or any previous year of assessment; and

(bb)   25 per cent of the loss allowance relating to impairment, as contemplated in IFRS 9, in respect of debt other than in respect of debt taken into account under item (aa); or

[Subparagraph (i) amended by section 13(1)(a) of Act 23 of 2020 deemed effective on 28 October, 2020 and applicable in respect of years of assessment commencing on or after that date. Item (bb) substituted by section 13(1)(c) of Act 23 of 2020 deemed effective on 28 October, 2020 and applicable in respect of years of assessment commencing on or after that date]

(ii)     if IFRS 9 is not applied to that debt by that person for financial reporting purposes, the sum of-

(aa)   40 per cent of so much of any debt, other than a debt contemplated in subparagraph (i), due to the taxpayer, if that debt is 120 days or more in arrears, after taking into account the value of any security in respect of that debt; and

[Item (aa) substituted by section 13(1)(d) of Act 23 of 2020 effective on 1 January, 2021 and applicable in respect of years of assessment commencing on or after that date]

(bb)   25 per cent of so much of any debt, other than a debt contemplated in subparagraph (i) or item (aa), due to the taxpayer, if that debt is 60 days or more in arrears, after taking into account the value of any security in respect of that debt:

[Item (bb) substituted by section 13(1)(d) of Act 23 of 2020 effective on 1 January, 2021 and applicable in respect of years of assessment commencing on or after that date]

Provided that an allowance under this paragraph must be included in the income of the taxpayer in the following year of assessment: Provided further that the Commissioner may, on application by a taxpayer, issue a directive that the percentage contemplated in subparagraph (i)(aa) or (ii)(aa) may be increased, to a percentage not exceeding 85 per cent after taking into account-

(a)     the history of a debt owed to that taxpayer, including the number of repayments not met, and the duration of the debt;

(b)     steps taken to enforce repayment of the debt;

(c)     the likelihood of the debt being recovered;

(d)     any security available in respect of that debt;

(e)     the criteria applied by the taxpayer in classifying debt as bad; and

(f)      such other considerations as the Commissioner may deem relevant;

[Paragraph (j) substituted by section 14(1)(e) of Act 89 of 1969, amended by section 10(1)(h) of Act 94 of 1983 and by section 18(c) of Act 31 of 2005 and substituted by section 22(1)(b) of Act 22 of 2012, by section 25(1)(e) of Act 23 of 2018 and by section 15(1)(a) of Act 34 of 2019]