Category: CHAPTER II – The Taxes (ITA)

Section 20 (ITA) – Set off of assessed losses

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20.     Set–off of assessed losses

(1)     For the purpose of determining the taxable income derived by any person from carrying on any trade, there shall, subject to section 20A, be set off against the income so derived by such person-

(a)             

(i)      that is a company, other than a company referred to in subparagraph (ii), any balance of assessed loss incurred by that person in any previous year which has been carried forward from the preceding year of assessment, to the extent that the amount of such set-off does not exceed the higher of R1 million and 80 per cent of the amount of taxable income determined before taking into account the application of this section;

(ii)      that is a company carrying on mining operations as contemplated in section 15, any balance of assessed loss incurred by that person in any previous year which has been carried forward from the preceding year of assessment, to the extent that the amount of such set-off does not exceed the higher of R1 million and 80 per cent of the amount of taxable income determined before taking into account the application of—

(A)   this section; and

B)    the provisions of section 36(7C); or

(iii)    that is not a company, any balance of assessed loss incurred by that person in any previous year which has been carried forward from the preceding year of assessment: Provided that no person whose estate has been voluntarily or compulsorily sequestrated shall be entitled to carry forward any assessed loss incurred prior to the date of sequestration, unless the order of sequestration has been set aside, in which case the amount to be carried forward shall be reduced by an amount which was allowed to be set off against the income of the insolvent estate of such person from the carrying on of any trade:

[Subparagraph (iii) substituted by section 16(1)(a) of Act 42 of 2024 effective on 31 December, 2024 and applicable in respect of years of assessment ending on or after that date]

Provided that where a company has taken steps to liquidate, wind up or deregister as contemplated in section 41(4) and has not at any stage withdrawn any of those steps or done anything to invalidate any step so taken, with the result that the company will not be liquidated, wound up or deregistered, the amount of the balance of assessed loss that may be set off under subparagraph (i) or (ii) in relation to that company must not be limited to the higher of R1 million and 80 per cent of the amount of taxable income described in that subparagraph; or

[Paragraph (a) amended by section 19(a) of Act 101 of 1990, by section 17 of Act 21 of 1995, by section 15 of Act 28 of 1997, by section 19(a) of Act 8 of 2007, by section 32(a) of Act 35 of 2007, by section 37(1) of Act 22 of 2012 and by section 31(1) of Act 43 of 2014, substituted by section 39(a) of Act 15 of 2016 and by section 18(1) of Act 20 of 2021 (as substituted by section 42(1) of Act 20 of 2022 and effective date in section 18(2) of Act 20 of 2021 as substituted by section 9 of Act 19 of 2022) and amended by section 16(1)(b) of Act 42 of 2024 effective on 31 December, 2024 and applicable in respect of years of assessment ending on or after that date]

(b)     any assessed loss incurred by a person during the same year of assessment in carrying on any other trade either alone or in partnership with others, otherwise than as a member of a company the capital whereof is divided into shares:

[Words preceding proviso substituted by section 39 of Act 15 of 2016 effective on 19 January 2017]

Provided that there shall not be set off against any amount –

(a)     ……….

(b)     derived by any person from a source within the Republic, any—

(i)      assessed loss incurred by such person during such year; or

(ii)     any balance of assessed loss incurred in any previous year of assessment,

in carrying on any trade outside the Republic; or

[Paragraph (b) substituted by section 35(1)(b) of Act 45 of 2003, amended by section 19(c) of Act 8 of 2007, substituted by section 15(1) of Act 3 of 2008 and amended by section 54(1)(a) of Act 31 of 2013 effective on 1 January, 2014 and applicable in respect of years of assessment commencing on or after that date]

(c)     that is a retirement fund lump sum benefit, retirement fund lump sum withdrawal benefit or severance benefit included in taxable income, any-

(i)      balance of assessed loss;

(ii)     ‘assessed loss’ as defined in subsection (2) incurred in such year before taking into account that retirement fund lump sum benefit or retirement fund lump sum withdrawal benefit.

“Improvements” definition of section 13 of ITA

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(9)     For the purposes of this section –

 

“improvements”, in relation to any improvements commenced on or after the first day of April, 1971, means any extension, addition or improvements (other than repairs) to a building which is or are effected for the purpose of increasing or improving the industrial capacity of the building;

Subsections 2, 3, 4, 5 and 6 of section 12O of ITA

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(2)     There must be exempt from normal tax the receipts and accruals in respect of income derived from the exploitation rights of a film-

(a)     if the National Film and Video Foundation has approved the film in terms of section 3(c) read with section 4(1) of the National Film and Video Foundation Act, 1997 (Act No. 73 of 1997), as a local production or co-production whereby a film is co-produced in terms of an international co-production agreement between the government of the Republic and the government of another country, which agreement must be subject to the Constitution;

(b)     if income is derived from the exploitation rights of the film-

(i)      by a person who acquired the exploitation rights in respect of that film prior to the date that the principal photography of that film commenced; or

(ii)     by a person who acquired the exploitation rights in respect of that film after the date that principal photography of that film commenced but before the completion date of that film if consideration for those exploitation rights was not directly or indirectly paid or applied for the benefit of a person contemplated in subparagraph (i); and

(c)     to the extent that the income is received or accrues within a period of 10 years after the completion date of that film.

(3)     No exemption shall be allowed under this section to a person that is a broadcaster as defined in section 1 of the Broadcasting Act, 1999 (Act No. 4 of 1999), or any person that is a connected person in relation to that broadcaster.

(4)

(a)     Any-

(i)      special purpose corporate vehicle; or

(ii)     collection account manager that-

(aa)    manages exploitation rights under a collection account management agreement; and

(bb)   is approved by the Minister for the purpose of this section by notice in the Gazette,

must provide a report to the National Film and Video Foundation containing such information, within such time and in such manner as is prescribed by the Minister when income arising from exploitation rights of a film is distributed to a person within a period of 10 years commencing from the completion date of the film.

(b)     The National Film and Video Foundation must provide a report annually to the Minister in respect of all films approved in terms of subsection (2)(a) containing such information, within such time and in such manner as is prescribed by the Minister for a period of 10 years commencing from the completion date of a film if-

(i)      any income is received or accrues in respect of the film; and

(ii)     the income is eligible for the exemption under subsection (2).

(5)

(a)     Notwithstanding section 23(f), a taxpayer may deduct from the income of the taxpayer an amount in respect of any expenditure incurred to acquire exploitation rights in respect of a film in accordance with paragraph (b).

[Paragraph (a) substituted by section 25 of Act 25 of 2015 effective on 1 January 2012, applies in respect of receipts and accruals in respect of films of which principal photography commences on or after that date but before 1 January 2022]

(b)     The amount of the deduction contemplated in paragraph (a) is equal to the amount of any expenditure incurred as contemplated in that paragraph less any amount received or accrued during any year of assessment in respect of that film.

(c)     No deduction may be made under this subsection to the extent that the expenditure was funded from a loan, credit or similar financing.

(d)     The deduction contemplated in paragraph (a) may only be made in any year of assessment commencing at least two years after the completion date of the film to the extent that the amount of expenditure incurred exceeds the total amount received by or accrued to that taxpayer in respect of the exploitation rights.

(e)     Subsection (2) and paragraph (a) of this subsection cease to apply to any income derived from a film in any year of assessment subsequent to the date of a deduction made under paragraph (a) in respect of that film.

(6)

(a)     In addition to the exemption under subsection (2), any amount received by or accrued to a special purpose corporate vehicle by way of a grant payable by the State under the South African Film and Television Production and Co-production Incentive administered by the Department of Trade and Industry shall be exempt from normal tax subject to section 8(4).

(b)     Where a special purpose corporate vehicle that received a grant contemplated in paragraph (a), or to whom such grant has accrued, pays the whole or any portion of the amount of the grant to another person pursuant to any exploitation rights in respect of that film, the exemption under this paragraph must also apply to the amount received by or accrued to that other person to the extent that the amount does not exceed any amount that the other person contributed to the production of the film.

Section 11(nA) of ITA

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(nA)  so much of any amount, including any voluntary award, received or accrued in respect of services rendered or to be rendered or any amount received or accrued in respect of or by virtue of any employment or the holding of any office as was or is included in the taxable income of that person and is refunded by that person;

[Paragraph (nA) inserted by section 18(1)(g) of Act 60 of 2008 and substituted by section 9(1) of Act 42 of 2024 effective on 1 March, 2025 and applicable in respect of years of assessment commencing on or after that date]

Section 11(f) of ITA

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(f)      an allowance in respect of any premium or consideration in the nature of a premium paid by a taxpayer for –

(i)      the right of use or occupation of land or buildings used or occupied for the production of income or from which income is derived; or

(ii)     the right of use of any plant or machinery used for the production of income or from which income is derived; or

(ii)bis the right of use of any motion picture film or any sound recording or advertising matter connected with such film, if such film, sound recording or advertising matter is used for the production of income or income is derived therefrom; or

(iii)    the right of use of any patent as defined in the Patents Act or any design as defined in the Designs Act or any trade mark as defined in the Trade Marks Act or any copyright as defined in the Copyright Act or of any other property which is of a similar nature, if such patent, design, trade mark, copyright or other property is used for the production of income or income is derived therefrom; or

(iv)    the imparting of or the undertaking to impart any knowledge directly or indirectly connected with the use of such film, sound recording, advertising matter, patent, design, trade mark, copyright or other property as aforesaid; or

(v)     the right of use of any pipeline, transmission line or cable or railway line contemplated in the definition of ‘affected asset’ in section 12D, other than an asset contemplated in paragraph (c) of that definition; or

[Subparagraph (v) added by section 14 of Act 17 of 2009 and substituted by section 25 of Act 23 of 2018 effective on 1 April 2019, applies in respect of assets brought into use on or after that date]

(vi)    the right of use of any line or cable used for the transmission of electronic communications contemplated in paragraph (c) of the definition of ‘affected asset’ in section 12D:

[Subparagraph (vi) added by section 25 of Act 23 of 2018 effective on 17 January 2019]

Provided that –

(aa)   the allowance under sub-paragraph (i), (ii), (ii)bis, (iii) or (v) shall not exceed for any one year such portion of the amount of the premium or consideration so paid as is equal to the said amount divided by the number of years for which the taxpayer is entitled to the use or occupation, or one twenty-fifth of the said amount, whichever is the greater;

(bb)   if the taxpayer is entitled to such use or occupation for an indefinite period, or if, in the case of any such right of use or occupation granted under an agreement concluded on or after 1 July 1983, the taxpayer or the person by whom such right of use or occupation was granted holds a right or option to extend or renew the original period of such use or occupation, he shall be deemed, for the purposes of this paragraph, to be entitled to such use or occupation for the period of the probable duration of such use or occupation; and

[Item (bb) substituted by section 10 of Act 94 of 1983 and section 18 of Act 25 of 2015 effective on 8 January 2016]

(cc)   the allowance under sub-paragraph (iv) shall not exceed for any one year such portion (not being less than one twenty-fifth) of the amount of the premium or consideration so paid as may be determined having regard to the period during which the taxpayer will enjoy the right to use such film, sound recording, advertising matter, patent, design, trade mark, copyright or other property as aforesaid and any other circumstances which are relevant;

[Item (cc) amended by section 9 of Act 90 of 1962 and substituted by section 18 of Act 25 of 2015 effective on 8 January 2016]

(dd)   the provisions of this paragraph shall not apply in relation to any such premium or consideration paid by the taxpayer which does not for the purposes of this Act constitute income of the person to whom it is paid, unless such premium or consideration is paid in respect of a right of use of a line or cable-

(A)    used for the transmission of electronic communications; and

(B)     substantially the whole of which is located outside the territorial waters of the Republic,

where the term of the right of use is 10 years or more;

[Words following subparagraph (B) substituted by section 18 of Act 25 of 2015 and section 25 of Act 23 of 2018 effective on 1 April 2019]

[Item (dd) added by section 11 of Act 121 of 1984 and substituted by section 14 of Act 17 of 2009]


(ee)   the allowance under subparagraph (vi) shall not exceed for any one year such portion of the amount of the premium or consideration so paid as is equal to the said amount divided by the number of years for which the taxpayer is entitled to the use or occupation, or one tenth of the said amount, whichever is the greater;

[Paragraph (ee) added by section 25 of Act 23 of 2018 effective on 1 April 2019]

Section 11(c) of ITA

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(c)    any legal expenses (being fees for the services of legal practitioners, expenses incurred in procuring evidence or expert advice, court fees, witness fees and expenses, taxing fees, the fees and expenses of sheriffs or messengers of court and other expenses of litigation which are of an essentially similar nature to any of the said fees or expenses) actually incurred by the taxpayer during the year of assessment in respect of any claim, dispute or action at law arising in the course of or by reason of the ordinary operations undertaken by him in the carrying on of his trade: Provided that the amount to be allowed under this paragraph in respect of any such expenses shall be limited to so much thereof as –

 

(i)      is not of a capital nature; and

 

(ii)     is not incurred in respect of any claim made against the taxpayer for the payment of damages or compensation if by reason of the nature of the claim or the circumstances any payment which is or might be made in satisfaction or settlement of the claim does not or would not rank for deduction from his income under paragraph (a); and

 

(iii)    is not incurred in respect of any claim made by the taxpayer for the payment to him of any amount which does not or would not constitute income of the taxpayer; and

 

(iv)    is not incurred in respect of any dispute or action at law relating to any such claim as is referred to in paragraph (ii) or (iii) of this proviso;

Section 10(1)(p) of ITA

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(p)     any amount received by or accrued to any person who is not a resident, for services rendered or work or labour done by him outside the Republic for or on behalf of any employer in the national or provincial sphere of government or any municipality in the Republic or any national or provincial public entity if not less than 80 per cent of the expenditure of such entity is defrayed directly or indirectly from funds voted by Parliament, if such amount is chargeable with income tax in the country in which he is ordinarily resident and the income tax so chargeable is borne by himself and is not paid on his behalf by the Government, the municipality concerned or such public entity;