‘third-party backed instrument’ means any instrument in respect of which an enforcement right is exercisable as a result of any amount relating to that instrument not being received by or accruing to any person entitled thereto.
[Definition of ‘third-party backed instrument’ added by section 16 of Act 15 of 2016 effective on 1 January 2017, applies in respect of years of assessment commencing on or after that date]
(1) For the purposes of this section—
‘enforcement right’ in relation to an instrument means any right, whether fixed or contingent, to require any person other than the issuer of that instrument to-
(a) acquire that instrument from the holder thereof;
(b) make any payment in respect of that instrument in terms of a guarantee, indemnity or similar arrangement; or
(c) procure, facilitate or assist with any acquisition contemplated in paragraph (a) or the making of any payment contemplated in paragraph (b);
[Definition of ‘enforcement right’ inserted by section 16 of Act 15 of 2016 effective on 1 January 2017, applies in respect of years of assessment commencing on or after that date]
‘equity instrument’ means a right or interest the value of which is determined directly or indirectly with reference to-
(a) a preference share; or
(b) an amount derived from a preference share;
[Definition of ‘equity instrument’ inserted by section 15 of Act 15 of 2016 effective on 1 January 2017, applies in respect of years of assessment ending on or after that date]
“equity instrument” means any right or interest the value of which is determined directly or indirectly with reference to-
(a) a share; or
(b) an amount derived from a share;
[Definition of “equity instrument” inserted by section 14 of Act 15 of 2016 effective on 1 January 2017, applies in respect of years of assessment ending on or after that date]
7C. Loan, advance or credit granted to trust by connected person
[Heading to section 7C amended by section 4 of Act 34 of 2019]
(1) This section applies in respect of any loan, advance or credit that-
(a) a natural person; or
(b) at the instance of a natural person, a company in relation to which that person is a connected person in terms of paragraph (d)(iv) of the definition of connected person,
[Paragraph (b) substituted by section 5(a) of Act 20 of 2021]
directly or indirectly provides to-
(i) a trust in relation to which-
(aa) that person or company; or
(bb) any person that is a connected person in relation to the person or company referred to in item (aa),
is a connected person; or
(ii) a company if at least 20 per cent of-
(aa) the equity shares in that company are held, directly or indirectly; or
(bb) the voting rights in that company can be exercised,
by a trust referred to in paragraph (i) whether alone or together with any person who is a beneficiary of that trust or the spouse of a beneficiary of that trust or any person related to that beneficiary or that spouse within the second degree of consanguinity.
[Words following paragraph (b) substituted by section 5 of Act 17 of 2017 and section 9 of Act 23 of 2018 effective on 19 July 2017 and applies in respect of any amount owed by a trust or a company in respect of a loan, advance or credit provided to that trust or that company before, on or after that date]
(1A) If a person acquires a claim to an amount owing by a trust or a company in respect of a loan, advance or credit referred to in subsection (1), that person must for purposes of this section be treated as having provided a loan, advance or credit to that trust or company-
(a) on the date on which that person acquired that claim; or
(b) if that person was not a connected person on that date in relation to-
(i) that trust; or
(ii) the person who provided that loan, advance or credit to that trust or company,
on the date on which that person became a connected person in relation to that trust or person,
that is equal to the amount of the claim so acquired.
[Subsection (1A) inserted by section 5 of Act 17 of 2017 effective on 19 July 2017, applies in respect of any amount owed by a trust or a company in respect of a loan, advance or credit provided to that trust or that company before, on or after that date]
(1B) Where-
(a) a natural person; or
(b) at the instance of a natural person, a company that is a connected person in relation to that natural person in terms of paragraph (d)(iv) of the definition of “connected person”,
subscribes for a preference share in a company in which 20 per cent or more of the equity shares are held (whether directly or indirectly) or the voting rights can be exercised by a trust that is a connected person in relation to that natural person or to that company, whether alone or together with any person who is a beneficiary of that trust-
(i) consideration received by or accrued to that company for the issue of that preference share shall be deemed to be a loan for the purposes of subsection (3); and
(ii) any dividend or foreign dividend accrued in respect of that preference share shall be deemed to be interest in respect of the loan contemplated in paragraph (i).
[Subsection (1B) inserted by section 3(1)(a) of Act 23 of 2020 effective on 1 January, 2021 and applicable in respect of any dividend or foreign dividend accruing during any year of assessment commencing on or after that date]
(2) No deduction, loss, allowance or capital loss may be claimed in respect of-
(a) a disposal, including by way of a reduction or waiver; or
(b) the failure, wholly or partly, of a claim for the payment,
of any amount owing in respect of a loan, advance or credit referred to in subsection (1).
(3) If a trust or company incurs-
(a) no interest in respect of a loan, advance or credit referred to in subsection (1), (1A) or (1B); or
[Paragraph (a) substituted by section 3(1)(b) of Act 23 of 2020 effective on 1 January, 2021 and applicable in respect of any dividend or foreign dividend accruing during any year of assessment commencing on or after that date]
(b) interest at a rate lower than the official rate of interest,
an amount equal to the difference between the amount incurred by that trust or company during a year of assessment as interest in respect of that loan, advance or credit and the amount that would have been incurred by that trust or company at the official rate of interest must, for purposes of Part V of Chapter II, be treated as a donation made to that trust or company by the person referred to in subsection (1)(a), (1A) or (1B) on the last day of that year of assessment of that trust or company.
[Subsection (3) substituted by section 5(1)(c) of Act 17 of 2017 and amended by section 3(1)(c) of Act 23 of 2020, by section 3 of Act 20 of 2022 and by section 4(1)(a) of Act 42 of 2024 effective on 1 January, 2025 and applicable in respect of years of assessment commencing on or after that date]
(3A) Where the amount to be treated as a donation in terms of subsection (3) is denominated in any currency other than that of the Republic, the person referred to in subsection (1), (1A) or (1B) must, for purposes of that subsection, translate that amount to the currency of the Republic by applying the average exchange rate for the year of assessment in respect of which that amount is treated as a donation.
[Subsection (3A) inserted by section 3(1)(a) of Act 17 of 2023 with effect from 1 January, 2024 and applicable in respect of years of assessment commencing on or after that date]
(4) If a loan, advance or credit was provided by a company to a trust or another company at the instance of more than one person that is a connected person in relation to that company as referred to in paragraph (b) of subsection (1), each of those persons must be treated as having donated, to that trust or company, the part of that amount that bears to that amount the same ratio as the equity shares or voting rights in that company that were held by that person during that year of assessment bears to the equity shares or voting rights in that company held in aggregate by those persons during that year of assessment.
[Subsection (4) substituted by section 5 of Act 17 of 2017 effective on 19 July 2017, applies in respect of any amount owed by a trust or a company in respect of a loan, advance or credit provided to that trust or that company before, on or after that date]
(5) Subsections (2) and (3) do not apply in respect of any amount owing by a trust or company during a year of assessment in respect of a loan, advance or credit referred to in subsection (1) if-
[Words preceding paragraph (a) substituted by section 5 of Act 17 of 2017 effective on 19 July 2017, applies in respect of any amount owed by a trust or a company in respect of a loan, advance or credit provided to that trust or that company before, on or after that date]
(a) that trust or company is a public benefit organisation approved by the Commissioner in terms of section 30(3) or a small business funding entity approved by the Commissioner in terms of section 30C;
[Paragraph (a) substituted by section 5 of Act 17 of 2017 effective on 19 July 2017, applies in respect of any amount owed by a trust or a company in respect of a loan, advance or credit provided to that trust or that company before, on or after that date]
(b) that loan, advance or credit was provided to that trust by a person by reason of or in return for a vested interest held by that person in the receipts and accruals and assets of that trust and-
(i) the beneficiaries of that trust hold, in aggregate, a vested interest in all the receipts and accruals and assets of that trust;
(ii) no beneficiary of that trust can, in terms of the trust deed governing that trust, hold or acquire an interest in that trust other than a vested interest in the receipts and accruals and assets of that trust;
(iii) the vested interest of each beneficiary of that trust is determined solely with reference and in proportion to the assets, services or funding contributed by that beneficiary to that trust; and
(iv) none of the vested interests held by the beneficiaries of that trust is subject to a discretionary power conferred on any person in terms of which that interest can be varied or revoked;
(c) that trust is a special trust as defined in paragraph (a) of the definition of a special trust;
(d) that trust or company used that loan, advance or credit wholly or partly for the purposes of funding the acquisition or improvement of an asset and—
(i) the natural person referred to in subsection (1)(a) or (b) or the spouse of that person used that asset as a primary residence as contemplated in paragraph (b) of the definition of “primary residence” in paragraph 44 of the Eighth Schedule, where that primary residence and the land on which it is situated (including unconsolidated adjacent land) do not exceed two hectares are together used mainly for domestic or private purposes, throughout the period during that year of assessment during which that trust or company held that asset; and
(ii) the amount owed relates to the part of that loan, advance or credit that funded the acquisition or improvement of that asset;
[Paragraph (d) amended by section 5(1)(f) and (g) of Act 17 of 2017 and by section 5(b) of Act 20 of 2021 and substituted by section 3(1)(b) of Act 17 of 2023 with effect from 1 January, 2024 and applicable in respect of years of assessment commencing on or after that date]
(e) that loan, advance or credit constitutes an affected transaction as defined in section 31(1) to the extent of an adjustment made in terms of section 31(2);
[Paragraph (e) substituted by section 4(1)(b) of Act 42 of 2024 effective on 1 January, 2025 and applicable in respect of years of assessment commencing on or after that date]
(f) that loan, advance or credit was provided to that trust or company in terms of an arrangement that would have qualified as a sharia compliant financing arrangement as contemplated in section 24JA, had that trust or company been a bank as defined in that section;
[Paragraph (f) substituted by section 5 of Act 17 of 2017 effective on 19 July 2017, applies in respect of any amount owed by a trust or a company in respect of a loan, advance or credit provided to that trust or that company before, on or after that date]
(g) that loan, advance or credit is subject to the provisions of section 64E(4); or
[Paragraph (g) amended by section 5 of Act 17 of 2017 effective on 1 March 2017, applies in respect any amount owed by a trust in respect of a loan, advance or credit provided to that trust before, on or after that date]
(h) that trust was created solely for purposes of giving effect to an employee share incentive scheme in terms of which-
(i) that loan, advance or credit was provided-
(aa) by a company to that trust; or
(bb) for purposes of funding the acquisition, by that trust, of shares in that company or in any other company forming part of the same group of companies as that company (hereinafter referred to as a scheme company’);
(ii) equity instruments, as defined in section 8C, that relate to or derive their value from shares in a scheme company may be offered by that trust to a person solely by virtue of that person-
(aa) being in employment on a full-time basis with; or
(bb) holding the office of director of, a scheme company; and
(iii) a person that is a connected person in terms of paragraph (d)(iv) of the definition of connected person in relation to any scheme company is not entitled to participate in that scheme.
[Paragraph (h) inserted by section 5 of Act 17 of 2017 effective on 1 March 2017, applies in respect any amount owed by a trust in respect of a loan, advance or credit provided to that trust before, on or after that date]
(6) For the purposes of this section “preference share” means a preference share as defined in section 8EA (1).
[Section 7C inserted by section 12(1) of Act 15 of 2016 and amended by section 4 of Act 34 of 2019. Subsection (6) added by section 3(1)(d) of Act 23 of 2020 effective on 1 January, 2021 and applicable in respect of any dividend or foreign dividend accruing during any year of assessment commencing on or after that date]
[Section 7C inserted by section 12 of Act 15 of 2016 effective on 1 March 2017, applies in respect of any amount owed by a trust in respect of a loan, advance or credit provided to that trust before, on or after that date]
64C. Disposal of restricted equity instruments
A person must disregard any capital gain or capital loss determined in respect of the disposal of any restricted equity instrument as contemplated in section 8C(4)(a), (5)(a) or (c).
[Paragraph 64C inserted by section 118 of Act 25 of 2015 effective on 1 March 2016]
63B. Small business funding entities
(1) A small business funding entity approved by the Commissioner in terms of section 30C must disregard any capital gain or capital loss determined in respect of the disposal of an asset if-
(a) that small business funding entity did not use that asset in carrying on any business undertaking or trading activity; or
(b) substantially the whole of the use of that asset by that small business funding entity was directed at-
(i) a purpose other than carrying on a business undertaking or trading activity; or
(ii) carrying on a business undertaking or trading activity contemplated in section 10(1)(cQ)(ii)(aa), (bb) or (cc).
[Paragraph 63B inserted by section 90 of Act 43 of 2014 effective on 1 March 2015]
(2) The cash equivalent of the value of the taxable benefit contemplated in paragraph 2(l), where the benefits payable to members in respect of a fund member category of a pension fund or provident fund consists solely of defined contribution components, is the value of the amount contributed by the employer for the benefit of an employee who is a member of that fund.
[Subparagraph (2) substituted by section 69(1)(b) of Act 17 of 2017 and by section 33(g) of Act 42 of 2024]
(3) Where the taxable benefits payable to members in respect of a fund member category of a pension fund or provident fund consists of components other than only defined contribution components, the cash equivalent of the value of the taxable benefit contemplated in paragraph 2(l) is an amount that must be determined in accordance with the formula:
X = (A x B) – C
in which formula-
(a) ‘X’ represents the amount to be determined;
(b) ‘A’ represents the fund member category factor in respect of the fund member category of which the employee is a member;
(c) ‘B’ represents the amount of the retirement funding income of the employee;
[Paragraph (c) substituted by section 101 of Act 25 of 2015 effective on 1 March 2016]
(d) ‘C’ represents the sum of the amounts contributed by the employee to the fund in terms of the rules of the fund, excluding any additional voluntary contributions contributed to the fund by the employee, and buyback, in respect of that year of assessment.
[Subparagraph (3) amended by section 69(1)(c) of Act 17 of 2017 and by section 33(h) of Act 42 of 2024]
(4) The board of a fund must provide to the employer of the employees who are members of a fund a contribution certificate in respect of the benefit contemplated in subparagraph (3)-
(a) no later than one month before the commencement of the year of assessment in respect of which the contribution certificate is issued: Provided that the board of the fund must not provide a contribution certificate in respect of any year of assessment in respect of which those benefits remain unaltered subsequent to the issue of that contribution certificate;
[Item (a) amended by section 71 of Act 23 of 2018 effective on 1 March 2018, applies in respect of years of assessment commencing on or after that date]
(b) where the rules of the fund are amended and those amendments or for any reason affect the value of or entitlement to any benefit payable to a member of that fund or a dependant or nominee of that member, the contribution certificate must be supplied to the employer no later than one month after the day on which those amendments become effective;
(c) where an error occurred in calculating the fund member category factor contemplated in subparagraph (5)(a), a corrected contribution certificate must be supplied to the employer and that corrected certificate will have effect from the first day of the month following the month during which that corrected certificate was received; or
[Item (c) added by section 71 of Act 23 of 2018 effective on 1 March 2018, applies in respect of years of assessment commencing on or after that date]
(d) where the fund member category factor changed during the year of assessment, the contribution certificate must be supplied to the employer no later than one month after the day on which those changes become effective.
[Item (d) added by section 71 of Act 23 of 2018 effective on 1 March 2018, applies in respect of years of assessment commencing on or after that date]
(5) The Minister must make regulations prescribing-
(a) the manner in which a fund must determine all fund member category factors; and
(b) the information that the contribution certificate contemplated in subparagraph (4) must contain.
(6) No value must be placed in terms of this paragraph on the taxable benefit derived from any contribution made by an employer to a fund-
(a) for the benefit of a member of that fund who has retired from that fund; or
(b) in respect of the dependants or nominees of a deceased member of that fund.
[Paragraph 12D inserted by section 125 of Act 31 of 2013 effective on 1 March 2016 – comes into operation in terms of section 125 of Act 31 of 2013 as substituted by section 131 of Act 43 of 2014, substituted by section 77 of Act 43 of 2014 effective on 1 March 2016]
“underpin component” means a benefit receivable from a pension fund or provident fund the value of which benefit, in terms of the rules of the fund, is the greater of the amount of a defined contribution component or a defined benefit component other than a risk benefit.
[Definition of “underpin component” substituted by section 33(f) of Act 42 of 2024]
“risk benefit” means a benefit payable by the fund in respect of the death or permanent disablement of a member to that member or to a dependant or nominee of that member;
[Definition of “risk benefit” amended by section 43(1)(b) of Act 20 of 2021 effective on 1 March, 2022 and applicable in respect of years of assessment commencing on or after that date]