Category: CHAPTER II – The Taxes (ITA)

Subsections 2, 3, 4, 5, 6, 7 and 8 of section 19 of ITA

Posted on by admin_kmos

(2)       Subject to subsection (8), this section applies where-

(a)     a debt benefit in respect of a debt owed by a person arises in respect of a year of assessment by reason or as a result of a concession or compromise in respect of that debt during that year of assessment; and

[Paragraph (a) substituted by section 36 of Act 23 of 2018 effective on 1 January 2018 and applies in respect of years of assessment commencing on or after that date]

(b)     the amount of that debt is owed by that person in respect of or was used by that person to fund, directly or indirectly, any expenditure in respect of which a deduction or allowance was granted in terms of this Act.

[Paragraph (b) substituted by section 36 of Act 23 of 2018 effective on 1 January 2018 and applies in respect of years of assessment commencing on or after that date]

(3)       Where-

(a)     a debt benefit arises in respect of a debt owed by a person as contemplated in subsection (2); and

(b)     the amount of that debt is owed in respect of or was used as contemplated in paragraph (b) of that subsection to fund expenditure incurred in respect of trading stock that is held and not disposed of by that person at the time the debt benefit arises,

[Paragraph (b) substituted by section 36 of Act 23 of 2018 effective on 1 January 2018 and applies in respect of years of assessment commencing on or after that date]

the debt benefit in respect of that debt must, to the extent that an amount is taken into account by that person in respect of that trading stock in terms of section 11(a) or 22(1) or (2) for the year of assessment in which the debt benefit arises, be applied to reduce the amount so taken into account in respect of that trading stock.

(4)       Where-

(a)     a debt benefit arises in respect of a debt owed by a person as contemplated in subsection (2);

(b)     the amount of that debt is owed in respect of or was used as contemplated in paragraph (b) of that subsection to fund expenditure incurred in respect of trading stock that is held and not disposed of by that person at the time the debt benefit arises, and

[Paragraph (b) substituted by section 36 of Act 23 of 2018 effective on 1 January 2018 and applies in respect of years of assessment commencing on or after that date]

(c)     subsection (3) has been applied to reduce an amount taken into account by that person in respect of trading stock as contemplated in that subsection to the full extent of that amount so taken into account,

the debt benefit in respect of that debt, less any amount of that debt benefit that has been applied to reduce an amount as contemplated in subsection (3) must, to the extent that a deduction or allowance was granted in terms of this Act to that person in respect of that expenditure, be deemed, for the purposes of section 8(4)(a), to be an amount that has been recovered or recouped by that person for the year of assessment in which the debt benefit arises.

(5)    Where-

(a)     a debt benefit arises in respect of a debt owed by a person as contemplated in subsection (2); and

(b)     the amount of that debt is owed in respect of or was used as contemplated in paragraph (b) of that subsection to fund expenditure other than expenditure incurred—

(i)      in respect of trading stock that is held and not disposed of by that person at the time the debt benefit arises; or

(ii)      in respect of an allowance asset,

[Paragraph (b) amended by section 36(1)(g) of Act 23 of 2018 deemed effective on 1 January, 2018 and applicable in respect of years of assessment commencing on or after that date]

the debt benefit in respect of that debt must, to the extent that a deduction or allowance was granted in terms of this Act to that person in respect of that expenditure, be deemed, for the purposes of section 8(4)(a), to be an amount that has been recovered or recouped by that person for the year of assessment in which the debt benefit arises.

(6)    Where-

(a)     a debt benefit arises in respect of a debt owed by a person as contemplated in subsection (2); and

(b)     the amount of that debt is owed in respect of or was used as contemplated in paragraph (b) of that subsection to fund expenditure incurred in respect of an allowance asset that was not disposed of in a year of assessment prior to that in which that debt benefit arises,

[Paragraph (b) substituted by section 36(1)(h) of Act 23 of 2018 deemed effective on 1 January, 2018 and applicable in respect of years of assessment commencing on or after that date]

the debt benefit in respect of that debt must, to the extent that-

(i)      a deduction or allowance was granted in terms of this Act to that person in respect of that expenditure; and

(ii)     the debt benefit has not been applied as contemplated in paragraph 12A of the Eighth Schedule to reduce the amount of expenditure as contemplated in paragraph 20 of that Schedule in respect of that allowance asset,

be deemed, for the purposes of section 8(4)(a), to be an amount that has been recovered or recouped by that person for the year of assessment in which the debt benefit arises.

(6A)    Where-

(a)     a debt benefit arises during any year of assessment in respect of a debt owed by a person as contemplated in subsection (2); and

(b)     the amount of that debt is owed in respect of or was used as contemplated in paragraph (b) of that subsection to fund expenditure incurred in respect of an allowance asset that was disposed of in a year of assessment prior to that in which that debt benefit arises,

that person must treat the debt benefit in respect of that debt to the extent that—

(i)      a deduction or allowance was granted in terms of this Act to that person in respect of that expenditure; and

(ii)     that debt benefit has not been applied as contemplated in paragraph 12A of the Eighth Schedule to reduce the amount of expenditure as contemplated in paragraph 20 of that Schedule in respect of the allowance asset,

less any amount, if any, previously determined in respect of that disposal as a recovery or recoupment of a deduction or allowance, as an amount recovered or recouped for purposes of section 8(4)(a) in the year of assessment in which that debt benefit arises.

[Subsection (6A) inserted by section 36(1)(i) of Act 23 of 2018 and substituted by section 10(1) of Act 20 of 2022 effective on 1 January, 2023 and applicable in respect of years of assessment commencing on or after that date]

(7)     Where a debt benefit arises in respect of a debt owed by a person that was used to fund expenditure incurred in respect of an allowance asset, the aggregate amount of the deductions and allowances allowable to that person in respect of that allowance asset may not exceed an amount equal to the aggregate of the expenditure incurred in the acquisition of that allowance asset, reduced by an amount equal to the sum of-

(a)     the debt benefit in respect of that debt; and

(b)     the aggregate amount of all deductions and allowances previously allowed to that person in respect of that allowance asset.

(8)     This section must not apply to a debt benefit in respect of any debt owed by a person-

(a)     that is an heir or legatee of a deceased estate, to the extent that-

(i)      the debt is owed to that deceased estate;

(ii)     the debt is reduced by the deceased estate; and

(iii)    the amount by which the debt is reduced by the deceased estate forms part of the property of the deceased estate for the purposes of the Estate Duty Act;

(b)     to the extent that the debt is reduced by way of-

(i)      a donation as defined in section 55(1); or

(ii)     any transaction to which section 58 applies,

in respect of which donations tax is payable;

[Paragraph (b) substituted by section 36(1)(j) of Act 23 of 2018 and amended by section 17(1)(b) of Act 20 of 2021]

(c)     to an employer of that person, to the extent that the debt is reduced in the circumstances contemplated in paragraph 2(h) of the Seventh Schedule;

(d)     to another person where the person that owes that debt is a company if-

(i)      that company owes that debt to a company that forms part of the same group of companies as that company; and

(ii)     that company has not carried on any trade,

during the year of assessment in which that debt benefit arises as well as during the immediately preceding year of assessment: Provided that this paragraph must not apply in respect of any debt-

(aa)   incurred, directly or indirectly by that company to fund expenditure incurred in respect of any asset that is disposed of by that company, before or after that debt benefit arises, by way of an asset-for-share, intra-group or amalgamation transaction or a liquidation distribution in respect of which the provisions of section 42, 44, 45 or 47, as the case may be, applied; or;

[Subparagraph (aa) substituted by section 23(1)(a) of Act 17 of 2023 with effect from 1 January, 2024 and applicable in respect of years of assessment commencing on or after that date]

(bb)   incurred or assumed by that company in order to settle, take over, refinance or renew, directly or indirectly, any debt incurred by-

(A)    any other company that forms part of the same group of companies; or

(B)    any company that is a controlled foreign company in relation to any company that forms part of the same group of companies;

[Paragraph (d) amended by section 36 of Act 23 of 2018 effective on 1 January 2018, applies in respect of years of assessment commencing on or after that date]

: Provided further that where a debt benefit arises prior to the disposal of the   asset, that debt benefit must be treated as a debt benefit that arose immediately  before that disposal;

[Paragraph (d) amended by section 36(1)(k) of Act 23 of 2018 and by section 23(1)(b) of Act 17 of 2023 with effect from 1 January, 2024 and applicable in respect of years of assessment commencing on or after that date]

(e)     to another person where the person that owes that debt is a company that-

(i)      owes that debt to a company that forms part of the same group of companies as that company; and

(ii)     reduces or settles that debt, directly or indirectly, by means of shares issued by that company:

Provided that this paragraph must not apply in respect of any debt that was incurred or assumed by that company in order to settle, take over, refinance or renew, directly or indirectly, any debt incurred by another company which-

(aa)   did not form part of that same group of companies at the time that that other company incurred that debt; or

(bb)   does not form part of that same group of companies at the time that that company reduces or settles that debt, directly or indirectly, by means of shares issued by that company; or

[Paragraph (e) amended by section 36 of Act 23 of 2018 effective on 1 January 2018, applies in respect of years of assessment commencing on or after that date]

(f)     to the extent that the debt so owed-

(i)      is settled by means of an arrangement described in paragraph (b) of the definition of ‘concession or compromise’; and

(ii)     does not consist of or represent an amount owed by that person in respect of any interest as defined in section 24J incurred by that person during any year of assessment.

[Paragraph (f) added by section 36(1)(k) Act 23 of 2018 deemed effective on 1 January, 2018 and applicable in respect of years of assessment commencing on or after that date. Subparagraph (ii) substituted by section 17(1)(c) of Act 20 of 2021 effective on 1 January, 2022 and applicable in respect of years of assessment commencing on or after that date]

[Section 19 amended by section 15 of Act 90 of 1962, by section 6 of Act 6 of 1963, by section 17 of Act 88 of 1965, by section 17(1) of Act 88 of 1971, by section 14(1) of Act 90 of 1972, by section 18 of Act 85 of 1974, by section 14 of Act 104 of 1980, by section 17 of Act 96 of 1981, by section 15(1) of Act 91 of 1982, by section 17(1) of Act 94 of 1983, by section 17 of Act 121 of 1984, by section 12(1) of Act 96 of 1985, by section 12 of Act 65 of 1986, by section 4(1) of Act 108 of 1986, by section 13 of Act 85 of 1987, by section 18(1) of Act 101 of 1990, by section 21 of Act 129 of 1991, by section 33 of Act 30 of 1998, repealed by section 25(1) of Act 30 of 2000, inserted by section 36(1) of Act 22 of 2012, amended by section 53(1)(a)-(h) of Act 31 of 2013, by section 30 of Act 43 of 2014 and by section 35 of Act 25 of 2015 and substituted by section 32(1) of Act 17 of 2017 with effect from 1 January, 2018 and applicable in respect of years of assessment commencing on or after that date. Paragraph (f) added by section 36(1)(k) Act 23 of 2018 effective on 1 January, 2018 and applicable in respect of years of assessment commencing on or after that date. Subparagraph (ii) substituted by section 17(1)(c) of Act 20 of 2021 with effect from 1 January, 2022 and applicable in respect of years of assessment commencing on or after that date]

“Residential unit” definition of section 13ter of ITA

Posted on by admin_kmos

“residential unit” means any self–contained residential accommodation consisting of more than one room (but excluding any hostel, hotel or similar accommodation), the erection of which was commenced by the taxpayer on or after 1 April 1982 and before 21 October 2008 and which was erected under a housing project of the taxpayer –

 

(a)     in order to be let to a tenant for the purpose of deriving a profit for the taxpayer; or

 

(b)     in order to be occupied by a bona fide full–time employee of the taxpayer.

Subsections 2, 2A, 3, 3A, 3B, 4, 5, 6, 7, 8, 9, 10, 10A, 10B and 11 of section 13quat of ITA

Posted on by admin_kmos

(2)     There must be allowed to be deducted from the income of the taxpayer an allowance determined in terms of subsection (3) or (3A), in respect of the cost of the erection, extension, addition or improvement of any commercial or residential building or part of a building which is owned by the taxpayer and is used solely for purposes of that taxpayer’s trade, if –

(a)     that building is situated within an urban development zone;

(b)     the erection, extension, addition or improvement was commenced by the taxpayer or the developer, as the case may be, on or after the date of publication of the notice contemplated in subsection (8) in respect of that urban development zone, in terms of a contract formally and finally signed by all parties thereto on or after that date;

(c)     the erection, extension, addition to or improvement by the taxpayer or developer covers either the entire building or a floor area of at least 1000 m2 of that building; and

(d)     in the case where the taxpayer purchased that building or part from a developer –

(i)      the agreement to purchase was concluded on or after 8 November 2005;

(ii)     that developer has not claimed any allowance under this section in respect of that building or part; and

(iii)    if the developer improved the building or part as contemplated in subsection (3)(b) or (3A)(b), that developer has incurred expenditure in respect of those improvements which is equal to at least 20 per cent of the purchase price paid by the taxpayer in respect of that building or part.

(e)     ……….

(2A)  For the purposes of this section, if a taxpayer completes an improvement as contemplated in section 12N, the expenditure incurred by the taxpayer to complete the improvement shall be deemed to be the cost of the erection, extension, addition or improvement contemplated in subsection (2).

(3)     The amount of the allowance contemplated in subsection (2)-

(a)     in the case of the erection of any new building or the extension of or addition to any building (other than a building in respect of which paragraph (b) applies), is equal to-

(i)      20 per cent of the cost to the taxpayer of the erection or extension of or addition to that building, which is deductible in the year of assessment during which that building is brought into use by that taxpayer solely for the purposes of that taxpayer’s trade; and

(ii)     eight per cent of that cost in each of the 10 succeeding years of assessment; or

(b)     in the case of the improvement of any existing building or part of a building (including any extension or addition which is incidental to that improvement) where the existing structural or exterior framework thereof is preserved, is equal to-

(i)      20 persent of the cost to the taxpayer of the improvement, extension or addition which is deductible in the year of assessment during which the part of the building so improved, extended or added is brought into use by the taxpayer solely for the purposes of that taxpayer’s trade; and

(ii)     20 per cent of that cost in each of the four succeeding years of assessment.

(3A)  The amount of the allowance contemplated in subsection (2)-

(a)     in the case of the erection of any new building or the extension of or addition to any building, to the extent that it relates to a low-cost residential unit, (other than any improvement in respect of which paragraph (b) applies) is equal to-

(i)      25 per cent of the cost to the taxpayer of the erection or extension of or addition to that building, which is deductible in the year of assessment during which that building is brought into use by that taxpayer;

(ii)     13 per cent of that cost in each of the five succeeding years of assessment; and

(iii)    10 per cent of that cost in the year of assessment following the last year contemplated in subparagraph (ii);

(b)     in the case of the improvement of any existing building or part of a building, to the extent that it relates to a low-cost residential unit, (including any extension or addition which is incidental to that improvement) where the existing structural or exterior framework thereof is preserved, is equal to-

(i)      25 per cent of the cost to the taxpayer of the improvement, which is deductible in the year of assessment during which the part of the building so improved, is brought into use by the taxpayer; and

(ii)     25 per cent of that cost in each of the three succeeding years of assessment.

(3B)   For purposes of subsection (3) or (3A), where the taxpayer purchased a building or part of a building from a developer-

(a)     55 per cent of the purchase price of that building or part of a building, in the case of a new building erected, extended or added to by that developer as contemplated in subsection (3)(a) or (3A)(a); and

(b)     30 per cent of the purchase price of that building or part of a building, in the case of a building improved by that developer as contemplated in subsection (3)(b) or (3A)(b),

is deemed to be costs incurred by that taxpayer in respect of the erection, extension, addition to or improvement of that building or part of a building.

(4)     No deduction shall be allowed under this section, unless the taxpayer has obtained or determined the following for submission to the Commissioner in such form and within such time as may be prescribed by the Commissioner-

(a)     a certificate issued by the municipality to the taxpayer confirming that the building is located within an urban development zone within that municipality;

(b)     the total amount of the costs to the taxpayer (other than a taxpayer contemplated in paragraph (d)) of the erection, extension, addition or improvement and the extent that those costs relate to any portion of a building;

(c)     particulars as to whether the costs referred to paragraph (b) were incurred in respect of the erection or extension of or addition to a building as contemplated in subsection (3)(a) or the improvement of a building as contemplated in subsection (3)(b); and

(d)     in the case of a taxpayer who purchased the building or part of a building from a developer –

(i)      the purchase price of that building or part;

(ii)     the amount of the purchase price deemed to be a cost incurred by the taxpayer in terms of subsection (3A); and

(iii)    a certificate from the developer in the form prescribed by the Commissioner confirming that the requirements in subsection (2)(b), (c) and (d) have been met.

(5)     No deduction shall be allowed under this section in respect of any building or part of a building –

(a)     where that taxpayer ceased to use that building, or part solely for purposes of that taxpayer’s trade during any previous year of assessment in or prior to which an allowance contemplated in subsection (2) was claimed;

(b)     which has been disposed of by the taxpayer during any previous year of assessment; or

(c)     which is brought into use by the taxpayer after 31 March 2025.

[Subsection (5) amended by section 23(h) of Act 31 of 2005. Paragraph (c) added by section 23(j) of Act 31 of 2005 and substituted by section 29(1)(f) of Act 60 of 2008, by section 34(1) of Act 22 of 2012, by section 20 of Act 23 of 2020, by section 16(1) of Act 20 of 2021 and by section 21(1) of Act 17 of 2023 effective on 1 April, 2021 and applicable in respect of any building, part thereof or improvement that is brought into use on or after that date]

(6)     For the purposes of this section, one area may be demarcated by a municipality where-

(a)

(i)      that area is a developed urban location within the municipality of Buffalo City, Cape Town, Ekurhuleni, Emalahleni, Emfuleni, eThekwini, Johannesburg, Mahikeng, Mangaung, Matjhabeng, Mbombela, Msunduzi, Nelson Mandela, Polokwane, Sol Plaatje or Tshwane;

(ii)     that area is demarcated through formal resolution by the relevant municipal council;

(iii)    that area is prioritised in that municipality’s integrated development plan adopted and undertaken in terms of Chapter 5 of the Local Government: Municipal Systems Act, 2000 (Act No. 32 of 2000), as a priority area for further investments to promote business or industrial activity or residential settlements to support such activity;

(iv)    that area proportionately contributes or previously contributed a significant portion of the total revenue collections for all areas located within the current boundaries of that municipality, as measured in the form of-

(aa)    property rates; or

(bb)   assessed property values, and where the contribution from that area is undergoing a sustained real or nominal decline; and

(v)     significant fiscal measures have been implemented by that municipality to support the regeneration of that area, including-

(aa)   the appropriation of significant funds for developing the area in the annual budget of the municipality;

(bb)   special tariffs for categories of residential, commercial or industrial users; or

(cc)    partnership arrangements with the business community for the promotion of urban development within that area; or

(b)     that area is approved by the Minister by notice in the Gazette, after application by a municipality in the form and manner and at the place and time that the Minister prescribes, if the area complies with criteria as the Minister must prescribe by regulation.

[Subsection (6) amended by section 12 of Act 16 of 2004, section 19 of Act 32 of 2004, section 23 of Act 3 of 2005, section 32 of Act 25 of 2015 substituted by section 38 of 2016 effective on 19 January 2017]

(7)

(a)     Subject to paragraph (d), the area demarcated in terms of subsection (6) may not exceed-

(i)      where that municipality has a population of not more than 500 000 persons, a total area of 150 hectares; or

(ii)     where that municipality has a population of more than 500 000 persons, 150 hectares plus 20 hectares for each additional 100 000 persons included in that population.

(b)     Where that municipality has a population of 2 million persons or more, the municipal council may demarcate two areas in lieu of the one area demarcated in terms of subsection (6),


: Provided that-

 [Words preceding subparagraph (i) substituted by section 32 of Act 25 of 2015 effecive on 1 January 2016]

(i)      the two areas do not in total exceed the one area contemplated in paragraph (a)(ii); and

(ii)     each area otherwise satisfies the requirements of subsection (6).

(bA)  Where a municipality has a population of less than 1 million persons, the Minister may by notice in the Gazette approve that municipality for the purposes of paragraph (b) in terms of subsection (6)(b).

[Paragraph (bA) inserted by section 32 of Act 25 of 2015 and substituted by section 38 of Act 15 of 2016 and section 34 of Act 23 of 2018 effective on 17 January 2019]

(c)     For purposes of this subsection, the population of a municipality shall be the population figures as determined by Statistics South Africa in the Census for 2011 and the total population of that municipality must be rounded to the nearest multiple of 100 000.

[Paragraph (c) substituted by section 32 of Act 25 of 2015 effective on 8 January 2016]

(d)     The area demarcated in terms of subsection (6) may exceed the limits contemplated in paragraph (a) where-

(i)      the municipality proves to the Minister that the excess area is integrally related to the area within the limitation contemplated in paragraph (a);

(ii)     the municipality can prove to the Minister that sound economic reasons exist for demarcating a larger area; and

(iii)    ……….

(iv)    the Minister is satisfied that the demarcation of the excess area would fall within Government’s affordability constraints.

(8)     The Minister must publish by notice in the Gazette particulars of an area demarcated by a municipality after that municipality has proved to the Minister that the area so demarcated complies with the provisions of subsection (6).

(9)     Every municipality must provide a report annually to the Commissioner and the Minister in respect of each urban development zone located within that municipality containing such information, within such time and in such manner as is prescribed by the Minister.

(10)   Where-

(a)     a municipality does not provide an annual report as contemplated in subsection (9) or the Commissioner reports to the Minister that the municipality has issued a certificate contemplated in subsection (4)(a) in respect of a building that is located outside an urban development zone; and

(b)     corrective steps are not taken by that municipality within a period specified by the Minister,

the Minister may withdraw the notice contemplated in subsection (8) for that municipality in respect of contracts formally and finally signed by all parties thereto on or after the date of withdrawal.

(10A) Every developer who erects, extends, adds to or improves any building within an urban development zone must, if the estimated cost of that erection, extension, addition or improvement is likely to exceed R5 million –

(a)     inform the Commissioner within 30 days after commencement of the erection, extension, addition or improvement of the estimated costs thereof in respect of the building or the parts which the developer intends to sell and the estimated selling price of that building or those parts; and

(b)     inform the Commissioner within 30 days after sale of the building or all anticipated sales of any parts of the building have been concluded of the actual costs incurred in respect of that building or parts and the actual selling price of that building or parts thereof.

(10B) If the Commissioner has reason to believe that the information provided in the certificate by a developer as contemplated in subsection (4)(d)(iii) is not correct, the Commissioner must disallow any deduction claimed under this section, unless sufficient information is provided to the Commissioner to prove that the information contained in that certificate is correct.

(11)   The Commissioner must on an annual basis submit a report to the Minister containing information relating to-

(a)     the number of taxpayers which have during the relevant year claimed an allowance in terms of this section;

(b)     the total amount of the deductions by taxpayers allowed in that year in terms of this section; and

(c)     the total amount of the costs to those taxpayers which are or will be allowable as a deduction in terms of this section.

“Debt” definition of section 19 of ITA

Posted on by admin_kmos

‘debt’ means any amount that is owed by a person in respect of-

(a)     expenditure incurred by that person; or

(b)     a loan, advance or credit that was used, directly or indirectly, to fund any expenditure incurred by that person,

but does not include a tax debt as defined in section 1 of the Tax Administration Act;

[Definition of “debt” substituted by section 36 of Act 23 of 2018 effective on 1 January 2018, applies in respect of years of assessment commencing on or after that date]

“Cost” definition of section 13quat of ITA

Posted on by admin_kmos

(1)     For the purposes of this section-

 

‘cost’ means the costs (other than borrowing or finance costs) actually incurred in erecting or extending, adding to or improving a building or part thereof and includes any costs incurred-

 

(a)     in demolishing any existing building or part thereof;

 

(b)     in excavating the land for purposes of that erection, extension, addition or improvement; and

 

(c)     in respect of structures or works directly adjoining the building or part so erected, extended, added to or improved, for purposes of providing-

 

(i)      water, power or parking with respect to that building or part;

 

(ii)     drainage or security for that building or part;

 

(iii)    means of waste disposal for that building or part; or

 

(iv)    access to that building or part, including the frontage thereof;