Author: admin_kmos

Paragraph 39 (Eighth Schedule) – Capital losses determined in respect of disposals to certain connected persons

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39.    Capital losses determined in respect of disposals to certain connected persons

(1)     A person must, when determining the aggregate capital gain or aggregate capital loss of that person, disregard any capital loss determined in respect of the disposal of an asset to any person-

(a)     who was a connected person in relation to that person immediately before that disposal; or

(b)     which is immediately after the disposal –

(i)      a member of the same group of companies as that person; or

(ii)     a trust with a beneficiary which is a member of the same group of companies as that person.

(2)     A person’s capital loss which is disregarded in terms of subparagraph (1) may be deducted from that person’s capital gains determined in respect of disposals of assets during that year or subsequent years to the same person to whom the disposal giving rise to that capital loss was made, if at the time of those subsequent disposals, that person is still a connected person in relation to that person.

(3)     For the purposes of subparagraph (1), a connected person in relation to-

(a)     a natural person does not include a relative of that person other than a parent, child, stepchild, brother, sister, grandchild or grandparent of that person; or

(b)     a fund of an insurer contemplated in section 29A does not include another such fund of that insurer in respect of the disposal of an asset by such fund to another such fund.

(4)     Subparagraph (1) does not apply in respect of the disposal by a trust of any right, marketable security or equity instrument contemplated in section 8A or 8C to a beneficiary of that trust, if –

(a)     that right, marketable security or equity instrument is disposed of to that beneficiary –

(i)      by virtue of that beneficiary’s employment with an employer, directorship of a company or services rendered or to be rendered by that beneficiary as an employee to an employer: or

(ii)     as a result of the exercise, cession, release, conversion or exchange by that beneficiary of the right, marketable security or equity instrument contemplated in subitem (i); and

(b)     that trust is an associated institution as contemplated in paragraph 1 of the Seventh Schedule in relation to that employer or company.

(5)     For the purposes of subparagraph (1), where a company redeems its shares, the holder of those shares must be treated as having disposed of them to that company.

[Subparagraph (5) added by section 79 of Act 23 of 2018 effective on 17 Januaery 2019]

Paragraph 38 (Eighth Schedule) – Disposal by way of donation, consideration not measurable in money and transactions between connected persons not at arm’s length price

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38.    Disposal by way of donation, consideration not measurable in money and transactions between connected persons not at an arm’s length price

(1)    Subject to subparagraph (2) and section 9HB, where a person disposed of an asset by means of a donation or for a consideration not measurable in money or to a person who is a connected person immediately prior to or immediately after that disposal in relation to that person for a consideration which does not reflect an arm’s length price-

[Sub­paragraph (1) (previously paragraph 38) amended by section 87(1)(a) of Act 60 of 2001, by section 81 of Act 74 of 2002, by section 114(1) of Act 22 of 2012 and by section 59(a) of Act 34 of 2019]

(a)     the person who disposed of that asset must be treated as having disposed of that asset for an amount received or accrued equal to the market value of that asset as at the date of that disposal; and

(b)     the person who acquired that asset must be treated as having acquired that asset at a cost equal to that market value, which cost must be treated as an amount of expenditure actually incurred for the purposes of paragraph 20(1)(a).

[Item (b) substituted by section 87(1)(b) of Act 60 of 2001 and by section 59(b) of Act 34 of 2019]

(2)     Subparagraph (1) does not apply in respect of the disposal of-

(a)     a right contemplated in section 8A;

(b)     an asset in the circumstances contemplated in section 10(1)(nE);

(c)     a qualifying equity share contemplated in section 8B by an employer, associated institution or any other person by arrangement with the employer, as contemplated in paragraph 1 of the Seventh Schedule, to an employee; or

(d)     ……….

(e)     any asset in respect of which section 40CA applies;

[Item (e) substituted by section 134 of Act 31 of 2013 and amended by section 71 of Act 15 of 2016 effective on 1 March 2015, applies in respect of years of assessment commencing on or after that date]

(f)     any land from the date on which that land becomes declared land as defined in section 37D(1).

[Paragraph (f) added by section 71 of Act 15 of 2016 effective on 1 March 2015, applies in respect of years of assessment commencing on or after that date]

Paragraph 37G (Eighth Schedule) – Determination of taxable income derived from small business undertakings

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37G.     Determination of taxable income derived from small business undertakings

 

(1)     The Minister of Finance may make regulations to facilitate compliance with the provisions of this Act by natural persons who carry on business through small business undertakings, whether as sole proprietors or in partnership with other natural persons.

 

(2)     A regulation made under subsection (1) may –

 

(a)     prescribe what shall constitute a small business undertaking, having regard to –

 

(i)      the nature of the undertaking;

 

(ii)     the turnover, taxable income or profit of the undertaking;

 

(iii)    the number of persons employed in the undertaking;

 

(iv)    the nature and extent of other income derived by the proprietor or partners; and

 

(v)     any other feature which, in the opinion of the said Minister, indicates that an undertaking should be regarded as a small business undertaking;

 

(b)     provide for the variation of any provision of this Act relating to the determination of the taxable income derived from a small business undertaking, including –

 

(i)      the determination of taxable income having regard only to amounts actually received or expended;

 

(ii)     any variation in the manner in which the values of trading stock are taken into account;

 

(iii)    the manner in which expenditure of a capital nature incurred is to be treated; and

 

(iv)    any other provision which, save in so far as the timing of the receipt or accrual of income or the incurral of expenditure is concerned, will not result in a material variation in the determination of the taxable income derived by the undertaking over a period of time;

 

(c)     provide for the exemption from, or extension of time limits in, any provision of this Act relating to the preparation and submission of documents, accounts, returns or payments;

 

(d)     make such other provision as in the opinion of the said Minister will facilitate the carrying on of small business undertakings.

Paragraph 6 (Tenth Schedule) – Exploration and post-exploration expenses

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6.    Exploration and post-exploration expenses

 

If a company holds an oil and gas right contemplated in paragraph (a) or (b) of the definition of ‘oil and gas right’ during any year of assessment-

 

(a)     that company is deemed to be carrying on a trade in respect of that oil and gas right; and

 

(b)     expenditure and losses incurred by that company in respect of that oil and gas right are deemed to be incurred in the production of income of that company.

Paragraph 5 (Tenth Schedule) – Deductions from income derived from oil and gas activities

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5.    Deductions from income derived from oil and gas activities

 

(1)     For purposes of determining the taxable income of an oil and gas company during any year of assessment, there must be allowed as deductions from the oil and gas income of that company all expenditure and losses actually incurred (other than any expenditure or loss actually incurred in respect of the acquisition of any oil and gas right, except as allowed in paragraph 7(3)) in that year in respect of exploration or post-exploration.

 

(2)     In addition to any other deductions (as contemplated in subparagraph (1) other than any expenditure or loss actually incurred in respect of the acquisition of any oil and gas right) allowable in terms of this paragraph, for purposes of determining the taxable income of an oil and gas company during any year of assessment, there must be allowed as deductions from the oil and gas income of that company derived in that year of assessment-

 

(a)     100 per cent of all expenditure of a capital nature actually incurred in that year of assessment in respect of exploration in terms of an oil and gas right; and

 

(b)     50 per cent of all expenditure of a capital nature actually incurred in that year of assessment in respect of post-exploration in respect of an oil and gas right.

 

(2A)  For the purposes of determining the taxable income of an oil and gas company during the first year of assessment of that oil and gas company commencing on or after 2 November 2006, there will be brought forward and allowed as a deduction from the oil and gas income of that oil and gas company the amount determined in terms of section 36(7E) in respect of the immediately preceding year of assessment.

 

(3)     For purposes of determining the taxable income of an oil and gas company during any year of assessment, any assessed losses (as defined in section 20) in respect of exploration or post-exploration may only be set off against –

 

(a)     the oil and gas income of that company; and

 

(b)     income from the refining of gas derived in respect of any oil and gas right held by that company,

 

to the extent that those assessed losses do not exceed that income.

 

(4)     To the extent that any assessed losses remain after the set-off contemplated in subparagraph (3), an amount equal to 10 per cent of those remaining assessed losses may be set off against any other income derived by that company.

 

(5)     To the extent that any assessed loss remains after the set-offs contemplated in subparagraphs (3) and (4), those losses may be carried forward to the succeeding year of assessment of that oil and gas company.

Paragraph 4 (Tenth Schedule) – Foreign currency gains or losses

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4.    Foreign currency gains or losses

(1)     Currency gains or losses of an oil and gas company during any year of assessment (regardless of whether those gains or losses are realised or unrealised) must be determined solely with reference to-

(a)     the functional currency of that company; and

(b)     the translation method used by that company for purposes of financial reporting.

(2)     Any amount received by or accrued to, or expenditure incurred by, an oil and gas company during any year of assessment in any currency other than that of the Republic must be-

(a)     determined in the functional currency of that company; and

(b)     translated to the currency of the Republic by applying the average exchange rate for that year.


Paragraph 3 (Tenth Schedule) – Withholding taxes

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3.    Withholding taxes

 

(1)     The rate of dividends tax contemplated in section 64E that is paid by an oil and gas company on the amount of any dividend derived from oil and gas income must not exceed zero per cent of the amount of that dividend.

 

(2)     Notwithstanding subparagraph (1), the rate of dividends tax may not exceed 0 per cent of the amount of any dividend, as defined in section 64D, that is paid by any oil and gas company out of amounts attributable to its oil and gas income if all of its oil and gas rights are solely derived (directly or indirectly) by virtue of an OP26 right as defined in Schedule II of the Mineral and Petroleum Resources Development Act, 2002 (Act No. 28 of 2002), previously held by that company.

“Post exploration” definition of Tenth Schedule

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‘post-exploration’ means any activity carried out after the completion of the appraisal phase, including-

 

(a)     the separation of oil and gas condensates;

 

(b)     the drying of gas; and

 

(c)     the removal of non-hydrocarbon constituents, to the extent that these processes are preliminary to refining;