Category: PART I – Normal Tax (ITA)

“Negative liability” definition of 29A of ITA

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“negative liability”, in respect of a long-term policy, means the amount by which the expected present value of future premiums exceeds the expected present value of future benefits to policyholders and expenses;

[Definition of “negative liability” inserted by section 53(1)(a) of Act 25 of 2015 and substituted by section 46(1)(b) of Act 17 of 2017 deemed effective on 1 July 2018 and applicable in respect of years of assessment ending on or after that date – effective date in terms of section 53(2) of Act 25 of 2015 as substituted by section 108(1) of Act 23 of 2018 and effective date in section 46(2) of Act 17 of 2017 as substituted by section 114(1)(a) of Act 23 of 2018)]

Section 10(1)(qA) of ITA

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(qA)  any bona fide scholarship or bursary granted to enable or assist any person who is a person with a disability as defined in section 6B(1) to study at a recognised educational or research institution: Provided that if any such scholarship or bursary has been so granted by an employer or an associated institution (as respectively defined in paragraph 1 of the Seventh Schedule) to an employee (as defined in the said paragraph) who is a person with a disability as defined in section 6B(1) or to any person with a disability as defined in section 6B(1) who is a member of the family of an employee (as defined in paragraph 1 of the Seventh Schedule) in respect of whom that employee is liable for family care and support, the exemption under this paragraph shall not apply-

(i)      in the case of a scholarship or bursary granted to so enable or assist an employee, who is a person with a disability as defined in section 6B(1), unless that employee agrees to reimburse the employer for any scholarship or bursary granted to that employee if that employee fails to complete his or her studies for reasons other than death, ill-health or injury;

(ii)     in the case of a scholarship or bursary granted to enable or assist a person with a disability as defined in section 6B(1) who is a member of the family of an employee, as defined in paragraph 1 of the Seventh Schedule, in respect of whom that employee is liable for family care and support, to study-

[Words preceding item (aa) substituted by section 22 of Act 23 of 2018 effective on 1 March 2018, applies in respect of years of assessment commencing on or after that date]

(aa)   if the remuneration proxy derived by the employee in relation to a year of assessment exceeded R600 000;

[Sub-paragraph (aa) amended by section 10(1)(d) of Act 23 of 2020 effective on 1 March, 2021 and applicable in respect of years of assessment commencing on or after that date]

(bb)   to so much of any scholarship or bursary contemplated in this subparagraph as in the case of any such member of the family of that employee, during the year of assessment, exceeds-

(A)    R30 000 in respect of-

(AA) grade R to grade twelve as contemplated in the definition of “school” in section 1 of the South African Schools Act, 1996 (Act No. 84 of 1996); or

(BB) a qualification to which an NQF level from 1 up to and including 4 has been allocated in accordance with Chapter 2 of the National Qualifications Framework Act, 2008 (Act No. 67 of 2008); and

(B)    R90 000 in respect of a qualification to which an NQF level from 5 up to and including 10 has been allocated in accordance with Chapter 2 of the National Qualifications Framework Act, 2008 (Act 67 of 2008); and

[Sub-paragraph (bb) amended by section 10(1)(d) of Act 23 of 2020 effective on 1 March, 2021 and applicable in respect of years of assessment commencing on or after that date]

(cc)   if any remuneration to which the employee was entitled or might in the future have become entitled was in any manner whatsoever reduced or forfeited as a result of the grant of such scholarship or bursary;

[Sub-paragraph (cc) added by section 10(1)(d) of Act 23 of 2020 effective on 1 March, 2021 and applicable in respect of years of assessment commencing on or after that date]

[Paragraph (qA) inserted by section 11(c) of Act 55 of 1966, substituted by section 10(1)(g) of Act 121 of 1984, deleted by section 12(1)(j) of Act 129 of 1991 and inserted by section 16(1)(i) of Act 17 of 2017 effective on 1 March, 2018 and applicable in respect of years of assessment commencing on or after that date. Paragraph (ii) amended by section 22(1)(c) of Act 23 of 2018 deemed effective on 1 March, 2018 and applicable in respect of years of assessment commencing on or after that date]

Section 7E (ITA) – Time of accrual of interest payable by SARS

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7E.    Time of accrual of interest payable by SARS

In determining the taxable income derived by any person during a year of assessment, any amount of interest to which a person becomes entitled that is payable by SARS in terms of a tax Act is deemed to accrue to that person on the date on which that amount is paid to that person.

[Section 7E inserted by section 7 of Act 17 of 2017 effective on 1 March 2018, applies to amounts of interest paid by SARS on or after that date]

Subsection 2 of section 22B of ITA

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(2)     Subject to subsection (3), where a company disposes of shares in another company in terms of a transaction that is not a deferral transaction and that company held a qualifying interest in that other company at any time during the period of 18 months prior to that disposal, the amount of any exempt dividend received by or that accrued to that company in respect of the shares disposed of must-

[Words preceding paragraph (a) substituted by section 38 of Act 23 of 2018 effective on 1 January 2019 and applies in respect of disposals on or after that date]

(a)     to the extent that the exempt dividend constitutes an extraordinary dividend; and

(b)     if that company immediately before that disposal held the shares disposed of as trading stock,

be included in the income of that company in the year of assessment in which those shares are disposed of or, where that dividend is received or accrues after that year of assessment, the year of assessment in which that dividend is received or accrues: Provided that where a company disposes of shares that are treated as having been disposed of previously by that company in terms of subsection (4), the amount of any extraordinary dividend in respect of those shares must be included in the income of that company only to the extent to which it has not previously been included in the income of that company in terms of this subsection.

[Sub­section (2) amended by section 38(1)(d) of Act 23 of 2018, by section 25(1)(c) of Act 34 of 2019 and by section 25(1)(d) of Act 34 of 2019 deemed effective on 20 February, 2019 and applicable in respect of shares held by a company in a target company if the effective interest held by that company in the shares of that target company is reduced on or after that date]

(3)     Where a company holds shares in another company and disposes of any of those shares in terms of a transaction that is not a deferral transaction within a period of 18 months after having acquired those shares in terms of a deferral transaction, other than an unbundling transaction and-

(a)     within a period of 18 months prior to the disposal of those shares by that company an exempt dividend in respect of those shares accrued to or was received by a person that-

(i)      disposed of those shares in terms of a deferral transaction; and

(ii)     was a connected person in relation to that company at any time within that period,

that dividend must for purposes of this section be treated as a dividend that accrued to or was received by that company in respect of those shares within the period during which that company held those shares; and

(b)     if that company acquired those shares (hereinafter referred to as ‘new shares’) in terms of that deferral transaction in return for or by virtue of the holding, by that company, of other shares (hereinafter referred to as ‘old shares’) that were disposed of in terms of that deferral transaction and an exempt dividend in respect of the old shares, other than a dividend consisting of new shares, accrued to or was received by that company within a period of 18 months prior to the disposal by that company of the new shares, that dividend must for purposes of this section be treated as an amount that accrued to or was received by that company as an exempt dividend in respect of the new shares.

[Sub­section (3) added by section 38(1)(e) of Act 23 of 2018 and amended by section 25(1)(e) of Act 34 of 2019]

(4)     Where a company holds equity shares in another company (hereinafter referred to as the “target company”) and-

(a)     the target company issues shares (hereinafter referred to as the “new shares”) to a person other than that company; and

(b)     the effective interest of that company in the equity shares of the target company is reduced by reason of the new shares issued by the target company,

that company must for purposes of this section be treated as having disposed, immediately after the new shares were issued, of a percentage of those equity shares that is equal to the percentage by which the effective interest of that company in the equity shares of the target company has been reduced by reason of the new shares issued by the target company: Provided that any new shares that are convertible to equity shares must for purposes of this subsection be treated as equity shares.

[Sub­section (4) added by section 25(1)(f) of Act 34 of 2019 deemed effective on 20 February, 2019 and applicable in respect of shares held by a company in a target company if the effective interest held by that company in the shares of that target company is reduced on or after that date]

[Section 22B inserted by section 34 of Act 17 of 2009, amended by section 40 of Act 7 of 2010, substituted by section 46 of Act 24 of 2011, amended by section 4 of Act 22 of 2012, section 41 of Act 22 of 2012 and substituted by section 34 of Act 17 of 2017 effective on 19 July 2017, applies in respect of any disposal on or after that date other than a disposal in terms of an agreement all the terms of which were finally agreed to before that date by all the parties to that agreement]

“Qualifying interest” definition of section 22B of ITA

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‘qualifying interest’ means an interest held by a company in another company, whether alone or together with any connected persons in relation to that company, that constitutes-

(a)     if that other company is not a listed company, at least-

(i)      50 per cent of the equity shares or voting rights in that other company; or

(ii)     20 per cent of the equity shares or voting rights in that other company if no other person (whether alone or together with any connected person in relation to that person) holds the majority of the equity shares or voting rights in that other company; or

(b)     if that other company is a listed company, at least 10 per cent of the equity shares or voting rights in that other company.

“Extraordinary dividend” definition of section 22B of ITA

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‘extraordinary dividend’ means, in relation to-

(a)     a preference share, so much of the amount of any dividend received or accrued in respect of that share as exceeds the amount that would have accrued in respect of that share had that amount been determined with reference to the consideration for which that share was issued by applying an interest rate of 15 per cent per annum for the period in respect of which that dividend was received or accrued;

[Paragraph (a) substituted by section 38 of Act 23 of 2018 effective on 19 July 2017, applies in respect of disposals on or after that date]

(b)     any other share, so much of the amount of any dividend received or accrued:

(i)      within a period of 18 months prior to the disposal of that share; or

(ii)     in respect, by reason or in consequence of that disposal,

as exceeds 15 per cent of the higher of the market value of that share as at the beginning of the period of 18 months and as at the date of disposal of that share:

Provided that a dividend in specie that was distributed in terms of a deferral transaction must not be taken into account to the extent to which that distribution was made in terms of an unbundling transaction as defined in section 46(1)(a) or a liquidation distribution as defined in section 47(1)(a);

[Definition of “extraordinary dividend” amended by section 25(1)(a) of Act 34 of 2019 deemed effective on 30 October, 2019 and applicable in respect of dividends received or accrued on or after that date]

“Concession or compromise” definition of section 19 of ITA

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“concession or compromise” means any arrangement in terms of which-

(a)     a debt is-

(i)      cancelled or waived; or

(ii)     extinguished by-

(aa)   redemption of the claim in respect of that debt by the person owing that debt or by any person that is a connected person in relation to that person; or

(bb)   merger by reason of the acquisition by the person owing that debt of the claim in respect of that debt,

otherwise than as the result or by reason of the implementation of an arrangement described in paragraph (b);

(b)     a debt owed by a company is settled, directly or indirectly-

(i)      by being converted to or exchanged for shares in that company; or

(ii)     by applying the proceeds from shares issued by that company;

[Definition of “concession or compromise” substituted by section 36 of Act 23 of 2018 effective on 1 January 2018,  applies in respect of years of assessment commencing on or after that date]

Section 11(jA) of ITA

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(jA)   notwithstanding paragraph (j), an allowance equal to 25 per cent of the loss allowance relating to impairment, as contemplated in IFRS 9, other than in respect of lease receivables as defined in IFRS 9 that have not been included in income, if the person is a covered person, other than a person that is a controlling company as defined in the Banks Act, as determined by applying the criteria in paragraphs (c)(i) to (iii) and (d) of the definition of “covered person” in section 24JB(1): Provided that the allowance must be increased-

(a)     to 85 per cent of so much of that loss allowance relating to impairment as is equal to the amount that is in default, as determined by applying to any credit exposure, including any retail exposure, the criteria in paragraphs (a)(ii) to (vi) and (b) of the definition of ‘default’ as defined in Regulation 67 of the regulations issued in terms of section 90 of the Banks Act (contained in Government Notice No. R.1029 published in Government Gazette No. 35950 of 12 December 2012); and

(b)     to 40 per cent of so much of that loss allowance relating to impairment as is equal to the difference between-

(i)      the amount of the loss allowance relating to impairment that is measured at an amount equal to the lifetime expected credit losses; and

(ii)     the amount that is in default as determined under paragraph (a):

Provided further that the allowance must be included in the income of that person in the following year of assessment: Provided further that the loss allowance relating to impairment must exclude any loss allowance in respect of a financial asset that would not be allowed to be deducted under paragraph (a) or (i) if it became bad;

[Paragraph (jA) inserted by section 19(1)(a) of Act 17 of 2017 and amended by section 25(1)(f) of Act 23 of 2018, by section 15(1)(b) of Act 34 of 2019 and by section 13(1)(e) and (f) of Act 23 of 2020 deemed effective on 28 October, 2020 and applicable in respect of years of assessment commencing on or after that date]