Category: PART I – Normal Tax (ITA)

Subsection 2, 3 and 4 of section 9 of ITA

Posted on by admin_kmos

(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).

“Hybrid equity instrument” definition of section 8E of ITA

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‘hybrid equity instrument’ means-

(a)     any share, other than an equity share, if-

(i)      the issuer of that share is obliged to redeem that share or to distribute an amount constituting a return of the issue price of that share (in whole or in part); or

[Sub­paragraph (i) substituted by section 8(1)(a) of Act 34 of 2019 deemed effective on 21 July, 2019 and applicable in respect of years of assessment ending on or after that date]

(ii)     the holder of that share may exercise an option in terms of which the issuer must redeem that share or distribute an amount constituting a return of the issue price of that share (in whole or in part),

[Sub­paragraph (ii) substituted by section 8(1)(a) of Act 34 of 2019 deemed effective on 21 July, 2019 and applicable in respect of years of assessment ending on or after that date]

within a period of three years from the date of issue of that share;

(b)     any share, other than a share contemplated in paragraph (a), if-

(i)

(aa)   the issuer of that share is obliged to redeem that share or to distribute an amount constituting a return of the issue price of that share (in whole or in part) within a period of three years from the date of issue of that share;

[Item (aa) substituted by section 8(1)(b) of Act 34 of 2019 deemed effective on 21 July, 2019 and applicable in respect of years of assessment ending on or after that date]

(bb)   the holder of that share may exercise an option in terms of which the issuer must redeem that share or distribute an amount constituting a return of the issue price of that share (in whole or in part) within a period of three years from the date of issue of that share; or

[Item (bb) substituted by section 8(1)(b) of Act 34 of 2019 deemed effective on 21 July, 2019 and applicable in respect of years of assessment ending on or after that date]

(cc)    at any time on the date of issue of that share, the existence of the company issuing that share-

(A)    is to be terminated within a period of three years; or

(B)    is likely to be terminated within a period of three years upon a reasonable consideration of all the facts at that time; and

(ii)

(aa)   that share does not rank pari passu as regards its participation in dividends or foreign dividends with all other equity shares in the capital of the relevant company or, where the equity shares in such company are divided into two or more classes, with the shares of at least one of such classes; or

[Item (aa) substituted by section 12 of Act 23 of 2018 effective on 17 January 2019]

(bb)   any dividend or foreign dividend payable on such share is to be calculated directly or indirectly with reference to any specified rate of interest or the time value of money;

[Item (bb) amended 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]

(c)     any preference share if that share is-

(i)      secured by a financial instrument; or

(ii)     subject to an arrangement in terms of which a financial instrument may not be disposed of,

unless that share was issued for a qualifying purpose;

(d)     any equity instrument the value of which is determined directly or indirectly with reference to-

(i)      a share contemplated in paragraph (a) or (b) or a preference share contemplated in paragraph (c); or

(ii)     an amount derived from a share or preference share contemplated in subparagraph (i); or

[Paragraph (d) added 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]

(e)     any equity instrument, other than an equity instrument contemplated in paragraph (d), if that equity instrument is subject to a right or arrangement that would have constituted a right or arrangement contemplated in paragraph (a), (b) or (c) had that right or arrangement applied in respect of the share with reference to which the value of that equity instrument is directly or indirectly determined;

[Paragraph (e) added by section 14(1)(d) of Act 15 of 2016 and substituted by section 8(1)(c) of Act 34 of 2019 and by section 7 of Act 20 of 2021]

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

Posted on by admin_kmos

(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);

[Paragraph (e) substituted by section 8(a) of Act 42 of 2024]

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

[Paragraph (f) substituted by section 8(a) of Act 42 of 2024]

(g)     any amount representing the value of the interest in any pension fund, pension preservation fund, provident fund, provident preservation fund or retirement annuity fund.

[Paragraph (g) added by section 8(b) of Act 42 of 2024]

(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

Posted on by admin_kmos

(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.