“Qualifying purpose” definition of section 8EA of ITA

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‘qualifying purpose’, in relation to the application of the funds derived from the issue of a preference share, means one or more of the following purposes:

[Words preceding paragraph (a) substituted by section 7 of Act 43 of 2014 effective on 1 January 2013]

(a)     The direct or indirect acquisition of an equity share by any person in a company that is an operating company at the time of the receipt or accrual of any dividend or foreign dividend in respect of that preference share, other than a direct or indirect acquisition of an equity share from a company that, immediately before that acquisition, formed part of the same group of companies as the person acquiring that equity share;

[Paragraph (a) substituted  by section 15 of Act 15 of 2016 effective on 1 January 2017, applies in respect of years of assessment ending on or after that date]

(b)     the partial or full settlement by any person of any-

(i)      debt incurred for one or more of the following purposes:

(aa)    The direct or indirect acquisition of an equity share by any person in a company that is an operating company at the time of the receipt or accrual of any dividend or foreign dividend in respect of that preference share, other than a direct or indirect acquisition of an equity share from a company that, immediately before that acquisition, formed part of the same group of companies as the person acquiring that equity share;

[Item (aa) substituted by section 15 of Act 15 of 2016 effective on 1 January 2017, applies in respect of years of assessment ending on or after that date]

 

 (bb)   a direct or indirect acquisition or a redemption contemplated in paragraph (c);

 

 (cc)   the payment of any dividend or foreign dividend as contemplated in paragraph (d); or

 

(dd)   the partial or full settlement, directly or indirectly, of any debt incurred as contemplated in item (aa), (bb) or (cc); or

(ii)     interest accrued on any debt contemplated in subparagraph (i);

(c)     the direct or indirect acquisition by any person or a redemption by any person of any other preference share if-

(i)   that other preference share was issued for any purpose contemplated in this definition; and

(ii)     the amount received by or accrued to the issuer of that preference share as consideration for the issue of that preference share does not exceed the amount outstanding in respect of that other preference share being acquired or redeemed, being the sum of-

 

(aa)   that amount; and

(bb)   any amount of dividends, foreign dividends or interest accrued in respect of that other preference share; or

(d)     the payment by any person of any dividend or foreign dividend in respect of the other preference share contemplated in paragraph (c);

“Preference share” definition of section 8EA of ITA

Posted on by admin_kmos

‘preference share’ means any share-

 

(a)    other than an equity share; or

 

(b)     that is an equity share, if an amount of any dividend or foreign dividend in respect of that share is based on or determined with reference to a specified rate of interest or the time value of money;

“Operating company” definition of section 8EA of ITA

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‘operating company’ means-

(a)     any company that carries on business continuously, and in the course or furtherance of that business-

(i)      provides goods or services for consideration; or

(ii)     carries on exploration for natural resources;

[Paragraph (a) substituted by section 7 of Act 43 of 2014 effective on 1 January 2013]

(b)     any company that is a controlling group company in relation to a company contemplated in paragraph (a);or

(c)     any company that is a listed company;

“Enforcement right” definition of section 8EA of ITA

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‘enforcement right’ in relation to a share or equity instrument means any right, whether fixed or contingent, of the holder of that share or equity instrument or of any person that is a connected person in relation to that holder to require any person other than the issuer of that share or equity instrument to-

(a)     acquire that share or equity instrument from the holder;

(b)     make any payment in respect of that share or equity instrument in terms of a guarantee, indemnity or similar arrangement; or

(c)     procure, facilitate or assist with any acquisition contemplated in paragraph (a) or the   making of any payment contemplated in paragraph (b);

[Definition of ‘enforcement right’ substituted by section 15 of Act 15 of 2016 effective on 1 January 2017, applies in respect of years of assessment ending on or after that date]

Subsection 2 of section 8E of ITA

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(2)     Any dividend or foreign dividend received by or accrued to a person during any year of assessment in respect of a share or equity instrument must be deemed in relation to that person to be an amount of income accrued to that person if that share or equity instrument constitutes a hybrid equity instrument at any time during that year of assessment.

[Subsection (2) substituted by section 14 of Act 15 of 2016 effective on 1 January 2017, applies in respect of years of assessment ending on or after that date]


(2A)  Where any share or preference share that was issued in terms of an agreement, all the terms of which were finally agreed to before 1 April 2012 by all the parties to that agreement, constitutes a hybrid equity instrument solely by reason of a right of redemption or a security arrangement acquired in accordance with the terms of that agreement and that right or arrangement is cancelled on or after 26 October 2016 and on or before 31 December 2017-


(a)     the provisions of subsection (2) will not apply in respect of any dividend or foreign dividend that accrues in respect of that share after the date of cancellation of that right or arrangement; and

(b)     the cancellation of that right or arrangement must not be treated as a disposal of that share if no consideration is payable in respect of that cancellation.

[Subsection (2A) inserted by section 14 of Act 15 of 2016 effective on 19 January 2017]

“Hybrid equity instrument” definition of section 8E of ITA

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‘hybrid equity instrument’ means-

(a)     any share, other than an equity share, if-

(i)      the issuer of that share is obliged to redeem that share or to distribute an amount constituting a return of the issue price of that share (in whole or in part); or

[Sub­paragraph (i) substituted by section 8(1)(a) of Act 34 of 2019 deemed effective on 21 July, 2019 and applicable in respect of years of assessment ending on or after that date]

(ii)     the holder of that share may exercise an option in terms of which the issuer must redeem that share or distribute an amount constituting a return of the issue price of that share (in whole or in part),

[Sub­paragraph (ii) substituted by section 8(1)(a) of Act 34 of 2019 deemed effective on 21 July, 2019 and applicable in respect of years of assessment ending on or after that date]

within a period of three years from the date of issue of that share;

(b)     any share, other than a share contemplated in paragraph (a), if-

(i)

(aa)   the issuer of that share is obliged to redeem that share or to distribute an amount constituting a return of the issue price of that share (in whole or in part) within a period of three years from the date of issue of that share;

[Item (aa) substituted by section 8(1)(b) of Act 34 of 2019 deemed effective on 21 July, 2019 and applicable in respect of years of assessment ending on or after that date]

(bb)   the holder of that share may exercise an option in terms of which the issuer must redeem that share or distribute an amount constituting a return of the issue price of that share (in whole or in part) within a period of three years from the date of issue of that share; or

[Item (bb) substituted by section 8(1)(b) of Act 34 of 2019 deemed effective on 21 July, 2019 and applicable in respect of years of assessment ending on or after that date]

(cc)    at any time on the date of issue of that share, the existence of the company issuing that share-

(A)    is to be terminated within a period of three years; or

(B)    is likely to be terminated within a period of three years upon a reasonable consideration of all the facts at that time; and

(ii)

(aa)   that share does not rank pari passu as regards its participation in dividends or foreign dividends with all other equity shares in the capital of the relevant company or, where the equity shares in such company are divided into two or more classes, with the shares of at least one of such classes; or

[Item (aa) substituted by section 12 of Act 23 of 2018 effective on 17 January 2019]

(bb)   any dividend or foreign dividend payable on such share is to be calculated directly or indirectly with reference to any specified rate of interest or the time value of money;

[Item (bb) amended by section 14 of Act 15 of 2016 effective on 1 January 2017, applies in respect of years of assessment ending on or after that date]

(c)     any preference share if that share is-

(i)      secured by a financial instrument; or

(ii)     subject to an arrangement in terms of which a financial instrument may not be disposed of,

unless that share was issued for a qualifying purpose;

(d)     any equity instrument the value of which is determined directly or indirectly with reference to-

(i)      a share contemplated in paragraph (a) or (b) or a preference share contemplated in paragraph (c); or

(ii)     an amount derived from a share or preference share contemplated in subparagraph (i); or

[Paragraph (d) added by section 14 of Act 15 of 2016 effective on 1 January 2017, applies in respect of years of assessment ending on or after that date]

(e)     any equity instrument, other than an equity instrument contemplated in paragraph (d), if that equity instrument is subject to a right or arrangement that would have constituted a right or arrangement contemplated in paragraph (a), (b) or (c) had that right or arrangement applied in respect of the share with reference to which the value of that equity instrument is directly or indirectly determined;

[Paragraph (e) added by section 14(1)(d) of Act 15 of 2016 and substituted by section 8(1)(c) of Act 34 of 2019 and by section 7 of Act 20 of 2021]