Category: CHAPTER II – The Taxes (ITA)

“Sale and leaseback arrangement” definition of section 23G of ITA

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“sale and leaseback arrangement” means any arrangement whereby –

 

(a)     any person disposes of any asset (whether directly or indirectly) to any other person; and

 

(b)     such person or any connected person in relation to such person leases (whether directly or indirectly) such asset from such other person.

Subsections 2 and 3 of section 23L of ITA

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(2)     No deduction is allowed in respect of any premium incurred by a person in terms of a policy to the extent that the premium is not taken into account as an expense for the purposes of financial reporting pursuant to IFRS in either the current year of assessment or a future year of assessment.

[Subsection (2) substituted by section 60(1)(d) of Act 31 of 2013 effective on 1 April, 2014 and applicable in respect of premiums incurred on or after that date]

(3)     Where policy benefits are received by or accrue to a person in terms of a policy during a year of assessment, and where that person has been denied, whether in the current or any previous year of assessment, a deduction in terms of section 23L(2) for any premiums paid under such policy, there must be included in the gross income of that person an amount equal to the aggregate amount of all policy benefits received by or accrued to that person during that year of assessment and previous years of assessment in respect of that policy, less-

(a)     the aggregate amount of premiums incurred in terms of that policy that were not deductible in terms of subsection (2); and

(b)     the aggregate amount of policy benefits in respect of that policy that were included in the gross income of that person during previous years of assessment.

[Subsection (3) substituted by section 60(1)(d) of Act 31 of 2013 and amended by section 26(1) of Act 23 of 2020 effective on 1 January, 2021 and applicable in respect of years of assessment commencing on or after that date]

Section 24 (ITA) – Credit agreements and debtors allowance

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24.    Credit agreements and debtors allowance

 

(1)     Subject to the provisions of section 24J, if any taxpayer has entered into any agreement with any other person in respect of any property the effect of which is that, in the case of movable property, the ownership shall pass or, in the case of immovable property, transfer shall be passed from the taxpayer to that other person, upon or after the receipt by the taxpayer of the whole or a certain portion of the amount payable to the taxpayer under the agreement, the whole of that amount shall for the purposes of this Act be deemed to have accrued to the taxpayer on the day on which the agreement was entered into.

 

(2)     In the case of such an agreement, other than a lay-by agreement as contemplated in subsection (2A), in terms of which at least 25 per cent of the said amount payable only becomes due and payable on or after the expiry of a period of not less than 12 months after the date of the said agreement, taking into consideration any allowance made under section 11(j), there shall be made such further allowance as under the special circumstances of the trade of the taxpayer, as set out in a public notice issued by the Commissioner, is reasonable, in respect of all amounts which are deemed to have accrued under such agreements but which have not been received at the close of the taxpayer’s accounting period: Provided that any allowance so made shall be included as income in the taxpayer’s returns for the following year of assessment and shall form part of the taxpayer’s income.

[Subsection (2) substituted by section 13(1)(a) of Act 20 of 2022 with effect from 1 January, 2023 and applicable in respect of years of assessment ending on or after that date (section 13(1)(a) of Act 20 of 2022 as substituted by section 68(1) of Act 17 of 2023)]

 

(2A)   In the case of a lay-by agreement as contemplated in section 62 of the Consumer Protection Act, 2008 (Act 68 of 2008), the Commissioner may make an allowance in respect of all amounts which are deemed to have accrued under such agreement but which have not been received by the end of the taxpayer’s year of assessment.

[Subsection (2A) inserted by section 13(1)(b) of Act 20 of 2022 effective on 1 January, 2023 and applicable in respect of years of assessment ending on or after that date]

 

(2B)   Any allowance made under subsection (2A) shall be included in the income of that taxpayer in the immediately following year of assessment.

[Subsection (2B) inserted by section 13(1)(b) of Act 20 of 2022 effective on 1 January, 2023 and applicable in respect of years of assessment ending on or after that date]

Section 24A (ITA) – Transactions whereby fixed property is or company shares are exchanged for shares

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24A.    Transactions whereby fixed property is or company shares are exchanged for shares

 

(1)     If, under any transaction entered into before 1 October 2001 for the disposal by any person (hereinafter referred to as the trader) of any trading stock consisting of fixed property or any shares in any company, the consideration received by or accrued to the trader for such trading stock in effect consists of or includes –

 

(a)     shares in a public company; or

 

(b)     company shares quoted by a recognized stock exchange at the time of such transaction or within six months thereafter; or

 

(c)     shares in any other company, if such shares are, under a scheme for the consolidation or merger of the interests of two or more persons, issued or transferred to the trader,

 

the value of the shares which constitute or are included in such consideration shall, if the trader and the Commissioner agree thereto, be excluded from the trader’s income for the year of assessment during which such consideration is received by or accrues to him.

 

(2)     For the purposes of this Act –

 

(a)     the shares which constitute or are included in the said consideration and any capitalization shares issued in respect of such shares (which shares and capitalization shares are hereinafter referred to as new trading stock) shall be deemed to be trading stock of the trader; and

 

(b)     the cost price to the trader of the shares which constitute or are included in the said consideration shall be deemed to be the cost to him of the trading stock referred to in subsection (1) or, if such last–mentioned trading stock was held by him and had not been disposed of by him at the beginning of the year of assessment, the amount taken into account under section 22(2) as the value thereof, less an amount which bears to the said cost or the amount so taken into account, as the case may be, the same ratio as the value of such portion (if any) of the said consideration as does not consist of the said shares bears to the total value of the said consideration (including the said shares).

 

(3)     Any amount (including the value of any benefit or advantage) which is received by or accrues to the trader from the disposal of new trading stock (or a portion thereof) shall be included in the trader’s income, whether such amount is derived in carrying on any trade or otherwise or is derived from a source within or outside the Republic: Provided that the provisions of this subsection shall not be construed so as to prevent the provisions of subsection (1) being applied in respect of such amount.

 

(4)     If on or after the date of promulgation of the Income Tax Act, 1971, the trader disposes of or ceases to be the owner of new trading stock for any reason other than his death or insolvency or, in the case of a company, the winding–up or liquidation thereof and no consideration accrues to him in respect of such new trading stock or a consideration accrues to him in respect of such new trading stock which in whole or part is not measurable in terms of money (the part of the consideration which is so measurable being less in value than the market value of such new trading stock at the date on which it was disposed of or on which the trader ceased to be the owner thereof), he shall for the purposes of this Act be deemed to have disposed of such new trading stock for a consideration equal to the market value thereof at the date on which it was disposed of or on which the trader ceased to be the owner thereof) or the market value thereof on the date of the transaction referred to in subsection (1), whichever value is the lower, reduced by the amount (if any) included in the trader’s income under subsection (3) in respect of the disposal, and such value, as so reduced, shall be included in his income: Provided that the foregoing provisions of this subsection shall not apply where the trader disposes of or ceases to be the owner of new trading stock by reason of the carrying out of any scheme referred to in section 22A and the trader is a transferor company as contemplated in that section.

 

(5)     Where the trader has until his death or the prior sequestration of his estate or, in the case of a company, the commencement of the winding–up or liquidation thereof, continued to hold new trading stock, the trader shall for the purposes of this Act be deemed to have disposed of such new trading stock on the day preceding the date of his death or the sequestration of his estate (whichever first occurs) or, in the case of a company the date on which the winding–up or liquidation thereof commenced, for a consideration equal to the market value on the said day of such new trading stock or the market value thereof on the date of the transaction referred to in subsection (1), whichever value is the lower, and such value shall be included in his income for the period of assessment within which the said day falls.

 

(6)     For the purposes of this section –

 

(a)     “fixed property” means property as defined in section 1 of the Transfer Duty Act, 1949 (Act No. 40 of 1949); and

 

(b)     a company which has not yet been recognized under the provisions of this Act as a public company, may at the request of the taxpayer, be deemed to be a public company, if the Commissioner is satisfied that such company will be so recognized.

Section 23H (ITA) – Limitations of certain deductions

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23H.    Limitation of certain deductions

(1)     Where any person has during any year of assessment actually incurred any expenditure (other than expenditure incurred in respect of the acquisition of any trading stock) –

(a)     which is allowable as a deduction in terms of the provisions of section 11(a), (c), (d) or (w), or section 11A; and

[Paragraph (a) substituted by section 29 of Act 59 of 2000, section 36 of Act 35 of 2007, section 19 of Act 3 of 2008, section 43 of Act 7 of 2010, section 46 of Act 22 of 2012 and section 35 of Act 43 of 2014 effective on 1 October 2012]

(b)     in respect of-

(i)      goods or services, all of which will not be supplied or rendered to such person, during such year of assessment; or,

(ii)     any other benefit, the period to which the expenditure relates extends beyond such year of assessment,

the amount of the expenditure in respect of which a deduction shall be allowable in terms of such section in the said year and any subsequent year of assessment, shall be limited to, in the case of expenditure incurred in respect of –

(i)      goods to be supplied, so much of the expenditure as relates to the goods actually supplied to such person in such year of assessment; or

(ii)     services to be rendered, an amount which bears to the total amount of such expenditure the same ratio as the number of months in such year during which such services are rendered bears to the total number of months during which such services will be rendered or, where the period during which such services will be rendered is not determinable, such period during which the services are likely to be rendered; or

(iii)    any other benefit to which such expenditure relates, an amount which bears to the total amount of such expenditure the same ratio as the number of months in such year during which such person will enjoy such benefit bears to the total number of months during which such person will enjoy such benefit or where the period of such benefit is not determinable, such period over which the benefit is likely to be enjoyed:

Provided that the provisions of this section shall not apply –

(aa)   where all the goods or services are to be supplied or rendered within six months after the end of the year of assessment during which the expenditure was incurred, or such person will have the full enjoyment of such benefit in respect of which the expenditure was incurred within such period, unless the expenditure is allowable as a deduction in terms of section 11D(2); or

[Paragraph (aa) substituted by section 34 of Act 60 of 2001, section 36 of Act 35 of 2007 and section 37 of Act 17 of 2017 effective on 18 December 2017]

(bb)   where the aggregate of all amounts of expenditure incurred by such person, which would otherwise be limited by this section, does not exceed R100000; or

(cc)   to any expenditure to which the provisions of 24K or 24L apply; or

(dd)   to any expenditure actually paid in respect of any unconditional liability to pay an amount imposed by legislation.

(2)     If in any case the apportionment of the expenditure in accordance with subsection (1) does not reasonably represent a fair apportionment of such expenditure in respect of the goods, services or benefits to which it relates, such apportionment must be made in such other manner as is fair and reasonable.

[Subsection (2) substituted by section 38 of Act 25 of 2015 effective on 8 January 2016]

(3)     Notwithstanding the provisions of subsections (1) and (2), where it is during any year of assessment shown by any person that –

(a)     the goods or services in respect of which the expenditure is incurred will never be received by or be rendered to such person; or

(b)     such person will never enjoy such other benefit in respect of which any expenditure is incurred,

such expenditure shall be allowed in such year, to the extent that such expenditure has been actually paid by such person.