“Operating company” definition of section 24O of ITA

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“operating company” means a company of which-

(a)     at least 80 per cent of the aggregate amount received by or that accrued to that company during a year of assessment constitutes income in the hands of that company; and

[Paragraph (a) substituted by section 46 of Act 23 of 2018 effective on 1 January 2019, applies in respect of years of assessment ending on or after that date]

(b)     the income contemplated in paragraph (a) is derived-

(i)      from a business carried on continuously by that company; and

(ii)     in the course or furtherance of which goods or services are provided or rendered by that company for consideration.

[Subparagraph (ii) substituted by section 46 of Act 23 of 2018 effective on 1 January 2019, applies in respect of years of assessment ending on or after that date]

“Acquisition transaction” definition of sectoin 24O of ITA

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(1)       For the purposes of this section-

“acquisition transaction” means any transaction in terms of which a company acquires an equity share in another company from a person that does not form part of the same group of companies as that company, if-

(a)     that other company is-

(i)  an operating company on the date of acquisition of that share; and

(ii) as a result of which, at the end of the day of that transaction-

(aa)   that company is a controlling group company in relation to that other company; and

(bb)   that company and that other company form part of the same group of companies as defined in section 41(1); or

(b)      that other company is-

(i)  a controlling group company in relation to a company that is an operating company on the date of acquisition of that share and that forms part of the same group of companies, as defined in section 41(1), as that controlling group company; and

(ii) as a result of which, at the end of the day of that transaction-

(aa)   that company is a controlling group company in relation to that other controlling group company; and

(bb)   that company and that other controlling group company form part of the same group of companies as defined in section 41(1);

[Definition of “acquisition transaction” substituted by section 31(1)(a) of Act 34 of 2019 deemed effective on 1 January, 2019 and applicable in respect of years of assessment ending on or after that date]

Section 24N (ITA) – Incurral and accrual of amounts in respect of disposal or acquisition of equity shares

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24N.  Incurral and accrual of amounts in respect of disposal or acquisition of equity shares

(1)     Where a person (hereinafter referred to as ‘the seller’) during a year of assessment disposes of equity shares to any other person (hereinafter referred to as ‘the purchaser’) in the circumstances contemplated in subsection (2), any quantified or quantifiable amount payable by the purchaser to the seller must –

(a)     to the extent that it is not due and payable to the seller during that year, be deemed for purposes of this Act –

(i)      not to have been accrued to the seller in that year; and

(ii)     not to have been incurred by the purchaser during that year; and

(b)     to the extent that it becomes due and payable to the seller in any subsequent year of assessment, be deemed for purposes of this Act –

(i)      to have been accrued to the seller during that subsequent year; and

(ii)     to have been incurred by the purchaser during that subsequent year.

(2)     Subsection (1) applies in respect of the disposal by a seller to a purchaser of any equity shares in a company where –

(a)     more than 25 per cent of the amount payable for those shares becomes due and payable by the purchaser after the end of the year of assessment of the seller and the amount payable is based on the future profits of that company;

(b)     the value of the equity shares in that company which have in aggregate been disposed of during that year and in respect of which the provisions of this section apply, exceeds 25 per cent of the total value of equity shares in that company;

(c)     the purchaser and seller are not connected persons in relation to each other after that disposal;

(d)     the purchaser is obliged to return the equity shares to the seller in the event of failure by the purchaser to pay any amount when due; and

(e)     the amount is not payable by the purchaser to the seller in terms of a financial instrument which is payable on demand and which is readily tradeable in the open market.

Section 24M (ITA) – Incurral and accrual of amounts in respect of assets acquired or disposed of for unquantified amount

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24M. Incurral and accrual of amounts in respect of assets acquired or disposed of for unquantified amount

(1)     If a person during any year of assessment disposes of an asset for consideration which consists of or includes an amount which cannot be quantified in that year of assessment, so much of that consideration as –

(a)     cannot be quantified in that year must for purposes of this Act be deemed not to have accrued to that person in that year; and

(b)     becomes quantifiable during any subsequent year of assessment must for purposes of mis Act be deemed to have been accrued to that person from that disposal in that subsequent year.

(2)     If a person during any year of assessment acquires an asset for consideration which consists of or includes an amount which cannot be quantified in that year of assessment, so much of that consideration as –

(a)     cannot be quantified in that year must for purposes of this Act be deemed not to have been incurred by that person in that year; and

(b)     becomes quantifiable during any subsequent year of assessment must for purposes of this Act be deemed to have been incurred by that person in respect of the acquisition of that asset in that subsequent year.

(3)     The amount of any recovery or recoupment by a person of any amount allowed as a deduction in respect of any asset contemplated in subsection (1) must, for purposes of section 8(4), be determined with reference to the amounts received by or accrued to that taxpayer in terms of this section.

(4)     If an asset which was acquired by a person during any year of assessment as contemplated in subsection (2) –

(a)     constitutes a depreciable asset; and

(b)     any amount is in terms of subsection (2)(b) deemed to have been actually incurred by that person in any subsequent year of assessment which has not been taken into account in determining the amount of any allowance in respect of that depreciable asset in any previous year and would have been so taken into account had that amount been actually incurred by that person,

so much of the amount as would have been so allowed as an allowance in any previous year must be allowed in that subsequent year of assessment.

Subsections 2 and 3 of section 24L of ITA

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(2)     The amount of –

(a)     any premium or like consideration paid or payable by a person in terms of an option contract; or

(b)     any consideration paid or payable by a person in respect of the acquisition of an option contract by such person,

shall for purposes of this Act be deemed to have been incurred by such person on a day to day basis during the term of such option contract: Provided that –

(i)      where such option contract is exercised, terminated or is disposed of, the portion of the amount attributable to the period from the date of exercise, termination or disposal until the end of the original term of the option contract shall be deemed to have been incurred by such person on the date of exercise, termination or disposal of the option contract;

(ii)     the provisions of this section shall not be applied to an option contract held by a person as trading stock;

(iii)    where such amount includes an amount representing the intrinsic value in relation to an option contract, so much of such amount so representing the intrinsic value shall for the purposes of this Act be deemed to have been incurred by such person on the date of exercise, termination or disposal of the option contract.

(3)     The amount of any premium or like consideration received or receivable by a person in terms of an option contract, other than an amount of a capital nature, shall for the purposes of this Act be deemed to have accrued to such person on a day to day basis during the term of such option contract: Provided that where such option contract is exercised, terminated or disposed of, the portion of the amount attributable to the period from the date of exercise, termination or disposal of such option contract until the end of the original term of the option contract shall be deemed to have accrued to such person on the date of exercise, termination or disposal of the option contract.

[Words preceding the proviso substituted by section 45 of Act 23 of 2018 effective on 1 January 2019, applies in respect of years of assessment commencing on or after that date]

“Option contract” definition of section 24L of ITA

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“option contract” means an agreement the effect of which is that any person acquires the option (excluding a foreign currency option contract as defined in section 24I(1)) –

 

(a)     to buy from or to sell to another person a certain quantity of corporeal or incorporeal things before or on a future date at a pre–arranged price; or

 

(b)     that an amount of money will be paid to or received from another person before or on a future date depending on whether the value or price of an asset, index, currency, rate of interest or any other factor is higher or lower before or on that future date than a pre–arranged value or price.

“Intrinsic value” definition of section 24L of ITA

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(1)     For the purposes of this section –

  

“intrinsic value”, in relation to an option contract, means an amount equal to the difference between the market price or value of an asset, index, currency, rate of interest or any other factor, as provided for in the option contract, on the date of acquisition of the option contract and the pre–arranged price or value provided for in the option contract; and

Subsections 2 and 3 of section 24K of ITA

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(2)     Any amount contemplated in the definition of “interest rate agreement” in subsection (1) shall for the purposes of this Act be deemed to have been incurred by or accrued to, as the case may be, a person contemplated in such definition on a day to day basis during the period in respect of which it is calculated.

 

(3)     Where any amount contemplated in subsection (2) is to be calculated with reference to a variable rate for the purposes of such subsection, such amount shall be calculated with reference to the variable rate applicable on the date such amount is to be calculated to determine all amounts payable or receivable after such date.