Category: CHAPTER II – The Taxes (ITA)

“Debtor” definition of section 23M of ITA

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“debtor” means a person that incurs an amount of interest and-

(a)     is a resident; or

(b)     in the case of a person that is not a resident, owes a debt that is effectively connected with a permanent establishment of that person in the Republic;

[Definition of “debtor” substituted by section 37(1)(d) of Act 43 of 2014 and by section 19(1)(e) of Act 20 of 2021 effective on 31 March, 2023 and applicable in respect of years of assessment ending on or after that date (effective date in section 19(2) of Act 20 of 2021 as substituted by section 10 of Act 19 of 2022)]

“Controlling relationship” definition of section 23M of ITA

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“controlling relationship” means a relationship where a person, whether alone or together with any one or more persons that are connected persons in relation to that person directly or indirectly hold at least 50 per cent of the equity shares or can exercise at least 50 per cent of the voting rights or participation rights, in a company;

[Definition of “controlling relationship” substituted by section 37(1)(c) of Act 43 of 2014, by section 19(1)(c) of Act 20 of 2021 and by section 26(1)(d) of Act 17 of 2023 with effect from 1 January, 2024 and applicable in respect of years of assessment commencing on or after that date]

“Average repo rate” definition of section 23M of ITA

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“average repo rate”        . . . . . .

[Definition of “average repo rate” deleted by section 19(1)(b) of Act 20 of 2021 effective on 31 March, 2023 and applicable in respect of years of assessment ending on or after that date (effective date in section 19(2) of Act 20 of 2021 as substituted by section 10 of Act 19 of 2022)]

“Adjustable taxable income” definition of section 23M of ITA

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“adjusted taxable income” means taxable income calculated before applying this section and before setting off any balance of assessed loss that has been carried forward from the preceding year of assessment-

(a)     reduced by-

(i)      any amount of interest received or accrued that forms part of taxable income;

(ii)     any amount included in the income of a person as contemplated in section 9D(2);

(iii)    any amount recovered or recouped in respect of an allowance contemplated in this Act in respect of a capital asset as defined in section 19; and

(b)     with the addition of-

(i)      any amount of interest incurred that has been allowed as a deduction from income;

(ii)     any amount allowed as a deduction in terms of this Act in respect of a capital asset as defined in section 19 for purposes other than the determination of any capital gain or capital loss;

(iii)     . . . . . .

[Subparagraph (iii) deleted by section 26(1)(b) of Act 17 of 2023 with effect from 1 January, 2024 and applicable in respect of years of assessment commencing on or after that date]

(iv)    any qualifying distribution as defined in section 25BB that is deductible under subsection (2) of that section;

: Provided that the result of the calculation may not be less than zero;

[Definition of “adjusted taxable income” amended by section 37(1)(a) and (b) of Act 43 of 2014 and by section 41(a), (b) and (c) of Act 23 of 2018, substituted by section 19(1)(a) of Act 20 of 2021 and amended by section 26(1)(a) and (c) of Act 17 of 2023 with effect from 1 January, 2024 and applicable in respect of years of assessment commencing on or after that date]

Section 23M (ITA) – Limitation of interest deductions in respect of debts owed to persons not subject to tax

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23M. Limitation of interest deductions in respect of debts owed to persons not subject to tax

[Heading of section 23M substituted by section 41 of Act 15 of 2016 effective on 19 January 2017]

(1)        For the purposes of this section-

Section 23(r) of ITA

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(r)      any deduction in respect of any premium paid by a person in terms of an insurance policy if that insurance policy covers that person against illness, injury, disability, unemployment or death of that person.

[Paragraph (r) added by section 56 of Act 31 of 2013 effective on 1 March 2015 and substituted by section 33 of Act 43 of 2014 effective on 1 March 2015]

Subsections 2, 3, 4, 5, 6, 7, 8 and 9 of section 12T of ITA

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(2)     There shall be exempt from normal tax any amount received by or accrued to a natural person or deceased estate or insolvent estate of that person in respect of a tax free investment.

[Subsection (2) substituted by section 29 of Act 25 of 2015 effective on 1 March 2015]

(3)     In determining the aggregate capital gain or aggregate capital loss of a person in respect of any year of assessment, any capital gain or capital loss in respect of the disposal of a tax free investment shall be disregarded.

(4)     Contributions in respect of tax free investments shall be-

(a)     limited to an amount of R36 000 in aggregate for any year or years of assessment during the period of 12 months commencing in March and ending at the end of February of the immediately following calendar year;

[Paragraph (a) substituted by section 9(1)(a) of Act 14 of 2017, by section 7(1)(a) of Act 22 of 2020 and by section 20(1)(a) 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]

(b)     an amount in cash; and

(c)     limited to an amount of R500 000 in aggregate.

(5)     Any amount contemplated in subsection (2) shall not be taken into account in determining whether a person contributed in excess in respect of the amounts contemplated in subsections (4)(a) and (c).

(6)     Any-

(a)     transfer of an amount in respect of a tax free investment of a person to another tax free investment of that person; or

(b)     amount received by or accrued in respect of a tax free investment,

shall not be taken into account in determining whether that person contributed in excess of the amounts contemplated in subsections (4)(a) and (c) as a contribution in respect of that other tax free investment.

(7)

(a)     If during any year or years of assessment contemplated in subsection (4)(a) any person contributes in excess of the amount of R36 000 in respect of tax free investments, an amount equal to 40 per cent of that excess is deemed to be an amount of normal tax payable by the person contemplated in subsection (1)(b) in respect of that year of assessment or the last year of assessment when there is more than one year of assessment during the period of 12 months.

[Paragraph (a) substituted by section 29(1)(b) of Act 25 of 2015, by section 9(1)(b) of Act 14 of 2017, by section 7(1)(b) of Act 22 of 2020 and by section 20(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]

(b)     If any person contributes in excess of R500 000 in aggregate in respect of tax free investments, an amount equal to 40 per cent of so much of that excess as has not previously been taken into account in terms of this subsection shall be deemed to be an amount of normal tax payable by the person contemplated in subsection 1(b) in respect of the year of assessment in which the excess is contributed.

[Paragraph (b) substituted by section 29 of Act 25 of 2015 effective on 1 March 2015]

(8)       The Minister shall make regulations prescribing the requirements-

(a)     to which any financial instrument or policy as defined in section 29A shall conform for the purposes of constituting a tax free investment;

(b)     that must be complied with when a tax free investment is transferred; and

(c)     in respect of disclosure by any person contemplated in paragraph (a) of the definition of ‘tax free investment’ in subsection (1) in respect of a tax free investment.

(9)

(a)     The Financial Sector Conduct Authority shall be responsible for supervising and enforcing of compliance with any regulations made by the Minister in terms of subsection (8).

(b)     The supervising and enforcing compliance contemplated in paragraph (a) shall form part of the legislative mandate of the Financial Sector Conduct Authority.

(c)     The Financial Sector Conduct Authority, acting through the Registrar, as defined in section 1 of the Financial Institutions (Protection of Funds) Act, 2001 (Act No. 28 of 2001), in supervising and enforcing compliance as contemplated in paragraph (a), shall exercise any power afforded to the Registrar as defined in section 1 of that Act and in any of the Acts contemplated in the definition of ‘law’ in section 1 of that Act.

[Subsection (9) substituted by section 32 of Act 23 of 2018 effective on 1 April 2018 and applies in respect of years of assessment commencing on or after that date]

“Tax free investment” definition of section 12T of ITA

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‘tax free investment’ means any financial instrument or policy as defined in section 29A–

 

(a)     administered by a person or entity designated by notice by the Minister in the Gazette;

 

(b)     owned by-

 

(i)      a natural person; or

 

(ii)     the deceased estate or insolvent estate of a natural person that is deemed to be one and the same person as that natural person in respect of the contributions made by that person; and

 

(c)     that complies with the requirements of the Regulations contemplated in subsection (8).

Subsections 2, 3, 4 and 5 of section 12R of ITA

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(2)       ……….

[Subsection (2) substituted by section 26 of Act 43 of 2014 effective on the date on which the Special Economic Zones Act is operational, 9 February 2016, deleted by section 34 of Act 15 of 2016 effective on 19 January 2017]

(3)     The Minister of Finance must approve a special economic zone for purposes of this section after taking into account the financial implications for the State should a special economic zone be approved under this section.

(4)     Notwithstanding a qualifying company being located in a special economic zone-

(a)     a company is not a qualifying company if that company conducts any of the following activities classified under ‘Section C: Manufacturing’ in the SIC Code:

[Words preceding subparagraph (i) substituted by section 26 of Act 43 of 2014 effective on the date on which the Special Economic Zones Act is operational, 9 February 2016, substituted by section 34 of Act 15 of 2016 effective on 19 January 2017]

(i)      Distilling, rectifying and blending of spirits (SIC Code 1101);

[Subparagraph (i) substituted by section 26 of Act 43 of 2014 effective on the date on which the Special Economic Zones Act is operational, 9 February 2016]

(ii)     Manufacture of wines (SIC Code 1102);

[Subparagraph (ii) substituted by sectoin 26 of Act 43 of 2014 effective on the date on which the Special Economic Zones Act is operational, 9 February 2016]

(iii)    Manufacture of malt liquors and malt (SIC Code 103);

[Subparagraph (iii) substituted by section 26 of Act 43 of 2014 effective on the date on which the Special Economic Zones Act operational on, 9 February 2016]

(iv)    Manufacture of tobacco products (SIC Code 12);

[Subparagraph (iv) substituted by section 26 of Act 43 of 2014 effective on the date on which the Special Economic Zones Act is operational, 9 February 2016]

(v)     Manufacture of weapons and ammunition (SIC Code 252);

[Subparagraph (v) substituted by section 26 of Act 43 of 2014 effective on the date on which the Special Economic Zones Act is operational, 9 February 2016]

(vi)    Manufacture of bio-fuels if that manufacture negatively impacts on food security in the Republic;

[Subparagraph (vi) added by section 26 of Act 43 of 2014 and amended by section 28 of Act 25 of 2015 effective on the date on which the Special Economic Zones Act is operational, 9 February 2016]

(b)     a company that conducts any activity classified in the SIC Code, which the Minister of Finance may designate by notice in the Gazette is not a qualifying company; or

[Paragraph (b) substituted by section 26 of Act 43 of 2014 and amended by section 28 of Act 25 of 2015 effective on the date on which the Special Economic Zones Act is operational, 9 February 2016, substituted by section 34 of Act 15 of 2016 effective on 19 January 2017]

(c)     a company is not a qualifying company if-

[Words preceding subparagraph (i) substituted by section 34 of Act 15 of 2016 effective on 19 January 2017]

(i)      more than 20 per cent of expenditure that is deductible under this Act is incurred; or

(ii)     more than 20 per cent of the income of that company is received or accrued,

in respect of transactions with any connected person in relation to that company if that connected person-

(aa)    is a resident; or

(bb)   is not a resident and those transactions are attributable to a permanent establishment of that connected person in the Republic.

[Paragraph (c) added by section 28 of Act 25 of 2015 effective on the date on which the Special Economic Zones Act is operataional, 9 February 2016]

(5)     This provision ceases to apply in respect of any year of assessment commencing on or after 1 January 2031.

[Subsection (5) substituted by section 26(1)(i) of Act 43 of 2014, amended by section 30(1)(b) of Act 17 of 2017 and substituted by section 18(1) of Act 23 of 2020 deemed effective on 9 February, 2016][Section 12R inserted by section 43 of Act 31 of 2013 and amended by section 26 of Act 43 of 2014 and section 28 of Act 25 of 2015 effective on the date on which the Special Economic Zones Act is operational, 9 February 2016]