Category: CHAPTER II – The Taxes (ITA)

Section 25 (ITA) – Taxation of deceased estates

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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

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“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.

Subsections 2, 3, 5, 6 and 7 of section 24JA of ITA

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(2)     Any amount received by or accrued to a client in terms of a mudaraba is deemed to be interest as contemplated in paragraph (a) of the definition of ‘interest’ in section 24J(1).

[Subsection (2) substituted by section 54 of Act 24 of 2011 and section 45 of Act 25 of 2015 effective on 1 January 2016]

(3)     Where any murabaha is entered into between a financier and a client of that financier as contemplated in paragraph (a) of the definition of ‘murabaha’-

(a)     the financier is deemed not to have acquired or disposed of the asset under the sharia arrangement;

(b)     the client is deemed to have acquired the asset from the seller-

(i)      for consideration equal to the amount paid by the financier to the seller; and

(ii)     at such time as the financier acquired the asset from the seller by virtue of the transaction between the seller and the financier;

(c)     the murabaha is deemed to be an instrument for the purposes of section 24J;

(d)     the difference between the amount of consideration paid for the asset by the financier to the seller and the consideration payable to the financier by the client to acquire the asset as contemplated in paragraph (b)(ii) of the definition of “murabaha” is deemed to be a premium payable or receivable contemplated in paragraph (a) of the definition of ‘interest’ in section 24J(1); and

[Paragraph (d) substituted by section 55 of Act 22 of 2012 and section 45 of Act 25 of 2015 effective on 1 January 2016]

(e)     the amount of consideration paid by the financier to acquire the asset as contemplated in paragraph (a) of the definition of ‘murabaha is deemed to be an issue price for the purposes of section 24J.

(4)       ……….

(5)       For the purposes of determining the tax on income of the client in respect of a diminishing musharaka-

(a)     where the bank and the client jointly acquire an asset, the client is deemed to have acquired the bank s interest in the asset-

(i)      for an amount equal to the amount paid by the bank in respect of its interest in the asset; and

(ii)     at the time that the seller of the asset was divested of its interest in the asset by virtue of the transaction between the seller and the bank; or

(b)     where the bank acquires an interest in an asset from the client, the client is deemed not to have disposed of the interest in the asset or to have acquired that interest from the bank.

(6)

(a)     For the purposes of subsection (5), where an instalment is paid by the client to the bank, a portion of that instalment, the amount of which must be determined in accordance with paragraph (b), is deemed to be interest as defined in section 24J(1).

(b)     The amount contemplated in paragraph (a) must be determined in accordance with the formula-

X = A – B

in which formula-

(i)      ‘X’ represents the amount to be determined;

(ii)     ‘A’ represents the total amount of the instalment payable by the client to the bank;

(iii)    ‘B’ represents the expenditure incurred by the bank to acquire the portion of the interest in the asset transferred to the client in exchange for the instalment payable by the client to the bank.

(7)       Where any sukuk is entered into-

(a)     the trust is deemed not to have acquired the asset from the government of the Republic, the public entity that is listed in Schedule 2 to the Public Finance Management Act or the listed company under the sharia arrangement;

[Paragraph (a) substituted by section 45 of Act 25 of 2015 effective on 1 January 2016]

(b)     the government, that public entity or that listed company is deemed not to have disposed of or reacquired the asset; and

[Paragraph (b) substituted by section 45 of Act 25 of 2015 effective on 1 January 2016]

(c)     any consideration paid by the government, that public entity or that listed company in respect of the use of the asset held by the trust is deemed to be interest as contemplated in paragraph (a) of the definition of ‘interest’ in section 24J(1).

[Paragraph (c) substituted by section 45 of Act 25 of 2015 effective on 1 January 2016]

[Subsection (7) added by section 54 of Act 24 of 2011 and substituted by section 42 of Act 43 of 2014 effective on 1 April 2015]

Section 25A (ITA) – Determination of taxable income of permanently separated spouses

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25A.    Determination of taxable incomes of permanently separated spouses

Where during any period of assessment any taxpayer who is married in community of property has lived apart from his or her spouse in circumstances which indicate that the separation is likely to be permanent, his or her taxable income for such period shall be determined at the amount at which such taxpayer’s taxable income would have been determined under the provisions of this Act if such taxpayer had not been married in community of property.

 [Section 25A inserted by section 21 of Act 55 of 1966, amended by section 271 of Act 28 of 2011 and substituted by section 49 of Act 25 of 2015 effective on 8 January 2016]

“Covered person” definition of section 24JB of ITA

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(1)     For the purposes of this section-

 

‘covered person’ means-

(a)     any authorised user as defined in section 1 of the Financial Markets Act that is a company, other than any company of which the principal trading activities constitute the activities of a treasury operation;

[Paragraph (a) substituted by section 46 of Act 15 of 2016 effective on 1 January 2017, applies in respect of years of assessment ending on or after that date]

(b)     the South African Reserve Bank;

(c)     any-

(i)      bank;

(ii)     branch;

(iii)    branch of a bank; or

(iv)    controlling company,

as defined in section 1 of the Banks Act;

(d)     any company or trust that forms part of a banking group as defined in section 1 of the Banks Act, excluding-

(i)      a company that is a long-term insurer as defined in section 1 of the Long-term Insurance Act;

(ii)     a company that is a short-term insurer as defined in section 1 of the Short-term Insurance Act;

(iii)    a company of which more than 50 per cent of the shares are directly or indirectly held by a company contemplated in subparagraph (i) or (ii) if that company does not form part of the same group of companies as a bank;

(iv)    any subsidiary, as defined in section 1 of the Companies Act, of a company contemplated in subparagraph (i) or (ii);

[Subparagraph (iv) added by section 44 of Act 17 of 2017 effective on 1 January 2018, applies in respect of years of assessment commencing on or after that date]

Section 25B (ITA) – Income of trusts and beneficiaries of trusts

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25B.     Taxation of trusts and beneficiaries of trusts

[Heading amended by section 28(a) of Act 23 of 2020]

 

(1)     Any amount (other than an amount of a capital nature which is not included in gross income or an amount contemplated in paragraph 3B of the Second Schedule) received by or accrued to or in favour of any person during any year of assessment in his or her capacity as the trustee of a trust, shall, subject to the provisions of section 7(2) to (8),-

 

(a)     where that trust is a resident, to the extent to which that amount has been derived for the immediate or future benefit of any ascertained beneficiary, who is a resident and has a vested right to that amount during that year, be deemed to be an amount which has accrued to that beneficiary, and to the extent to which that amount is not so derived, be deemed to be an amount which has accrued to that trust; or

 

(b)     where that trust is not a resident, to the extent to which that amount has been derived for the immediate or future benefit of any ascertained beneficiary, who has a vested right to that amount during that year, be deemed to be an amount which has accrued to that beneficiary, and to the extent to which that amount is not so derived, be deemed to be an amount which has accrued to that trust.

[Subsection (1) substituted by section 28(b) of Act 23 of 2020, by section 29(1)(a) of Act 17 of 2023 and by section 24(1) of Act 5 of 2026 effective on 1 March, 2026 and applicable in respect of years of assessment commencing on or after that date]

 

(2)     Where a beneficiary who is a resident has acquired a vested right to any amount referred to in subsection (1) in consequence of the exercise by the trustee of a discretion vested in him or her in terms of the relevant deed of trust, agreement or will of a deceased person, that amount shall for the purposes of that subsection be deemed to have been derived for the benefit of that beneficiary.

[Subsection (2) substituted by section 29(1)(b) of Act 17 of 2023 with effect from 1 March, 2024 and applicable in respect of years of assessment commencing on or after that date]

 

(2A)  Where during any year of assessment any resident acquires any vested right to any amount representing capital of any trust which is not a resident, that amount must be included in the income of that resident in that year, if –

 

(a)     that capital consists of or is derived, directly or indirectly, from any receipts and accruals of such trust which would have constituted income if such trust had been a resident, in any previous year of assessment during which that resident had a contingent right to that amount; and

[Paragraph (a) substituted by section 48 of Act 23 of 2018 effective on 1 March 2019, applies in respect of any year of assessment commencing on or after that date]

 

(b)     that amount has not been subject to tax in the Republic in terms of this Act.

 

(2B)  In determining, for purposes of subsection (2A), whether an amount received by or that accrued to a trust which is not a resident would have constituted income had that trust been a resident, the provisions of section 10B(2)(a) must be disregarded in respect of an amount received or accrued consisting of or derived, directly or indirectly, from a foreign dividend-

 

(i)      paid or payable by a company if-

 

(aa)   more than 50 per cent of the total participation rights, as defined in section 9D(1), or of the voting rights in that company are directly or indirectly held or are exercisable, as the case may be, by that trust whether alone or together with any one or more persons that are connected persons in relation to that trust; and

 

(bb)   that resident or any person that is a connected person in relation to that resident is a connected person in relation to that trust; and

 

(ii)     to the extent to which that foreign dividend is not derived from an amount that must be included in the income of or that must be attributed as a capital gain to-

 

(aa)   the resident who acquired the vested right to the amount referred to in subsection (2A); or

 

(bb)   a resident who is a connected person in relation to the resident referred to in item (aa).

[Subsection (2B) inserted by section 48 of Act 23 of 2018 effective on 1 March 2019, applies in respect of any year of assessment commencing on or after that date]

 

(3)     Any deduction or allowance which may be made under the provisions of this Act in the determination of the taxable income derived by way of any amount referred to in subsection (1), must, to the extent to which that amount is under that subsection deemed to be an amount which has accrued to –

 

(a)     a beneficiary, be deemed to be a deduction or allowance which may be made in the determination of the taxable income derived by that beneficiary; and

 

(b)     the trust, be deemed to be a deduction or allowance which may be made in the determination of the taxable income derived by that trust.

 

(4)     The deduction or allowance contemplated in subsection (3) which is deemed to be made in the determination of the taxable income of a beneficiary of a trust during any year of assessment, shall be limited to so much of the amount deemed to have been received by or accrued to that beneficiary in terms of subsection (1), as is included in the income of that beneficiary during that year of assessment.

 

(5)     The amount by which the sum of the deductions and allowances contemplated in subsection (4) exceeds the amount included in the income of the beneficiary during a year of assessment as contemplated in that subsection –

 

(a)     is deemed to be a deduction or allowance which may be made in the determination of the taxable income of the trust during that year: Provided that the sum of those deductions and allowances shall be limited to the taxable income of that trust during that year of assessment as calculated before allowing any deduction or allowance under this subsection; or

 

(b)     where the trust is not subject to tax in the Republic, must be carried forward and be deemed to be a deduction or allowance which may be made in the determination of the taxable income derived by that beneficiary by way of amounts referred to in subsection (1) during the immediately succeeding year of assessment.

 

(6)     The amount by which the sum of the deductions and allowances contemplated in subsection (4) exceeds the sum of the amount included in the income of the beneficiary as contemplated in subsection (4) and the taxable income of the trust as contemplated in subsection (5)(a), must be deemed to be a deduction or allowance for purposes of subsection (3), which may be made in the determination of the taxable income derived by that beneficiary by way of any amount referred to in subsection (1) during the immediately succeeding year of assessment.

 

(7)     Subsections (4), (5) and (6) do not apply in respect of any amount which is deemed to have accrued to any beneficiary in terms of subsection (1), where that beneficiary is not subject to tax in the Republic on that amount.