Category: CHAPTER II – The Taxes (ITA)

Section 13sept (ITA) – Deduction in respect of sale of low-cost residential units on loan account

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13sept.     Deduction in respect of sale of low-cost residential units on loan account

(1)     Subject to section 36, there must be allowed as a deduction from the income of the taxpayer, in respect of any year of assessment ending on or before 28 February 2022, an amount determined in terms of subsection (2) in respect of the disposal of any low-cost residential unit by the taxpayer to an employee of the taxpayer (or an associated institution as defined in the Seventh Schedule in relation to the taxpayer).

[Subsection (1) substituted by section 21 of Act 23 of 2020]

(2)     The deduction contemplated in subsection (1) is an amount equal to 10 per cent of any amount owing to the taxpayer by the employee in respect of the unit at the end of the taxpayer s year of assessment: Provided that no such deduction shall be allowed in the eleventh and subsequent years of assessment after the disposal of that low-cost residential unit, as contemplated in subsection (1).

(3)     No deduction is allowed in terms of this section in respect of any disposal by the taxpayer if-

(a)     the disposal is subject to any condition other than a condition in terms of which the employee is required-

(i)      on termination of employment; or

(ii)     in the case of consistent failure for a period of three months on the part of the employee to pay an amount owing to the taxpayer (or an associated institution, as defined in the Seventh Schedule, in relation to the taxpayer) in respect of a low-cost residential unit,

to dispose of the low-cost residential unit to the taxpayer (or an associated institution, as defined in the Seventh Schedule, in relation to the taxpayer) for an amount equal to the actual cost (other than borrowing or finance costs) to the employee of the unit and the land on which the unit is erected;

(b)     the employee must pay interest to the taxpayer in respect of the amount owing to the taxpayer by the employee in respect of the unit; or

(c)     the disposal is for an amount that exceeds the actual cost (other than borrowing or finance costs) to the taxpayer of the unit and the land on which the unit is erected.

(4)     If the amount owing contemplated in subsection (2) or any part thereof is paid to the taxpayer, the taxpayer is deemed to have recovered or recouped an amount equal to the lesser of-

(a)     the amount so paid; or

(b)     the amount allowed as a deduction in terms of this section in the current and any previous year of assessment.

Section 23(o) of ITA

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(o)     any expenditure incurred –

(i)      where the payment of that expenditure or the agreement or offer to make that payment constitutes an activity contemplated in Chapter 2 of the Prevention and Combating of Corrupt Activities Act. 2004 (Act No. 12 of 2004);

[Subparagraph (i) amended by section 39 of Act 23 of 2018 effective on 1 April 2019, applies in respect of years of assessment commencing on or after that date]

(ii)     which constitutes a fine charged or penalty imposed as a result of an unlawful activity carried out in the Republic or in any other country if that activity would be unlawful had it been carried out in the Republic; or

[Subparagraph (ii) amended by section 39 of Act 23 of 2018 effective on 1 April 2019 and applies in respect of years of assessment commencing on or after that date]

(iii)     which constitutes fruitless and wasteful expenditure as defined in section 1 of the Public Finance Management Act and determined in accordance with that Act;

[Subparagraph (iii) added by section 39(1) of Act 23 of 2018 and substituted by section 11 of Act 20 of 2022]

[Paragraph (o) added by section 28(1)(e) of Act 31 of 2005 and amended by section 47(1)(a) of Act 24 of 2011 effective on 1 March, 2012 and applicable in respect of policies ceded on or after that date]

Section 23(p) of ITA

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(p)      the value in respect of any cession of a policy of insurance ceded by a taxpayer to-

 

(i)      any-

 

(aa)    employee (or former employee);

 

(bb)   director (or former director); or

 

(cc)    dependant or nominee of the employee (or former employee) or director (or former director),

 

of the taxpayer; or

 

(ii)     any pension fund, pension preservation fund, provident fund, provident preservation fund or retirement annuity fund for the benefit of any-

 

(aa)    employee (or former employee);

 

(bb)   director (or former director); or

 

(cc)    dependant or nominee of the employee (or former employee) or director (or former director),

 

of the taxpayer;

Section 23(b) of ITA

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(b)     domestic or private expenses, including the rent of or cost of repairs of or expenses in connection with any premises not occupied for the purposes of trade or of any dwelling–house or domestic premises except in respect of such part as may be occupied for the purposes of trade: Provided that –

 

(a)     such part shall not be deemed to have been occupied for the purposes of trade, unless such part is specifically equipped for purposes of the taxpayer’s trade and regularly and exclusively used for such purposes; and

 

(b)     no deduction shall in any event be granted where the taxpayer’s trade constitutes any employment or office unless –

 

(i)      his income from such employment or office is derived mainly from commission or other variable payments which are based on the taxpayer’s work performance and his duties are mainly performed otherwise than in an office which is provided to him by his employer; or

 

(ii)     his duties are mainly performed in such part;

Subsections 2, 2A and 3 of section 20C of ITA

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(2)     Where a headquarter company has during any year of assessment incurred any interest in respect of any financial assistance granted to that headquarter company by a person-

 

(a)     that is not a resident; and

 

(b)     if that person is a company, that directly or indirectly (and whether alone or together with any other company forming part of the same group of companies as that person) holds at least 10 per cent of the equity shares and voting rights in that headquarter company,

 

the amount of that interest in respect of which a deduction is allowable to that headquarter company in that year of assessment is limited to so much of the amount of interest received by or accrued to the headquarter company as relates to any portion of that financial assistance that is directly applied as financial assistance to any foreign company in which the headquarter company directly or indirectly (whether alone or together with any other company forming part of the same group of companies as that headquarter company) holds at least 10 per cent of the equity shares and voting rights.

 

(2A)   Where a headquarter company has during any year of assessment incurred any amount that constitutes a royalty payable to a person-

 

(a)     that is not a resident; and

 

(b)     if that person is a company, that directly or indirectly (and whether alone or together with any other company forming part of the same group of companies as that person) holds at least 10 per cent of the equity shares and voting rights in that headquarter company,

 

the amount of that royalty in respect of which a deduction is allowable to that headquarter company in that year of assessment is limited to so much of any amounts received by or accrued to the headquarter company in respect of-

 

(i)      the use or right of use of or permission to use any intellectual property as defined in section 23I; or

 

(ii)     the imparting of or the undertaking to impart any scientific, technical, industrial or commercial knowledge or information, or the rendering of or the undertaking to render, any assistance or service in connection with the application or utilisation of such knowledge or information,

 

from any foreign company in which the headquarter company directly or indirectly (whether alone or together with any other company forming part of the same group of companies as that headquarter company) holds at least 10 per cent of the equity shares and voting rights.

 

(3)     Any amount that is disallowed as a deduction in any year of assessment of a headquarter company in terms of subsection (2) or (2A) must-

   

(a)     be carried forward to the immediately succeeding year of assessment of the headquarter company; and

  

(b)     where that amount is disallowed as a deduction-

 

(i)      in terms of subsection (2), be deemed to be an amount of interest actually incurred by the headquarter company during that succeeding year in respect of financial assistance granted to that headquarter company by a person that is not a resident; or

 

(ii)     in terms of subsection (2A), be deemed to be an amount actually incurred by the headquarter company during that succeeding year that constitutes a royalty payable to a person that is not a resident.

Section 23(c) of ITA

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(c)     any loss or expense, the deduction of which would otherwise be allowable, to the extent to which it is recoverable under any contract of insurance, guarantee, security or indemnity, except where section 23L(3) applies;

[Paragraph (c) substituted by section 24(1) of Act 23 of 2020 effective on 1 January, 2021 and applies in respect of years of assessment commencing on or after that date]