(2)     Subject to subsections (3), (3A), (3B) and (4), there must be allowed as a deduction from the income of a taxpayer in respect of a year of assessment expenditure actually incurred by that taxpayer in acquiring any venture capital share issued to that taxpayer during that year of assessment.

[Sub­section (2) substituted by section 38(1)(i) of Act 24 of 2011 and by section 17(1)(b) of Act 34 of 2019]

(3)

(a)     Where, during any year of assessment-

(i)      any loan or credit has been used by a taxpayer for the payment or financing of the whole or any portion of any expenditure contemplated in subsection (2); and

(ii)     any portion of that loan or credit is owed by the taxpayer on the last day of the year of assessment,

the amount which may be taken into account as expenditure that qualifies for a deduction in terms of subsection (2) must be limited to the amount for which the taxpayer is in terms of paragraph (b) deemed to be at risk on the last day of the year of assessment.

(b)     For the purposes of paragraph (a), a taxpayer must be deemed to be at risk to the extent that-

(i)      the incurral of the expenditure contemplated in subsection (2); or

(ii)     the repayment of any loan or credit used by the taxpayer for the payment or financing of any expenditure contemplated in subsection (2),

[Subparagraph (ii) substituted by section 23 of Act 43 of 2014 effective on 1 January 2015]

would (having regard to any transaction, agreement, arrangement, understanding or scheme entered into before or after such expenditure is incurred) result in an economic loss to the taxpayer were no income to be received by or accrue to the taxpayer in future years from the disposal of any venture capital share issued to the taxpayer as a result of the incurral of that expenditure: Provided that the taxpayer must not be deemed to be at risk to the extent that-

(aa)   the loan or credit is not repayable within a period of five years from the date on which that loan or credit was advanced to the taxpayer; and

(bb)   any loan or credit used by the taxpayer for the payment or financing of the whole or any portion of any expenditure contemplated in subsection (2) is (having regard to any transaction, agreement, arrangement, understanding or scheme entered into before or after such expenditure is incurred) granted directly or indirectly to the taxpayer by the venture capital company by which the qualifying shares are issued as a result of the incurral of that expenditure.

(3A)   If, at the end of any year of assessment, after the expiry of a period of 36 months commencing on the first date of the issue of venture capital shares a taxpayer has incurred expenditure as contemplated in subsection (2) and that taxpayer is a connected person in relation to that venture capital company-

(a)     no deduction must be allowed in terms of subsection (2) in respect of that year of assessment in respect of any expenditure incurred by the taxpayer in acquiring any venture capital share issued to that taxpayer by that venture capital company;

(b)     the Commissioner must, after due notice to the venture capital company, withdraw any approval in terms of subsection (5) with effect from the date of that approval by the Commissioner of that company as a venture capital company in terms of that subsection; and

(c)     the Commissioner must withdraw the approval of that company in terms of subsection (5) and an amount equal to 125 per cent of the expenditure incurred by any person to acquire shares issued by the company must be included in the income of the company in the year of assessment in which the approval is withdrawn by the Commissioner,

if corrective steps acceptable to the Commissioner are not taken by the company within a period stated in the notice contemplated in paragraph (b).

[Subsection (3A) inserted by section 38 of Act 24 of 2011 and substituted by section 32 of Act 15 of 2016 effective on 21 July 2019]

(3B)  If any taxpayer holds, at the end of any year of assessment following the expiry of a period of 36 months commencing on the first date of the issue by a venture capital company of venture capital shares of any class, more than 20 per cent of the venture capital shares of that class-

(a)     no deduction must be allowed in terms of subsection (2) in respect of that year of assessment in respect of any expenditure incurred by the taxpayer in acquiring any venture capital share of that class issued to that taxpayer by that venture capital company;

(b)     the Commissioner must, after due notice to the venture capital company, withdraw any approval in terms of subsection (5) with effect from the commencement of that year of assessment; and

(c)     an amount equal to 125 per cent of the expenditure incurred by any person to acquire shares issued by the company must be included in the income of the company in the year of assessment in which the approval is withdrawn by the Commissioner under paragraph (b):

Provided that—

(a)     this subsection must not apply during any year of assessment where that taxpayer holds more than 20 per cent of the venture capital shares of a class and that venture capital company during that year of assessment gives notice to the Commissioner in writing that the venture capital company will cancel all the issued shares in that class of shares; and

(b)     that venture capital company cancels all the issued shares in that class of shares within six months from the date on which that notice is given.

[Subsection (3B) inserted by section 29(1)(j) of Act 23 of 2018 and amended by section 17(1) of Act 23 of 2020 deemed effective on 31 July, 2020 and applicable in respect of years of assessment ending on or after that date]

(3C)  The deduction to be allowed in terms of subsection (2) in respect of a year of assessment in respect of expenditure incurred during that year by a taxpayer that is-

(a)       a company must not exceed R5 million; and

(b)       a person other than a company must not exceed R2,5 million.

[Sub­section (3C) inserted by section 17(1)(c) of Act 34 of 2019 deemed effective on 21 July, 2019 and applicable in respect of expenditure incurred by the taxpayer on or after that date]

(4)     A claim for a deduction in terms of subsection (2) must be supported by a certificate issued by the venture capital company stating the amounts invested in that company and that the Commissioner approved that company as contemplated in subsection (5).

(5)     The Commissioner must approve a venture capital company if that company has applied for approval and the Commissioner is satisfied that –

(a)     the company is a resident;

(b)     the sole object of the company is the management of investments in qualifying companies;

(c)     ……….

(d)     ……….

(e)     the tax affairs of the company are in order and the company has complied with all the relevant provisions of the laws administered by the Commissioner;

(f)      ……….

(g)     the company is licensed in terms of section 8(5) of the Financial Advisory and Intermediary Services Act, 2002 (Act No. 37 of 2002).

[Paragraph (g) substituted by section 29 of Act 23 of 2018 effective on 1 January 2019, applies in respect of years of assessment commencing on or after that date.]

(6)     If the Commissioner is satisfied that any venture capital company approved in terms of subsection (5) has during a year of assessment failed to comply with the provisions of that subsection, the Commissioner must after due notice to the company withdraw that approval from the commencement of that year if corrective steps acceptable to the Commissioner are not taken by the company within a period stated in that notice.

(6A)  If, at the end of any year of assessment, after the expiry of a period of 48 months commencing on the first date of the issue of venture capital shares-

(a)     ……….

(b)     less than 80 per cent of the expenditure incurred by the company to acquire assets held by the company was incurred to acquire qualifying shares issued to the company by qualifying companies, each of which, immediately after the issue, held assets with a book value not exceeding –

[Words preceding subparagraph (i) substituted by section 23 of Act 25 of 2015 effective on 1 January 2015]

(i)      R500 million, where the qualifying company was a junior mining company; or

(ii)     R50 million, where the qualifying company was a company other than a junior mining company; or

 [Paragraph (b) amended by section 38 of Act 24 of 2011 and substituted by section 23 of Act 43 of 2014 effective on 1 January 2015]

(c)     more than 20 per cent of any amounts received in respect of the issue of shares in the company was utilised to acquire qualifying shares issued to the company by any one qualifying company,

 [Paragraph (c) substituted by section 38 of Act 24 of 2011, section 23 of Act 43 of 2014 and section 23 of Act 25 of 2015 effective on 1 January 2015]

the Commissioner must after due notice to the company withdraw that approval with effect from the commencement of the year of assessment during which the period ends that is stated in that notice during which corrective steps acceptable to the Commissioner must be taken if corrective steps acceptable to the Commissioner are not taken by the company within the period stated in that notice.

[Sub­section (6A) inserted by section 25(1)(g) of Act 17 of 2009 and amended by section 23(1)(b) of Act 43 of 2014, by section 29(1)(l) of Act 23 of 2018 and by section 17(1)(d) of Act 34 of 2019 deemed effective on 21 July, 2019]

(7)     A company may apply for approval in terms of subsection (5) in respect of the year of assessment following the year of assessment during which approval was withdrawn in respect of that company in terms of subsection (6) or (6A) if the non-compliance which resulted in the withdrawal has been rectified to the satisfaction of the Commissioner.

(8)     If the Commissioner withdraws the approval of a company in terms of subsection (6) or (6A), an amount equal to 125 per cent of the expenditure incurred by any person for the issue of shares held in the company must be included in the income of the company in the year of assessment in which the approval is withdrawn by the Commissioner.

(9)     Notwithstanding section 8(4), no amount shall be recovered or recouped in respect of the disposal of a venture capital share or in respect of a return of capital if that share has been held by the taxpayer for a period longer than five year section.

[Subsection (9) deleted by section 271 of Act 28 of 2011, re-inserted by section 23 of Act 43 of 2014 and substituted by section 28 of Act 17 of 2017 effective on 1 January 2018, applies in respect of years of assessment commencing on or after that date]

(10)   A venture capital company must submit to the Minister a report providing the Minister with the information that the Minister may prescribe.

(11)   No deduction shall be allowed under this section in respect of shares acquired after 30 June 2021.