Category: Section 24J (ITA) – Incurral and accrual of interest

Section 24J

 

  1. Definition of “adjusted gain on transfer or redemption of an instrument” substituted by section 14 of Act 36 of 1996.

 

  1. Paragraph (b) of definition of “adjusted initial amount” amended by section 24 of Act 32 of 2004.

 

  1. Definition of “adjusted loss on transfer or redemption of an instrument” substituted by section 14 of Act 36 of 1996.

 

  1. Words preceding paragraph (a) of definition of “date of redemption” substituted by section 54 of Act 22 of 2012 effective on 1 April 2012.

 

  1. Definition of “date of redemption” inserted by section 53 of Act 24 of 2011 effective on 1 April 2012.

 

  1. Definition of “demand instrument” inserted by section 53 of Act 24 of 2011 effective on 1 April 2012 and deleted by section 54 of Act 22 of 2012 effective on 1 April 2012.

 

  1. Paragraph (a) of definition of “holder” substituted by section 24 of Act 32 of 2004.

 

  1. Definition of “income instrument” substituted by section 14 of Act 36 of 1996.

 

  1. Words preceding paragraph (a) of definition of “instrument” substituted by section 54 of Act 22 of 2012 effective on 29 February 2012.

 

  1. Paragraph (a) of definition of “instrument” substituted by section 53 of Act 24 of 2011 effective on 1 January 2012 and deleted by section 54 of Act 22 of 2012 effective on 1 January 2013.

 

  1. Paragraph (b) of definition of “instrument” deleted by section 54 of Act 22 of 2012 effective on 1 January 2013.

 

  1. Paragraph (c) of definition of “instrument”substituted by section 54(e) of Act 22 of 2012 effective on 29 Febuary 2012, section 54(f) of Act 22 of 2012 effective on 1 January 2013 and section 69 of Act 31 of 2013 effective on1 April 2013.

 

  1. Definition of “instrument” amended by section 14 of Act 36 of 1996 and section 19 of Act 28 of 1997.

 

  1. Paragraph (b) of definition of “interest” substituted by section 27 of Act 53 of 1999.

 

  1. Definition of “interest” substituted by section 19 of Act 28 of 1997.

 

  1. Definition of “interest rate agreement” inserted by section 19 of Act 28 of 1997.

 

  1. Definition of “issue price” substituted by section 24 of Act 32 of 2004.

 

  1. Paragraph (a) of definition of “issuer” substituted by section 24 of Act 32 of 2004.

 

  1. Definition of “lending arrangement” inserted by section 27 of Act 53 of 1999.

 

  1. Definition of “term” substituted by section 53 of Act 24 of 2011 effective on 1 April 2012 and section 54 of Act 22 of 2012 effective on 1 April 2012.

 

  1. Definition of “transfer price” substituted by section 24 of Act 32 of 2004.

 

  1. Paragraph (c) of definition of “yield to maturity” substituted by section 69 of Act 31 of 2013 effective on 1 April 2013.

 

  1. Subparagraph (i) substituted by section 24 of Act 32 of 2004.

 

  1. Subparagraph (d)(ii) of definition of “yield to maturity” substituted by section 24 of Act 32 of 2004 and amended by section 69 of Act 31 of 2013 effective on 1 April 2013.

 

  1. Paragraph (e) of definition of “yield to maturity” added by section 69 of Act 31 of 2013 effective on 1 April 2013.

 

  1. Further proviso of definition of “yield to maturity” added by section 24 of Act 32 of 2004 and amended by section 10 of Act 9 of 2005.

 

  1. Subsection (2) amended by section 24 of Act 32 of 2004.

 

  1. Subsection (3) amended by section 24 of Act 32 of 2004.

 

  1. Subsection (3A) inserted by section 14 of Act 36 of 1996.

 

  1. Words following subparagraph (4A)(ii) substituted by section 54 of Act 22 of 2012 effective on 1 January 2013.

 

  1. Subsection (4A) inserted by section 14 of Act 36 of 1996.

 

  1. Paragraph (5)(a) substituted by section 20 of Act 20 of 2006.

 

  1. Paragraph (5)(b) substituted by section 20 of Act 20 of 2006.

 

  1. Subsection (5) amended by section 20 of Act 20 of 2006.

 

  1. Subsection (5A) inserted by section 14 of Act 36 of 1996.

 

  1. Paragraph (9)(a) substituted by section 19 of Act 28 of 1997 and section 27 of Act 53 of 1999.

 

  1. Subparagraph (9)(b)(ii) substituted by section 19 of Act 28 of 1997 and section 27 of Act 53 of 1999.

 

  1. Item (9)(b)(iii)(A) substituted by section 19 of Act 28 of 1997 and section 27 of Act 53 of 1999.

 

  1. Item (9)(b)(iii)(B) substituted by section 19 of Act 28 of 1997 and section 27 of Act 53 of 1999.

 

  1. Subparagraph (9)(b)(iv) substituted by section 19 of Act 28 of 1997 and section 27 of Act 53 of 1999.

 

  1. Paragraph (9)(c) substituted by section 19 of Act 28 of 1997 and section 27 of Act 53 of 1999.

 

  1. Paragraph (9)(d) substituted by section 19 of Act 28 of 1997 and section 27 of Act 53 of 1999.

 

  1. Subparagraph (9)(f)(ii) amended by section 19 of Act 28 of 1997 and section 27 of Act 53 of 1999.

 

  1. Paragraph (9)(g) added by section 69 of Act 31 of 2013 effective on 1 April 2014.

 

  1. Subsection (9A) added by section 69 of Act 31 of 2013 effective on 1 April 2014.

 

  1. Subsection (11) deleted by section 271 of Act 28 of 2011 effective on 1 October 2012.

 

  1. Subsection (12) inserted by section 54 of Act 22 of 2012 effective on 1 April 2012.

 

  1. Section 24J inserted by section 21 of Act 21 of 1995.

“Yield to maturity” definition of section 24J of ITA

Posted on by admin_kmos

“yield to maturity” means the rate of compound interest per accrual period at which the present value of all amounts payable or receivable in terms of any instrument in relation to a holder or an issuer, as the case may be, of such instrument during the term of such instrument equals the initial amount in relation to such holder or issuer of such instrument: Provided that where –

 

(a)     such instrument is a variable rate instrument, such rate of compound interest shall be calculated with reference to the variable rate applicable on the date such rate of compound interest is to be calculated to determine all amounts payable or receivable after such date;

 

(b)     in the case of a variable rate instrument the variable rate in relation to such instrument changes, the rate of compound interest shall be redetermined in relation to such variable rate instrument with reference to –

 

(i)      the appropriate adjusted initial amount in relation to such variable rate instrument determined before such change in the rate; and

 

(ii)     such changed variable rate applicable on the date such rate of compound interest is to be redetermined to determine all amounts payable or receivable after such date;

 

(c)     any variation in the terms or conditions of such instrument takes place or any variation in any amount payable or receivable in terms of such instrument takes place which will result in a change in such rate of compound interest in relation to such instrument, the rate of compound interest shall be redetermined in relation to such instrument with reference to the appropriate adjusted initial amount in relation to such instrument determined before such variation;

 

(d)     there is a variation or alteration –

 

(i)      of the rights or interests of a holder in relation to an income instrument in respect of any amounts receivable in terms of such income instrument, the rate of compound interest in relation to such income instrument shall be redetermined in respect of such holder with reference to the appropriate adjusted initial amount in relation to such income instrument determined before such variation or alteration; or

 

(ii)     in the obligations of an issuer in relation to an instrument in respect of any amounts payable in terms of such instrument, the rate of compound interest in relation to such instrument shall be redetermined in respect of such issuer with reference to the appropriate adjusted initial amount in relation to such instrument determined before such variation or alteration; or

 

(e)     in the case of an instrument of which the date of redemption is subject to change during a year of assessment, the rate of compound interest shall be redetermined in relation to such instrument with reference to-

 

(i)      the appropriate adjusted initial amount in relation to such instrument; and

 

(ii)     the changed date of redemption:

 

Provided further that where that instrument forms part of any transaction, operation or scheme –

 

(a)     any payments made by the issuer to any other person pursuant to that transaction, operation or scheme with a purpose or with the probable effect of making payment directly or indirectly to the holder or a connected person in relation to the holder; and

 

(b)     in the case where any party to that transaction, operation or scheme is a connected person in relation to that issuer, any payments made by that connected person to any other person pursuant to that transaction, operation or scheme with a purpose or with the probable effect of making payment directly or indirectly to the holder or a connected person in relation to the holder,

 

must be taken into account as a reduction of amounts payable by that issuer for purposes of determining that rate of compound interest: Provided further that where the calculated rate of compound interest per accrual period results in a negative rate of interest, the rate of compound interest per accrual period must be treated to be zero.

Subsections 2, 3, 3A, 4, 4A, 5, 5A, 6, 7, 8, 9, 9A, 10 and 12 of section 24J of ITA

Posted on by admin_kmos

(2)     Where any person is the issuer in relation to an instrument during any year of assessment, such person shall for the purposes of this Act be deemed to have incurred an amount of interest during such year of assessment, which is equal to –

(a)     the sum of all accrual amounts in relation to all accrual periods falling, whether in whole or in part, within such year of assessment in respect of such instrument; or

(b)     an amount determined in accordance with an alternative method in relation to such year of assessment in respect of such instrument,

which must be deducted from the income of that person derived from carrying on any trade, if that amount is incurred in the production of the income.

(3)     Where any person is the holder in relation to an income instrument during any year of assessment, there shall for the purposes of this Act be deemed to have accrued to that person and must be included in the gross income of that person during that year of assessment (whether or not that amount constitutes a receipt or accrual of a capital nature), an amount of interest which is equal to –

(a)     the sum of all accrual amounts in relation to all accrual periods falling, whether in part or in whole, within such year of assessment in respect of such income instrument; or

(b)     an amount determined in accordance with an alternative method in relation to such year of assessment in respect of such income instrument.

(3A)  Where any person is the holder of an income instrument which is an instrument as contemplated in paragraph (iii) of the definition of “instrument”, the amount by which the sum of all accrual amounts in relation to all accrual periods falling within the period from the date of acquisition (whether by way of issue or transfer, as the case may be) of such income instrument by such person until 13 March 1996, exceeds the sum of all interest received by or accrued to such person during such period had the provisions of this section not been applicable during such period in respect of such income instrument, shall for the purposes of this Act be deemed to have accrued to such person in the year of assessment during which such income instrument is transferred by such holder or redeemed (whichever is the earlier): Provided that the provisions of this subsection shall not apply in so far as any interest in relation to such income instrument was assessed to tax in the hands of such person under an assessment raised with a date of assessment before the date of promulgation of this Act.

(4)     Any –

(a)     adjusted gain on transfer or redemption of an instrument calculated in relation to the transfer or redemption, as the case may be, of such instrument by a person during any year of assessment shall for the purposes of this Act be deemed to have accrued to such person in such year of assessment; and

(b)     adjusted loss on transfer or redemption of an instrument calculated in relation to the transfer or redemption, as the case may be, of such instrument by a person during any year of assessment, shall for the purposes of this Act be deemed to have been incurred by such person in such year of assessment.

(4A)  Where in the case of any –

(a)     holder of an income instrument any adjusted loss on transfer or redemption of such income instrument which has been deemed to have been incurred by such holder in terms of subsection (4) (b) during any year of assessment, includes an amount in relation to such income instrument representing an –

(i)      accrual amount; or

(ii)     amount determined in accordance with an alternative method,

which amount has been included in the income of the holder during such year of assessment or any previous year of assessment, such amount shall be allowed as a deduction from the income of such holder during such year of assessment; or

(b)     issuer of an instrument any adjusted gain on transfer or redemption which has been deemed to have been accrued to such issuer in terms of subsection (4) (a) during any year of assessment, includes an amount in relation to such instrument representing an –

(i)      accrual amount; or

(ii)     amount determined in accordance with an alternative method,

which amount has been allowed as a deduction from the income of such issuer during such year of assessment or any previous year of assessment, to the extent that such amount is not taken into account in terms of section 19, such amount shall be included in the income of such issuer during such year of assessment.

(5)     Where any amount actually –

(a)     paid by any person in terms of an instrument is to be taken into account in the determination of any accrual amount in relation to that instrument or any other amount determined in accordance with an alternative method in relation to that instrument which accrual amount or other amount is to be dealt with in terms of the provisions of subsection (2), no account shall for the purposes of section 11 be taken of any such amount so actually paid, save by way of the operation of such subsection; or

(b)     received by any person in terms of an income instrument is to be taken into account in the determination of any accrual amount in relation to that income instrument or any other amount determined in accordance with an alternative method in relation to that income instrument which accrual amount or other amount is to be dealt with in terms of the provisions of subsection (3), no account shall for the purposes of the definition of “gross income” in section 1 be taken of any such amount so actually received, save by way of the operation of such subsection.

(5A)  Any amount which has been deemed to have been incurred by or accrued to a person, as the case may be, in respect of an instrument in terms of the provisions of this section, shall for the purposes of this Act not be deducted from or included in, as the case may be, the income of such person more than once by reason of the application of this section.

(6)     Where the term of an instrument issued on or before 15 March 1995 is extended or the terms or conditions of such instrument are materially varied after the said date, such instrument shall be deemed to have been issued after the said date and the provisions of this section shall apply to both the issuer and the holder in relation to such instrument as from the date of such extension or material variation.

(7)     Where there is more than one –

(a)     holder in relation to an income instrument and any accrual amount in relation to an accrual period with regard to any one of the holders in relation to such income instrument is to be determined, such accrual amount shall be so determined without taking into account any consideration or any amount or amounts paid or payable or received or receivable by any other holder in terms of such income instrument; and

(b)     issuer in relation to an instrument and any accrual amount in relation to an accrual period with regard to any one of the issuers in relation to such instrument is to be determined, such accrual amount shall be so determined without taking into account any consideration or any amount or amounts paid or payable or received or receivable by any other issuer in terms of such instrument.

(8)     Where in relation to an instrument any person is entitled to any interest in terms of such instrument and also liable to pay any interest in terms of such instrument, such person shall for the purposes of this section –

(a)     where the interest which he is entitled to receive in terms of such instrument exceeds the interest which he is liable to pay in terms of such instrument, be deemed not to be an issuer in relation to such instrument; and

(b)     where the interest which he is liable to pay in terms of such instrument exceeds the interest which he is entitled to receive in terms of such instrument, be deemed not to be a holder in relation to such instrument.

(9)

(a)     Any company whose business comprises the dealing in instruments (including the short selling of instruments), interest rate agreements or option contracts may elect that the provisions of subsections (2) to (8), inclusive, section 24K and section 24L shall not apply to all such instruments, interest rate agreements or option contracts in respect of which it so deals in.

(b)     Any election referred to in paragraph (a) shall –

(i)      be made in writing;

(ii)     be accompanied by a statement setting forth full details of the methodology to be applied by the company to determine the market value as contemplated in paragraph (c) in relation to all instruments, interest rate agreements or option contracts contemplated in paragraph (a);

(iii)    not take effect unless the Commissioner has, subject to such conditions as he may deem necessary, approved –

(A)    the methodology to be applied by such company to determine the market value as contemplated in paragraph (c) in respect of such instruments, interest rate agreements or option contracts; and

(B)     the manner in which such market value in relation to such instruments, interest rate agreements or option contracts is to be taken into account in the determination of the taxable income of such company during any year of assessment; and

(iv)    subject to the provisions of paragraphs (e) and (f), be binding upon such company in respect of all such instruments, interest rate agreements and option contracts during the year of assessment in which it took effect and every succeeding year of assessment.

(c)     The market value in relation to all instruments, interest rate agreements and option contracts contemplated in paragraph (a) of a company which made an election as contemplated in such paragraph shall be determined in accordance with commercially accepted practice which is applied by such company consistently in respect of all such instruments, interest rate agreements and option contracts for financial reporting purposes to its shareholders.

(d)     Any instrument, interest rate agreement or option contract contemplated in paragraph (a) which as a result of an election made in terms of such paragraph is to be dealt with on a market value basis as contemplated in the aforegoing provisions of this subsection shall (subject to the provisions of paragraphs (e) and (f)) be so dealt with until the date of redemption or transfer of such instrument, interest rate agreement or option contract.

(e)     Where the Commissioner is satisfied that the approval granted by him in terms of paragraph (b) (iii) was obtained by fraud or in consequence of any misrepresentation or failure to disclose any material fact by the company which made the election in terms of paragraph (a), he shall, if he is satisfied that in the light of the full facts the approval should not have been granted, withdraw such approval as from the date such approval was granted by him.

(f)      Where any company during any year of assessment no longer complies with the provisions of this subsection –

(i)      the approval granted by the Commissioner in terms of paragraph (b) (iii) shall be deemed to have been withdrawn by the Commissioner as from such year of assessment; and

(ii)     an appropriate adjustment shall be made to the taxable income of such company during such year of assessment in relation to all instruments, interest rate agreements or option contracts contemplated in paragraph (a) of the company held and not disposed of or not redeemed by it, as the case may be, as at the end of such year of assessment, having regard to all interest or amounts which would have been deemed to have been incurred by or accrued to such company had the provisions of this subsection not been applicable during all years of assessment before such year of assessment and all amounts which have been included in or deducted from the income of such company during such years of assessment: Provided that the provisions of this paragraph shall not have the effect that an amount be included in or deducted from the income of such company more than once.

(g)     This subsection shall not apply-

(i)      in respect of a company that is a covered person as defined in section 24JB, during any year of assessment ending on or after 1 January 2014; and

[Subparagraph (i) substituted by section 41 of Act 43 of 2014 effective on 1 January 2014]

(ii)     in respect of any other company, during any year of assessment commencing on or after 1 April 2014.

(9A)

(a)     Any company that made an election contemplated in subsection (9) and in respect of which the Commissioner granted an approval as contemplated in that subsection is deemed to have-

(i)      disposed of all instruments, interest rate agreements or option contracts contemplated in subsection (9); and

(ii)     reacquired the instruments, interest rate agreements or option contracts,

held and not disposed of at the end of the year of assessment for an amount equal to the market value, as contemplated in subsection (9)(c), on the last day of that year of assessment.

(b)     Paragraph (a) applies-

(i)      in the case of a company that is a covered person as defined in section 24JB, in respect of the year of assessment of that covered person immediately preceding the year of assessment ending on or after 1 January 2014; and

[Subparagraph (i) substituted by section 41 of Act 43 of 2014 effective on 1 January 2014]

(ii)     in the case of any other company, in respect of the year of assessment of the company immediately preceding the year of assessment commencing on or after 1 April 2014.

(10)   Any reference in this section to any payment made or an amount paid or payable, consideration given or received or any payment received or an amount received or receivable, as the case may be, shall be construed as including a payment or an amount or consideration otherwise than in cash.

(11)    ……….

(12)     This section must not apply to an instrument if-

(a)     the holder of that instrument has, throughout any period during a year of assessment during which that holder holds that instrument, a right to require the redemption of that instrument at any time during that period; and

(b)     that instrument does not provide for the payment of any deferred interest.