30A. Recreational clubs
Category: CHAPTER II – The Taxes (ITA)
“Bonus” definition of section 27 of ITA
“bonus” means any amount distributed by any co–operative society or company referred to in this section out of its profits or surplus for any year of assessment or, in the case of the vereniging referred to in paragraph (h) of subsection (2), out of the stabilization fund referred to in that paragraph, whether such amount is distributed in cash or by way of a credit or an award of capitalization shares or bonus debentures or securities, if such amount –
(a) is divided among the persons entitled thereto in such manner that the amount accruing to each such person is determined in accordance with the value of the business transactions between such society or company and such person; and
(b) is distributed during the specified period in relation to such year of assessment or is distributed out of the stabilization fund referred to in subsection (2) (h);
“Business” definition of section 29A of ITA
“business” means any long–term insurance business as defined in section 1 of the Long–term Insurance Act;
Subsections 2, 3, 4, 5, 6, 7, 7A, 8 and 9 of section 30A of ITA
(2) The Commissioner must approve a recreational club for the purposes of section 10(1)(cO), if-
(a) that club has submitted to the Commissioner a copy of the constitution or other written instrument in terms of which it is established and which provides that –
(i) it is required to have at least three natural persons, who are not connected persons in relation to each other, to accept the fiduciary responsibility of that club and no single person directly or indirectly controls the decision making powers relating to that club;
[Subparagraph (i) substituted by section 42(a) of Act 60 of 2008 and by section 7(a) of Act 18 of 2023]
(iA) its activities must be carried on in a non-profit manner;
(ii) it is prohibited from directly or indirectly distributing any surplus funds to any person, other than in terms of subparagraph (iii);
(iii) it is required on dissolution to transfer its assets and funds to-
(aa) any other recreational club which is approved by the Commissioner in terms of this section;
(bb) a public benefit organisation contemplated in paragraph (a)(i) of the definition of a ‘public benefit organisation’ in section 30(1) which has been approved in terms of section 30(3);
(cc) any institution, board or body which is exempt from tax under the provisions of section 10(1)(cA)(i), which has as its sole or principal object the carrying on of any public benefit activity; or
(dd) the government of the Republic in the national, provincial or local sphere, contemplated in section 10(1)(a);
(iv) it may not pay any remuneration to any person which is excessive, having regard to what is generally considered reasonable in the sector and in relation to the service rendered, nor may any remuneration be determined as a percentage of any amounts received or accrued to that club;
(v) all members must be entitled to annual or seasonal membership; and
(vi) members are not allowed to sell their membership rights or any entitlement in terms thereof;
(b) the club undertakes to submit to the Commissioner a copy of any amendment to the constitution or other written instrument under which it is established;
[Paragraph (b) amended by section 7(b) of Act 18 of 2023]
(c) the Commissioner is satisfied that the club is or was not knowingly a party to, or does not knowingly permit, or has not knowingly permitted, itself to be used as part of any transaction, operation or scheme of which the sole or main purpose is or was the reduction, postponement or avoidance of liability for any tax, duty or levy which, but for such transaction, operation or scheme, would have been or would have become payable by any person under this Act or any other Act administered by the Commissioner; and
[Paragraph (c) amended by section 7(c) of Act 18 of 2023]
(d) the Commissioner is satisfied that the club does not have a person acting in a fiduciary capacity, who is disqualified in terms of section 6 of the Trust Property Control Act, 1988 (Act 57 of 1988), section 25A of the Nonprofit Organisations Act, 1997 (Act 71 of 1997), or section 69 of the Companies Act.
[Paragraph (d) added by section 7(d) of Act 18 of 2023]
(3) Where the constitution or other written instrument under which the club is established does not comply with the provisions of paragraph (a) of subsection (2), it shall be deemed to so comply if a person responsible in a fiduciary position for the funds and assets of such club furnishes the Commissioner with a written undertaking by such club that such club will be administered in compliance with the provisions of this section.
(4)
(a) Subject to paragraph (b), where a club applies for approval, the Commissioner may approve that club for purposes of this section with retrospective effect, if the Commissioner is satisfied that that club during the period prior to its application complied with the requirements of a “recreational club” as defined in subsection (1).
(b) For the purposes of paragraph (a), where the club—
(i) has complied with all its obligations under chapters 4, 10 and 11 of the Tax Administration Act, the Commissioner may not extend approval to the years of assessment in respect of which an assessment may in terms of section 99(1) of that Act not be made; or
(ii) has not complied with all its obligations under chapters 4, 10 and 11 of the Tax Administration Act, the Commissioner may not extend approval to the years of assessment in respect of which an assessment could in terms of section 99(1) of that Act, not have been made had the income tax returns relating to those years of assessment been submitted in accordance with section 25(1) of that Act.
[Subsection (4) substituted by section 26(1)(a) of Act 8 of 2007, by section 42(1) of Act 17 of 2009 and by section 36 of Act 34 of 2019]
(5) Where the Commissioner is –
(a) satisfied that any recreational club approved under subsection (2) has during any year of assessment in any material respect; or
(b) during any year of assessment satisfied that any such recreational club has on a continuous or repetitive basis,
failed to comply with the provisions of this section, or the constitution or other written instrument under which it was established to the extent that it relates to the provisions of this section, the Commissioner shall notify the recreational club that he or she intends to withdraw the approval of that recreational club if no corrective steps are taken by that club within a period stated in that notice.
(6) If no corrective steps are taken by a recreational club as contemplated in subsection (5), the Commissioner must withdraw approval of that club with effect from the commencement of the year of assessment contemplated in subsection (5),
(7) If the Commissioner has withdrawn the approval of a recreational club, that club must within six months after the date of that withdrawal (or such longer period as the Commissioner may allow) transfer or take reasonable steps to transfer its remaining assets to any recreational club, public benefit organisation, institution, board or body or the government, as contemplated in subsection (2)(a)(iii).
(7A) As part of its dissolution the club must transfer its assets to a recreational club, public benefit organisation, institution, board or body or the government, as contemplated in subsection (2)(a)(iii).
(8) If the recreational club fails to transfer, or to take reasonable steps to transfer, its assets as contemplated in subsection (7) or (7A), an amount equal to the market value of those assets which have not been transferred less an amount equal to the bona fide liabilities of that recreational club must for purposes of this Act be deemed to be an amount of taxable income which accrued to that recreational club during the year of assessment in which approval was withdrawn or the dissolution took place.
(9) Any person who is in a fiduciary capacity responsible for the management or control of the income and assets of any approved recreational club and who intentionally fails to comply with any provision of this section or of the constitution, or other written instrument under which such recreational club is established to the extent that it relates to the provisions of this section, shall be guilty of an offence and liable on conviction to a fine or to imprisonment for a period not exceeding 24 months.
(10) A person may not act in a fiduciary capacity if that person is disqualified in terms of section 6 of the Trust Property Control Act, 1988 (Act 57 of 1988), section 25A of the Nonprofit Organisations Act, 1997 (Act 71 of 1997), or section 69 of the Companies Act.
[Subsection (10) inserted by section 7(e) of Act 18 of 2023]
(11) A person who fails to comply with the provisions of subsection (9A) shall be guilty of an offence and liable, on conviction, to a fine or to imprisonment for a period not exceeding 24 months.
[Subsection (11) inserted by section 7(e) of Act 18 of 2023]
[Section 30A inserted by section 25(1) of Act 20 of 2006 with effect from 1 April, 2007 and applicable in respect of any year of assessment commencing on or after that date]
“Agricultural co-operative” definition of section 27 of ITA
(9) In this section –
“agricultural co–operative” means any co–operative agricultural society or company or any farmers’ special co–operative company, as defined in the Co–operative Societies Act, 1939;
“Recreational club” definition of section 30A of ITA
(1) For purposes of this Act, “recreational club” means any non-profit company as defined in section 1 of the Companies Act, society or other association of which the sole or principal object is to provide social and recreational amenities or facilities for the members of that company, society or other association.
Section 28 (ITA) – Taxation of short-term insurance business
28. Taxation of short-term insurance business
Section 30B (ITA) – Associations
30B. Associations
Subsections 2, 3, 4, 5, 7, 8, 9, 10 and 11 of section 28 of ITA
(2) For the purpose of determining the taxable income derived during a year of assessment by any short-term insurer from carrying on short-term insurance business-
[Words preceding paragraph (a) substituted by section 50 of Act 23 of 2018 effective on 1 July 2018, applies to years of assessment ending on or after that date]
(a) a premium received by or accrued to that person in respect of a short-term policy issued by that short-term insurer shall be deemed to be—
(i) an amount equal to the sum of insurance revenue for insurance contracts and net earned premiums for investment contracts, which are determined in accordance with IFRS as reported by the insurer to shareholders in the audited financial statements, other than any reinsurance due to a cell owner as contemplated in the definition of “cell structure” in section 1 of the Insurance Act, in respect of “third party risks” as defined in that section of that Act, which is included in that insurance revenue in accordance with IFRS; and
(ii) premium income earned in relation to an investment contract entered into by a “cell captive insurer” as defined in section 1 of the Insurance Act in respect of “first party risks” as defined in that section of that Act, which does not form part of amounts contemplated in subparagraph (i);
[Paragraph (a) substituted by section 14(1)(a) of Act 20 of 2022 effective on 1 January, 2023 and applicable in respect of years of assessment commencing on or after that date]
(b) . . . . . .
[Paragraph (b) deleted by section 14(1)(b) of Act 20 of 2022 effective on 1 January, 2023 and applicable in respect of years of assessment commencing on or after that date]
(c) an amount of expenditure payable by that short-term insurer in respect of any claim in terms of a short-term policy-
(i) may be deducted in terms of section 11(a) to the extent that the amount has been paid by that short-term insurer; and
(ii) to the extent that the amount has been paid by the short-term insurer, sections 23(c) and 23H shall not apply to that expenditure; and
[Paragraph (c) amended by section 14(1)(b) of Act 20 of 2022 effective on 1 January, 2023 and applicable in respect of years of assessment commencing on or after that date]
(d) section 23H shall not apply to expenditure (other than expenditure contemplated in paragraph (c)) incurred in respect of-
(i) a short-term policy issued by that short-term insurer; or
(ii) a policy of reinsurance if that short-term insurer is the holder of that policy;
[Paragraph (d) amended by section 14(1)(b) of Act 20 of 2022 effective on 1 January, 2023 and applicable in respect of years of assessment commencing on or after that date]
(e) . . . . . .
[Subsection (2) amended by section 17 of Act 90 of 1962, by section 22 of Act 55 of 1966, by section 24 of Act 89 of 1969, by section 22 of Act 94 of 1983, by section 42(a)-(e) of Act 35 of 2007, by section 40 of Act 60 of 2008, by section 40(1)(a) of Act 17 of 2009 and by section 51(1)(a) of Act 7 of 2010, substituted by section 61(1)(b) of Act 22 of 2012 and by section 76(1)(c) of Act 31 of 2013 and amended by section 50(1)(d) of Act 23 of 2018 deemed effective on 1 July, 2018 and applicable in respect of years of assessment ending on or after that date. Paragraph (e) deleted by section 14(1)(b) of Act 20 of 2022 effective on 1 January, 2023 and applicable in respect of years of assessment commencing on or after that date]
(3) Subject to subsection (3A) and notwithstanding section 23(e), for the purpose of determining the taxable income derived during any year of assessment by any short-term insurer from carrying on short-term insurance business, there shall be allowed as a deduction from the income of that short-term insurer an amount equal to the sum of liabilities for incurred claims relating to short-term insurance business in respect of the policies of the insurer, net of amounts recognised in respect of reinsurance contracts for liabilities for incurred claims, which are determined in accordance with IFRS as reported by the insurer to shareholders in the audited annual financial statements.
[Subsection (3) substituted by section 21(1)(b) of Act 88 of 1971, amended by section 25(1)(c) of Act 101 of 1990, substituted by section 33(b) of Act 30 of 2000, deleted by section 42(f) of Act 35 of 2007, inserted by section 61(1)(b) of Act 22 of 2012, substituted by section 76(1)(c) of Act 31 of 2013 and by section 52(1)(d) of Act 25 of 2015, amended by section 49(1) of Act 15 of 2016 and by section 50(1)(e) of Act 23 of 2018 and substituted by section 33(1)(b) of Act 34 of 2019 and by section 14(1)(c) of Act 20 of 2022 effective on 1 January, 2023 and applicable in respect of years of assessment commencing on or after that date]
(3A) Notwithstanding section 23(e), for the purpose of determining the taxable income derived during any year of assessment by any foreign reinsurer conducting insurance business through a branch in the Republic in terms of section 6 of the Insurance Act in respect of a branch policy, there shall be allowed as a deduction from the income of that foreign reinsurer an amount in respect of liabilities determined in accordance with the formula-
I = (L + LIC + DL) – DC + DR
in which formula-
(a) “I” represents the amount to be determined;
(b) “L” represents the aggregate amounts of-
(i) insurance contract liabilities;
(ii) investment contract liabilities; and
(iii) reinsurance contract liabilities,
reduced by-
(aa) insurance contract assets;
(bb) reinsurance contract assets, and
(cc) liability for incurred claims contemplated in paragraph (c),
the amounts of which are determined in accordance with IFRS as annually reported by the insurer to shareholders in the audited annual financial statements in respect of branch policies: Provided that any amount that is payable to or receivable from a cell owner, referred to in the definition of ‘cell structure’ in section 1 of the Insurance Act, in respect of ‘third party risks’ as defined in that section of that Act, must be disregarded: Provided further that the amount may not be less than zero;
[Paragraph (b) amended by section 31(1)(a) of Act 17 of 2023 effective on 1 January, 2023 and applicable in respect of years of assessment commencing on or after that date]
(c) “LIC” represents the amount of the liability for incurred claims determined in accordance with IFRS 17 in respect of the policies of the insurer, net of amounts recognised in reinsurance contracts for liabilities for incurred claims, which are determined in accordance with IFRS as annually reported by the insurer to shareholders in the audited annual financial statements;
(d) “DL” represents the amount of deferred tax liabilities, determined in accordance with IFRS as annually reported by the insurer to shareholders in the audited annual financial statements, in respect of branch policies;
(e) “DC” represents the amount of deferred acquisition costs determined in accordance with IFRS as annually reported by the insurer to shareholders in the audited financial statements in respect of branch policies; and
f) “DR” represents the amount of deferred revenue determined in accordance with IFRS as annually reported by the insurer to shareholders in the audited financial statements in respect of branch policies.
[Subsection (3A) inserted by section 33(1)(c) of Act 34 of 2019 and substituted by section 14(1)(d) of Act 20 of 2022 effective on 1 January, 2023 and applicable in respect of years of assessment commencing on or after that date]
(3B)
(a) Where a person transfers short-term insurance policies as part of any short-term insurance business to another short-term insurer carrying on or to be carrying on short-term insurance business, that person may for purposes of section 11(a) deduct an amount equal to liabilities on investment contracts relating to short-term insurance business and amounts of insurance liabilities relating to premiums and claims transferred to the other short-term insurer.
(b) An amount contemplated in paragraph (a) must be included in the income of the short-term insurer to which the liabilities were transferred as described in paragraph (a).
[Subsection (3B) inserted by section 21(1)(b) of Act 20 of 2021 effective on 1 January, 2022 and applicable in respect of years of assessment ending on or after that date]
(3C) For the purpose of determining the taxable income derived by any short-term insurer from carrying on short-term insurance business, the short-term insurer must, in the first year of assessment commencing on or after 1 January 2023-
(a) include in its income an amount equal to the difference between amounts recoverable by that short-term insurer in respect of claims incurred under a short-term policy issued by that short-term insurer at the end of the lastest year of assessment commencing on or after 1 January 2022, but before 1 January 2023, that has not been received by that short-term insurer by the end of that year of assessment;
(b) deduct the liabilities for remaining coverage, net of reinsurance, calculated for the latest year of assessment commencing on or after 1 January 2022, but before 1 January 2023, had IFRS 17 been applied at the end of that year of assessment; and
[Paragraph (b) substituted by section 31(1)(b) of Act 17 of 2023 effective on 1 January, 2023 and applicable in respect of years of assessment commencing on or after that date]
(c) deduct the net amounts of insurance premium or reinsurance premium debtors, and amounts of reinsurance premium payable, taken into account in determining the liabilities for remaining coverage at the end of the lastest year of assessment commencing on or after 1 January 2022, but before 1 January 2023, had IFRS 17 been applied at the end of that year of assessment.
[Subsection (3C) inserted by section 14(1)(e) of Act 20 of 2022 effective on 1 January, 2023 and applicable in respect of years of assessment commencing on or after that date]
(3D)
(a) For the purposes of determining the taxable income derived by any short-term insurer from carrying on short-term insurance business, there shall be allowed as a deduction from the income of that short-term insurer in respect of-
(i) the first year of assessment commencing on or after 1 January 2023, 66.7 per cent of the phasing-in amount as determined under paragraph (c); and
(ii) the second year of assessment commencing on or after 1 January 2023, 33.3 per cent of the phasing-in amount as determined under paragraph (c):
Provided that where an insurer ceases to conduct business during any year of assessment contemplated in subparagraphs (i) and (ii), the amount to be deducted in respect of the phasing-in amount in respect of that year of assessment must be nil.
(b) For the purposes of determining the taxable income derived by any short-term insurer from carrying on any short-term insurance business, there shall be included in the income of that short-term insurer in respect of-
(i) the first year of assessment commencing on or after 1 January 2023, 66.7 per cent of the phasing-in amount as determined under paragraph (d); and
(ii) the second year of assessment commencing on or after 1 January 2023, 33.3 per cent of the phasing-in amount as determined under paragraph (d):
Provided that where an insurer ceases to conduct business during any year of assessment contemplated in subparagraphs (i) and (ii), the amount to be included in respect of the phasing-in amount in respect of that year of assessment must be nil.
(c) For purposes of paragraph (a), ‘phasing-in amount’ means the amount by which the amount of the deduction under subsection (3) or (3A), for the latest year of assessment commencing on or after 1 January 2022, but before 1 January 2023, exceeds the amount of the deduction under subsection (3) or (3A) for the latest year of assessment commencing on or after 1 January 2022, but before 1 January 2023, had IFRS 17 and subsection 3 or (3A) as amended by the Taxation Laws Amendment Act, 2022, been applied at the end of that year of assessment, reduced by the difference between-
(i) the amount of insurance premium debtors and reinsurance premium debtors; and
(ii) the amount of reinsurance premiums payable,
at the end of the latest year of assessment commencing on or after 1 January 2022, but before 1 January 2023, had IFRS 17 been applied, other than amounts forming part of the liability for incurred claims, and increased by the amount determined under subsection (3C)(a)
(d) For purposes of paragraph (b), ‘phasing-in amount’ means the amount by which the amount of the deduction under subsection (3) or (3A) for the latest year of assessment commencing on or after 1 January 2022, but before 1 January 2023, had IFRS 17 and subsection (3) or (3A), as amended by the Taxation Laws Amendment Act, 2022, been applied at the end of that year of assessment exceeds the amount of the deduction under subsection (3) or (3A), for the latest year of assessment commencing on or after 1 January 2022, but before 1 January 2023, increased by the difference between-
(i) the amount of insurance premium debtors and reinsurance premium debtors; and
(ii) the amount of reinsurance premiums payable, at the end of the latest year of assessment commencing on or after 1 January 2022, but before 1 January 2023, had IFRS 17 been applied, other than amounts forming part of the liability for incurred claims,
and reduced by the amount determined under subsection (3C)(a).
[Subsection (3D) inserted by section 14(1)(e) of Act 20 of 2022 effective on 1 January, 2023 and applicable in respect of years of assessment commencing on or after that date]
(4)
(a) The total of all amounts deducted from the income of a short-term insurer in respect of a year of assessment in terms of subsections (3), (3A) and (3D)(a) shall be included in the income of that short-term insurer in the immediately following year of assessment.
(b) The amount included in the income of a short-term insurer in respect of a year of assessment in terms of subsection (3D)(b) shall be deducted from the income of that short-term insurer in the immediately following year of assessment.
[Subsection (4) amended by section 19(1) of Act 65 of 1973 and by section 33(c) and (d) of Act 30 of 2000, deleted by section 42(f) of Act 35 of 2007, inserted by section 61(1)(b) of Act 22 of 2012 and substituted by section 76(1)(c) of Act 31 of 2013, by section 21(1)(c) of Act 20 of 2021 and by section 14(1)(f) of Act 20 of 2022 effective on 1 January, 2023 and applicable in respect of years of assessment commencing on or after that date]
(5) . . . . . .
[Subsection (5) added by section 42(g) of Act 35 of 2007, substituted by section 76(1)(c) of Act 31 of 2013 deemed effective on 1 January, 2013 and applicable in respect of years of assessment commencing on or after that date and deleted by section 61(1)(c) of Act 22 of 2012 effective on 1 January, 2014 and applicable in respect of years of assessment commencing on or after that date]
(6) ……….
(7) ……….
[Subsection (7) added by section 40 of Act 17 of 2009, amended by section 51 of Act 7 of 2010 and section 61 of Act 22 of 2012 and deleted by section 52 of Act 25 of 2015 effective on the date on which the Insurance Act 2016, comes into operation, 1 July 2018, and apply to years of assessment ending on or after that date]
(8) ……….
[Subsection (8) added by section 40 of Act 17 of 2009, amended by section 61 of Act 22 of 2012 and deleted by section 52 of Act 25 of 2015 effective on the date on which the Insurance Act 2016, 1 July 2018, comes into operation and apply to years of assessment ending on or after that date]
(9) ……….
[Subsection (9) added by section 40 of Act 17 of 2009, substituted by section 51 of Act 7 of 2010 and section 61 of Act 22 of 2012 and deleted by section 52 of Act 25 of 2015 effective on the date on which the Insurance Act 2016, comes into operation, 1 July 2018, and apply to years of assessment ending on or after that date]
(10) ……….
[Subsection (10) added by section 40 of Act 17 of 2009 and deleted by section 52 of Act 25 of 2015 effective on the date on which the Insurance Act 2016, comes into operation, 1 July 2018, and apply to years of assessment ending on or after that date]
(11) ……….
[Subsection (11) added by section 40 of Act 17 of 2009, and deleted by section 52 of Act 25 of 2015 effective on the date on which the Insurance Act 2016, comes into operation, 1 July 2018, and apply to years of assessment ending on or after that date]
“Short-term policy” definition of section 28 of ITA
‘short-term policy’ means-
(a) a short-term policy as defined in the Short-term Insurance Act;
(b) a policy issued by a micro-insurer as defined in section 1 of the Insurance Act; or
(c) a policy issued by a foreign reinsurer as contemplated in paragraph (c) in the definition of ‘short-term insurer’.
[Definition of ‘short-term policy’ substituted by section 76 of Act 31 of 2013 and section 52 of Act 25 of 2015 (substitution by section 52 of Act 25 of 2015 deleted by section 107 of Act 23 of 2018 effective on 8 January 2016) and substituted by section 50 of Act 23 of 2018 effective on 1 July 2018, applies to years of assessment ending on or after that date]