‘financial liability’ means a financial liability defined in and within the scope of International Accounting Standard 32 of IFRS or any International Accounting Standard that replaces International Accounting Standard 32;
Category: CHAPTER II – The Taxes (ITA)
“Operating company” definition of section 24O of ITA
“operating company” means a company of which-
(a) at least 80 per cent of the aggregate amount received by or that accrued to that company during a year of assessment constitutes income in the hands of that company; and
[Paragraph (a) substituted by section 46 of Act 23 of 2018 effective on 1 January 2019, applies in respect of years of assessment ending on or after that date]
(b) the income contemplated in paragraph (a) is derived-
(i) from a business carried on continuously by that company; and
(ii) in the course or furtherance of which goods or services are provided or rendered by that company for consideration.
[Subparagraph (ii) substituted by section 46 of Act 23 of 2018 effective on 1 January 2019, applies in respect of years of assessment ending on or after that date]
Section 24JA (ITA) – Sharia compliant financing arrangements
24JA. Sharia compliant financing arrangements
“Financial instrument” definition of section 24JB of ITA
‘financial instrument’……….
[Definition of “financial instrument” deleted by section 43 of Act 43 of 2014 effective on 1 January 2014]
“Acquisition transaction” definition of sectoin 24O of ITA
(1) For the purposes of this section-
“acquisition transaction” means any transaction in terms of which a company acquires an equity share in another company from a person that does not form part of the same group of companies as that company, if-
(a) that other company is-
(i) an operating company on the date of acquisition of that share; and
(ii) as a result of which, at the end of the day of that transaction-
(aa) that company is a controlling group company in relation to that other company; and
(bb) that company and that other company form part of the same group of companies as defined in section 41(1); or
(b) that other company is-
(i) a controlling group company in relation to a company that is an operating company on the date of acquisition of that share and that forms part of the same group of companies, as defined in section 41(1), as that controlling group company; and
(ii) as a result of which, at the end of the day of that transaction-
(aa) that company is a controlling group company in relation to that other controlling group company; and
(bb) that company and that other controlling group company form part of the same group of companies as defined in section 41(1);
[Definition of “acquisition transaction” substituted by section 31(1)(a) of Act 34 of 2019 deemed effective on 1 January, 2019 and applicable in respect of years of assessment ending on or after that date]
Subsections 2, 3, 3A, 4, 4A, 5, 5A, 6, 7, 8, 9, 9A, 10 and 12 of section 24J of ITA
(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.
“Sukuk” definition of section 24JA of ITA
“sukuk” means a sharia arrangement whereby-
(a) the government of the Republic, any public entity that is listed in Schedule 2 to the Public Finance Management Act or a listed company disposes of an interest in an asset to a trust; and
[Paragraph (a) substituted by section 42 of Act 43 of 2014 and section 45 of Act 25 of 2015 effective on1 January 2016]
(b) the disposal of the interest in the asset to the trust by the government, the public entity or the listed company contemplated in paragraph (a) is subject to an agreement in terms of which the government, that public entity or that listed company undertakes to reacquire on a future date from that trust the interest in the asset disposed of at a cost equal to the cost paid by the trust to the government, to that public entity or to that listed company to obtain the asset.
[Paragraph (b) substituted by section 42 of Act 43 of 2014 and section 45 of Act 25 of 2015 effective on 1 January 2016]
“Financial asset” definition of section 24JB of ITA
‘financial asset’ means-
(a) a financial asset defined in and within the scope of International Accounting Standard 32 of IFRS or any other International Accounting Standard that replaces International Accounting Standard 32; and
(b) a commodity taken into account in terms of IFRS at fair value less cost to sell in profit or loss in the statement of comprehensive income;
Section 25 (ITA) – Taxation of deceased estates
25. Taxation of deceased estates
(1) Any-
(a) income received by or accrued to or in favour of any person in his or her capacity as the executor of the estate of a deceased person; and
(b) amount received or accrued as contemplated in paragraph (a) which would have been income in the hands of that deceased person had that amount been received by or accrued to or in favour of that deceased person during his or her lifetime,
must be treated as income of the deceased estate of that deceased person.
(2) Where the deceased estate of a person acquires an asset from that person, that deceased estate must, if that asset is an asset-
(a) other than an asset contemplated in section 9HA(2), be treated as having acquired that asset for an amount of expenditure incurred equal to the amount contemplated in section 9HA(1); and
[Paragraph (a) substituted by section 47 of Act 15 of 2016 effective on 1 March 2016, applies in respect of a person who dies on or after that date]
(b) contemplated in section 9HA(2), be treated as having acquired that asset for an amount of expenditure incurred equal to the amount contemplated in section 9HA(2)(b).
(3) Where the deceased estate of a person disposes of an asset to an heir or legatee of that person-
(a) that deceased estate must be treated as having disposed of that asset for an amount received or accrued equal to the amount of expenditure incurred by the deceased estate in respect of that asset;
[Paragraph (a) amended by section 20(1) of Act 20 of 2021 effective on 1 March, 2022 and applicable in respect of liquidation and distribution accounts finalised on or after that date]
(b) the heir or legatee must be treated as having acquired that asset for an amount of expenditure incurred equal to the expenditure incurred by the deceased estate in respect of that asset; and
[Paragraph (b) amended by section 20(1) of Act 20 of 2021 effective on 1 March, 2022 and applicable in respect of liquidation and distribution accounts finalised on or after that date]
(c) that deceased estate must be treated as having disposed of that asset on the earlier of the date on which that asset is disposed of or on which the liquidation and distribution account becomes final.
[Paragraph (c) added by section 20(1) of Act 20 of 2021 effective on 1 March, 2022 and applicable in respect of liquidation and distribution accounts finalised on or after that date]
(4)
(a) This subsection must be applied in respect of an asset acquired by a surviving spouse of a deceased person as contemplated in section 9HA(2) for purposes of determining the amount of any-
(i) allowance or deduction to which that spouse may be entitled or that is to be recovered or recouped by or included in the income of that spouse in respect of that asset; or
(ii) the amount of any capital gain or capital loss in respect of a disposal of that asset by that spouse.
(b) The surviving spouse contemplated in paragraph (a) must be treated as one and the same person as the deceased person and deceased estate with respect to-
(i) the date of acquisition of that asset by that deceased person;
(ii) any valuation of that asset effected by that deceased person as contemplated in paragraph 29(4) of the Eighth Schedule;
(iii) the amount of any expenditure and the date on which and the currency in which that expenditure was incurred in respect of that asset-
(aa) by that deceased person as contemplated in section 9HA(2)(b); and
(bb) by that deceased estate, other than the expenditure contemplated in section 9HA(2)(b);
(iv) the manner in which that asset had been used by the deceased person and the deceased estate; and
(v) any allowance or deduction allowable in respect of that asset to the deceased person and the deceased estate.
[Subsection (4) substituted by section 47 of Act 15 of 2016 effective on 1 March 2016, applies in respect of a person who dies on or after that date]
(5) A deceased estate must-
(a) other than for the purposes of section 6, section 6A, section 6B and section 6C, be treated as if that estate were a natural person; and
[Paragraph (a) substituted by section 28(1)(a) of Act 17 of 2023 effective on 1 March, 2023 and applicable in respect of years of assessment commencing on or after that date]
(b) if the deceased person at the time of his or her death was—
(i) a resident, be treated as if that estate were a resident; and
(ii) a non-resident, be treated as if that estate were a non-resident.
[Subsection (5) substituted by section 47 of Act 23 of 2018. Paragraph (b) substituted by section 28(1)(b) of Act 17 of 2023]
(6) Where-
(a) the tax determined in terms of this Act, which relates to the taxable capital gain derived by a deceased person from assets disposed of by that person as contemplated in section 9HA, exceeds 50 per cent of the net value of the estate of that person, as determined in terms of section 4 of the Estate Duty Act for purposes of that Act, before taking into account the amount of that tax so determined; and
(b) the executor of the estate is required to dispose of any asset of the estate for purposes of paying the amount of the tax contemplated in paragraph (a),
any heir or legatee of the estate who would have been entitled to that asset contemplated in paragraph (b) had there been no liability for tax, may elect that that asset be distributed to that heir or legatee if the amount of tax which exceeds 50 per cent of that net value be paid by that heir or legatee within a period of three years after the date that the estate has become distributable in terms of section 35(12) of the Administration of Estates Act, 1965 (Act No. 66 of 1965).
(7) Any amount of tax payable by an heir or legatee as contemplated in subsection (6), becomes a debt due to the state and must be treated as an amount of tax chargeable in terms of this Act which is due by that person.
[Section 25 substituted by section 22 of Act 113 of 1993 and section 48 of Act 25 of 2015 effective on 1 March 2016]
“Yield to maturity” definition of section 24J of ITA
“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.