Sub-paragraphs 2, 3, 4, 5, 6, 7 of paragraph 12A of ITA

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(2)    Subject to subparagraph (6), this paragraph 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

[Item (a) substituted by section 77 of Act 23 of 2018 effective on 1 January 2018, 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, other than expenditure in respect of trading stock in respect of which a deduction or allowance was granted in terms of this Act.

[Item (b) substituted by section 77(1)(e) of Act 23 of 2018, by section 47 of Act 23 of 2020 and by section 44(1)(b) of Act 20 of 2021]

(3)     Where-

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

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

[Item (b) substituted by section 77 of Act 23 of 2018 effective on 1 January 2018, applies in respect of years of assessment commencing on or after that date]

the amount of expenditure so incurred in respect of that asset must, for the purposes of paragraph 20, be reduced by the debt benefit in respect of that debt.

(4)     Where-

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

(b)     the amount of that debt is owed in respect of or was used as contemplated in item (b) of that subparagraph to fund expenditure incurred in respect of an asset that was disposed of in a year of assessment prior to that in which that debt benefit arises, that person must if the amount determined in respect of that disposal as-

(i)      a capital gain; or

(ii)     a capital loss,

differs from the amount that would have been determined, whether as a capital gain or as a capital loss, in respect of that disposal had that debt benefit been taken into account in the year of the disposal of that asset, treat that absolute difference as a capital gain to be taken into account in respect of the year of assessment in which the debt benefit arises: Provided that in taking that debt benefit into account in respect of the year of disposal of that asset that person must take into account the extent to which the expenditure in respect of that asset has been reduced by any other debt benefit taken into account, in terms of this subparagraph, in respect of that disposal.

[Item (b) and the words following item (b) substituted by section 77 of Act 23 of 2018 effective on 1 January 2019, applies in respect of years of assessment commencing on or after that date]

(5)     Where subparagraph (3) or (4) applies in respect of a debt that was used to fund expenditure in respect of a pre-valuation date asset of a person, for the purposes of determining the date of acquisition of that asset and the expenditure incurred in respect of that asset, that person must be treated as having-

(a)     disposed of that asset at a time immediately before that debt benefit arose as contemplated in subparagraph (3)(a) or (4)(a), as the case may be, for an amount equal to the market value of that asset at that time; and

(b)     immediately reacquired that asset at that time at an expenditure equal to that market value-

(i)      less any capital gain, and

(ii)     increased by any capital loss,

that would have been determined had the asset been disposed of at market value at that time, which expenditure must be treated as an amount of expenditure actually incurred at that time for the  purposes of paragraph 20(1)(a).

(6)     This paragraph 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)      donation as defined in section 55(1); or

(ii)     any transaction to which section 58 applies,

in respect of which donations tax is payable;

[Item (b) substituted by section 77 of Act 23 of 2018 effective on 1 January 2019, applies in respect of years of assessment commencing on or after that date]

(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 during which that debt benefit arises and the immediately preceding year of assessment: Provided that this subitem 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

[Paragraph (aa) substituted by section 41(1)(a) of Act 17 of 2023 with effect from 1 January, 2024 and applicable in respect of any disposal of an asset 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;

Provided further that, for purposes of this paragraph, where a debt benefit arises prior to the disposal of an asset, that debt benefit must be treated as a debt benefit that arose immediately before that disposal;

[Subparagraph (d) amended by section 41(1)(b) of Act 17 of 2023 with effect from 1 January, 2024 and applicable in respect of any disposal of an asset on or after that date]

(e)     that is a company, where-

(i)      that debt is reduced in the course, or in anticipation, of the liquidation, winding up, deregistration or final termination of the existence of that company; and

(ii)     the person to whom the debt is owed is a connected person in relation to that company,

to the extent that debt benefit in respect of that debt does not, at the time that the debt benefit arises, exceed the amount of expenditure contemplated in paragraph 20 incurred in respect of that debt by the connected person: Provided that this subitem must not apply-

(a)     if-

(i)      the debt was reduced as part of any transaction, operation or scheme entered into to avoid any tax imposed by this Act; and

(ii)     that company became a connected person in relation to the person to whom the debt is owed after the debt (or any debt issued in substitution of that debt) arose; or

(b)     if that company-

(i)      has not, within 36 months of the date on which the debt is reduced or such further period as the Commissioner may allow, taken the steps contemplated in section 41(4) to liquidate, wind up, deregister or finally terminate its existence;

(ii)     has at any stage withdrawn any step taken to liquidate, wind up, deregister or finally terminate its corporate existence; or

(iii)    does anything to invalidate any step contemplated in subparagraph (i), with the result that the company is or will not be liquidated, wound up, deregistered or finally terminate its existence;

[Item (e) amended by section 77(1)(i) 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. Subparagraph (iii) substituted by section 44(1)(c) of Act 20 of 2021]

(f)     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 subitem 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 company reduces or settles that debt, directly or indirectly, by means of shares issued by that company; or

[Item (f) amended by section 77(1)(i) 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]

(g)     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.

[Sub-item (ii) substituted by section 44(1)(d) of Act 20 of 2021 effective on 1 January, 2022 and applicable in respect of years of assessment commencing on or after that date]

[Item (g) inserted by section 77 of Act 23 of 2018 effective on 1 January 2018, applies in respect of years of assessment commencing on or after that date]

(7)     Any tax which becomes payable as a result of the application of paragraph (b) of the proviso to subparagraph (6)(e) must be recovered from the company and the connected person contemplated in that subparagraph who must be jointly and severally liable for that tax.

[Paragraph 12A inserted by section 108 of Act 22 of 2012, amended by section 127 of Act 31 of 2013, section 82 of Act 43 of 2014, section 106 of Act 25 of 2015 and substituted by section 70 of Act 17 of 2017 effective on 1 January 2018 and applies in respect of years of assessment commencing on or after that date]

Paragraph 67D (Eighth Schedule) – Communications licence conversions

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67D.    Communications licence conversions

 

(1)     Where existing licences referred to in Chapter 15 of the Electronic Communications Act, 2005 (Act No. 36 of 2005), are converted to new licences in terms of section 93 of that Act, a licensee of an existing licence or licences is deemed to have disposed of the existing-

 

(a)     licence for an amount equal to the base cost of the licence; or

 

(b)     licences for an amount equal to the aggregate of the base cost of the licences,

 

on the date of the conversion.

 

(2)     The licensee of a new licence contemplated in subparagraph (1) –

 

(a)     is deemed to have acquired the new licence –

 

(i)      in the case where an existing licence is converted to a new licence, at a cost, recognised as such for the purposes of paragraph 20, equal to the expenditure incurred in respect of the existing licence;

 

(ii)     in the case where two or more existing licences are converted to a new licence, at a cost, recognised as such for the purposes of paragraph 20, equal to the aggregate of the expenditure incurred in respect of the existing licences; and

 

(iii)    in the case where an existing licence is converted to two or more new licences, at a cost, recognised as such for the purposes of paragraph 20, that bears to the expenditure incurred in respect of the existing licence the same ratio as the value of that new licence bears to the aggregate value of the new licences,

 

which cost must be treated as expenditure actually incurred by the licensee in respect of the new licence or licences for the purposes of paragraph 20; and

 

(b)     is deemed to have incurred the cost contemplated in item (a) on the day immediately after the conversion.

Paragraph 67C (Eighth Schedule) – Mineral rights conversions and renewals

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67C.    Mineral rights conversions and renewals

 

Notwithstanding paragraph 11, there is no disposal where-

 

(a)     any old order right or OP26 right as defined in Schedule II of the Mineral and Petroleum Resources Development Act wholly or partially continues in force or is wholly or partially converted into a new right pursuant to the same Schedule; or

 

(b)     any prospecting right, mining right, exploration right, production right, mining permit, retention permit or reconnaissance permit, as defined in section 1 of the Mineral and Petroleum Resources Development Act is wholly or partially renewed in terms of that Act,

 

and the continued, converted or renewed right or permit will be treated as one and the same asset as the right or permit before continuation, conversion or renewal for purposes of this Act.

Paragraph 66 (Eighth Schedule) – Reinvestment in replacement assets

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66.  Reinvestment in replacement assets

(1)     A person may elect that this paragraph applies in respect of the disposal of an asset, where-

(a)     that asset qualified for a deduction or allowance in terms of section 11(e), 11D(2), 12B, 12BA, 12C, 12DA, 12E, 14, 14bis or 37B;

[Item (a) substituted by section 67(1)(a) of Act 8 of 2007, by section 79(a) of Act 35 of 2007 and by section 43(1)(a) of Act 17 of 2023 effective on 1 March, 2023 and applicable in respect of assets brought into use on or after that date]

(b)     the proceeds received or accrued from that disposal are equal to or exceed the base cost of that asset;

(c)     an amount at least equal to the receipts and accruals from that disposal has been or will be expended to acquire one or more assets (hereinafter referred to as the “replacement asset or assets”), all of which will qualify for a capital deduction or allowance in terms of section 11(e), 11D(2), 12B, 12BA, 12C, 12DA, 12E or 37B;

[Item (c) substituted by section 67(1)(b) of Act 8 of 2007, by section 79(b) of Act 35 of 2007 and by section 43(1)(b) of Act 17 of 2023 effective on 1 March, 2023 and applicable in respect of assets brought into use on or after that date]

(d)     all the replacement assets constitute assets contemplated in section 9(2)(j) or (k);

[Item (d) substituted by section 125 of Act 22 of 2012 and section 78 of Act 15 of 2016 effective on 1 January 2012, applies in respect of disposals made during years of assessment commencing on or after that date]

(e)     the contracts for the acquisition of a replacement asset or assets are or will be concluded within 12 months after the asset contemplated in item (a) is disposed of and are all brought into use within three years after that disposal: Provided that the Commissioner may, on application by the taxpayer, decide to extend the period by which the contracts must be concluded or assets brought into use by no more than six months if all reasonable steps were taken to conclude those contracts or bring those assets into use; and

[Proviso substituted by section 120 of Act 25 of 2015 effective on 8 January 2016]

(f)      that asset is not deemed to have been disposed of and to have been reacquired by that person.

(2)     Where a person has elected in terms of subparagraph (1) that this paragraph must apply in respect of the disposal of an asset, any capital gain determined in respect of that disposal must, subject to subparagraphs (4), (5), (6) and (7), be disregarded when determining that person’s aggregate capital gain or aggregate capital loss.

(3)     Where a person acquires more than one replacement asset as contemplated in subparagraph (1), that person must, in applying subparagraphs (4), (5) and (6), apportion the capital gain derived from the disposal of that asset to each replacement asset in the same ratio as the receipts and accruals from that disposal respectively expended in acquiring each of those replacement assets bear to the total amount of those receipts and accruals expended in acquiring all those replacement assets.

(4)     A person must treat as a capital gain for a year of assessment so much of the disregarded capital gain contemplated in subparagraph (2), as bears to the total amount of that disregarded capital gain apportioned to that replacement asset as contemplated in subparagraph (3) the same ratio as the amount of any deduction or allowance allowed in that year in terms of section 11(e), 11D(2), 12B, 12BA, 12C, 12DA, 12E or 37B in respect of the replacement asset bears to the total amount of the deduction or allowance in terms of that section (determined with reference to the cost of value of that asset at the time of acquisition thereof) which is allowable for all years of assessment in respect of that replacement asset.

[Subparagraph (4) substituted by section 67(1)(c) of Act 8 of 2007, by section 79(c) of Act 35 of 2007 and by section 43(1)(c) of Act 17 of 2023 effective on 1 March, 2023 and applicable in respect of assets brought into use on or after that date]

(5)     Where a person during any year of assessment disposes of a replacement asset and any portion of the disregarded capital gain which is apportioned to that asset as contemplated in subparagraph (3), has not been treated as a capital gain in terms of subparagraph (4) or (6), that person must treat that portion of disregarded capital gain as a capital gain from the disposal of that replacement asset in that year of assessment.

(6)     Where during any year of assessment a person ceases to use a replacement asset for the purposes of that person’s trade and any portion of the disregarded capital gain which is apportioned to that asset as contemplated in subparagraph (3), has not been treated as a capital gain in terms of subparagraph (4) or (5), that person must treat that portion of disregarded capital gain as a capital gain for that year of assessment.

(7)     Where a person fails to conclude a contract or to bring any replacement asset into use within the period prescribed in subparagraph (1)(e), subparagraph (2) shall not apply and that person must-

(a)     treat the capital gain contemplated in subparagraph (2) as a capital gain on the date that the relevant period ends;

(b)     determine interest at the prescribed rate on that capital gain from the date of that disposal to the date contemplated in item (a); and

(c)     treat that interest as a capital gain on the date contemplated in item (a) when determining that person’s aggregate capital gain or aggregate capital loss.

Paragraph 65B (Eighth Schedule) – Disposal by recreational club

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65B.    Disposal by recreational club

 

(1)     A recreational club approved in terms of section 30A may elect that this paragraph applies in respect of the disposal of an asset the whole of which was used mainly for purposes of providing social and recreational facilities and amenities for members of that club, where –

 

(a)     proceeds accrue to that club in respect of that disposal;


(b)     those proceeds are equal to or exceed the base cost of that asset;


(c)


(i)      an amount at least equal to the receipts and accruals from that disposal has been or will be expended to acquire one or more replacement assets all of which will be used mainly for such purposes;

 

(ii)     the contracts for the acquisition of the replacement asset or assets have all been or will be concluded within 12 months after the date of the disposal of that asset; and

 

(iii)    the replacement asset or assets will all be brought into use within three years of the disposal of that asset:
Provided that the Commissioner may extend the period within which the contract must be concluded or asset brought into use by no more than six months if all reasonable steps were taken to conclude those contracts or bring those assets into use; and

 

(d)     that asset is not deemed to have been disposed of and to have been reacquired by that club.

 

(2)     Where a club has elected in terms of subparagraph (1) that this paragraph must apply in respect of the disposal of an asset, any capital gain determined in respect of that disposal must, subject to subparagraphs (3), (4) and (5) be disregarded when determining that club’s aggregate capital gain or aggregate capital loss.

 

(3)     Where a club acquires more than one replacement asset as contemplated in subparagraph (1), that club must, in applying subparagraphs (4) and (5), apportion the capital gain derived from the disposal of that asset to each replacement asset in the same ratio as the receipts and accruals from that disposal respectively expended in acquiring each of those replacement assets bear to the total amount of those receipts and accruals expended in acquiring all those replacement assets.

 

(4)     Where a club during any year of assessment disposes of a replacement asset and any portion of the disregarded capital gain which is apportioned to that asset, has not otherwise been treated as a capital gain in terms of this paragraph, that club must treat that portion of disregarded capital gain as a capital gain from the disposal of that replacement asset in that year of assessment.

 

(5)     Where a club fails to conclude a contract or fails to bring any replacement asset into use within the period prescribed in subparagraph (1)(c)(ii) and (iii), that club must –

 

(a)     treat the capital gain contemplated in subparagraph (2) as a capital gain on the date on which the relevant period ends;


(b)     determine interest at the prescribed rate on that capital gain from the date of that disposal to the date contemplated in item (a); and


(c)     treat that interest as a capital gain on the date contemplated in item (a) when determining that club’s aggregate capital gain or aggregate capital loss.

Paragraph 65 (Eighth Schedule) – Involuntary disposal

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65.     Involuntary disposal

(1)     A person may elect that this paragraph applies in respect of the disposal of an asset (other than a financial instrument), where-

(a)     that asset is disposed of by way of operation of law, theft or destruction;

(b)     proceeds accrue to that person by way of compensation in respect of that disposal;

(c)     those proceeds are equal to or exceed the base cost of that asset;

(d)

 

(i)      an amount at least equal to the receipts and accruals from that disposal has been or will be expended to acquire one or more asset (hereinafter referred to as the ‘replacement asset or assets’);

(ii)     all the replacement assets constitute assets contemplated in section 9(2)(j) or (k);

[Subitem (ii) substituted by section 124(1)(a) of Act 22 of 2012, section 124(1)(b) of Act 22 of 2012 and section 119 of Act 25 of 2015 effective on 1 January 2012]

(iii)    the contracts for the acquisition of the replacement asset or assets have all been or will be concluded within 12 months after the date of the disposal of that asset; and

(iv)    the replacement asset or assets will all be brought into use within three years of the disposal of that asset: Provided that the Commissioner may, on application by the taxpayer, decice to extend the period within which the contract must be concluded or asset brought into use by no more than six months if all reasonable steps were taken to conclude those contracts or bring those assets into use; and

[Proviso substituted by section 119 of Act 25 of 2015 effective on 8 January 2016]

(e)     that asset is not deemed to have been disposed of and to have been reacquired by that person.

(2)     Where a person has elected in terms of subparagraph (1) that this paragraph must apply in respect of the disposal of an asset, any capital gain determined in respect of that disposal must, subject to subparagraphs (4), (5) and (6) be disregarded when determining that person’s aggregate capital gain or aggregate capital loss.

(3)     Where a person acquires more than one replacement asset as contemplated in subparagraph (1), that person must, in applying subparagraphs (4) and (5), apportion the capital gain derived from the disposal of that asset to each replacement asset in the same ratio as the receipts and accruals from that disposal respectively expended in acquiring each of those replacement assets bear to the total amount of those receipts and accruals expended in acquiring all those replacement assets.

(4)     Where a replacement asset contemplated in subparagraph (1) constitutes a depreciable asset, the person must treat as a capital gain for a year of assessment, so much of the disregarded capital gain contemplated in subparagraph (3), as bears to the total amount of that disregarded gain apportioned to that replacement asset as contemplated in subparagraph (3) the same ratio as the amount of any deduction or allowance allowed in that year in respect of the replacement asset bears to the total amount of the deduction or allowance (determined with reference to the cost or value of that asset at the time of acquisition thereof) which is allowable for all years of assessment in respect of that replacement asset.

 

(5)     Where a person during any year of assessment disposes of a replacement asset and any portion of the disregarded capital gain which is apportioned to that asset, has not otherwise been treated as a capital gain in terms of this paragraph, that person must treat that portion of disregarded capital gain as a capital gain from the disposal of that replacement asset in that year of assessment.

(6)     Where a person fails to conclude a contract or fails to bring any replacement asset into use within the period prescribed in subparagraph (1)(d)(iii) or (iv), subparagraph (2) shall not apply and that person must-

(a)     treat the capital gain contemplated in subparagraph (2) as a capital gain on the date on which the relevant period ends;

(b)     determine interest at the prescribed rate on that capital gain from the date of that disposal to the date contemplated in item (a); and

(c)     treat that interest as a capital gain on the date contemplated in item (a) when determining that person’s aggregate capital gain or aggregate capital loss.

(7)     Where a replacement asset or assets constitute personal use assets, the provisions of this paragraph shall not apply.