Category: CHAPTER II – The Taxes (ITA)

“Hybrid debt instrument” definition of section 8F of ITA

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‘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;

“Hybrid equity instrument” definition of section 8E of ITA

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‘hybrid equity instrument’ means-

(a)     any share, other than an equity share, if-

(i)      the issuer of that share is obliged to redeem that share or to distribute an amount constituting a return of the issue price of that share (in whole or in part); or

[Sub­paragraph (i) substituted by section 8(1)(a) of Act 34 of 2019 deemed effective on 21 July, 2019 and applicable in respect of years of assessment ending on or after that date]

(ii)     the holder of that share may exercise an option in terms of which the issuer must redeem that share or distribute an amount constituting a return of the issue price of that share (in whole or in part),

[Sub­paragraph (ii) substituted by section 8(1)(a) of Act 34 of 2019 deemed effective on 21 July, 2019 and applicable in respect of years of assessment ending on or after that date]

within a period of three years from the date of issue of that share;

(b)     any share, other than a share contemplated in paragraph (a), if-

(i)

(aa)   the issuer of that share is obliged to redeem that share or to distribute an amount constituting a return of the issue price of that share (in whole or in part) within a period of three years from the date of issue of that share;

[Item (aa) substituted by section 8(1)(b) of Act 34 of 2019 deemed effective on 21 July, 2019 and applicable in respect of years of assessment ending on or after that date]

(bb)   the holder of that share may exercise an option in terms of which the issuer must redeem that share or distribute an amount constituting a return of the issue price of that share (in whole or in part) within a period of three years from the date of issue of that share; or

[Item (bb) substituted by section 8(1)(b) of Act 34 of 2019 deemed effective on 21 July, 2019 and applicable in respect of years of assessment ending on or after that date]

(cc)    at any time on the date of issue of that share, the existence of the company issuing that share-

(A)    is to be terminated within a period of three years; or

(B)    is likely to be terminated within a period of three years upon a reasonable consideration of all the facts at that time; and

(ii)

(aa)   that share does not rank pari passu as regards its participation in dividends or foreign dividends with all other equity shares in the capital of the relevant company or, where the equity shares in such company are divided into two or more classes, with the shares of at least one of such classes; or

[Item (aa) substituted by section 12 of Act 23 of 2018 effective on 17 January 2019]

(bb)   any dividend or foreign dividend payable on such share is to be calculated directly or indirectly with reference to any specified rate of interest or the time value of money;

[Item (bb) amended 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]

(c)     any preference share if that share is-

(i)      secured by a financial instrument; or

(ii)     subject to an arrangement in terms of which a financial instrument may not be disposed of,

unless that share was issued for a qualifying purpose;

(d)     any equity instrument the value of which is determined directly or indirectly with reference to-

(i)      a share contemplated in paragraph (a) or (b) or a preference share contemplated in paragraph (c); or

(ii)     an amount derived from a share or preference share contemplated in subparagraph (i); or

[Paragraph (d) added 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]

(e)     any equity instrument, other than an equity instrument contemplated in paragraph (d), if that equity instrument is subject to a right or arrangement that would have constituted a right or arrangement contemplated in paragraph (a), (b) or (c) had that right or arrangement applied in respect of the share with reference to which the value of that equity instrument is directly or indirectly determined;

[Paragraph (e) added by section 14(1)(d) of Act 15 of 2016 and substituted by section 8(1)(c) of Act 34 of 2019 and by section 7 of Act 20 of 2021]

“Financial instrument” definition of section 8E of ITA

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‘financial instrument’ means any-

 

(a)     interest-bearing arrangement; or

 

(b)     financial arrangement based on or determined with reference to a specified rate of interest or the time value of money;

Section 9A (ITA) – Blocked foreign funds

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9A.     Blocked foreign funds

 

(1)     Where any amount, or any portion of any amount, received by or accrued to any person which is required to be included in the income of that person during any year of assessment may not be remitted to the Republic during that year as a result of currency or other restrictions or limitations imposed in terms of the laws of the country where the amount arose, that person shall be allowed to deduct from his or her income for that year an amount equal to so much of the amount or portion which may not be remitted as is required to be included in the income of that person for that year.

(2)     The amount or portion which may not be remitted during the year of assessment contemplated in subsection (1) shall be deemed to be an amount received by or accrued to the person contemplated in that subsection in the following year of assessment.

(3)     Where any amount, or any portion of any amount, of the net income of a controlled foreign company in respect of a foreign tax year of the controlled foreign company may not be remitted to the Republic for the reasons contemplated in subsection (1), there shall be allowed to be deducted from the net income of the controlled foreign company for that foreign tax year an amount equal to so much of the amount or portion which may not be remitted.

(4)     The amount or portion which may not be remitted as contemplated in subsection (3) shall be deemed to be an amount received by or accrued to the controlled foreign company contemplated in that subsection in the following foreign tax year of the controlled foreign company.


9B.    ………

“Date of issue” definition of section 8E of ITA

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(1)       For the purposes of this section-

 

‘date of issue’, in relation to a share in a company, means the date on which-

 

(a)     the share is issued by the company;

 

(b)     the company at any time after the share has been issued undertakes the obligation to redeem that share in whole or in part; or

 

(c)     the holder of the share at any time after the share has been issued obtains the right to require that share to be redeemed in whole or in part, otherwise than as a result of the acquisition of that share by that holder;

Subsection 2 and 3 of section 8FA of ITA

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(2)     Any amount that is incurred by a company or accrues to a person in respect of interest on or after the date that the interest becomes hybrid interest is—

(a)     deemed to be a dividend in specie in respect of a share that is declared and paid by that company to the person to whom that amount accrued on the last day of the year of assessment of that company during which it was incurred;

(b)     not deductible; and

(c)     deemed to be a dividend in specie in respect of a share that accrues to that person on the date contemplated in paragraph (a).

[Subsection (2) amended by section 9(1) of Act 43 of 2014, substituted by section 17(1)(b) of Act 15 of 2016 and by section 12 of Act 17 of 2017, amended by section 15(1) of Act 23 of 2018 and substituted by section 9(1) of Act 20 of 2021 effective on the date of promulgation of that Act, 19 January, 2022 and applicable in respect of amounts incurred or accrued on or after that date]

(3)     This section does not apply to any interest owed in respect of-

(a)     a debt owed by a small business corporation as defined in section 12E(4);

(b)     an instrument that constitutes a tier 1 or tier 2 capital instrument referred to in the regulations issued in terms of section 90 of the Banks Act (contained in Government Notice No. R.1029 published in Government Gazette No. 35950 of 12 December 2012) issued-


(i)      by a bank as defined in section 1 of that Act; or


(ii)     by a controlling company in relation to that bank;

(c)     an instrument of any class that is subject to approval as contemplated-


(i)      in the Short-term Insurance Act in accordance with the conditions determined in terms of section 23(1)(a) of that Act by the Registrar defined in that Act, where an amount is owed in respect of that instrument by a short-term insurer as defined in that Act; or

[Subparagraph (i) substituted by section 17(1)(c) of Act 15 of 2016 effective on 1 January, 2017 and applicable in respect of years of assessment commencing on or after that date]

(ii)     in the Long-term Insurance Act in accordance with the conditions determined in terms of section 24(1)(a) of that Act by the Registrar defined in that Act, where an amount is owed in respect of that instrument by a long-term insurer as defined in that Act; or

[Subparagraph (ii) substituted by section 17(1)(c) of Act 15 of 2016 effective on 1 January, 2017 and applicable in respect of years of assessment commencing on or after that date]

(d)     an instrument that constitutes a linked unit in a company where the linked unit is held by a long-term insurer as defined in the Long-term Insurance Act, a pension fund, a provident fund, a REIT or a short-term insurer as defined in the Short-term Insurance Act, if-


(i)      the long-term insurer, pension fund, provident fund, REIT or short-term insurer holds at least 20 per cent of the linked units in that company;


(ii)     the long-term insurer, pension fund, provident fund, REIT or short-term insurer acquired those linked units before 1 January 2013; and


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

 

(e)     an instrument that constitutes a third-party backed instrument as defined in section 8F(1).

[Paragraph (e) added by section 17 of Act 15 of 2016 effective on 1 January 2017, applies in respect of years of assessment commencing on or after that date]