Category: PART I – Normal Tax (ITA)

“Protected cell company” definition of section 9D of ITA

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“protected cell company” means any entity incorporated, established or formed, whether by way of conversion or otherwise, in terms of any law of any country other than the Republic-

 

(a)     if the principal trading activities of that entity constitute the business of an insurer; and

 

(b)     where that law makes provision for-

 

(i)      the segregation of specified assets of that entity into structurally independent cells or segregated accounts;

 

(ii)     the linking or attribution of specified assets and liabilities to those cells or segregated accounts; or

 

(iii)    separate participation rights in respect of each such cell or segregated account,

 

irrespective of whether or not that law provides that the establishment or formation of a cell or segregated account creates a legal person distinct from that entity.

Section 10(1)(gH) of ITA

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(gH)   any amount received or accrued in respect of a policy of insurance where-

(i)      the policy relates to death, disablement or illness of an employee or director, or former employee or director, of the person that is the policyholder; and

[Subparagraph (i) substituted by section 16 of Act 17 of 2017 effective on 18 December 2017]

(ii)     no amount of premiums payable in respect of that policy on or after 1 March 2012 is deductible from the income of that person for the purposes of determining the taxable income derived by the person from carrying on any trade;

Section 10(1)(c) of ITA

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(c)

(i)      ……….

(ii)     any pension payable to any person or his surviving spouse by reason of such person having occupied the office of State President or Vice State President: Provided that the provisions of this subparagraph shall not apply to any amount payable to any person or his surviving spouse by reason of such person having occupied the office of President as elected in terms of section 77 of the Constitution;

(iii)    the salary and emoluments payable to any person who holds office in the Republic as an official of any government, other than the Government of the Republic, provided such person is stationed in the Republic for that purpose and is not ordinarily resident in the Republic;

(iv)    any salary and emoluments payable to any domestic or private servant of any person referred to in subparagraph (iii) in respect of domestic or private services rendered or to be rendered by such servant to such person if such servant is not a South African citizen and is not ordinarily resident in the Republic;

(v)     any salary and emoluments payable to any subject of a foreign state who is temporarily employed in the Republic, provided the exemption of such salary and emoluments is authorized by an agreement entered into by the governments of such foreign state and the Republic;

(vi)    any salary and emoluments payable to any person that is a subject of a foreign state and who is not a resident to the extent that that salary or those emoluments are paid by –

(aa)   an institution or body contemplated in subsection (1)(bA)(ii) in respect of any agreement contemplated therein; or

(bb)   an organisation contemplated in subsection (1)(bA)(iii) in respect of services rendered in relation to a project contemplated therein.

Subsection 2, 3, 4, 5 and 6 of section 9H of ITA

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(2)     Subject to subsection (4), where a person (other than a company) that is a resident ceases during any year of assessment of that person to be a resident-

(a)     that person must be treated as having-

(i)      disposed of each of that person’s assets to a person that is a resident on the date immediately before the day on which that person so ceases to be a resident for an amount received or accrued equal to the market value of the asset on that date; and

[Subparagraph (i) substituted by section 14 of Act 25 of 2015 effective on 5 June 2015]

(ii)     reacquired each of those assets on the day on which that person so ceases to be a resident at an expenditure equal to the market value contemplated in subparagraph (i);

(b)     that year of assessment must be deemed to have ended on the date immediately before the day on which that person so ceases to be a resident; and

(c)     the next succeeding year of assessment of that person must be deemed to have commenced on the day on which that person so ceases to be a resident.

(3)

(a)     Where a company that is a resident ceases during any year of assessment of that company to be a resident or where a company that is a resident becomes a headquarter company in respect of a year of assessment, that company must be treated as having-

(i)      disposed of each of that company’s assets to a person that is a resident on the date immediately before the day on which that company so ceased to be a resident or became a headquarter company; and

(ii)     reacquired each of those assets on the day on which that company so ceased to be a resident or became a headquarter company,

for an amount equal to the market value of each of those assets.

[Paragraph (a) substituted by section 14 of Act 25 of 2015 effective on 5 June 2015]

(b)     Where a controlled foreign company ceases, otherwise than by way of becoming a resident, to be a controlled foreign company during any foreign tax year of that controlled foreign company, that controlled foreign company must be treated as having-

(i)      disposed of each of the assets of that controlled foreign company, to a person that is a resident, on the date immediately before the day on which that controlled foreign company so ceased to be a controlled foreign company; and

(ii)     reacquired each of the assets disposed of as contemplated in subparagraph (i) on the day on which that controlled foreign company so ceased to be a controlled foreign company,

for an amount equal to the market value of each of those assets.

 [Paragraph (b) substituted by section 14 of Act 25 of 2015 effective on 5 June 2015]

(c)     Where a company that is a resident ceases to be a resident or becomes a headquarter company during any year of assessment of that company as contemplated in paragraph (a)-

[Words preceding paragraph (i) substituted by section 21 of Act 15 of 2016 effective on 19 January 2017]

(i)      that year of assessment must be deemed to have ended on the date immediately before the day on which that company so ceased to be a resident or became a headquarter company;

(ii)     the next succeeding year of assessment of that company must be deemed to have commenced on the day on which that company so ceased to be a resident or became a headquarter company; and

(iii)    that company must, on the date immediately before the day on which the company so ceased to be a resident or became a headquarter company and for the purposes of section 64EA(b), be deemed to have declared and paid a dividend that consists solely of a distribution of an asset in specie–

(aa)   the amount of which must be deemed to be equal to the sum of the market values of all the shares in that company on that date less the sum of the contributed tax capital of all the classes of shares in the company as at that date; and

(bb)   to the person or persons holding shares in that company in accordance with the effective interest of that person or those persons in the shares in the company as at that date.

(d)     Where a controlled foreign company ceases to be a controlled foreign company during any foreign tax year of that controlled foreign company as contemplated in paragraph (b)-

[Words preceding paragraph (i) substituted by section 21 of Act 15 of 2016 effective on 19 January 2017]

(i)      that foreign tax year must be deemed to have ended on the date immediately before the day on which that controlled foreign company so ceased to be a controlled foreign company; and

(ii)     the next succeeding foreign tax year of that controlled foreign company must be deemed to have commenced on the day on which that controlled foreign company so ceased to be a controlled foreign company.

 

(e)     Where a company ceases to be a resident as contemplated in paragraph (a), the amount of any capital gain disregarded in terms of paragraph 64B of the Eighth Schedule that was determined in respect of a disposal of an equity share by that company within three years immediately preceding the date on which that company ceases to be a resident, must be deemed, in respect of the year of assessment of that company ending as contemplated in paragraph (c), to be an amount of net capital gain derived   by that company from that capital gain.

[Paragraph (e) added by sectoin 14 of Act 25 of 2015 effective on 5 June 2015]

(f)     Where a company ceases to be a resident as contemplated in paragraph (a), the amount of any foreign dividend that was exempt from normal tax only in terms of section 10B(2)(a) within the three years immediately preceding the date on which that company ceases to be a resident, must be deemed to be a foreign dividend received by or accrued to that company in respect of the year of assessment of that company ending as contemplated in paragraph (c) that is not exempt in terms of section 10B(2).

[Paragraph (f) added by section 14 of Act 25 of 2015 effective on 5 June 2015]

(3A)   Any person that is a holder of at least 10 per cent of the equity shares and voting rights in shares in a company must, where that company is a resident that ceases to be a resident and where section 64FA applies to the dividend in specie as referred to in subsection (3)(c)(iii) in respect of that company, be treated as having-

(i)      disposed of each of those shares to a person that is a resident on the date immediately before the day on which that company so ceased to be a resident; and

(ii)     reacquired each of those shares on the day on which that company so ceased to be a resident,

for an amount equal to the market value of each of those shares.

[Subsection (3A) inserted by section 7(1) of Act 23 of 2020 effective on 1 January, 2021 and applicable in respect of a holder of shares in a company that ceases to be a resident on or after that date]

(4)     Subsections (2) and (3) do not apply in respect of an asset of a person where that asset constitutes-

(a)     immovable property situated in the Republic that is held by that person;

(b)     ……….

(c)     any asset which is, after the person ceases to be a resident or a controlled foreign company as contemplated in subsection (2) or (3), effectively connected to a permanent establishment of that person in the Republic;

[Paragraph (c) substituted by section 8 of Act 17 of 2023]

(d)     any qualifying equity share contemplated in section 8B that was granted to that person less than five years before the date on which that person ceases to be a resident as contemplated in subsection (2) or (3);

(e)     any equity instrument contemplated in section 8C that had not yet vested as contemplated in that section at the time that the person ceases to be a resident as contemplated in subsection (2) or (3); or

(f)      any right of that person to acquire any marketable security contemplated in section 8A.

(5)     If-

(a)     a person disposes of an equity share in a foreign company that is a controlled foreign company;

(b)     the capital gain or capital loss determined in respect of a disposal contemplated in paragraph (a) is wholly or partly disregarded in terms of paragraph 64B of the Eighth Schedule; and

[Paragraph (b) substituted by section 11(1) of Act 20 of 2021 deemed effective on 1 January, 2021 and applicable in respect of disposals on or after that date]

(c)     as a direct or indirect result of a disposal contemplated in paragraph (a), a foreign company ceases to be a controlled foreign company, subsection (3) must not apply to any foreign company contemplated in paragraph (c).

(6)     This section must not apply in respect of any company that ceases to be a controlled foreign company as a result of-

(a)     an amalgamation transaction as defined in section 44(1) to which section 44 applies; or

(b)     a liquidation distribution as defined in section 47(1) to which section 47 applies.

[Subsection (6) substituted by section 13 of Act 43 of 2014 effective on 1 January 2013]

(7)     For the purposes of subsections (2) and (3), the market value of any asset must be determined in the currency of expenditure incurred to acquire that asset.

[Subsection (7) added by section 13 of Act 43 of 2014 effective on 1 January 2015]

Section 10(1)(gG) of ITA

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(gG)   any amount received by or accrued to a person as contemplated in subparagraph (ii) or (iii) of paragraph (d) of the definition of “gross income” –

  

(i)      in the case of a policy that is a risk policy with no cash value or surrender value, if the amount of premiums paid in respect of that policy by the employer of the person has been deemed to be a taxable benefit of the person in terms of the Seventh Schedule since the later of-

  

(aa)   the date on which the employer or company contemplated in those subparagraphs became the policyholder of that policy; or

(bb)   1 March 2012,

unless the amount of the premiums paid was deductible by the person in terms of section 11(a);

(ii)     in the case of any other policy, if an amount equal to the aggregate of the amount of any premiums has been included in the income of the person as a taxable benefit in terms of the Seventh Schedule since the date on which the policy was entered into;

Section 10(1)(bA) of ITA

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(bA)  the receipts and accruals of –

(i)     any sphere of government of any country other than the Republic;

(ii)     any institution or body established by a foreign government to the extent that –

  

(aa)   the institution or body has been appointed by that government to perform its functions in terms of an official development assistance agreement that is binding in terms of section 231(3) of the Constitution of the Republic of South Africa, 1996; and

(bb)   the agreement provides that the receipts and accruals of that institution or body must be exempt; and

(iii)    any multinational organisation providing foreign donor funding in terms of an official development assistance agreement that is binding in terms of section 231(3) of the Constitution of the Republic of South Africa Act, 1996, to the extent –

(aa)   the receipts and accruals are derived pursuant to the organisation supplying goods or rendering services in relation to projects that are approved by the Minister after consultation with the Minister of Foreign Affairs;

(bb)   that agreement provides that those receipts and accruals of that organisation must be exempt; and


(cc)    the Minister announces that those receipts and accruals are exempt by notice in the Gazette;

Subsections 2, 2A, 3, 4, 5, 6, 7 and 8 of section 9C of ITA

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(2)     Any amount received or accrued (other than a dividend or foreign dividend) or any expenditure incurred in respect of an equity share must be deemed to be of a capital nature if that equity share had, at the time of the receipt or accrual of that amount or incurral of that expenditure, been held for a period of at least three years.

[Subsection (2) substituted by section 7 of Act 3 of 2008. section 24 of Act 24 of 2011 and section 12 of Act 25 of 2015 effective on 1 January 2016]

(2A)  Subsection (2) does not apply in respect of so much of the amount received or accrued in respect of the disposal of an equity share contemplated in that subsection, other than an equity share held for longer than five years, as does not exceed the expenditure allowed in respect of that share in terms of section 12J(2).

[Subsection (2A) inserted by section 12 of Act 60 of 2008 and substituted by section 24 of Act 24 of 2011, section 12 of Act 25 of 2015 and section 17 of Act 23 of 2018 effective on 17 January 2019]

(3)     The provisions of this section shall not apply to any equity share if at the time of the receipt or accrual of any amount (other than an amount constituting a dividend or foreign dividend) in respect of that share the taxpayer was a connected person in relation to the company that issued that share and-

(a)     more than 50 per cent of the market value of the equity shares of that company was attributable directly or indirectly to immovable property other than-

(i)      immovable property held directly or indirectly by a person that is not a connected person in relation to the taxpayer; or

(ii)     immovable property held directly or indirectly for a period of at least three years immediately prior to that receipt or accrual; or

(b)     that company acquired any asset during the period of three years immediately prior to that receipt or accrual and amounts were paid or payable by any person to any person other than that company for the use of that asset while that asset was held by that company during that period.

[Subsection (3) substituted by section 7 of Act 3 of 2008, amended by section 24 of Act 24 of 2011 and section 12 of Act 25 of 2015 and substituted by section 17 of Act 23 of 2018 effective on 17 January 2019]

(4)     For purposes of this section, where any share has been transferred by a lender to a borrower in terms of a securities lending arrangement, and an identical share has been returned by the borrower to the lender, in terms of that securities lending arrangement, that share and that other share shall be deemed to be one and the same share in the hands of the lender.

[Subsection (4) substituted by section 12 of Act 25 of 2015 effective on 1 January 2016]

(4A)  For purposes of this section, where any share has been transferred by a transferor to a transferee in terms of a collateral arrangement and an identical share has in turn been transferred by the transferee to the transferor in terms of that collateral arrangement, that share and that other share shall be deemed to be one and the same share in the hands of the transferor.

[Subsection (4A) inserted by section 12 of Act 25 of 2015 effective on 1 January 2016]

(5)     There shall in the year of assessment in which any equity share held for a period of at least three years is disposed of by the taxpayer be included in the taxpayer’s income any expenditure or losses incurred in respect of such equity share and allowed as a deduction from the income of the taxpayer during that or any previous year of assessment in terms of section 11.

[Words preceding the proviso substituted by section 12 of Act 25 of 2015 effective on 1 January 2016]

: Provided that this subsection must not apply-

(a)     in respect of any expenditure or loss to the extent that the amount of that expenditure or loss is taken into account in terms of section 8(4)(a) or section 19; or

(b)     to expenditure in respect of equity shares in a REIT or a controlled company, as defined in section 25BB(1), that is a resident except to the extent that such amount was taken into account in determining the cost price or value of trading stock under section 11(a), 22(1) or (2).

[Paragraph (b) substituted by section 14 of Act 17 of 2017 effective on 18 December 2017]

[Proviso to subsection (5) added by section 13 of Act 22 of 2012 and substituted by section 19 of Act 15 of 2016 effective on 1 January 2016, applies in respect of years of assessment ending on or after that date.]

(6)     Where the taxpayer holds shares of the same class in the same company which were acquired by the taxpayer on different dates and the taxpayer has disposed of any of those shares, the taxpayer shall for the purposes of this section be deemed to have disposed of the shares held by the taxpayer for the longest period of time.

[Subsection (6) substituted by section 24 of Act 24 of 2011 and section 12 of Act 25 of 2015 effective on 1 January 2016]

(7)     The provisions of section 22(8) shall not apply on or after the date that an equity share has been held for a period exceeding three years.

[Subsection (7) substituted by section 12 of Act 25 of 2015 effective on 1 January 2016]

(8)     For the purposes of this section, where a company issues shares to a person in substitution of previously held shares in that company by reason of a subdivision, consolidation or similar arrangement or a conversion contemplated in section 40A or 40B, such share and such previously held shares shall be deemed to be one and the same share if –

(i)      the participation rights and interests of that person in that company remain unaltered; and

(ii)     no consideration whatsoever passes directly or indirectly from that person to that company in relation to the issued shares.