(2)       Subject to subsection (8), this section applies where-

(a)     a debt benefit in respect of a debt owed by a person arises in respect of a year of assessment by reason or as a result of a concession or compromise in respect of that debt during that year of assessment; and

[Paragraph (a) substituted by section 36 of Act 23 of 2018 effective on 1 January 2018 and applies in respect of years of assessment commencing on or after that date]

(b)     the amount of that debt is owed by that person in respect of or was used by that person to fund, directly or indirectly, any expenditure in respect of which a deduction or allowance was granted in terms of this Act.

[Paragraph (b) substituted by section 36 of Act 23 of 2018 effective on 1 January 2018 and applies in respect of years of assessment commencing on or after that date]

(3)       Where-

(a)     a debt benefit arises in respect of a debt owed by a person as contemplated in subsection (2); and

(b)     the amount of that debt is owed in respect of or was used as contemplated in paragraph (b) of that subsection to fund expenditure incurred in respect of trading stock that is held and not disposed of by that person at the time the debt benefit arises,

[Paragraph (b) substituted by section 36 of Act 23 of 2018 effective on 1 January 2018 and applies in respect of years of assessment commencing on or after that date]

the debt benefit in respect of that debt must, to the extent that an amount is taken into account by that person in respect of that trading stock in terms of section 11(a) or 22(1) or (2) for the year of assessment in which the debt benefit arises, be applied to reduce the amount so taken into account in respect of that trading stock.

(4)       Where-

(a)     a debt benefit arises in respect of a debt owed by a person as contemplated in subsection (2);

(b)     the amount of that debt is owed in respect of or was used as contemplated in paragraph (b) of that subsection to fund expenditure incurred in respect of trading stock that is held and not disposed of by that person at the time the debt benefit arises, and

[Paragraph (b) substituted by section 36 of Act 23 of 2018 effective on 1 January 2018 and applies in respect of years of assessment commencing on or after that date]

(c)     subsection (3) has been applied to reduce an amount taken into account by that person in respect of trading stock as contemplated in that subsection to the full extent of that amount so taken into account,

the debt benefit in respect of that debt, less any amount of that debt benefit that has been applied to reduce an amount as contemplated in subsection (3) must, to the extent that a deduction or allowance was granted in terms of this Act to that person in respect of that expenditure, be deemed, for the purposes of section 8(4)(a), to be an amount that has been recovered or recouped by that person for the year of assessment in which the debt benefit arises.

(5)    Where-

(a)     a debt benefit arises in respect of a debt owed by a person as contemplated in subsection (2); and

(b)     the amount of that debt is owed in respect of or was used as contemplated in paragraph (b) of that subsection to fund expenditure other than expenditure incurred—

(i)      in respect of trading stock that is held and not disposed of by that person at the time the debt benefit arises; or

(ii)      in respect of an allowance asset,

[Paragraph (b) amended by section 36(1)(g) of Act 23 of 2018 deemed effective on 1 January, 2018 and applicable in respect of years of assessment commencing on or after that date]

the debt benefit in respect of that debt must, to the extent that a deduction or allowance was granted in terms of this Act to that person in respect of that expenditure, be deemed, for the purposes of section 8(4)(a), to be an amount that has been recovered or recouped by that person for the year of assessment in which the debt benefit arises.

(6)    Where-

(a)     a debt benefit arises in respect of a debt owed by a person as contemplated in subsection (2); and

(b)     the amount of that debt is owed in respect of or was used as contemplated in paragraph (b) of that subsection to fund expenditure incurred in respect of an allowance asset that was not disposed of in a year of assessment prior to that in which that debt benefit arises,

[Paragraph (b) substituted by section 36(1)(h) of Act 23 of 2018 deemed effective on 1 January, 2018 and applicable in respect of years of assessment commencing on or after that date]

the debt benefit in respect of that debt must, to the extent that-

(i)      a deduction or allowance was granted in terms of this Act to that person in respect of that expenditure; and

(ii)     the debt benefit has not been applied as contemplated in paragraph 12A of the Eighth Schedule to reduce the amount of expenditure as contemplated in paragraph 20 of that Schedule in respect of that allowance asset,

be deemed, for the purposes of section 8(4)(a), to be an amount that has been recovered or recouped by that person for the year of assessment in which the debt benefit arises.

(6A)    Where-

(a)     a debt benefit arises during any year of assessment in respect of a debt owed by a person as contemplated in subsection (2); and

(b)     the amount of that debt is owed in respect of or was used as contemplated in paragraph (b) of that subsection to fund expenditure incurred in respect of an allowance asset that was disposed of in a year of assessment prior to that in which that debt benefit arises,

that person must treat the debt benefit in respect of that debt to the extent that—

(i)      a deduction or allowance was granted in terms of this Act to that person in respect of that expenditure; and

(ii)     that debt benefit has not been applied as contemplated in paragraph 12A of the Eighth Schedule to reduce the amount of expenditure as contemplated in paragraph 20 of that Schedule in respect of the allowance asset,

less any amount, if any, previously determined in respect of that disposal as a recovery or recoupment of a deduction or allowance, as an amount recovered or recouped for purposes of section 8(4)(a) in the year of assessment in which that debt benefit arises.

[Subsection (6A) inserted by section 36(1)(i) of Act 23 of 2018 and substituted by section 10(1) of Act 20 of 2022 effective on 1 January, 2023 and applicable in respect of years of assessment commencing on or after that date]

(7)     Where a debt benefit arises in respect of a debt owed by a person that was used to fund expenditure incurred in respect of an allowance asset, the aggregate amount of the deductions and allowances allowable to that person in respect of that allowance asset may not exceed an amount equal to the aggregate of the expenditure incurred in the acquisition of that allowance asset, reduced by an amount equal to the sum of-

(a)     the debt benefit in respect of that debt; and

(b)     the aggregate amount of all deductions and allowances previously allowed to that person in respect of that allowance asset.

(8)     This section must not apply to a debt benefit in respect of any debt owed by a person-

(a)     that is an heir or legatee of a deceased estate, to the extent that-

(i)      the debt is owed to that deceased estate;

(ii)     the debt is reduced by the deceased estate; and

(iii)    the amount by which the debt is reduced by the deceased estate forms part of the property of the deceased estate for the purposes of the Estate Duty Act;

(b)     to the extent that the debt is reduced by way of-

(i)      a donation as defined in section 55(1); or

(ii)     any transaction to which section 58 applies,

in respect of which donations tax is payable;

[Paragraph (b) substituted by section 36(1)(j) of Act 23 of 2018 and amended by section 17(1)(b) of Act 20 of 2021]

(c)     to an employer of that person, to the extent that the debt is reduced in the circumstances contemplated in paragraph 2(h) of the Seventh Schedule;

(d)     to another person where the person that owes that debt is a company if-

(i)      that company owes that debt to a company that forms part of the same group of companies as that company; and

(ii)     that company has not carried on any trade,

during the year of assessment in which that debt benefit arises as well as during the immediately preceding year of assessment: Provided that this paragraph must not apply in respect of any debt-

(aa)   incurred, directly or indirectly by that company to fund expenditure incurred in respect of any asset that is disposed of by that company, before or after that debt benefit arises, by way of an asset-for-share, intra-group or amalgamation transaction or a liquidation distribution in respect of which the provisions of section 42, 44, 45 or 47, as the case may be, applied; or;

[Subparagraph (aa) substituted by section 23(1)(a) of Act 17 of 2023 with effect from 1 January, 2024 and applicable in respect of years of assessment commencing on or after that date]

(bb)   incurred or assumed by that company in order to settle, take over, refinance or renew, directly or indirectly, any debt incurred by-

(A)    any other company that forms part of the same group of companies; or

(B)    any company that is a controlled foreign company in relation to any company that forms part of the same group of companies;

[Paragraph (d) amended 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]

: Provided further that where a debt benefit arises prior to the disposal of the   asset, that debt benefit must be treated as a debt benefit that arose immediately  before that disposal;

[Paragraph (d) amended by section 36(1)(k) of Act 23 of 2018 and by section 23(1)(b) of Act 17 of 2023 with effect from 1 January, 2024 and applicable in respect of years of assessment commencing on or after that date]

(e)     to another person where the person that owes that debt is a company that-

(i)      owes that debt to a company that forms part of the same group of companies as that company; and

(ii)     reduces or settles that debt, directly or indirectly, by means of shares issued by that company:

Provided that this paragraph must not apply in respect of any debt that was incurred or assumed by that company in order to settle, take over, refinance or renew, directly or indirectly, any debt incurred by another company which-

(aa)   did not form part of that same group of companies at the time that that other company incurred that debt; or

(bb)   does not form part of that same group of companies at the time that that company reduces or settles that debt, directly or indirectly, by means of shares issued by that company; or

[Paragraph (e) amended 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]

(f)     to the extent that the debt so owed-

(i)      is settled by means of an arrangement described in paragraph (b) of the definition of ‘concession or compromise’; and

(ii)     does not consist of or represent an amount owed by that person in respect of any interest as defined in section 24J incurred by that person during any year of assessment.

[Paragraph (f) added by section 36(1)(k) Act 23 of 2018 deemed effective on 1 January, 2018 and applicable in respect of years of assessment commencing on or after that date. Subparagraph (ii) substituted by section 17(1)(c) of Act 20 of 2021 effective on 1 January, 2022 and applicable in respect of years of assessment commencing on or after that date]

[Section 19 amended by section 15 of Act 90 of 1962, by section 6 of Act 6 of 1963, by section 17 of Act 88 of 1965, by section 17(1) of Act 88 of 1971, by section 14(1) of Act 90 of 1972, by section 18 of Act 85 of 1974, by section 14 of Act 104 of 1980, by section 17 of Act 96 of 1981, by section 15(1) of Act 91 of 1982, by section 17(1) of Act 94 of 1983, by section 17 of Act 121 of 1984, by section 12(1) of Act 96 of 1985, by section 12 of Act 65 of 1986, by section 4(1) of Act 108 of 1986, by section 13 of Act 85 of 1987, by section 18(1) of Act 101 of 1990, by section 21 of Act 129 of 1991, by section 33 of Act 30 of 1998, repealed by section 25(1) of Act 30 of 2000, inserted by section 36(1) of Act 22 of 2012, amended by section 53(1)(a)-(h) of Act 31 of 2013, by section 30 of Act 43 of 2014 and by section 35 of Act 25 of 2015 and substituted by section 32(1) of Act 17 of 2017 with effect from 1 January, 2018 and applicable in respect of years of assessment commencing on or after that date. Paragraph (f) added by section 36(1)(k) Act 23 of 2018 effective on 1 January, 2018 and applicable in respect of years of assessment commencing on or after that date. Subparagraph (ii) substituted by section 17(1)(c) of Act 20 of 2021 with effect from 1 January, 2022 and applicable in respect of years of assessment commencing on or after that date]