Category: PART I – Normal Tax (ITA)

Subsection 2 of section 8E of ITA

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(2)     Any dividend or foreign dividend received by or accrued to a person during any year of assessment in respect of a share or equity instrument must be deemed in relation to that person to be an amount of income accrued to that person if that share or equity instrument constitutes a hybrid equity instrument at any time during that year of assessment.

[Subsection (2) substituted by section 14 of Act 15 of 2016 effective on 1 January 2017, applies in respect of years of assessment ending on or after that date]


(2A)  Where any share or preference share that was issued in terms of an agreement, all the terms of which were finally agreed to before 1 April 2012 by all the parties to that agreement, constitutes a hybrid equity instrument solely by reason of a right of redemption or a security arrangement acquired in accordance with the terms of that agreement and that right or arrangement is cancelled on or after 26 October 2016 and on or before 31 December 2017-


(a)     the provisions of subsection (2) will not apply in respect of any dividend or foreign dividend that accrues in respect of that share after the date of cancellation of that right or arrangement; and

(b)     the cancellation of that right or arrangement must not be treated as a disposal of that share if no consideration is payable in respect of that cancellation.

[Subsection (2A) inserted by section 14 of Act 15 of 2016 effective on 19 January 2017]

“Instrument” definition of section 8F of ITA

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‘instrument’ means any form of interest-bearing arrangement or debt that is issued by-

(a)     a company that is a resident;

(b)     a company that is not a resident if the interest in respect of that instrument is attributable to a permanent establishment of that company in the Republic; or

(c)     a company that is a controlled foreign company as contemplated in section 9D if the interest incurred in respect of that instrument must be taken into account in determining the net income of that controlled foreign company as contemplated in that section;

[Definition of ‘instrument’ substituted by section 16 of Act 15 of 2016 effective on 24 February 2016, applies in respect of amounts incurred in respect of an instrument on or after that date]

“Hybrid debt instrument” definition of section 8F of ITA

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‘hybrid debt instrument’ means any instrument in respect of which a company owes an amount during a year of assessment if in terms of any arrangement as defined in section 80L-

(a)     that company is in that year of assessment entitled or obliged to-

(i)      convert that instrument (or any part thereof) in any year of assessment to; or

(ii)     exchange that instrument (or any part thereof) in any year of assessment for,

shares unless the market value of those shares is equal to the amount owed in terms of the instrument at the time of conversion or exchange;

(b)     the obligation to pay an amount so owed on a date or dates falling within that year of assessment has been deferred by reason of that obligation being conditional upon the market value of the assets of that company not being less than the amount of the liabilities of that company; or

[Paragraph (b) substituted by section 16 of Act 15 of 2016 effective on 1 January 2016, applies in respect of years of assessment commencing on or after that date]

(c)     that company owes the amount to a connected person in relation to that company and is not obliged to redeem the instrument, excluding any instrument payable on demand, within 30 years from the date of issue of that instrument;

[Words and subparagraphs preceding the proviso substituted by section 9 of Act 25 of 2015 effective on 1 January 2016]

Provided that, for the purposes of this paragraph, where the company has the right to-

(aa)    convert that instrument to; or

(bb)   exchange that instrument for,

a financial instrument other than a share-

(A)    that conversion or exchange must be deemed to be an arrangement in respect of that instrument; and

(B)    that instrument and that financial instrument must be deemed to be one and the same instrument for the purposes of determining the period within which the company is obliged to redeem that instrument;

Subsection 2, 3 and 4 of section 9 of ITA

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(2)     An amount is received by or accrues to a person from a source within the Republic if that amount-

(a)     constitutes a dividend received by or accrued to that person;

(b)     constitutes interest as defined in section 24J where that interest-

(i)      is attributable to an amount incurred by a person that is a resident, unless the interest is attributable to a permanent establishment which is situated outside the Republic; or

(ii)     is received or accrues in respect of the utilisation or application in the Republic by any person of any funds or credit obtained in terms of any form of interest-bearing arrangement;

(c)     constitutes a royalty that is attributable to an amount incurred by a person that is a resident, unless that royalty is attributable to a permanent establishment which is situated outside the Republic;

(d)     constitutes a royalty that is received or accrues in respect of the use or right of use of or permission to use in the Republic any intellectual property as defined in section 23I;

(e)     is attributable to an amount incurred by a person that is a resident and is received or accrues in respect of the imparting of or the undertaking to impart any scientific, technical, industrial or commercial knowledge or information, or the rendering of or the undertaking to render, any assistance or service in connection with the application or utilization of such knowledge or information, unless the amount so received or accrued is attributable to a permanent establishment which is situated outside the Republic;

(f)      is received or accrues in respect of the imparting of or the undertaking to impart any scientific, technical, industrial or commercial knowledge or information for use in the Republic, or the rendering of or the undertaking to render, any assistance or service in connection with the application or utilisation of such knowledge or information;

(g)     is received or accrues in respect of the holding of a public office to which that person has been appointed or is deemed to have been appointed in terms of an Act of Parliament;

(h)     is received or accrues in respect of services rendered to or work or labour performed for or on behalf of any employer-

(i)      in the national, provincial or local sphere of government of the Republic;

(ii)     that is a constitutional institution listed in Schedule 1 to the Public Finance Management Act;

(iii)    that is a public entity listed in Schedule 2 or 3 to that Act; or

(iv)    that is a municipal entity as defined in section 1 of the Local Government: Municipal Systems Act, 2000 (Act No. 32 of 2000);

(i)      constitutes a lump sum, a pension or an annuity payable by a pension fund, pension preservation fund, provident fund or provident preservation fund and the services in respect of which that amount is so received or accrues were rendered within the Republic: Provided that if the amount is received or accrues in respect of services which were rendered partly within and partly outside the Republic, only so much of that amount as bears to the total of that amount the same ratio as the period during which the services were rendered in the Republic bears to the total period during which the services were rendered must be regarded as having been received by or accrued to the person from a source within the Republic;

 [Words preceding the proviso substituted by section 10 of Act 43 of 2014 and section 18 of Act 15 of 2016 effective on 1 March 2017, applies in respect of years of assessment commencing on or after that date]

(j)      constitutes an amount received or accrued in respect of the disposal of an asset that constitutes immovable property held by that person or any interest or right of whatever nature of that person to or in immovable property contemplated in paragraph 2 of the Eighth Schedule and that property is situated in the Republic;

(k)     constitutes an amount received or accrued in respect of the disposal of an asset other than an asset contemplated in paragraph (j) if—


(i)      that person is a resident and-


(aa)   that asset is not effectively connected to a permanent establishment of that person which is situated outside the Republic; and


(bb)   the proceeds from the disposal of that asset are not subject to any taxes on income payable to any sphere of government of any country other than the Republic; or


(ii)     that person is not a resident and that asset is effectively connected to a permanent establishment of that person which is situated in the Republic; or

[Paragraph (k) amended by section 16 of Act 23 of 2018 and by section 5 of Act 23 of 2020 and substituted by section 6(a) of Act 17 of 2023]

(l)      is attributable to any exchange difference determined in terms of section 24I in respect of any exchange item as defined in that section to which that person is a party if—


(i)      that person is a resident and—


(aa)   that exchange item is not effectively connected to a permanent establishment of that person which is situated outside the Republic; and


(bb)   that amount is not subject to any taxes on income payable to any sphere of government of any country other than the Republic; or


(ii)     that person is not a resident and that exchange item is effectively connected to a permanent establishment of that person which is situated in the Republic.

[Paragraph (l) substituted by section 6(b) of Act 17 of 2023]

(3)       ……….

[Subsection (3) substituted by section 16 of Act 31 of 2013 and section 10 of Act 43 of 2014 and deleted by section 18 of Act 15 of 2016 effective on 1 March 2017, applies in respect of years of assessment commencing on or after that date]

(4)     An amount is received by or accrues to a person from a source outside the Republic if that amount-

(a)     constitutes a foreign dividend received by or accrued to that person;

(b)     constitutes interest as defined in section 24J(1) received by or accrued to that person that is not from a source within the Republic in terms of subsection (2)(b);

[Paragraph (b) substituted by section 11 of Act 25 of 2015 effective on 8 January 2016]

(c)     constitutes a royalty received by or accrued to that person that is not from a source within the Republic in terms of subsection (2)(c) or (d);

(d)     constitutes an amount received or accrued to that person in respect of the disposal of an asset that is not from a source within the Republic in terms of subsection (2)(j) or (k); or

(e)     is attributable to any exchange difference determined in terms of section 24I in respect of any exchange item as defined in that section to which that person is a party and is not from a source within the Republic in terms of subsection (2)(l).