Category: PART I – Normal Tax (ITA)

“Entity” definition of section 30B of ITA

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(1)     For the purposes of this section-

 

‘entity’ means-

 

(a)     any mutual loan association, fidelity or indemnity fund, trade union, chamber of commerce or industry (or an association of such chambers) or local publicity association; or

 

(b)     any-

 

(i)      non-profit company as defined in section 1 of the Companies Act;

 

(ii)     society; or

 

(iii)    other association of persons,

 

established to promote the common interests of persons (being members of the company, society or association of persons) carrying on any particular kind of business, profession or occupation,

 

approved by the Commissioner in accordance with subsection (2);

Subsections 2, 3, 4, 5, 6 and 7 of section 31 of ITA

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(2)     Where-

(a)     any transaction, operation, scheme, agreement or understanding constitutes an affected transaction; and

(b)     any term or condition of that transaction, operation, scheme, agreement or understanding-

(i)      is a term or condition contemplated in paragraph (b) of the definition of ‘affected transaction’; and

(ii)     results or will result in any tax benefit being derived by a person that is a party to that transaction, operation, scheme, agreement or understanding or by any resident in relation to a controlled foreign company contemplated in subparagraph (iv) of the definition of “affected transaction”,

[Subparagraph (ii) substituted by section 31(1) of Act 23 of 2020 effective on 1 January, 2021 and applicable in respect of years of assessment commencing on or after that date]

the taxable income or tax payable by any person contemplated in paragraph (b) (ii) that derives a tax benefit contemplated in that paragraph must be calculated as if that transaction, operation, scheme, agreement or understanding had been entered into on the terms and conditions that would have existed had those persons been independent persons dealing at arm’s length.

(3)     To the extent that there is a difference between-

(a)     any amount that is, after taking subsection (2) into account, applied in the calculation of the taxable income of any resident that is a party to an affected transaction; and

(b)     any amount that would, but for subsection (2), have been applied in the calculation of the taxable income of the resident contemplated in paragraph (a),

the amount of that difference must, if that person is a resident and the other person to the affected transaction is a person as contemplated in paragraph (a)(i)(bb) or (a)(iii)(bb) of the definition of ‘affected transaction’-

(i)      if that resident is a company, be deemed to be a dividend consisting of a distribution of an asset in specie declared and paid by that resident to that other person; or

(ii)     if that resident is a person other than a company, be deemed, for purposes of Part V, to be a donation made by that resident to that other person,

[Subparagraph (ii) substituted by section 56 of Act 25 of 2015 effective on 8 January 2016]

on the last day of the period of six months following the end of the year of assessment in respect of which that adjustment is made: Provided that where the amount of that difference was prior to 1 January 2015 deemed to be a loan that constitutes an affected transaction, so much of that loan as has not been repaid before 1 January 2015 must-

(a)     if that resident is a company, be deemed to be a dividend consisting of a distribution of an asset in specie that was declared and paid by that resident to that other person; or

(b)     if that resident is a person other than a company, be deemed, for purposes of Part V, to be a donation made by that resident to that other person, on 1 January 2015.

[Words following paragraph (b) substituted by section 50 of Act 43 of 2014 effective on 1 January 2015]

(4)     For the purposes of subsection (2), where any transaction, operation, scheme, agreement or understanding has been directly or indirectly entered into or effected as contemplated in that subsection in respect of-

(a)     the granting of any financial assistance; or

(b)     intellectual property as contemplated in the definition of ‘intellectual property ‘ in section 23I(1) or knowledge,

‘connected person’ means a connected person as defined in section 1: Provided that the expression ‘and no holder of shares holds the majority voting rights in the company’ in paragraph (d)(v) of that definition must be disregarded.

(5)     Where any transaction, operation, scheme, agreement or understanding has been entered into between a headquarter company and-

(a)     any other person that is not a resident and that transaction, operation, scheme, agreement or understanding is in respect of the granting of financial assistance by that other person to that headquarter company, this section does not apply to so much of that financial assistance that is directly applied as financial assistance to any foreign company in which the headquarter company directly or indirectly (whether alone or together with any other company forming part of the same group of companies as that headquarter company) holds at least 10 per cent of the equity shares and voting rights;

(b)     any foreign company in which the headquarter company directly or indirectly (whether alone or together with any other company forming part of the same group of companies as that headquarter company) holds at least 10 per cent of the equity shares and voting rights and that transaction, operation, scheme, agreement or understanding comprises the granting of financial assistance by that headquarter company to that foreign company, this section does not apply to that financial assistance;

(c)     any other person that is not a resident and that transaction, operation, scheme, agreement or understanding is in respect of the granting of the use, right of use or permission to use any intellectual property as defined in section 23I(1) by that other person to that headquarter company, this section does not apply to the extent that the headquarter company-

(i)      grants that use, right of use or permission to use that intellectual property to any foreign company in which the headquarter company directly or indirectly (whether alone or together with any other company forming part of the same group of companies as that headquarter company) holds at least 10 per cent of the equity shares and voting rights; and

(ii)     does not make use of that intellectual property otherwise than as contemplated in subparagraph (i); or

(d)     any foreign company in which the headquarter company directly or indirectly (whether alone or together with any other company forming part of the same group of companies as that headquarter company) holds at least 10 per cent of the equity shares and voting rights and that transaction, operation, scheme, agreement or understanding comprises the granting of the use, right of use or permission to use any intellectual property as defined in section 23I(1) by that headquarter company to that foreign company, this section does not apply to that granting to that foreign company.

(6)     Where any transaction, operation, scheme, agreement or understanding that comprises the granting of-

(a)     financial assistance; or

(b)     the use, right of use or permission to use any intellectual property as defined in section 23I,

by a person that is a resident (other than a headquarter company) to a controlled foreign company in relation to that resident or in relation to a company that forms part of the same group of companies as that resident, this section must not be applied in calculating the taxable income or tax payable by that resident in respect of any amount received by or accrued to that resident in terms of that transaction, operation, scheme, agreement or understanding if-

(i)      ……….

(ii)     that controlled foreign company has a foreign business establishment as defined in section 9D(1); and

(iii)    the aggregate amount of tax payable to all spheres of government of any country other than the Republic by that controlled foreign company in respect of any foreign tax year of that controlled foreign company during which that transaction, operation, scheme, agreement or understanding exists is at least 67,5 per cent of the amount of normal tax that would have been payable in respect of any taxable income of that controlled foreign company had that controlled foreign company been a resident for that foreign tax year: Provided that the aggregate amount of tax so payable must be determined-

(aa)   after taking into account any applicable agreement for the prevention of double taxation and any credit, rebate or other right of recovery of tax from any sphere of government of any country other than the Republic; and

(bb)   after disregarding any loss in respect of a year other than that foreign tax year or from a company other than that controlled foreign company.

Paragraph (iii) amended by section 37(1)(c) of Act 34 of 2019 effective on 1 January, 2020 and applicable in respect of years of assessment ending on or after that date]

(7)     Where-

(a)     any transaction, operation, scheme, agreement or understanding has been entered into between a company that is a resident (for purposes of this subsection referred to as resident company’) or any company that forms part of the same group of companies as that resident company and any foreign company in which that resident company (whether alone or together with any other company that forms part of the same group of companies as that resident company) directly or indirectly holds in aggregate at least 10 per cent of the equity shares and voting rights and that transaction, operation, scheme, agreement or understanding comprises the granting of financial assistance that constitutes a debt owed by that foreign company to that resident company or any company that forms part of the same group of companies as that resident company;

(b)     that foreign company is not obliged to redeem that debt in full within 30 years from the date the debt is incurred;

[Paragraph (b) amended by section 50 of Act 43 of 2014 effective on 20 January 2015]

(c)     the redemption of the debt in full by the foreign company is conditional upon the market value of the assets of the foreign company not being less than the market value of the liabilities of the foreign company, and

[Paragraph (c) amended by section 50 of Act 43 of 2014 effective on 20 January 2015]

(d)     no interest accrued in respect of the debt during the year of assessment,

[Paragraph (d) added by section 50 of Act 43 of 2014 effective on 20 January 2015]

this section must not apply to that debt.

Subsections 2, 3, 4, 5, 6, 7, 8 and 9 of section 37B of ITA

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(2)     There shall be allowed to be deducted from the income of the taxpayer, in respect of any year of assessment, an allowance equal to –

 

(a)     in the case of a new and unused environmental treatment and recycling asset owned by the taxpayer or acquired by the taxpayer as purchaser in terms of an agreement contemplated in paragraph (a) of the definition of an ‘instalment credit agreement’ in section 1 of the Value-Added Tax Act, 40 per cent of the cost to the taxpayer to acquire the asset in the year of assessment that it is brought into use for the first time by that taxpayer, and 20 per cent in each succeeding year of assessment; and

 

(b)     in the case of a new and unused environmental waste disposal asset owned by the taxpayer or acquired by the taxpayer as purchaser in terms of an agreement contemplated in paragraph (a) of the definition of an ‘instalment credit agreement’ in section 1 of the Value-Added Tax Act, five per cent of the cost to the taxpayer to acquire the asset in the year of assessment that it is brought into use for the first time by that taxpayer, and five per cent in each succeeding year of assessment.

 

(3)     For the purposes of this section, the cost to a taxpayer of any asset shall be deemed to be the lesser of the actual cost to the taxpayer or the cost which a person would, if that person had acquired such asset under a cash transaction concluded at arm’s length on the date on which the transaction for the acquisition was in fact concluded, have incurred in respect of the direct cost of the acquisition.

 

(4)     Where any asset in respect of which any deduction is claimed in terms of this section was during any previous year of assessment used by the taxpayer for the purposes of any trade carried on by such taxpayer, the receipts and accruals of which were not included in the income of such taxpayer during such year, any deduction which could have been allowed in terms of this section during such year or any subsequent year in which such asset was used by the taxpayer shall for the purposes of this section be deemed to have been allowed during such previous year or years as if the receipts and accruals of such trade had been included in the income of such taxpayer.

 

(5)     No deduction shall be allowed under this section in respect of any asset that has been disposed of by the taxpayer during any previous year of assessment.

 

(6)     For purposes of determining the taxable income derived during any year of assessment by a taxpayer, there shall be allowed as a deduction any expenditure or loss in respect of decommissioning, remediation or restoration arising from any trade previously carried on by that taxpayer to the extent that such expenditure or loss –

 

(a)     is incurred for purposes of complying with any law of the Republic that provides for the protection of the environment upon the cessation of trade;

 

(b)     would otherwise have been allowed as a deduction in terms of section 11 had that taxpayer still been carrying on that trade; and

 

(c)     is not otherwise allowed as a deduction.

 

(7)     Any assessed loss of a taxpayer as defined in section 20(2) that is attributable to any expenditure or loss contemplated in subsection (6) may be set off against income derived by that taxpayer during a year of assessment notwithstanding the fact that the taxpayer is not carrying on any trade during that year.

 

(8)     No deduction shall be allowed under section 11, 12C or 13 in respect of the cost of an environmental treatment and recycling asset or an environmental waste disposal asset.

 

(9)     The deductions which may be allowed in terms of this section in respect of any asset shall not in the aggregate exceed the cost to the taxpayer of such asset.

“Affected transaction” definition of section 31 of ITA

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(1)     For the purposes of this section-

‘affected transaction’ means any transaction, operation, scheme, agreement or understanding where-

(a)     that transaction, operation, scheme, agreement or understanding has been directly or indirectly entered into or effected between or for the benefit of either or both-

(i)

(aa)    a person that is a resident; and

(bb)   any other person that is not a resident;

(ii)

(aa)    a person that is not a resident; and

(bb)   any other person that is not a resident that has a permanent establishment in the Republic to which the transaction, operation, scheme, agreement or understanding relates;

(iii)

(aa)    a person that is a resident; and

(bb)   any other person that is a resident that has a permanent establishment outside the Republic to which the transaction, operation, scheme, agreement or understanding relates; or

(iv)

(aa)    a person that is not a resident; and

(bb)   any other person that is a controlled foreign company in relation to any resident,

and those persons are connected persons or associated enterprises in relation to one another; and

[Subparagraph (iv) amended by section 37(1)(a) of Act 34 of 2019 effective on 1 January, 2023 and applicable in respect of years of assessment commencing on or after that date (effective date in section 37(2) of Act 34 of 2019 as substituted by section 78(1) of Act 23 of 2020 and by section 66(1) of Act 20 of 2021)]

(b)     any term or condition of that transaction, operation, scheme, agreement or understanding is different from any term or condition that would have existed had those persons been independent persons dealing at arm’s length;

“Environmental waste disposal asset” definition of section 37B of ITA

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‘environmental waste disposal asset’ means any air, water, and solid waste disposal site, dam, dump, reservoir, or other structure of a similar nature, or any improvement thereto, if the structure is –

 

(a)     of a permanent nature;

 

(b)     utilised in the course of a taxpayer’s trade in a process that is ancillary to any process of manufacture or any other process which, in the opinion of the Commissioner, is of a similar nature; and

 

(c)     required by any law of the Republic for purposes of complying with measures that protect the environment.

“Environmental treatment and recycling asset” definition of section 37B of ITA

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(1)     For purposes of this section –

 

‘environmental treatment and recycling asset’ means any air, water, and solid waste treatment and recycling plant or pollution control and monitoring equipment (and any improvement to the plant or equipment) if the plant or equipment is-

 

(a)     utilised in the course of a taxpayer’s trade in a process that is ancillary to any process of manufacture or any other process which, in the opinion of the Commissioner, is of a similar nature; and

 

(b)     required by any law of the Republic for purposes of complying with measures that protect the environment; and

Section 37C (ITA) – Deductions in respect of environmental conservation and maintenance

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37C.    Deductions in respect of environmental conservation and maintenance

(1)     Expenditure actually incurred by a taxpayer to conserve or maintain land is deemed to be expenditure incurred in the production of income and for purposes of a trade carried on by that taxpayer, if-

(a)     the conservation or maintenance is carried out in terms of a biodiversity management agreement that has a duration of at least five years entered into by the taxpayer in terms of section 44 of the National Environmental Management: Biodiversity Act, 2004 (Act No. 10 of 2004); and

(b)     land utilised by the taxpayer for the production of income and for purposes of a trade consists of, includes or is in the immediate proximity of the land that is the subject of the agreement contemplated in paragraph (a).

(2)

(a)     Any deduction of expenditure contemplated in subsection (1) must not be allowed to the extent that the expenditure exceeds the income of the taxpayer derived from trade carried on by the taxpayer on land utilised as contemplated in subsection (1)(b) in any year of assessment.

(b)     The amount by which the deduction exceeds the income of the taxpayer so derived must be deemed to be expenditure incurred by the taxpayer in the following year of assessment.

(3)     An amount equal to the expenditure actually incurred by a taxpayer to conserve or maintain land owned by the taxpayer is for purposes of section 18A deemed to be a donation by the taxpayer actually paid or transferred during the year to the Government for which a receipt has been issued in terms of section 18A(2), if the conservation or maintenance is carried out in terms of a declaration that has a duration of at least 30 years in terms of section 20, 23 or 28 of the National Environmental Management: Protected Areas Act, 2003 (Act No. 57 of 2003).

(4)     If during the current or any previous year of assessment a deduction is or was allowed to the taxpayer in terms of subsection (1) or (3) in respect of expenditure incurred to conserve or maintain land in terms of an agreement or declaration contemplated in those subsections, and the taxpayer subsequently is in breach of that agreement or violates that declaration, an amount equal to the deductions allowed in respect of expenditure incurred within the period of five years preceding the breach or violation must be included in the income of the taxpayer for the current year of assessment.

(5)       ……….

[Subsection (5) amended by section 86 of Act 31 of 2013, deleted by section 52 of Act 43 of 2014 effective on 1 March 2015]

(6)     ……….

[Subsection (6) deleted by section 52 of Act 43 of 2014 effective on 1 March 2015]

(7)     ……….

[Subsection (7) deleted by section 52 of Act 43 of 2014 effective on 1 March 2015]

Section 33 (ITA) – Assessment of owners or charterers of ships or aircraft who are not residents of the Republic

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33.  Assessment of owners or charterers of ships or aircraft who are not residents of the Republic

 

(1)     Any person other than a resident who embarks passengers or loads livestock, mails or goods in the Republic, as an owner or charterer of any ship or aircraft, shall be deemed to have derived therefrom (apart from any taxable income derived by him from other sources) a taxable income of 10 per cent of the amount payable to him or to any agent on his behalf, whether the amount be payable in or outside the Republic, in respect of passengers, livestock, mails and goods so embarked or loaded, but the provisions of this section shall not apply to any such person who renders accounts which satisfactorily disclose the taxable income derived by him from the embarking of passengers or the loading of livestock, mails and goods as aforesaid.

 

(2)     Where the person so embarking passengers or loading livestock, mails or goods has no recognized agent in the Republic other than the master of the ship or the pilot of the aircraft in connection with which any such amounts are payable, or where the agent fails to make returns of any such amounts payable in respect of any ship or aircraft –

 

(a)     the Commissioner may make the assessment from such information as may be available to him;

 

(b)     the tax thereon shall be payable to the Commissioner prior to the clearance of the ship or aircraft;

 

(c)     the principal officer of customs at the port or airport where such ship or aircraft is being cleared shall have power to detain the clearance until such payment is made; and

 

(d)     upon such payment the master, pilot or agent (as the case may be) shall be entitled to a certificate from such officer of customs that the amount so paid has been paid under the provisions of this Act, and such certificate shall be sufficient warrant to such master, pilot or agent of the amount so paid.