‘instrument’ means an instrument as defined in section 8F(1);
[Definition of ‘instrument’ substituted by section 17 of Act 15 of 2016 effective on 24 February 2016, applies in respect of amounts incurred in respect of an instrument on or after that date]
(1) For the purposes of this section-
‘hybrid interest’, in relation to any debt owed by a company in terms of an instrument, means-
(a) any interest where the amount of that interest is-
(i) not determined with reference to a specified rate of interest; or
(ii) not determined with reference to the time value of money; or
(b) if the rate of interest has in terms of that instrument been raised by reason of an increase in the profits of the company, so much of the amount of interest as has been determined with reference to the raised rate of interest as exceeds the amount of interest that would have been determined with reference to the lowest rate of interest in terms of that instrument during the current year of assessment and the previous five years of assessment;
8FA. Hybrid interest deemed to be dividends in specie
‘redeem’, in relation to an instrument, means the discharge of all liability to pay all amounts in terms of that instrument.
‘issue’, in relation to an instrument, means the creation of a liability to pay an amount in terms of that instrument;
‘instrument’ means any form of interest-bearing arrangement or debt that is issued by-
(a) a company that is a resident;
(b) a company that is not a resident if the interest in respect of that instrument is attributable to a permanent establishment of that company in the Republic; or
(c) a company that is a controlled foreign company as contemplated in section 9D if the interest incurred in respect of that instrument must be taken into account in determining the net income of that controlled foreign company as contemplated in that section;
[Definition of ‘instrument’ substituted by section 16 of Act 15 of 2016 effective on 24 February 2016, applies in respect of amounts incurred in respect of an instrument on or after that date]
‘hybrid debt instrument’ means any instrument in respect of which a company owes an amount during a year of assessment if in terms of any arrangement as defined in section 80L-
(a) that company is in that year of assessment entitled or obliged to-
(i) convert that instrument (or any part thereof) in any year of assessment to; or
(ii) exchange that instrument (or any part thereof) in any year of assessment for,
shares unless the market value of those shares is equal to the amount owed in terms of the instrument at the time of conversion or exchange;
(b) the obligation to pay an amount so owed on a date or dates falling within that year of assessment has been deferred by reason of that obligation being conditional upon the market value of the assets of that company not being less than the amount of the liabilities of that company; or
[Paragraph (b) substituted by section 16 of Act 15 of 2016 effective on 1 January 2016, applies in respect of years of assessment commencing on or after that date]
(c) that company owes the amount to a connected person in relation to that company and is not obliged to redeem the instrument, excluding any instrument payable on demand, within 30 years from the date of issue of that instrument;
[Words and subparagraphs preceding the proviso substituted by section 9 of Act 25 of 2015 effective on 1 January 2016]
Provided that, for the purposes of this paragraph, where the company has the right to-
(aa) convert that instrument to; or
(bb) exchange that instrument for,
a financial instrument other than a share-
(A) that conversion or exchange must be deemed to be an arrangement in respect of that instrument; and
(B) that instrument and that financial instrument must be deemed to be one and the same instrument for the purposes of determining the period within which the company is obliged to redeem that instrument;
8F. Interest on hybrid debt instruments deemed to be dividends in specie
(2) Any dividend or foreign dividend received by or accrued to a person during any year of assessment in respect of a share or equity instrument must be deemed in relation to that person to be an amount of income accrued to that person if that share or equity instrument constitutes a third-party backed share at any time during that year of assessment or during any previous year of assessment.
[Subsection (2) substituted by section 15(1)(g) of Act 15 of 2016 and by section 6(1)(a) of Act 5 of 2026 effective on 1 January, 2026 and applicable to years of assessment commencing on or after that date]
(2A) Where a preference share that was issued in terms of an agreement, all the terms of which were finally agreed to before 1 April 2012 by all the parties to that agreement, constitutes a third-party backed share solely by reason of an enforcement right acquired in accordance with the terms of that agreement and that enforcement right is cancelled on or after 26 October 2016 and on or before 31 December 2017, the provisions of subsection (2) will not apply in respect of any dividend or foreign dividend that accrues in respect of that share after the date of cancellation of that enforcement right.
[Subsection (2A) inserted by section 15 of Act 15 of 2016 and substituted by section 13 of Act 23 of 2018 effective on 17 January 2019]
(3)
(a) Where the funds derived from the issue of a preference share were applied for a qualifying purpose, in determining whether an enforcement right is exercisable in respect of that share, no regard must be had to any arrangement in terms of which the holder of that share has an enforcement right in respect of that share and that right is exercisable, against the persons contemplated in paragraph (b).
[Paragraph (a) substituted by section 9(c) of Act 34 of 2019]
(b) For the purposes of the determination contemplated in paragraph (a) no regard must be had to the following persons:
(i) The operating company to which that qualifying purpose relates;
(ii) any issuer of a preference share if that preference share was issued for a qualifying purpose;
[Subparagraph (ii) substituted by section 7 of Act 43 of 2014 effective on 1 January 2013]
(iii) any other person that directly or indirectly holds at least 20 per cent of the equity shares in-
(aa) the operating company contemplated in subparagraph (i); or
(bb) the issuer contemplated in subparagraph (ii);
(iv) any company that forms part of the same group of companies as-
(aa) the operating company contemplated in subparagraph (i);
(bb) the issuer contemplated in subparagraph (ii); or
(cc) the other person that directly or indirectly holds at least 20 per cent of the equity shares in the operating company contemplated in subparagraph (i) or the issuer contemplated in subparagraph (ii);
(v) any natural person;
[Subparagraph (v) amended by section 7 of Act 43 of 2014 effective on 1 January 2013]
(vi) any organisation-
(aa) which is-
(A) a non-profit company as defined in section 1 of the Companies Act; or
(B) a trust or association of persons; and
(bb) if-
(A) all the activities of that organisation are carried on in a non-profit manner; and
(B) none of the activities of that organisation are intended to directly or indirectly promote the economic self-interest of any fiduciary or employee of that organisation, otherwise than by way of reasonable remuneration payable to that fiduciary or employee; or
[Subparagraph (vi) amended by section 7 of Act 43 of 2014 effective on 1 January 2013]
(vii) any person that holds equity shares in an issuer contemplated in subparagraph (ii) if the enforcement right exercisable against that person is limited to any rights in and claims against that issuer that are held by that person.
[Subparagraph (vii) added by section 7(1)(d) of Act 43 of 2014 and substituted by section 10(1) of Act 17 of 2017 and by section 9(d) of Act 34 of 2019]
Provided that where an equity share in an operating company is acquired by any person as contemplated in paragraph (a) or (b) of the definition of “qualifying purpose” and the share so acquired is no longer held directly or indirectly by that person at the time of the receipt or accrual of that dividend or foreign dividend in respect of the preference share, this subsection must not apply, unless-
(a) that equity share in the operating company was disposed of and to the extent that the funds derived directly or indirectly from that disposal are used by the issuer of the preference share for the redemption of that preference share and the settlement of an amount of dividends or foreign dividends, if any, in respect of that preference share, within 90 days of that disposal; or
[Paragraph (a) substituted by section 6(1)(b) of Act 42 of 2024 and by section 6(1)(b) of Act 5 of 2026 effective on 1 January, 2026 and applicable to years of assessment commencing on or after that date]
(b) that equity share in the operating company was a listed share and substituted for a listed share in terms of an arrangement that is announced and released as a corporate action as contemplated in the JSE Limited Listings Requirements in the SENS (Stock Exchange News Service) as defined in the JSE Limited Listings Requirements or a corporate action as contemplated in the listings requirements of any other exchange, licensed under the Financial Markets Act, that are substantially the same as the requirements prescribed by the JSE Limited Listings Requirements, where that corporate action complies with the applicable requirements of that exchange or a corporate action contemplated in the listings requirements of an exchange, in a country other than the Republic, contemplated in paragraph (c) of the definition of “recognised exchange” in paragraph 1 of the Eighth Schedule.
[Paragraph (b) substituted by section 6(1)(c) of Act 42 of 2024 effective on 1 January, 2025 and applicable in respect of dividends or foreign dividends received or accrued during years of assessment commencing on or after that date]
[Section 8EA (section 21(1) of Act 24 of 2011 repealed by section 165(1) of Act 22 of 2012 deemed to have come into operation on 10 January, 2012) inserted by section 12(1) of Act 22 of 2012 effective on (a) in the case of dividends or foreign dividends received in cash by any person during any year of assessment of that person that commences on or after 1 January, 2013, on 1 April, 2012 and applicable in respect of any dividend or foreign dividend so received if that dividend or foreign dividend (i) accrued to that person on or after 1 April, 2012; and (ii) is received by that person on or after a date three months after the date on which that dividend or foreign dividend accrued to that person; or (b) in the case of dividends or foreign dividends (i) received by or accrued to any person; and (ii) that are not received by and accrued to that person as contemplated in (a), on 1 January, 2013 and applicable in respect of any dividend or foreign dividend so received and accrued during years of assessment of that person that commence on or after that date. Subsection (3) added by section 11(1)(d) of Act 31 of 2013 and amended by section 5(1) of Act 17 of 2023 effective on 1 January, 2024 and applicable in respect of any dividend or foreign dividend received or accrued during years of assessment commencing on or after the date]
“third-party backed share” means any preference share or equity instrument in respect of which an enforcement right is exercisable by the holder of that preference share or equity instrument or any person that is a connected person in relation to that holder as a result of any amount of any specified dividend, foreign dividend, return of capital or foreign return of capital attributable to that share or equity instrument not being received by or accruing to any person entitled thereto.
[Definition of “third-party backed share” amended by section 11(1)(c) of Act 31 of 2013 and substituted by section 15(1)(f) of Act 15 of 2016, by section 9(b) of Act 34 of 2019 and by section 6(1)(a) of Act 42 of 2024 effective on 1 January, 2025 and applicable in respect of dividends or foreign dividends received or accrued during years of assessment commencing on or after that date]