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Section 25D (ITA) – Determination of taxable income in foreign currency

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25D.    Determination of taxable income in foreign currency

(1)     Subject to subsections (2), (3) and (4), any amount received by or accrued to, or expenditure or loss incurred by, a person during any year of assessment in any currency other than the currency of the Republic must be translated to the currency of the Republic by applying the spot rate on the date on which that amount was so received or accrued or expenditure or loss was so incurred.

(2)     Any amounts received by or accrued to, or expenditure incurred by, a person in any currency other than the currency of the Republic which are attributable to a permanent establishment of that person outside the Republic must be determined in the functional currency of that permanent establishment (other than the currency of any country in the common monetary area) and be translated to the currency of the Republic by applying the average exchange rate for the relevant year of assessment.

(2A)  Subsection (2) shall not apply to the extent that-

(a)     the other currency contemplated in that subsection is not the functional currency of that permanent establishment; and

 

(b)     the functional currency is the currency of a country which has an official rate of inflation of 100 per cent or more throughout the relevant year of assessment.

(3)     Notwithstanding subsection (1), a natural person or a trust (other than a trust which carries on any trade) may elect that all amounts received by or accrued to, or expenditure or losses incurred by that person or trust in any currency other than the currency of the Republic, be translated to the currency of the Republic by applying the average exchange rate for the relevant year of assessment.

(4)     Where, during any year of assessment-

(a)     any amount-

 

(i)      is received by or accrued to; or

 

(ii)     of expenditure is incurred by,

a headquarter company in any currency other than the functional currency of the headquarter company; and

(b)     the functional currency of that headquarter company is a currency other than the currency of the Republic,that amount must be determined in the functional currency of the headquarter company and must be translated to the currency of the Republic by applying the average exchange rate for that year of assessment.

(5)       Where, during any year of assessment-

(a)     any amount-

 

(i)      is received by or accrues to; or

 

(ii)     of expenditure is incurred by,

 

a domestic treasury management company in any currency other than the functional currency of the domestic treasury management company; and

(b)     the functional currency of that domestic treasury management company is a currency other than the currency of the Republic,

 

that amount must be determined in the functional currency of the domestic treasury management company and must be translated to the currency of the Republic by applying the average exchange rate for that year of assessment.

(6)       Where, during any year of assessment-

(a)     any amount-

(i)      is received by or accrues to; or

(ii)     of expenditure is incurred by,

an international shipping company in any currency other than the functional currency of the international shipping company; and

(b)     the functional currency of that international shipping company is a currency other than the currency of the Republic,

that amount must be determined in the functional currency of the international shipping company and must be translated to the currency of the Republic by applying the average exchange rate for that year of assessment.

 [Subsection (6) added by section 75 of Act 31 of 2013 and substituted by section 46 of Act 43 of 2014 effective on 1 April 2014]

(7)       Any amounts received by or accrued to, or expenditure incurred by-

(a)     a headquarter company contemplated in subsection (4); or

(b)     a domestic treasury management company contemplated in subsection (5); or

(c)     an international shipping company contemplated in subsection (6),

during any year of assessment in a functional currency that is a currency other than the currency of the Republic must be translated to the currency of the Republic by applying the average exchange rate for the relevant year of assessment.

[Subsection (7) added by section 46 of Act 43 of 2014 effective on 20 January 2015]

Section 25C (ITA) – Income of insolvent estates

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25C.    Income of insolvent estates

 

For the purposes of this Act, and subject to any such adjustments as may be necessary the estate of a person prior to sequestration and that person’s insolvent estate shall be deemed to be one and the same person for purposes of determining-

 

(a)     the amount of any allowance, deduction or set off to which that insolvent estate may be entitled;

 

(b)     any amount which is recovered or recouped by or otherwise required to be included in the income of that insolvent estate; and

 

(c)     any taxable capital gain or assessed capital loss of that insolvent estate.

Subsection 2, 3, 4, 5, 6, 7 and 8 of section 25BB of ITA

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(2)

(a)     There must be deducted from the income for a year of assessment of-

(i)      a REIT; or

(ii)     a controlled company that is a resident,

the amount of any qualifying distribution made by that REIT or that controlled company in respect of that year of assessment if that company is a REIT or a controlled company on the last day of that year of assessment.

(b)     The aggregate amount of the deductions contemplated in paragraph (a) may not exceed the taxable income for that year of assessment of that REIT or that controlled company, before taking into account-

(i)      any deduction in terms of this subsection;

(ii)     any assessed loss brought forward in terms of section 20; and

(iii)    the amount of taxable capital gain included in taxable income in terms of section 26A.

(2A)    For the purposes of calculating the taxable income in respect of a year of assessment of a REIT or a controlled company as contemplated in subsection (2)(b)-

(a)     where-

(i)      a REIT or a controlled company is a beneficiary of a vesting trust that is not a resident; and

(ii)     the trust contemplated in subparagraph (i) is liable for or subject to tax on income in the country in which that trust is established or formed,

so much of any amount of tax on income proved to be payable by that trust to the government of a country other than the Republic as is attributable to the interest of that REIT or controlled company in that trust, without any right of recovery of that tax by any person, other than a right of recovery in terms of any entitlement to carry back losses arising during any year of assessment, limited to the amount of taxable income that is attributable to those amounts, must be allowed to be deducted by that REIT or controlled company before taking into account any deduction in terms of subsection (2)(a).

[Words following subparagraph (ii) substituted by section 48 of Act 15 of 2016 and section 49 of Act 23 of 2018 effective on 17 January 2019]

(b)     there must be allowed as a deduction from the income of that REIT or that controlled company the sum of any taxes on income proved to be payable, by that REIT or that controlled company in respect of any amount to any sphere of government of any country other than the Republic, without any right of recovery by any person other than a right of recovery in terms of any entitlement to carry back losses arising during any year of assessment, limited to the amount of taxable income that is attributable to those amounts, before taking into account any deduction in terms of paragraph (c) and subsection (2)(a);

[Paragraph (b) substituted by section 48(1)(c) of Act 15 of 2016 and amended by section 29(1)(b) of Act 23 of 2020 effective on 1 January, 2021 and applicable in respect of years of assessment commencing on or after that date]

(c)     where during any year of assessment a REIT or controlled company has made a bona fide donation to any organisation as contemplated in section 18A(1)(a) or (b) there must be allowed to be deducted an amount equal to the amount of that donation: Provided that the deduction so allowed may not exceed 10 per cent of the taxable income of that REIT or controlled company after taking into account any deduction in terms of paragraph (a) and (b) but before taking into account any deduction in terms of subsection (2)(a); and

[Paragraph (c) amended by section 29(1)(b) of Act 23 of 2020 effective on 1 January, 2021 and applicable in respect of years of assessment commencing on or after that date]

(d)     where a foreign dividend is received by or accrued to a REIT or controlled company, section 10B(2)(a) must not apply.

[Subsection (2A) inserted by section 50(1)(b) of Act 25 of 2015 effective on 1 January, 2016 and applicable in respect of years of assessment commencing on or after that date. Paragraph (d) added by section 29(1)(b) of Act 23 of 2020 effective on 1 January, 2021 and applicable in respect of years of assessment commencing on or after that date]

(3)       ……….

[Subsection (3) deleted by section 50 of Act 25 of 2015 effective on 1 April 2013]

(4)     A company that is a REIT or a controlled company on the last day of a year of assessment may not deduct by way of an allowance any amount in respect of immovable property in terms of section 11(g), 12B, 12BA, 13, 13bis, 13ter, 13quat, 13quin or 13sex.

[Subsection (4) substituted by section 22(b) of Act 42 of 2024]

(5)     In determining the aggregate capital gain or aggregate capital loss of a company that is a REIT or a controlled company on the last day of a year of assessment for purposes of the Eighth Schedule, any capital gain or capital loss determined in respect of the disposal of-

[Words preceding paragraph (a) substituted by section 45 of Act 43 of 2014 effective on 1 April 2013]

(a)     immovable property of a company that is a REIT or controlled company at the time of the disposal;

[Paragraph (a) substituted by section 45 of Act 43 of 2014 effective on 20 January 2015]

(b)     a share or a linked unit in a company that is a REIT at the time of that disposal; or

(c)     a share or a linked unit in a company that is a property company at the time of that disposal,

must be disregarded.

(6)

(a)     Any amount of interest received by or accrued to a person during a year of assessment in respect of a debenture forming part of a linked unit held by that person in a company that is-

(i)      a REIT or a controlled company that is a resident must be deemed to be a dividend received by or accrued to that person; or

(ii)     a controlled company that is a foreign company must be deemed to be a foreign dividend received by or accrued to that person,

during that year of assessment.

[Paragraph (a) substituted by section 45 of Act 43 of 2014, section 50 of Act 25 of 2015 and section 48 of Act 15 of 2016 effective on 19 January 2017]

(b)     Any amount of interest received by or accrued to a company that is a REIT or a controlled company that is a resident during a year of assessment in respect of a debenture forming part of a linked unit held by that company in a property company must if the property company is a resident be deemed to be a dividend, or if the property company is a foreign company be deemed to be a foreign dividend, received by or accrued to that company during that year of assessment if that company is a REIT or a controlled company that is a resident at the time of that receipt or accrual.

[Paragraph (b) substituted by section 45 of Act 43 of 2014 and section 50 of Act 25 of 2015 effective on 1 April 2013]

(c)     Any amount of interest paid in respect of a linked unit in a REIT or a controlled company must be deemed-

(i)      to be a dividend paid by that REIT or that controlled company that is a resident for the purposes of the dividends tax contemplated in Part VIII of this Chapter; and

[Subparagraph (i) substituted by section 48 of Act 15 of 2016 effective on 1 January 2017, applies in respect of amounts paid on or after that date]

(ii)     not to be an amount of interest paid by that REIT or that controlled company for the purposes of the withholding tax on interest contemplated in Part IVB of this Chapter.

(7)     If during any year of assessment a company that is a REIT ceases to be a REIT and that company does not qualify as a controlled company or a company that is a controlled company ceases to be a controlled company and that company does not qualify as a REIT-

(a)     that year of assessment of that REIT or controlled company is deemed to end on the day preceding the date on which that company ceases to be either a REIT or a controlled company; and

[Paragraph (a) substituted by section 45 of Act 17 of 2017 effective on 18 December 2017]

(b)     the following year of assessment of that company is deemed to commence on the day on which that company ceased to be either a REIT or a controlled company.

[Paragraph (b) substituted by section 45 of Act 17 of 2017 effective on 18 December 2017]

(8)     If a REIT or a controlled company cancels the debenture part of a linked unit and capitalises the issue price of the debenture to stated capital for the purposes of financial reporting in accordance with IFRS-

(a)     the cancellation of the debenture must be disregarded in determining the taxable income of the holder of the debenture and of the REIT or controlled company;

(b)     expenditure incurred by the holder of a share in the REIT or controlled company in respect of the shares is deemed to be equal to the amount of the expenditure incurred in respect of the acquisition of that linked unit; and

[Paragraph (b) substituted by section 45 of Act 43 of 2014 effective on 1 April 2013]

(c)     the issue price of the cancelled debenture must be added to the contributed tax capital of the class of shares that forms part of the linked unit.

“Rental income” definition of section 25BB of ITA

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“rental income” means an amount calculated in accordance with the formula-

RI = PI + EG

in which formula-

(a)       “RI” represents the amount to be determined;

(b)       “PI” represents the aggregate of all amounts received or accrued-

(i)  in respect of the use of immovable property, including a penalty or interest in respect of late payment of any such amount;

(ii) as a dividend (other than a dividend contemplated in paragraph (b) of the definition of “dividend”) from a company that is a REIT at the time of the distribution of that dividend;

(iii)    as a qualifying distribution from a company that is a controlled company at the time of that distribution;

(iv)    as a dividend or foreign dividend from a company that is a property company at the time of that distribution; and

(v)     any amount recovered or recouped in terms of section 8(4) in respect of an amount of an allowance previously deducted in terms of section 11(g), 12B, 12BA, 13, 13bis, 13ter, 13quat, 13quin or 13sex; and

[Subparagraph (v) substituted by section 22(a) of Act 42 of 2024]

(c)      “EG” represents the total of foreign exchange gains contemplated in the definition of “exchange difference” in section 24I(1), determined in terms of that section in respect of the amounts referred to in paragraph (b) that constitute exchange items or any exchange item serving as a hedge in respect of amounts referred to in that paragraph.

[Definition of “rental income” amended by section 48(1)(a) of Act 15 of 2016 and substituted by section 32 of Act 34 of 2019]

“Qualifying distribution” definition of section 25BB of ITA

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“qualifying distribution”, in respect of a year of assessment of a company that is a REIT or a controlled company as at the end of a year of assessment, means any dividend (other than a dividend contemplated in paragraph (b) of the definition of “dividend”) paid or payable in respect of an equity share, or interest incurred in respect of a debenture forming part of a linked unit in that company, if the amount thereof is determined with reference to the financial results of that company as reflected in the financial statements prepared for that year of assessment if-

[Definition of “qualifying distribution” amended by section 45(a) of Act 17 of 2017 and by section 29(1)(a) of Act 23 of 2020 effective on 1 January, 2021 and applicable in respect of years of assessment commencing on or after that date]

(a)     that year of assessment is the first year of assessment and at least 75 per cent of the gross income received by or accrued to a company during that first year of assessment that the company qualifies as a REIT or controlled company, consists of rental income; and

[Paragraph (a) substituted by section 50 of Act 25 of 2015 and section 49 of Act 23 of 2018 effective on 17 January 2019]

(b)     in any other case, at least 75 per cent of the gross income received by or accrued to a REIT or a controlled company in the preceding year of assessment consists of rental income:

Provided that any amount that must be included in the income of the REIT or controlled company in terms of section 9D(2) must not be included in the gross income of the REIT or controlled company in respect of that year of assessment for the purposes of this definition;

“Property company” definition of section 25BB of ITA

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‘property company’ means a company-

(a)     in which 20 per cent or more of the equity shares or linked units are held by a REIT or a controlled company (whether alone or together with any other company forming part of the same group of companies as that REIT or that controlled company); and

(b)     of which at the end of the previous year of assessment 80 per cent or more of the value of the assets, reflected in the annual financial statements prepared in accordance with the Companies Act or IFRS for the previous year of assessment, is directly or indirectly attributable to immovable property;

[Paragraph (b) substituted by section 45 of Act 43 of 2014 effective on 1 April 2013]

Section 25BA (ITA) – Amounts received by or accrued to certain portfolios of collective investment schemes and holders of participatory interests in portfolios

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25BA.    Amounts received by or accrued to certain portfolios of collective investment schemes and holders of participatory interests in portfolios

 

(1)     Any amount, other than an amount of a capital nature, received by or accrued to any portfolio of a collective investment scheme, other than a portfolio of a collective investment scheme in property, must-

 

(a)     to the extent that the amount is distributed by that portfolio-

 

(i)      to any person who is entitled to the distribution by virtue of the person being a holder of a participatory interest in that portfolio; and

 

(ii)     not later than 12 months after its accrual to or, in the case of interest, its receipt by that portfolio;

 

be deemed to have directly accrued to the person on the date of the distribution; and

 

(b)     to the extent that the amount is not distributed as contemplated in paragraph (a) within 12 months after its accrual to, or in the case of interest, its receipt by that portfolio-

 

(i)      be deemed to have accrued to that portfolio on the last day of the period of 12 months commencing on the date of its accrual to or receipt by that portfolio; and

 

(ii)     to the extent that the amount is attributable to a dividend received by or accrued to that portfolio, be deemed to be income of that portfolio.

 

(2)     Where a portfolio of a hedge fund collective investment scheme is constituted as a partnership any amount allocated by that portfolio to the partners in that partnership must for the purposes of subsection (1)(a) be treated as having been distributed by that portfolio to the partners in that partnership by virtue of those partners being holders of participatory interests in that portfolio.

Section 25B (ITA) – Income of trusts and beneficiaries of trusts

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25B.     Taxation of trusts and beneficiaries of trusts

[Heading amended by section 28(a) of Act 23 of 2020]

 

(1)     Any amount (other than an amount of a capital nature which is not included in gross income or an amount contemplated in paragraph 3B of the Second Schedule) received by or accrued to or in favour of any person during any year of assessment in his or her capacity as the trustee of a trust, shall, subject to the provisions of section 7(2) to (8),-

 

(a)     where that trust is a resident, to the extent to which that amount has been derived for the immediate or future benefit of any ascertained beneficiary, who is a resident and has a vested right to that amount during that year, be deemed to be an amount which has accrued to that beneficiary, and to the extent to which that amount is not so derived, be deemed to be an amount which has accrued to that trust; or

 

(b)     where that trust is not a resident, to the extent to which that amount has been derived for the immediate or future benefit of any ascertained beneficiary, who has a vested right to that amount during that year, be deemed to be an amount which has accrued to that beneficiary, and to the extent to which that amount is not so derived, be deemed to be an amount which has accrued to that trust.

[Subsection (1) substituted by section 28(b) of Act 23 of 2020, by section 29(1)(a) of Act 17 of 2023 and by section 24(1) of Act 5 of 2026 effective on 1 March, 2026 and applicable in respect of years of assessment commencing on or after that date]

 

(2)     Where a beneficiary who is a resident has acquired a vested right to any amount referred to in subsection (1) in consequence of the exercise by the trustee of a discretion vested in him or her in terms of the relevant deed of trust, agreement or will of a deceased person, that amount shall for the purposes of that subsection be deemed to have been derived for the benefit of that beneficiary.

[Subsection (2) substituted by section 29(1)(b) of Act 17 of 2023 with effect from 1 March, 2024 and applicable in respect of years of assessment commencing on or after that date]

 

(2A)  Where during any year of assessment any resident acquires any vested right to any amount representing capital of any trust which is not a resident, that amount must be included in the income of that resident in that year, if –

 

(a)     that capital consists of or is derived, directly or indirectly, from any receipts and accruals of such trust which would have constituted income if such trust had been a resident, in any previous year of assessment during which that resident had a contingent right to that amount; and

[Paragraph (a) substituted by section 48 of Act 23 of 2018 effective on 1 March 2019, applies in respect of any year of assessment commencing on or after that date]

 

(b)     that amount has not been subject to tax in the Republic in terms of this Act.

 

(2B)  In determining, for purposes of subsection (2A), whether an amount received by or that accrued to a trust which is not a resident would have constituted income had that trust been a resident, the provisions of section 10B(2)(a) must be disregarded in respect of an amount received or accrued consisting of or derived, directly or indirectly, from a foreign dividend-

 

(i)      paid or payable by a company if-

 

(aa)   more than 50 per cent of the total participation rights, as defined in section 9D(1), or of the voting rights in that company are directly or indirectly held or are exercisable, as the case may be, by that trust whether alone or together with any one or more persons that are connected persons in relation to that trust; and

 

(bb)   that resident or any person that is a connected person in relation to that resident is a connected person in relation to that trust; and

 

(ii)     to the extent to which that foreign dividend is not derived from an amount that must be included in the income of or that must be attributed as a capital gain to-

 

(aa)   the resident who acquired the vested right to the amount referred to in subsection (2A); or

 

(bb)   a resident who is a connected person in relation to the resident referred to in item (aa).

[Subsection (2B) inserted by section 48 of Act 23 of 2018 effective on 1 March 2019, applies in respect of any year of assessment commencing on or after that date]

 

(3)     Any deduction or allowance which may be made under the provisions of this Act in the determination of the taxable income derived by way of any amount referred to in subsection (1), must, to the extent to which that amount is under that subsection deemed to be an amount which has accrued to –

 

(a)     a beneficiary, be deemed to be a deduction or allowance which may be made in the determination of the taxable income derived by that beneficiary; and

 

(b)     the trust, be deemed to be a deduction or allowance which may be made in the determination of the taxable income derived by that trust.

 

(4)     The deduction or allowance contemplated in subsection (3) which is deemed to be made in the determination of the taxable income of a beneficiary of a trust during any year of assessment, shall be limited to so much of the amount deemed to have been received by or accrued to that beneficiary in terms of subsection (1), as is included in the income of that beneficiary during that year of assessment.

 

(5)     The amount by which the sum of the deductions and allowances contemplated in subsection (4) exceeds the amount included in the income of the beneficiary during a year of assessment as contemplated in that subsection –

 

(a)     is deemed to be a deduction or allowance which may be made in the determination of the taxable income of the trust during that year: Provided that the sum of those deductions and allowances shall be limited to the taxable income of that trust during that year of assessment as calculated before allowing any deduction or allowance under this subsection; or

 

(b)     where the trust is not subject to tax in the Republic, must be carried forward and be deemed to be a deduction or allowance which may be made in the determination of the taxable income derived by that beneficiary by way of amounts referred to in subsection (1) during the immediately succeeding year of assessment.

 

(6)     The amount by which the sum of the deductions and allowances contemplated in subsection (4) exceeds the sum of the amount included in the income of the beneficiary as contemplated in subsection (4) and the taxable income of the trust as contemplated in subsection (5)(a), must be deemed to be a deduction or allowance for purposes of subsection (3), which may be made in the determination of the taxable income derived by that beneficiary by way of any amount referred to in subsection (1) during the immediately succeeding year of assessment.

 

(7)     Subsections (4), (5) and (6) do not apply in respect of any amount which is deemed to have accrued to any beneficiary in terms of subsection (1), where that beneficiary is not subject to tax in the Republic on that amount.