Subsections 2, 3, 4, 5 and 6 of section 23M of ITA

(2)     Where an amount of interest is incurred by a debtor during a year of assessment in respect of a debt owed to-

(a)     a creditor that is in a controlling relationship with that debtor;

[Paragraph (a) amended by section 19(1)(i) of Act 20 of 2021 effective on 31 March, 2023 and applicable in respect of years of assessment ending on or after that date (effective date in section 19(2) of Act 20 of 2021 as substituted by section 10 of Act 19 of 2022)]

(b)     a creditor that is not in a controlling relationship with that debtor, if that creditor obtained the funding for the debt advanced to the debtor from a person that is in a controlling relationship with that debtor;

[Paragraph (b) amended by section 19(1)(i) of Act 20 of 2021 effective on 31 March, 2023 and applicable in respect of years of assessment ending on or after that date (effective date in section 19(2) of Act 20 of 2021 as substituted by section 10 of Act 19 of 2022)]

(c)     a creditor that is not in a controlling relationship with that debtor, if that creditor forms part of the same group of companies as that debtor if the expression “at least 70 per cent of the equity shares in” in paragraphs (a) and (b) of the definition of “group of companies” in section 1 were replaced by the expression “more than 50 per cent of the equity shares or voting rights in”; or

[Paragraph (c) added by section 19(1)(i) of Act 20 of 2021 effective on 31 March, 2023 and applicable in respect of years of assessment ending on or after that date (effective date in section 19(2) of Act 20 of 2021 as substituted by section 10 of Act 19 of 2022)]

(d)     a creditor that is in a controlling relationship with that debtor, if that creditor, directly or indirectly through another creditor that is in a controlling relationship with that creditor, obtained the funding for the debt advanced to the debtor from a person that is in a controlling relationship with that creditor or that other creditor,

[Paragraph (d) added by section 19(1)(i) of Act 20 of 2021 effective on 31 March, 2023 and applicable in respect of years of assessment ending on or after that date (effective date in section 19(2) of Act 20 of 2021 as substituted by section 10 of Act 19 of 2022)]

and the amount of interest so incurred or related interest is not during that year of assessment-

(i)

(aa)   subject to tax in the hands of the person, creditor or other creditor referred to in paragraphs (a), (b), (c) or (d), to which the interest or related interest accrues; or

[Subparagraph (aa) substituted by section 19(1)(k) of Act 20 of 2021 and by section 26(1)(g) 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)   included in the net income of a controlled foreign company as contemplated in section 9D in the foreign tax year of the controlled foreign company commencing or ending within that year of assessment; and

(ii)     disallowed under section 23N,

[Subparagraph (ii) substituted by section 39 of Act 17 of 2017 effective on 18 December 2017]

Provided that where any amount of interest incurred or related interest is not included in the income of the person referred to in paragraph (i)(aa), and withholding tax on interest was or will be levied on that amount of interest, on payment thereof, under the provisions of Part IVB of this Chapter, the amount of interest to be regarded as not subject to tax as contemplated in paragraph (i)(aa) will be determined in accordance with the formula:

A = B x (C – D)

                C

in which formula-

(i)      “A” represents the amount to be determined;

(ii)     “B” represents the aggregate of any amount of interest incurred or paid in respect to which the provisions of Part IVB of this Chapter are or will be applicable;

(iii)    “C” represents the number 15; and

(iv)    “D” represents the rate at which withholding tax on interest has been or will be levied on such amount of interest under the provisions of Part IVB of this Chapter, multiplied by the number 100.

[Subsection (2) substituted by section 37(1)(e) of Act 43 of 2014 and amended by section 19(1)(j) and (l) of Act 20 of 2021 and by section 26(1)(h) 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]

(3)     The amount of interest allowed to be deducted in respect of all debts owed as contemplated in subsection (2), in respect of any year of assessment must not exceed the sum of—

(a)     the amount of interest received by or accrued to the debtor; and

(b)     an amount determined by multiplying the adjusted taxable income of that debtor for that year of assessment by 0,3,

reduced by so much of any amount of interest incurred by the debtor in respect of debts other than debts contemplated in subsection (2) as exceeds any amount not allowed to be deducted in terms of section 23N.

[Subsection (3) amended by section 37(1)(f) of Act 43 of 2014 and by section 28 of Act 34 of 2019 and substituted by section 19(1)(m) of Act 20 of 2021 effective on 31 March, 2023 and applicable in respect of years of assessment ending on or after that date (effective date in section 19(2) of Act 20 of 2021 as substituted by section 10 of Act 19 of 2022)]

(4)     So much of any amount of interest as exceeds the amount determined in terms of subsection (3) may be carried forward to the immediately succeeding year of assessment and, subject to subsection (2), must be deemed to be an amount of interest incurred in that succeeding year of assessment.

(5)     Where an amount of interest is to be taken into account in terms of this section and in terms of section 23N, that amount of interest shall only be taken into account in terms of this section after section 23N has been applied.

[Subsection (5) substituted by section 37 of Act 43 of 2014 effective on 1 January 2015]

(6)     This section does not apply-

(a)     to so much of the interest as is incurred by a debtor in respect of a debt owed to a creditor as contemplated in subsection (2) where-

(i)      that creditor funded that debt amount advanced to that debtor with funding granted by a lending institution that is not in a controlling relationship with that debtor; and

(ii)     that interest is determined with reference to a rate of interest that does not exceed the official rate of interest plus 100 basis points.

[Subparagraph (ii) substituted by section 39 of Act 17 of 2017 and section 41 of Act 23 of 2018 effective on 17 January 2019]

(b)     to any interest incurred by a debtor in respect of any linked unit that is held by a creditor as contemplated in subsection (2) where that creditor is a long-term insurer as defined in the Long-term Insurance Act, a pension fund or a provident fund, if-

(i)      the long-term insurer, pension fund or provident fund holds at least 20 per cent of the linked units in that debtor;

(ii)     the long-term insurer, pension fund or provident fund acquired those linked units before 1 January 2013; and

(iii)    at the end of the previous year of assessment 80 per cent or more of the value of the assets of that debtor, reflected in the annual financial statements prepared in accordance with the Companies Act for the previous year of assessment, is directly or indirectly attributable to immovable property.

[Section 23 inserted by section 61 of Act 31 of 2013 effective on 1 January 2015]

(6A)  This section does not apply to interest incurred on a loan utilised for mining purposes during any period prior to the commencement of production or during any period of non-production, as contemplated in paragraph (b) of the definition of “capital expenditure” in section 36(11).

[Subsection (6A) inserted by section 12(1) of Act 20 of 2022 effective on 31 March, 2023 and applicable in respect of years of assessment ending on or after that date]

(7)     For purposes of this section any exchange difference-

(a)     deducted from the income of a person as contemplated in section 24I(3) or (10A) is deemed to have been incurred by the person; or

(b)     included in the income of a person as contemplated in section 24I(3) or (10A) is deemed to have accrued to that person.

[Section 23M inserted by section 61(1) of Act 31 of 2013 and amended by section 41 of Act 15 of 2016. Subsection (7) added by section 19(1)(n) of Act 20 of 2021 and substituted by section 26(1)(i) 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]