SA Income Tax Guide - Unknown

Table of Contents
Book value
Book
Part disposals
2019/2020
SOUTH AFRICAN
INCOME TAX
GUIDE
2019/2020
SOUTH AFRICAN
INCOME TAX
GUIDE
ML STEIN
C DIVARIS
Members of the LexisNexis Group worldwide
South Africa
South Africa
LexisNexis (Pty) Ltd
www.lexisnexis.co.za
DURBAN 215 Peter Mokaba Road (North Ridge Road), Morningside, Durban, 4001
JOHANNESBURG
Building 8, Country Club Estate Office Park, 21 Woodlands Drive, Woodmead, 2191
CAPE TOWN
First Floor, Great Westerford, 240 Main Road, Rondebosch, 7700
Australia
Australia LexisNexis,
CHATSWOOD, New South Wales
Austria
Austria
LexisNexis Verlag ARD Orac, VIENNA
Benelux
LexisNexis Benelux, AMSTERDAM
Canada
Canada
LexisNexis Canada, MARKHAM, Ontario
China LexisNexis,
BEIJING
France
France LexisNexis,
PARIS
Germany LexisNexis
Germany,
MÜ NSTER
Hong Kong
LexisNexis, HONG KONG
India
India LexisNexis,
NEW DELHI
Italy
Italy Giuffrè
Editore,
MILAN
Japan LexisNexis,
TOKYO
Korea LexisNexis,
SEOUL
Malaysia
Malaysia LexisNexis,
KUALA LUMPUR
New Zealand
New Zealand
LexisNexis, WELLINGTON
Poland
Poland
LexisNexis Poland, WARSAW
Singapore
ore LexisNexis,
SINGAPORE
United Kingdom
United Kingdom
LexisNexis, LONDON
United States
LexisNexis, DAYTON, Ohio

© 2020
Print ISBN: 978 0 639 01020 5
eBook ISBN: 978 0 639 01021 2
Copyright subsists in this work. No part of this work may be reproduced in any form or by any means
without the publisher’s written permission. Any unauthorised reproduction of this work will constitute
a copyright infringe-ment and render the doer liable under both civil and criminal law.
Whilst every effort has been made to ensure that the information published in this work is accurate, the
editors, publishers and printers take no responsibility for any loss or damage suffered by any person as
a result of the reliance upon the information contained therein.
Editor: Angela Rowe
Technical Editor: Yagan Naidoo
About this book
This book was completely revised several years ago, from cover to cover, in order to make sure that,
more than ever before, it can serve you as a reliable guide or even introduction to the whole of the South
African income tax law. Nothing significant is left out, yet everything is expressed in the simplest manner
consistent with accuracy. All the vital detail is here, except when it is crushingly overwhelming, when
you will be warned that there is more of interest to the super-specialist.
You can use it as a complete tax novice, as a student of the tax law, or as an experienced practitioner. It
can help you look up the tax consequences of a particular situation or transaction and in your jobs in
business and the professions. Even if you are a tax professional, you can use it to refresh your knowledge
or gain a quick overview, and then use the references provided in every section to consult the actual
terms of the law, which is always a good idea.
There is also an entire chapter devoted to the capital gains tax, which is central to the working of the
entire tax system. And also dealt with is the Employment Tax Incentive Act 26 of 2013.
All the taxes imposed by the Income Tax Act are dealt with; income tax, capital gains tax, donations tax,
the withholding tax on dividends, the withholding tax on payments to non-resident sellers of immovable
property, the withholding tax on payments to foreign entertainers and sportspersons and the
withholding taxes on interest and royalties, the turnover tax for micro businesses, employees’ tax
(PAYE) and provisional tax. There is also an introductory chapter to the estate duty. There are also very
useful indices to defined terms and sections and other statutory provisions dealt with in the book.
Since the promulgation of the Tax Administration Act 28 of 2011 on 1 October 2012, the administrative
matters previously dealt with in the Income Tax Act are now dealt with in that Act. These matters are no
longer dealt with in this book, which should be used, where applicable, in conjunction with that Act.
Remember that this book merely tells you what the law says, without the interpretation and practical
application you would gain from a professional adviser. If you have a practical problem meriting
professional attention, be sure to consult your adviser.
Due to the volume of changes to the law and the proliferation of a variety of effective dates, it has been
necessary in some places to mention the effective dates of changes and impending changes to the law.
It is based on the tax Acts passed by Parliament and gazetted on 15 January 2020, that is, the Rates and
Monetary Amounts and Amendment of Revenue Laws Act 32 of 2019, the Tax Administration Laws
Amendment Act 33 of 2019 and the Taxation Laws Amendment Act 34 of 2019. In relation to
individuals, it covers the years of assessment ending 29 February 2020, and, in relation to companies,
years of assessment ending during the twelve-month period ending on 31 March 2020.
Important changes
Some of the more important changes that have been made either to the tax law or to the text of this book
since its last edition and are reflected in this edition include:
• Tax rates for natural persons and the estates of deceased or insolvent persons adjusted.
• Primary, secondary and tertiary rebates for natural persons increased.
• Some changes affecting the tax treatment of variable remuneration.
• Amendments affecting the deduction of interest repaid to SARS.
• Some changes affecting the tax treatment of travelling allowances.
• The tax treatment of the conversion to trading stock of an asset previously not held as trading stock.
• An amendment to the definition of a ‘broad-based employee share plan’.
• Amendments to the provisions deeming certain dividends to be income and deeming dividends on
third-party backed shares to be income.
• Some changes affecting controlled foreign companies.
• Amendments to the doubtful debts allowance.
• Some amendments affecting the deduction of expenditure incurred in exchange for the issue of venture
capital company shares.
• The repeal of the exemption of certified emission reductions.
• The extension of the deduction for energy efficiency savings.
• Amendments affecting special economic zones.
• An amendment affecting the valuation of trading stock.

• Amendments affecting the provision treating dividends as income on the disposal of certain shares.
• A change affecting the deduction for certain intellectual property.
• Amendments affecting the taxation of gains or losses on foreign exchange transactions.
• Some amendments to the provision dealing with the taxation of long-term insurers.
• Changes affecting public benefit organisations and recreational clubs.
• Some amendments affecting the taxation of international transactions.
• Amendments to the provision dealing with the acquisition of assets in exchange for the issue of shares
or debt.
• Some amendments affecting corporate restructuring transactions.
• An amendment affecting farmers.
• More changes affecting retirement funds.
• Some amendments affecting short-term insurers.
• Various amendments affecting the taxation of dividends.
• Amendments to the provision deeming the interest on certain debts to be incurred in the production of
income.
vii
viii IMPORTANT CHANGES
• Amendments affecting the taxation of REITS.
• Amendments to the provisions dealing with PAYE and provisional tax.
• Numerous amendments to the capital gains tax.

Contents
Page
About this book ................................................................................................................................ v Important

changes .......................................................................................................................... vii Defined
terms .................................................................................................................................. xxi Table of
Sections ......................................................................................................................... xxxvii 1 Basic principles of income
tax
1.1 Who is liable to tax? ........................................................................................................... 1
1.2 What taxes are payable? ................................................................................................... 3
1.3 What is taxable? ................................................................................................................. 4
1.4 Taxable incomes that are free of tax ................................................................................. 5
1.5 Capital vs income .............................................................................................................. 5
1.6
Tax-free
income
................................................................................................................. 6
2 How to calculate your taxes
2.1 The year of assessment ..................................................................................................... 7
2.2 Period of assessment less than a year .............................................................................. 7
2.3 Calculating your taxable income ....................................................................................... 7
2.4 Tax-free portion of purchased annuities ............................................................................ 7
2.5 Tax credits for medical scheme contributions and qualifying medical expenses ............ 8
2.6 The tax tables and rebates ................................................................................................ 11
2.7 Table of tax – natural persons, deceased or insolvent estates and special trusts ........... 11
2.8 Your rebates at a glance .................................................................................................... 12
2.9
Primary
rebate
.................................................................................................................... 12
2.10 Persons 65 or over – secondary rebate ............................................................................. 12
2.11 Persons 75 or over – tertiary rebate ................................................................................... 12
2.12 Rebates – period of assessment less than a year ............................................................. 12
2.13 Example
rebates
............................................................................................................. 12
2.14 Example
rebates
............................................................................................................. 13
2.15 Example – how to calculate tax liability ............................................................................. 13
2.16 Example – how to calculate tax liability ............................................................................. 13
2.17 Tax liability and marginal and average rates ..................................................................... 13
ix
x CONTENTS
Page
3 Husband and wife

3.1
When
you
marry
................................................................................................................. 14
3.2 A spouse’s income ............................................................................................................. 14
3.3 Income treated as being a spouse’s ................................................................................. 15
3.4 Husband and wife as provisional taxpayers ...................................................................... 16
3.5 The income of your children .............................................................................................. 16
3.6
Example
child’s
income
included with parent’s .............................................................. 17
3.7 Death of husband or wife ................................................................................................... 17
3.8 Example – death during the year ....................................................................................... 18
3.9 Transfer of asset between spouses ................................................................................... 18
4 Divorced and separated persons
4.1 Divorce or separation ......................................................................................................... 19
4.2 Alimony and maintenance payments ................................................................................ 19

4.3
Pension
payments
.............................................................................................................. 20
5 Income from employment
5.1 Amounts included in your income ..................................................................................... 21
5.2 Broad-based employee share plans ................................................................................. 22
5.3 Equity instruments vesting ................................................................................................. 24
5.4
Fringe
benefits
................................................................................................................... 27
5.5 Gratuity to members of citizen force or commandos ........................................................ 44
5.6 Lump sums, pensions and annuities from employment .................................................... 44
5.7 Public-sector funds – transfer’ or ‘conversion’ benefits ..................................................... 45
5.8 Retrospective increases of salary or pension .................................................................... 46
5.9
Restraint-of-trade
payments
.............................................................................................. 46
5.10 Rights to acquire marketable securities ............................................................................ 47
5.11 Services outside South Africa – public service ................................................................. 48
5.12 Services outside South Africa – other service ................................................................... 49

5.13 Severance
benefits
............................................................................................................ 49
5.14 Social
security
benefits
...................................................................................................... 50
5.15 Tax-free income from employment .................................................................................... 50
5.16 Tax-free amounts derived under share-incentive schemes .............................................. 51
5.17 Tax-free bursaries and scholarships ................................................................................. 51
5.18 Tax-free equity instruments ................................................................................................ 52
5.19 Tax-free equity shares (broad-based plan) ....................................................................... 52
5.20 Tax-free pensions and compensation ............................................................................... 52
5.21 Tax-free relocation benefits ............................................................................................... 52
5.22 Tax-free retirement gratuities in the public service ........................................................... 53
5.23 Tax-free uniforms and allowances for uniforms ................................................................. 53
5.24 Tax-free war pensions and compensation for mining diseases ........................................ 53
CONTENTS xi
Page
5.25 Allowances or advances .................................................................................................... 53
5.26 Allowances to holders of public office ............................................................................... 54
5.27 Subsistence
allowances
.................................................................................................... 55
5.28 Travelling and motoring allowances .................................................................................. 56
5.29 Reimbursive
payments
...................................................................................................... 59
5.30 Deductions of contributions to approved funds ................................................................ 60
5.31 Deduction of amounts refunded ........................................................................................ 60
5.32 Deduction of travelling expenses ...................................................................................... 60
5.33 Variable
remuneration
........................................................................................................ 61
5.34 Deductions you may not claim........................................................................................... 62
5.35 Employment Tax Incentive Act .......................................................................................... 62
6 Membership of approved funds
6.1 Contributions to qualifying retirement funds ...................................................................... 66
6.2
Deduction
of
contributions
................................................................................................. 66
6.3 Lump-sum benefits – definitions ........................................................................................ 67
6.4 Lump-sum benefits – general rules ................................................................................... 70
6.5 Deductions – retirement and death benefits ..................................................................... 74
6.6 Deductions – withdrawal, resignation, winding-up and transfer benefits .......................... 74
6.7 Tax rates – withdrawal benefits .......................................................................................... 77
6.8 Tax rates – retirement and death benefits ......................................................................... 77

6.9 Tax rates – severance benefits .......................................................................................... 78
6.10 Pensions and annuities from funds .................................................................................... 79
6.11 Exemption for annuities from funds ................................................................................... 79
7 Income from interest
7.1 Interest included in your income ....................................................................................... 80
7.2 Investment income exemption ........................................................................................... 80
7.3 The deductions you may claim .......................................................................................... 81
7.4
Tax-free
interest
................................................................................................................. 81
7.5 Hybrid equity instruments and debt instruments ............................................................... 82
7.6 Third-party backed shares ................................................................................................. 86
7.7 Interest treated as dividends ............................................................................................. 88
7.8 Special timing and valuation rules for interest ................................................................... 88
7.9 Special timing and valuation rules for interest rate agreements and option contracts ..... 89
7.10 Sharia-compliant financing arrangements ......................................................................... 90
7.11 Example
Sharia-compliant financing arrangements ....................................................... 92
7.12 Calculation of interest ........................................................................................................ 92
7.13 Interest payable to SARS ................................................................................................... 93

xii CONTENTS
Page
8 Income from letting property
8.1 Taxable income from letting property ................................................................................ 94
8.2 Amounts included in your income ..................................................................................... 94
8.3 Deductions you may claim ................................................................................................. 95
8.4 Leased property – lessor’s limitation ................................................................................. 98
8.5
Lease-backs
...................................................................................................................... 99
9 Income from dividends
9.1 How dividends are taxed ................................................................................................... 101
9.2 Dividends as income and interest as dividends ................................................................ 103
9.3 What is a ‘dividend’ for tax purposes? ............................................................................... 106
9.4
Foreign
dividends
.............................................................................................................. 108
9.5
Dividends
tax
..................................................................................................................... 111
10 Income from business and professions
10.1 Business and professional income .................................................................................... 118
10.2 Foreign
income
.................................................................................................................. 119
10.3 Disposal of assets similar to trading stock ........................................................................ 119
10.4 Exchange
of
assets
............................................................................................................ 120
10.5 Improvements made and premiums paid by a lessee ...................................................... 121
10.6 Insurance policies on the lives of employees .................................................................... 121
10.7 Recoupment
....................................................................................................................... 121
10.8 Reduction, concession or compromise of debts as recoupment… .................................. 126
10.9 Recoupments of lease payments ...................................................................................... 128
10.10 Royalties and ‘know-how’ payments .................................................................................. 130
10.11 Subsidies and reimbursements from the state and development assistance ................... 130
10.12 Exempt amounts received from industrial training fund .................................................... 130
10.13 Exempt government grants ................................................................................................ 131
10.14 Deductions from income .................................................................................................... 133
10.15 Airport and port assets ...................................................................................................... 137
10.16 Annuities to former employees and partners and their dependants ................................. 138
10.17 Books ................................................................................................................................. 138
10.18 Buildings – annual allowance ............................................................................................ 138
10.19 Buildings – commercial buildings ...................................................................................... 139
10.20 Buildings – low-cost residential units sold to employees on loan account ....................... 140
10.21 Buildings – residential units: initial and annual allowances ............................................... 141
10.22 Buildings – urban development zones .............................................................................. 142

10.23 Compensation for railway operating losses ....................................................................... 146
CONTENTS xiii
Page
10.24 Debtors – allowance for instalment sales .......................................................................... 146
10.25 Debtors – bad debts .......................................................................................................... 147
10.26 Debtors – doubtful debts allowance .................................................................................. 147
10.27 Depreciation (wear-and-tear) allowance ........................................................................... 148
10.28 Depreciation – usual rates ................................................................................................. 150
10.29 Donations to qualifying institutions .................................................................................... 154
10.30 Entertainment expenses .................................................................................................... 154
10.31 Environmental matters ....................................................................................................... 155
10.32 Future expenditure on contracts ........................................................................................ 158
10.33 Industrial policy projects and special economic zones .................................................... 158
10.34 Insurance policy premiums ................................................................................................ 163
10.35 Intellectual property – development and acquisition ......................................................... 164
10.36 Intellectual property – renewals ......................................................................................... 164
10.37 Intellectual property – prohibited deductions .................................................................... 165
10.38 Interest paid ....................................................................................................................... 166
10.39 Investment policies ............................................................................................................ 169
10.40 Learnership agreements .................................................................................................... 170
10.41 Leased property – improvements ...................................................................................... 171
10.42 Leased property – premiums paid..................................................................................... 173
10.43 Leave pay .......................................................................................................................... 173
10.44 Legal expenses .................................................................................................................. 174
10.45 Licensed activities ............................................................................................................. 174
10.46 Medical, dental and disability expenses ........................................................................... 174
10.47 Medical lump-sum payments ............................................................................................. 174

10.48 Pipelines, transmission lines and railway lines .................................................................. 175
10.49 Private home used for business purposes ........................................................................ 176
10.50 Professional courses .......................................................................................................... 177
10.51 Qualifying equity shares granted ....................................................................................... 177
10.52 Repairs ............................................................................................................................... 177
10.53 Research and development ............................................................................................... 178
10.54 Restraint payments ............................................................................................................ 181
10.55 Retirement annuity fund contributions ............................................................................... 181
10.56 Retirement funds – contributions by employers ................................................................ 181
10.57 Rolling stock ....................................................................................................................... 182
10.58 Scrapping (termination) allowance .................................................................................... 182
10.59 Security expenditure at ‘Key Points’ .................................................................................. 183
10.60 Small business corporations allowances ........................................................................... 184
10.61 Soil-erosion works .............................................................................................................. 184
10.62 Sporting bodies’ expenditure ............................................................................................. 184
10.63 Straight-line depreciation allowance ................................................................................. 184
xiv CONTENTS
Page
10.64 Small business funding entities ......................................................................................... 187
10.65 Subscriptions ..................................................................................................................... 187
10.66 Trading stock ..................................................................................................................... 188
10.67 Travelling expenses ........................................................................................................... 192
10.68 Improvements to government-occupied property ............................................................. 193
10.69 ‘50/30/20’ depreciation ...................................................................................................... 193
10.70 Venture capital companies..................................................................... ........................... 195
10.71 Assessed losses ................................................................................................................ 198
10.72 Ring-fenced assessed losses ............................................................................................ 200

10.73 Communications licence conversions ............................................................................... 201
10.74 Currency-conversion rules ................................................................................................. 202
10.75 Foreign exchange gains and losses on exchange items .................................................. 203
10.76 Taxation of financial assets and liabilities of certain persons ............................................ 209
10.77 Interest deemed incurred in production of income ........................................................... 211
10.78 Hobbies .............................................................................................................................. 212
10.79 Prohibited deductions ........................................................................................................ 213
10.80 Limitation of deductions for re-organisation and acquisition transactions ........................ 214
10.81 Example – adjustment of business net profits to determine taxable income .................... 218
11 Income from estates and trusts
11.1 Estates of deceased persons ............................................................................................ 220
11.2 How a deceased estate is taxed ....................................................................................... 223
11.3 Insolvent
estates
................................................................................................................ 223
11.4 Trusts
................................................................................................................................. 224
11.5 Trusts – income of trust and beneficiaries ......................................................................... 224
11.6 Trusts – capital distributions by non-resident trusts .......................................................... 226
11.7 Trusts – diversion of income .............................................................................................. 227
11.8 Trusts – special trusts ........................................................................................................ 230
11.9 Trusts – how a trust is taxed .............................................................................................. 230
11.10 Income from an estate or a trust ........................................................................................ 230
11.11 Trusts – loans by connected persons………………………………………………………. ... 231
12 Income from farming
12.1 Income
from
farming
.......................................................................................................... 233
12.2 Items included in farming income ..................................................................................... 233

12.3 Deductions from farming income ...................................................................................... 234
12.4 Expenditure on development and improvements .............................................................. 236
12.5 Amounts paid to or received from co-operatives .............................................................. 237
CONTENTS xv
Page
12.6 Valuation of livestock and produce ................................................................................... 238
12.7 Averaging of taxable income from farming ....................................................................... 240
12.8 Game
farming
.................................................................................................................... 241
12.9 Drought, disease, damage to grazing and stock-reductions ............................................ 241
12.10 Sugar-cane fields damaged by fire ................................................................................... 242
12.11 Averaging of plantation income ......................................................................................... 242
12.12 Sale of land to the state and other bodies ......................................................................... 243
12.13 Donations to children ......................................................................................................... 244
12.14 Donations of farming property ........................................................................................... 244
12.15 Example – calculation of taxable income from farming ..................................................... 245
13 Partnerships
13.1 How partners are taxed ..................................................................................................... 248
13.2 Limited
partners
................................................................................................................. 249
13.3 Example – calculation of partner’s taxable income ........................................................... 250
13.4 Dissolution of a partnership ............................................................................................... 251
13.5 Foreign
partnerships
.......................................................................................................... 251
14 Companies
14.1 The taxation of companies ................................................................................................. 252
14.2 Period
of
assessment
......................................................................................................... 253
14.3 Taxable income of a company........................................................................................... 253
14.4 Assessed
losses
................................................................................................................ 253
14.5 Corporate rates of tax ........................................................................................................ 253
14.6 Example – calculation of taxes payable by a company .................................................... 254
14.7 Public and private companies ........................................................................................... 254
14.8 Dividends
........................................................................................................................... 255
14.9 Companies in liquidation ................................................................................................... 255
14.10 Close corporations ............................................................................................................. 255
14.11 Secondary tax on companies ............................................................................................ 256
15 International taxation issues
15.1 Direct foreign income of residents ..................................................................................... 257
15.2 Indirect foreign income of residents .................................................................................. 257
15.3 Diverted foreign income of residents ................................................................................. 264
15.4 Rebate or deduction for foreign income taxes paid by residents ..................................... 264
15.5 Rebate for foreign income taxes paid on income from
South
African
source
.......................................................................................................... 267
15.6 Non-residents – South African income .............................................................................. 267

15.7 Source of income ............................................................................................................... 268
15.8 Change of residence or becoming a headquarter company ............................................ 269
xvi CONTENTS
Page
15.9 Headquarter
companies
.................................................................................................... 271
15.10 Non-residents – banks operating in South Africa .............................................................. 271
15.11 Non-residents – branches of foreign companies .............................................................. 271
15.12 Non-residents – foreign officials employed in South Africa ............................................... 271
15.13 Non-residents – governmental salaries and pensions ...................................................... 271
15.14 Non-residents – tax-free interest ........................................................................................ 272
15.15 Non-residents – temporary work in South Africa ............................................................... 272
15.16 Non-residents – withholding tax on royalties and similar payments .................................. 272
15.17 Non-residents – withholding tax on payments for immovable property ............................ 274
15.18 Foreign entertainers and sportspersons ............................................................................ 276
15.19 Non-residents – withholding tax on interest ....................................................................... 277
15.20 Non-residents – withholding tax on dividends ................................................................... 280
15.21 Immigrants to South Africa ................................................................................................. 280
15.22 Emigrants from South Africa .............................................................................................. 280
16 Special classes of taxpayers
16.1 Aircraft
owners
................................................................................................................... 282
16.2 Approved institutions, boards and bodies and associations,
corporations and companies ............................................................................................. 282
16.3 Business
entities
................................................................................................................ 283
16.4 Body corporates, share block companies and similar associations ................................. 285
16.5 Business,
professional
and
occupational associations ..................................................... 286
16.6 Clubs
.................................................................................................................................. 288
16.7 Collective
investment
schemes
.........................................................................................
288
16.8 Co-operative
societies
....................................................................................................... 289
16.9 Exempt bodies, associations and persons ........................................................................ 291
16.10 Film owners – exemption/deduction .................................................................................. 293
16.10A Government grants ............................................................................................................ 295
16.11 Hotelkeepers ...................................................................................................................... 297
16.12 Industrial and commercial beneficiaries of incentives ...................................................... 298
16.13 Insurers – long-term ........................................................................................................... 299
16.14 Insurers – short-term .......................................................................................................... 304
16.15 Micro businesses ............................................................................................................... 305
16.16 Mining companies – diamonds .......................................................................................... 309
16.17 Mining companies – gold and uranium ............................................................................. 310
16.18 Mining companies – natural oil .......................................................................................... 310
16.19 Mining companies – other .................................................................................................. 310
16.20 Mining operators – capital expenditure ............................................................................. 310

16.21 Mining operators – capital expenditure on sale of mining property .................................. 314
16.22 Mining operators – excess recoupments .......................................................................... 315
CONTENTS xvii
Page
16.23 Mining rehabilitation bodies ............................................................................................... 315
16.24 Mining operators – oil and gas companies ....................................................................... 317
16.25 Mining operators – royalties or compensation ................................................................... 320
16.26 Prospecting ........................................................................................................................ 320
16.27 Public benefit organizations ............................................................................................... 321
16.28 Public Private Partnerships ................................................................................................ 324
16.29 Recreational clubs ............................................................................................................. 325
16.30 REITs .................................................................................................................................. 327
16.31 Share-dealers ..................................................................................................................... 330
16.32 Ship-owners ....................................................................................................................... 332
16.33 Small business corporations .............................................................................................. 333
16.34 Township developers ......................................................................................................... 336
16.35 Example – township developers ........................................................................................ 337
16.36 Toll-road operators ............................................................................................................. 338
16.37 Headquarter companies .................................................................................................... 339
17 Employees’ and provisional tax
17.1 The pay-as-you-earn system (PAYE) ................................................................................. 343
17.2 Employees’
tax
................................................................................................................... 343
17.3 Amounts included in remuneration .................................................................................... 344
17.4 When employees’ tax is not deductible ............................................................................. 346
17.5 Employees, labour brokers and personal service providers ............................................. 347
17.6 Directors of companies ...................................................................................................... 349
17.7 Registration by employers ................................................................................................. 349
17.8 Directives
........................................................................................................................... 349
17.9 Tax certificates and underpayments and overpayments of employees’ tax ..................... 351
17.10 Payment, interest and penalties......................................................................................... 351
17.11 Provisional tax .................................................................................................................... 352
17.12 Who are provisional taxpayers? ......................................................................................... 352
17.13 When provisional tax falls due ........................................................................................... 353
17.14 Estimates of taxable income .............................................................................................. 355
17.15 Underpayments and overpayments of provisional tax ...................................................... 358
17.16 Penalties ............................................................................................................................. 358
18 General provisions
18.1 Registration as a taxpayer ................................................................................................. 359
18.2 Returns of income .............................................................................................................. 359
18.3 Other returns and reportable arrangements ...................................................................... 360
18.4 Assessments
...................................................................................................................... 360
xviii CONTENTS
Page
18.5 Payment of tax, interest and penalties ............................................................................... 360
18.6 Objection and appeal ........................................................................................................ 362
18.7 Refunds of tax overpaid ..................................................................................................... 362
18.8 Tax evasion and tax avoidance ......................................................................................... 362
18.9 International
transactions
................................................................................................... 366
18.10 Double taxation agreements .............................................................................................. 368
18.11 Secrecy .............................................................................................................................. 369
18.12 Powers of the Commissioner and Minister ........................................................................ 369
19 Deductible donations and donations tax
19.1 Deductible
donations
......................................................................................................... 371
19.2 What is donations tax? ....................................................................................................... 376
19.3 Exempt
maintenance
......................................................................................................... 377
19.4 Annual R100 000 exemption .............................................................................................. 377
19.5 Exempt casual gifts ............................................................................................................ 378
19.6 Other
exempt
donations
.................................................................................................... 378
19.7 Value
of
donations
............................................................................................................. 379
19.8 Payment and administration of donations tax .................................................................... 380
20 Estate duty
20.1 Determining estate duty liability ......................................................................................... 381
20.2 Total value of estate ........................................................................................................... 381
20.3 Net value of estate ............................................................................................................. 382
20.4 Dutiable amount of estate .................................................................................................. 383
20.5 Rate of estate duty ............................................................................................................. 383
20.6 Example – calculation of estate duty ................................................................................. 384
20.7 Rebate in the event of successive deaths ......................................................................... 384

20.8 Marriage in community of property .................................................................................... 384
20.9 Your
spouse
....................................................................................................................... 384
20.10 Recovery of estate duty ..................................................................................................... 385
20.11 Non-residents ..................................................................................................................... 385
20.12 Foreign assets: special exemption .................................................................................... 385
20.13 Agreements to avoid double death duties ........................................................................ 385
21 Capital gains tax
21.1 Capital
gains
tax
................................................................................................................ 386
21.2 Liability for tax on capital gains ......................................................................................... 386
21.3 Determination of taxable capital gains .............................................................................. 387
21.4 Meaning of ‘proceeds’ ....................................................................................................... 389
21.5 Base
cost
........................................................................................................................... 391
21.6 Market value of assets on 1 October 2001 ........................................................................ 397
21.7 Time-apportionment base cost .......................................................................................... 400
21.8 Market value of assets other than on 1 October 2001 ....................................................... 403
21.9 Disposals
........................................................................................................................... 407
CONTENTS xix
Page
21.10 Deemed disposals ............................................................................................................. 408

21.11 Time of disposal ................................................................................................................. 412
21.12 Disregarded gains and losses and special rollovers ........................................................ 414
21.13 Primary residence .............................................................................................................. 421
21.14 Trusts ................................................................................................................................. 423
21.15 Death of a taxpayer ............................................................................................................ 425
21.16 Insolvent estates ................................................................................................................ 426
21.17 Donations and disposals not at arm’s length .................................................................... 427
21.18 Capital losses on disposals to connected persons ........................................................... 427
21.19 Transfer of assets to a spouse ........................................................................................... 428
21.20 Attribution of capital gains ................................................................................................. 428
21.21 Reacquired financial instruments ...................................................................................... 430
21.22 Value-shifting arrangements .............................................................................................. 431
21.23 Disposal of shares in company or interest in trust ............................................................. 431
21.24 Deferment of tax on involuntary disposals ......................................................................... 432
21.25 Reinvestments in similar assets ......................................................................................... 433
21.26 Disposal of small business assets ..................................................................................... 434
21.27 Dividend stripping .............................................................................................................. 435
21.28 Distribution of assets to shareholders ............................................................................... 436
21.29 Matching contributions and distributions .......................................................................... 438
21.30 Winding-up, liquidation and deregistration ....................................................................... 438
21.31 Foreign currency transactions ........................................................................................... 439
22 Corporate restructuring reliefs
22.1 General
rules
...................................................................................................................... 441
22.2 Asset-for-share
transactions
.............................................................................................. 444
22.3 Substitutive
share-for-share transactions .......................................................................... 450

22.4 Amalgamation
transactions
............................................................................................... 451
22.5 Intra-group
transactions
..................................................................................................... 457
22.6 Unbundling
transactions
.................................................................................................... 463
22.7 Capped expenditure on shares held in an unbundling company ..................................... 467
22.8 Liquidation
distributions
..................................................................................................... 467
23 Income Tax Tables ................................................................................................................... 472
Defined terms
Para
Abnormal livestock profits ..............................................................................................................12.12
Accommodating or tax indifferent party ...........................................................................................18.8
Accrued ............................................................................................................................................10.1
Accurate records ................................................................................................................................ 5.4
Acquired company .........................................................................................................................10.80
Acquiring company ........................................................................................................................10.80
Acquisition rate ...............................................................................................................................10.75
Acquisition transaction ....................................................................................................... 10.77, 10.80
Active business asset .....................................................................................................................21.26
Additional tax ..................................................................................................................................17.14
Adjusted balance of remuneration ...................................................................................................17.6
Adjusted IFRS value .......................................................................................................................16.13
Adjusted taxable income .................................................................................................... 10.38, 10.80
Affected asset ..................................................................................................................................... 8.4
Affected asset for pipelines, transmission lines and railway lines .................................................10.48
Affected contract ............................................................................................................................10.75
Affected transaction .........................................................................................................................18.9
Aggregate capital gain .....................................................................................................................21.3
Agreement ......................................................................................................................................16.36
Agricultural co-operative ..................................................................................................................16.8
Airport asset ...................................................................................................................................10.15
Allowance asset ........................................................................................................... 10.8, 10.13, 22.1
Allowance asset for business entities ..............................................................................................16.3
Allowance asset for government grants ...................................................................................... 16.10A Amalgamated

company ...................................................................................................................22.4
Amalgamation transaction ................................................................................................................22.4
Ancillary service .............................................................................................................................16.36
Antedated salary or pension .............................................................................................................. 5.8
Approved feeder PBO ......................................................................................................................19.1
Approved group s 10(1)( c A)(i) body ................................................................................................19.1

Approved public benefit organization ..............................................................................................19.1
Arrangement .....................................................................................................................................18.8
Assessed capital loss .......................................................................................................................21.3
xxi
xxii DEFINED TERMS
Para
Assessed loss .................................................................................................................................10.71
Assessed loss for ring-fencing .......................................................................................................10.72
Asset for CGT purposes ...................................................................................................................21.2
Asset for corporate restructuring reliefs ...........................................................................................22.1
Asset for long-term insurers ...........................................................................................................16.13
Asset for sale-and-leaseback arrangement ....................................................................................... 8.5
Asset for statutory source rules ........................................................................................................15.8
Asset-for-share transaction ..............................................................................................................22.2
Associated institution ....................................................................................................... 5.3, 5.4, 10.40
Associated institution for equity instruments vesting ......................................................................... 5.3
Associated person (Employment Tax Incentive Act) .......................................................................5.35
At the instance ..................................................................................................................................19.2
Average exchange rate ...................................................................................................... 10.74, 21.31
Average rate of tax ...........................................................................................................................2.17
Average repo rate ............................................................................................................... 10.38, 10.80
Avoidance arrangement ...................................................................................................................18.8
Balance of assessed loss ...............................................................................................................10.67
Balance of remuneration ..................................................................................................................17.3
Bank for Sharia-compliant financing arrangements .........................................................................7.10
Bank for withholding tax on interest ...............................................................................................15.19
Base cost for business entities .........................................................................................................16.3
Base cost for CGT ............................................................................................................................21.5

Base cost for corporate restructuring reliefs ....................................................................................22.1
Base cost for exempt government grants ........................................................................ 10.13, 16.10A Beneficial
owner for dividends tax ..................................................................................................... 9.5
Beneficiary ........................................................................................................................................11.4
Benefit ................................................................................................................................................. 5.4
Benefit from donation .....................................................................................................................21.20
Benefit fund ....................................................................................................................................10.56
Boat ................................................................................................................................................21.10
Bonus ................................................................................................................................................16.8
Broad-based employee share plan .................................................................................................... 5.2
Brownfield project ...........................................................................................................................10.33
Business .........................................................................................................................................16.13
Buy-and-sell policy .........................................................................................................................21.12
Capital asset .....................................................................................................................................10.8
Capital asset for corporate restructuring reliefs ...............................................................................22.1
Capital assets for mining operators ................................................................................................16.21
Capital element (purchased annuities) .............................................................................................. 2.4
Capital expenditure ........................................................................................................................16.20
Capital expenditure incurred ..........................................................................................................16.20
Capital gain ......................................................................................................................................21.3
DEFINED TERMS xxiii
Para
Capital loss .......................................................................................................................................21.3
Capital nature ..................................................................................................................................... 1.5
Carrying on a trade .........................................................................................................................10.14
Category III Financial Services Provider ........................................................................................16.13
CGT ..................................................................................................................................................22.1
CGT base cost ..................................................................................................................................22.1

Child ................................................................................................................................................... 2.5
Close corporation ...........................................................................................................................14.10
Collateral arrangement ....................................................................................................................21.9
Collective investment scheme in property .......................................................................................16.7
Collective investment scheme in securities .....................................................................................16.7
Company ................................................................................................................................ 14.1, 22.1
Company for collective investment schemes ...................................................................................16.7
Company (Employment Tax Incentive Act) ......................................................................................5.35
Completion date .............................................................................................................................16.10
Compliance period .........................................................................................................................10.33
Concession or compromise ..............................................................................................................21.4
Connected person ..........................................................................................................................10.27
Connected person for share-dealers .............................................................................................16.31
Connected person for depreciation allowance ..............................................................................10.27
Connected person for capital losses..............................................................................................21.18
Consanguinity ..................................................................................................................................... 5.4
Consideration ..................................................................................................................................... 5.3
Contributed tax capital ....................................................................................................................... 9.3
Contributed tax capital for corporate restructuring reliefs ...............................................................22.4
Contribution certificate ....................................................................................................................... 5.4
Controlled company .......................................................................................................................16.30
Controlled foreign company (CFC) ..................................................................................................15.2
Controlled group company ...............................................................................................................22.1
Controlling group company ..............................................................................................................22.1
Controlling interest ............................................................................................................................21.6
Controlling relationship ...................................................................................................................10.38
Co-operative .....................................................................................................................................16.8
Copyright ............................................................................................................................ 10.35, 10.37
Cost ................................................................................................................................................10.63
Cost for airport and port assets ......................................................................................................10.15

Cost for depreciation allowance .....................................................................................................10.27
Cost for pipelines, transmission lines and railway lines .................................................................10.48
Cost for rolling stock .......................................................................................................................10.57
Cost for scrapping allowance .........................................................................................................10.58
xxiv DEFINED TERMS
Para
Cost for small business corporation ...............................................................................................16.33
Cost for straight-line depreciation allowance .................................................................................10.63
Cost for urban development allowance .........................................................................................10.22
Cost of trading stock ......................................................................................................................10.66
Cost of training ...............................................................................................................................10.33
Country of residence ........................................................................................................................15.2
Covered person ..............................................................................................................................10.76
Credit amount .................................................................................................................................17.14
Date of acquisition ............................................................................................................................22.1
Date of approval .............................................................................................................................10.33
Date of distribution .........................................................................................................................21.28
Date of grant ....................................................................................................................................... 5.2
Date of issue ....................................................................................................................................... 7.5
Debt ...................................................................................................................................... 10.8, 21.10
Debt benefit ......................................................................................................................................21.4
Debt instrument ..............................................................................................................................10.80
Debtor .............................................................................................................................................10.38
Declared land .................................................................................................................................10.31
Deferral transaction .................................................................................................................. 9.2, 21.4
Deferred interest ................................................................................................................................. 7.8
Defined benefit component ................................................................................................................ 5.4
Defined contribution component ........................................................................................................ 5.4

Dependant .............................................................................................................................. 2.5, 10.47
Depreciable asset ............................................................................................................................10.7
Derivative ........................................................................................................................................10.76
Derive ...............................................................................................................................................10.1
Design ................................................................................................................................ 10.35, 10.37
Designated airport ..........................................................................................................................10.15
Determined value of vehicle ............................................................................................................... 5.4
Developer of building in urban development zones ......................................................................10.22
Development Bank of Southern Africa ...........................................................................................15.19
Diminishing musharaka ....................................................................................................................7.10
Director of close corporation .............................................................................................................. 5.4
Disability ................................................................................................................................. 2.5, 10.40
Discretionary beneficiary ..................................................................................................................11.5
Disposal for corporate restructuring reliefs ......................................................................................22.1
Disposal for share-dealers .............................................................................................................16.31
Disposal rate ...................................................................................................................................10.75
Disqualified person ...........................................................................................................................22.6
Dividend ..................................................................................................................................... 9.3, 9.5
Dividend for dividends tax .................................................................................................................. 9.4
DEFINED TERMS xxv
Para
Donation ................................................................................................................................. 19.1, 19.2
Donation for deductible donations ...................................................................................................19.1
Donee ...............................................................................................................................................19.2
Donor ................................................................................................................................................19.2
Due date ...........................................................................................................................................18.5
Dutiable amount ...............................................................................................................................20.1
Effective date ..................................................................................................................................17.14

Effective date for dividends tax .......................................................................................................... 9.5
Effective value ................................................................................................................................16.21
Employee ..........................................................................................................................................17.5
Employee (Employment Tax Incentive Act) .....................................................................................5.35
Employee for employees’ tax purposes ............................................................................................. 1.2
Employee for fringe benefits purposes .............................................................................................. 5.4
Employee for variable remuneration purposes ................................................................................5.33
Employees’ tax ................................................................................................................................... 1.2
Employees’ tax (Employment Tax Incentive Act) .............................................................................5.35
Employer ...........................................................................................................................................17.2
Employer for equity instruments vesting ............................................................................................ 5.3
Employer for fringe benefits purposes ............................................................................................... 5.4
Employer for learnership agreements ............................................................................................10.40
Employer for variable remuneration purposes .................................................................................5.33
Employment company ....................................................................................................................16.33
End user .........................................................................................................................................10.37
Enforcement right ............................................................................................................................... 7.6
Entertainer or sportsperson ............................................................................................................15.18
Entity .................................................................................................................................................16.5
Environmental treatment and recycling asset ................................................................................10.31
Environmental waste disposal asset ..............................................................................................10.31
Equity instrument ........................................................................................................................ 7.5, 7.6
Equity instrument for purposes of vesting of equity instruments ....................................................... 5.3
Equity share ................................................................................................................... 14.7, 22.1, 22.3
Equity share for corporate restructuring reliefs ...................................................................... 22.2, 22.3
Equity share for share-dealers .......................................................................................................16.31
Excess amount .................................................................................................................................15.4
Excess farming profits ....................................................................................................................12.12
Excess livestock profits ..................................................................................................................12.12
Excess plantation farming profits ...................................................................................................12.12

Excess recoupments ......................................................................................................................16.22
Excessive income ............................................................................................................................... 3.3
Exchange difference ......................................................................................................................10.75
Exchange item ................................................................................................................................10.75
Executor ............................................................................................................................................11.1
xxvi DEFINED TERMS
Para
Exempt dividend ............................................................................................................ 9.2, 21.4, 21.27
Exempt dividend for dividends treated as income ............................................................................ 9.2
Expenditure ....................................................................................................................................16.20
Expenditure for unbundling transactions .........................................................................................22.6
Expenditure on shaft-sinking ..........................................................................................................16.20
Exploitation rights ...........................................................................................................................16.10
Exploration ......................................................................................................................................16.24
Extraordinary dividend……………………………………………………………………………………. ... 9.2
Extraordinary exempt dividends .....................................................................................................21.27
Fair market value for donations tax ...................................................................................... 12.14, 19.7
Fair market value for recoupments of lease payments ....................................................................10.8
Film .................................................................................................................................................16.10
Financial asset ................................................................................................................................10.76
Financial assistance for headquarter companies ..........................................................................16.37
Financial assistance for international; transactions ..........................................................................18.9
Financial instrument .................................................................................................................. 7.5, 21.8
Financial lease ..................................................................................................................................10.8
Financial liability .............................................................................................................................10.76
Financial reporting value ................................................................................................................10.76
Financial year ...................................................................................................................................18.2
Foreign business establishment .......................................................................................................15.2

Foreign collective investment scheme .............................................................................................16.7
Foreign company ..............................................................................................................................15.2
Foreign company for CFC purposes ................................................................................................15.2
Foreign currency ................................................................................................................ 10.75, 21.31
Foreign currency for gains or losses on exchange items ..............................................................10.75
Foreign currency for trading stock .................................................................................................10.66
Foreign currency option contract ...................................................................................................10.75
Foreign dividend ................................................................................................................................. 9.4
Foreign equity instrument ...............................................................................................................21.31
Foreign investment entity .................................................................................................................... 1.1
Foreign partnership ..........................................................................................................................13.5
Foreign person for withholding tax on interest ...............................................................................15.19
Foreign person for withholding tax on royalties .............................................................................15.16
Foreign return of capital .................................................................................................................21.28
Foreign tax year ................................................................................................................................15.2
Foreign unit trust ...............................................................................................................................16.7
Forest produce ...............................................................................................................................12.11
Forward exchange contract ...........................................................................................................10.75
Forward rate ...................................................................................................................................10.75
Functional currency ..........................................................................................................................15.2
Fund contributions .............................................................................................................................. 5.4
Fund member category ...................................................................................................................... 5.4
DEFINED TERMS xxvii
Para
Fund member category factor ............................................................................................................ 5.4
Fund return ......................................................................................................................................... 5.4
Funds ................................................................................................................................................18.8
Further costs ...................................................................................................................................10.66

Future expenditure .........................................................................................................................10.32
Gain .................................................................................................................................................... 5.2
Gain on right to acquire marketable security ..................................................................................... 5.9
Gas .................................................................................................................................................16.24
General deduction formula .............................................................................................................10.14
General public ..................................................................................................................................14.7
Goods .............................................................................................................................................15.19
Government grants ........................................................................................................... 10.13, 16.10A Greenfield project

...........................................................................................................................10.33
Gross income ............................................................................................................................. 1.1, 1.2
Group of companies ...................................................................................................... 10.8, 14.1, 22.1
Headquarter company ...................................................................................................................16.37
Holders of a public office .................................................................................................................5.25
Holding company .............................................................................................................................22.8
Hotel keeper ...................................................................................................................................16.11
Housing project ..............................................................................................................................10.21
Husband ............................................................................................................................................. 3.1
Hybrid debt instrument ....................................................................................................................... 7.5
Hybrid equity instrument .................................................................................................................... 7.5
Hybrid interest .................................................................................................................................... 9.2
Identical assets .................................................................................................................................21.8
Identical security ............................................................................................................................10.66
Identical share ................................................................................................................................10.66
IFRS .............................................................................................................. 10.75, 16.13, 16.14, 16.30
Immovable property .......................................................................................................................15.17
Impermissible avoidance arrangement ............................................................................................18.8
Impermissible trade ........................................................................................................................10.70
Improvements for agricultural co-operatives ...................................................................................16.8
Improvements to a building ............................................................................................................10.18
Incidental costs ................................................................................................................................5.26

Income ................................................................................................................................................ 1.1
Income for returns ............................................................................................................................18.2
Income instrument .............................................................................................................................. 7.8
Income tax .......................................................................................................................................... 1.2
Income Tax Act (Employment Tax Incentive Act) ............................................................................5.35
Incur ................................................................................................................................................10.14
Industrial Development Corporation ...............................................................................................15.19
Industrial project .............................................................................................................................10.33
Insolvent estate .................................................................................................................................11.3
xxviii DEFINED TERMS
Para
Instalment credit agreement ............................................................................................................... 5.4
Instrument ............................................................................................................................ 7.5, 7.8, 9.2
Instrument for day-by-day interest .................................................................................................10.38
Instrument for hybrid debt instrument ................................................................................................ 9.2
Insurer (insurers – long-term) .........................................................................................................16.13
Insurer (medical lump sum payments) ...........................................................................................10.47
Intangible asset ..............................................................................................................................21.12
Intellectual property ........................................................................................................................10.37
Interest .............................................................................................................. 8.5, 10.38, 10.80, 21.13
Interest for day-by-day interest .......................................................................................................... 7.8
Interest for hybrid debt instrument ..................................................................................................... 9.2
Interest for hybrid equity instrument ................................................................................................... 7.5
Interest for withholding tax on interest ...........................................................................................15.19
Interest in accommodation ................................................................................................................. 5.4
Interest in primary residence ..........................................................................................................21.13
Interest rate agreement ...................................................................................................................... 7.9
International shipping .....................................................................................................................16.32

International shipping company .....................................................................................................16.32
International shipping income ........................................................................................................16.32
Intra-group transaction .....................................................................................................................22.5
Intrinsic value for interest rate agreements and option contracts ...................................................... 7.9
Intrinsic value for foreign exchange gains and losses ...................................................................10.75
Invention .........................................................................................................................................10.35
Investment income for micro business ...........................................................................................16.15
Investment income for SBC ............................................................................................................16.33
Investment policy ............................................................................................................................10.39
Involuntary-disposal assets ..............................................................................................................10.7
Issue ....................................................................................................................................... 7.5, 10.80
Issue for hybrid debt instrument ......................................................................................................... 9.2
Issuer ..............................................................................................................................................10.38
JSE Limited Listings Requirements ................................................................................................16.30
Junior mining company ..................................................................................................................10.70
Labour broker ...................................................................................................................................17.5
Labour Relations Act (Employment Tax Incentive Act) ....................................................................5.35
Learner ...........................................................................................................................................10.40
Leave pay .......................................................................................................................................10.43
Legal expenses ..............................................................................................................................10.44
Lending institution ..........................................................................................................................10.38
Limited partner .................................................................................................................................13.2
Linked unit ......................................................................................................................................16.30
DEFINED TERMS xxix
Para
Liquidating company ........................................................................................................................22.8
Liquidation distribution .....................................................................................................................22.8
Listed company ........................................................................................................... 7.10, 21.31, 22.1

Listed debt ......................................................................................................................................15.19
Listed share ........................................................................................................................................ 9.4
Living annuity ...................................................................................................................................... 6.3
Local currency .................................................................................................................... 10.75, 21.32
Long service ....................................................................................................................................... 5.4
Low-cost residential unit .................................................................................................................10.20
Lump-sum benefit ............................................................................................................................... 6.3
Maintenance plan ............................................................................................................................... 5.4
Manufacturing asset .......................................................................................................................10.33
Marginal rate of tax ...........................................................................................................................2.17
Market-related interest ........................................................................................................................ 9.5
Market value for reduction, concession or compromise of debts .......................................... 10.8, 21.4
Market value for corporate restructuring reliefs ...............................................................................22.1
Market value for equity instruments vesting ....................................................................................... 5.3
Market value for foreign exchange gains and losses ....................................................................10.75
Market value for long-term insurance .............................................................................................16.13
Market value for statutory source rules ............................................................................................15.8
Market value for unbundling transactions ........................................................................................22.6
Market-related interest for dividends tax ............................................................................................ 9.4
Married ............................................................................................................................................... 3.1
Member for business, professional and occupational associations ................................................16.5
Member for fringe benefits ................................................................................................................. 5.4
Micro business ...............................................................................................................................16.15
Mine for gold ...................................................................................................................................16.17
Mining .............................................................................................................................................16.20
Mining for gold ................................................................................................................................16.17
Mining operations ...........................................................................................................................16.20
Mining property ..............................................................................................................................16.21
Minor child .......................................................................................................................................... 3.5
Month ................................................................................................................................................17.2
Monthly remuneration (Employment Tax Incentive Act) ...................................................................5.35
Mudaraba .........................................................................................................................................7.10
Murabaha .........................................................................................................................................7.10
Mutual loan association ....................................................................................................................16.5
National Film and Video Foundation ...............................................................................................16.10
Natural oil ........................................................................................................................................10.48
Negative liability .............................................................................................................................16.13
xxx DEFINED TERMS
Para
Net capital gain ................................................................................................................................21.3
Net income .......................................................................................................................................15.2
Net value ................................................................................................................................. 20.1, 20.3
New qualifying exchange item .......................................................................................................10.75
Nominal consideration ......................................................................................................................10.8
Non-resident .....................................................................................................................................15.6
Normal retirement age ........................................................................................................................ 6.3
Normal tax .......................................................................................................................................... 1.2
Official rate of interest ......................................................................................................................... 5.4
Oil ...................................................................................................................................................16.24
Oil and gas company .....................................................................................................................16.24
Oil and gas income ........................................................................................................................16.24
Oil and gas right .............................................................................................................................16.24
Old qualifying exchange item .........................................................................................................10.75
Operating company ................................................................................................................ 7.6, 10.77
Operating lease .......................................................................................................................... 5.4, 8.4
Option contract ................................................................................................................................... 7.9
Option strike rate ............................................................................................................................10.75
Owner .............................................................................................................................................16.13
Participation rights ............................................................................................................................15.2
Party ..................................................................................................................................................18.8
Patent .................................................................................................................................. 10.35, 10.37
PBO ..................................................................................................................................................19.1
Pension ............................................................................................................................................... 5.8
Pension fund ............................................................................................................................... 6.1, 6.3
Permanent establishment ..................................................................................................... 10.74, 13.5
Permanent work ..............................................................................................................................16.36
Person ..................................................................................................................................... 11.1, 11.2
Personal service .............................................................................................................................16.33
Personal service company ...............................................................................................................17.5
Personal service provider .................................................................................................................17.5
Personal service trust .......................................................................................................................17.5
Personal-use asset .........................................................................................................................21.10
Policy for investment policies .........................................................................................................10.39
Policy for long-term insurers ...........................................................................................................16.13
Policy benefits ................................................................................................................................10.39
Policyholder funds ..........................................................................................................................16.13
Port asset ........................................................................................................................................10.15
Port of entry ......................................................................................................................................5.12
Portfolio of a collective investment scheme .....................................................................................16.7
DEFINED TERMS xxxi
Para
Portfolio of a collective investment scheme in participation bonds .................................................16.7
Portfolio of a collective investment scheme in property ...................................................................16.7
Portfolio of a collective investment scheme in securities .................................................................16.7
Portfolio of a declared collective investment scheme ......................................................................16.7
Portfolio of a hedge fund collective investment scheme ..................................................................16.7

Post-exploration ..............................................................................................................................16.24
Post-realisation year .......................................................................................................................10.76
Preference share for dividends treated as income ............................................................................ 9.2
Preference share for dividends treated as proceeds ........................................................................ 9.2
Preference share for hybrid equity instruments ................................................................................. 7.5
Preference share for third-party backed shares ................................................................................ 7.6
Premium ....................................................................................................................... 8.2, 10.39, 10.42
Premium for short-term insurers .....................................................................................................16.14
Premium or discount on a forward exchange contract ..................................................................10.75
Pre-production interest ....................................................................................................................... 8.3
Prescribed rate .................................................................................................................................18.5
Pre-valuation date asset ...................................................................................................................21.6
Previously held shares ......................................................................................................................22.6
Primary process ................................................................................................................................16.8
Primary residence ...........................................................................................................................21.13
Principal ............................................................................................................................................5.24
Private company ...............................................................................................................................14.7
Proceeds ..........................................................................................................................................21.4
Professional service ........................................................................................................................16.15
Property ............................................................................................................................................19.2
Property company ..........................................................................................................................16.30
Property-shares-company ................................................................................................................16.7
Proportional amount for net income .................................................................................................15.2
Provident fund ............................................................................................................................ 6.1, 6.3
Public benefit activity ......................................................................................................................16.27
Public benefit organization .............................................................................................................16.27
Public company ................................................................................................................................14.7
Public Private Partnership ..............................................................................................................16.28
Public-sector fund ...................................................................................................................... 5.7, 6.3
Purchase price of building in urban development zone ................................................................10.22

Purchaser .........................................................................................................................................10.1
Qualifying annuity .............................................................................................................................6.11
Qualifying company ............................................................................................................ 10.33, 10.70
Qualifying distribution .....................................................................................................................16.30
Qualifying employee (Employment Tax Incentive Act) ....................................................................5.35
Qualifying equity share ....................................................................................................................... 5.2
xxxii DEFINED TERMS
Para
Qualifying exchange item ...............................................................................................................10.75
Qualifying interest for asset-for-share transactions ..........................................................................22.2
Qualifying interest for dividends treated as income ........................................................................... 9.2
Qualifying investor .................................................................................................................. 13.1, 13.5
Qualifying medical expenses ............................................................................................................. 2.5
Qualifying purpose ..................................................................................................................... 7.5, 7.6
Qualifying share ..............................................................................................................................10.70
Qualifying turnover .........................................................................................................................16.15
Realization year for financial assets and liabilities .........................................................................10.76
Realization year for long-term insurers ...........................................................................................16.13
Realized ..........................................................................................................................................10.75
Recipient for allowances or advances .............................................................................................5.24
Recognized exchange .....................................................................................................................21.5
Recreational club ............................................................................................................................16.29
Redeem .............................................................................................................................................. 7.5
Reduction amount ..........................................................................................................................21.10
Registered learnership agreement .................................................................................................10.40
Registered micro business .............................................................................................................16.15
Regulated intermediary for dividends tax .......................................................................................... 9.5
Reinvestment-in-replacement assets ...............................................................................................10.7

REIT ................................................................................................................................................16.30
Relative ............................................................................................................................................... 5.4
Relative (Employment Tax Incentive Act) .........................................................................................5.35
Relative for ring-fencing of assessed losses ..................................................................................10.72
Remuneration ................................................................................................. 1.2, 5.26, 5.27, 5.28,17.3
Remuneration (Employment Tax Incentive Act) ...............................................................................5.35
Remuneration for learnership agreements .....................................................................................10.40
Remuneration proxy ........................................................................................................................... 5.4
Rental income for lessor’s limitation ................................................................................................... 8.4
Rental income for REIT ...................................................................................................................16.30
Reorganisation transaction .............................................................................................................10.80
Repo rate ............................................................................................................................ 10.38, 10.80
Representative taxpayer ...................................................................................................................11.1
Resale agreement for dividends tax................................................................................................... 9.4
Research and development ...........................................................................................................10.53
Residence .......................................................................................................................................21.13
Resident .............................................................................................................................................. 1.1
Residential unit ................................................................................................................... 10.20, 10.21
Restricted equity instrument ............................................................................................................... 5.3
Resultant company ...........................................................................................................................22.4
DEFINED TERMS xxxiii
Para
Retire .................................................................................................................................................. 6.3
Retirement annuity fund ...................................................................................................................... 6.1
Retirement date .................................................................................................................................. 6.3
Retirement fund lump-sum benefit ..................................................................................................... 6.3
Retirement fund lump-sum withdrawal benefit ................................................................................... 6.3
Retirement interest .............................................................................................................................. 6.3

Retirement-funding income ................................................................................................................ 5.4
Return of capital .............................................................................................................................21.28
Risk benefit ......................................................................................................................................... 5.4
Risk policy ......................................................................................................................................16.13
Risk policy fund ..............................................................................................................................16.13
Road pavement ..............................................................................................................................16.36
Rollovers .................................................................................... 22.2, 22.3, 22.4, 22.5, 22.6, 22.7, 22.8
Round-trip financing .........................................................................................................................18.8
Royalty ....................................................................................................................... 10.10, 15.7, 15.16
Royalty for headquarter companies ...............................................................................................16.37
Royalty for statutory source rules .....................................................................................................15.7
Royalty for withholding tax on royalties ..........................................................................................15.16
Ruling exchange rate .....................................................................................................................10.75
Ruling price ......................................................................................................................................21.6
Salary .................................................................................................................................................. 5.8
Sale and lease-back arrangement ..................................................................................................... 8.5
Section 10(1)( c A)(i) entity .................................................................................................................19.1
Securities lending arrangement ........................................................................................... 10.66, 21.9
Seller .................................................................................................................................................10.1
Selling expenses for time-apportionment base cost ........................................................................21.7
SETA ...............................................................................................................................................10.40
Severance benefit ..................................................................................................................... 5.13, 6.3
Share .................................................................................................................................................. 9.3
Share for hybrid equity instruments .................................................................................................... 7.5
Share block company .....................................................................................................................21.12
Shareholder ......................................................................................................................................14.1
Sharia arrangement ..........................................................................................................................7.10
Short-term insurance business .......................................................................................................16.14
Short-term insurer .............................................................................................................................16.4
Short-term policy ..............................................................................................................................16.4

SIC Code ........................................................................................................................................10.33
Single toll road ................................................................................................................................16.36
Skills Development Act, 1998 .........................................................................................................10.40
Small business ................................................................................................................................21.26
xxxiv DEFINED TERMS
Para
Small business corporation ............................................................................................................16.33
Small business funding entity ...........................................................................................................16.3
Small, medium or micro-sized enterprise .........................................................................................16.3
Social and labour plan ....................................................................................................................16.20
South African National Roads Agency Limited ..............................................................................16.36
South African ship ..........................................................................................................................16.32
Special economic zone ..................................................................................................................10.33
Special economic zone (Employment Tax Incentive Act) ................................................................5.35
Special Economic Zones Act .........................................................................................................10.33
Special purpose corporate vehicle ................................................................................................16.10
Special trust ............................................................................................................................ 11.8, 21.3
Specified activity ............................................................................................................................15.18
Spot rate .................................................................................................................. 10.74, 10.75, 21.31
Spouse for estate duty ......................................................................................................................20.9
Spouse for income tax ........................................................................................................................ 3.1
Statutory right ...................................................................................................................................11.7
Storage building ...............................................................................................................................16.8
Straight-line depreciation ................................................................................................... 10.27, 10.63
Substitutive share-for-share transaction ...........................................................................................22.3
Sukuk ................................................................................................................................................7.10
Tainted intellectual property ...........................................................................................................10.37
Tax ....................................................................................................................................................18.5
Tax for impermissible avoidance arrangements ..............................................................................18.8
Tax Administration Act (Employment Tax Incentive Act) .................................................................5.35
Tax avoidance ..................................................................................................................................18.8
Tax base .........................................................................................................................................10.76
Tax benefit ........................................................................................................................................18.8
Tax evasion .......................................................................................................................................18.8
Tax free investment ............................................................................................................................ 7.4
Tax threshold ..................................................................................................................................17.12
Tax threshold for provisional tax .....................................................................................................17.12
Tax value ..........................................................................................................................................10.7
Taxable benefit ................................................................................................................................... 5.4
Taxable capital gain .........................................................................................................................21.3
Taxable income ................................................................................................................... 1.1, 1.2, 1.3
Taxable income, calculation of ........................................................................................................... 2.3
Taxable person ...............................................................................................................................10.37
Taxable turnover .............................................................................................................................16.15
Taxes on income ..............................................................................................................................15.4
Taxpayer ............................................................................................................................................. 1.1
Third-party backed instrument ........................................................................................................... 7.5
DEFINED TERMS xxxv
Para
Third-party backed share ................................................................................................................... 7.6
Toll road ..........................................................................................................................................16.36
Tolling period ..................................................................................................................................16.36
Total value ........................................................................................................................................20.2
Trade ..............................................................................................................................................10.14
Trade mark .....................................................................................................................................10.37
Trading stock ..................................................................................................................................10.66

Trading stock for corporate restructuring reliefs ..............................................................................22.1
Transaction date .............................................................................................................................10.75
Transferee company .........................................................................................................................22.5
Transferee for assets to a spouse ..................................................................................................21.19
Transferor company .........................................................................................................................22.5
Transferor for assets to a spouse ...................................................................................................21.19
Translate .........................................................................................................................................10.75
Trust ..................................................................................................................................................11.4
Trustee ..............................................................................................................................................11.3
Unbundled company ........................................................................................................................22.6
Unbundling company .......................................................................................................................22.6
Unbundling transaction ....................................................................................................................22.6
Underpin component .......................................................................................................................... 5.4
Unhedged .......................................................................................................................................10.75
Unlisted company .............................................................................................................................22.1
Unrestricted equity instrument ........................................................................................................... 5.3
Urban development zone ...............................................................................................................10.22
Valuation date for capital gains tax ..................................................................................................21.6
Value of liabilities ............................................................................................................................16.13
Value-shifting arrangement ............................................................................................................21.22
Variable remuneration ......................................................................................................................5.33
Venture capital company ................................................................................................................10.70
Venture capital share ......................................................................................................................10.70
Vested beneficiary ............................................................................................................................11.5
Vesting ................................................................................................................................................ 5.3
Wage (Employment Tax Incentive Act) ............................................................................................5.35
Wife ..................................................................................................................................................... 3.1
Year of assessment .................................................................................................................. 2.1, 14.2

Table of Sections
Section
Para
Section
Para
Income Tax Act 58 of 1962
Income Tax Act 58 of 1962 –
1 ......................... 1.1, 1.2, 1.3, 2.1, 2.5, 2.6, 3.1,
continued
3.5, 4.2, 5.1, 5.4, 5.7, 5.9,
7 .............................................................. 21.20
5.12, 5.13, 6.1, 6.3, 6.4, 6.5,
7(2) .............................................................. 3.3
6.10, 7.1, 7.5, 8.2, 9.1, 9.2, 9.3, 9.4,
7(2A) ............................................................ 3.2
10.1, 10.3, 10.5, 10.6, 10.7, 10.10,
7(2B) ............................................................ 3.2
10.11, 10.13, 10.14, 10.20, 10.27,
7(2C) ........................................................... 3.2
10.56, 10.62, 10.66, 10.71, 10.74,
7(3) ..................................................... 3.5, 11.7
10.75, 11.3, 11.4, 11.8, 11.9,

7(4) ..................................................... 3.5, 11.7
12.2, 12.4, 12.5, 13.1, 13.5, 14.1,
7(5) ............................................................ 11.7
14.2, 14.3, 14.7, 14.8, 14.10, 15.2,
7(6) ............................................................ 11.7
16.3, 16.7, 16.8, 16.11, 16.12, 16.16,
7(7) ................................................... 11.7, 18.8
16.17, 16.20, 16.28, 16.30, 16.37,
7(7)( a) ........................................................ 11.7
18.2, 18.5, 18.8, 21.3, 21.8, 21.9,
7(8) ................................................... 11.7, 18.8
21.22, 21.27, 21.28, 22.1
7(9) ............................................................ 11.7
2 ............................................................................. 2.6
7(10) .......................................................... 11.7
3 ......................................................................... 18.12
7(11) ............................................................ 4.3
3(4) ............................................. 5.4, 5.21, 8.3, 10.4, 7A(1) ............................................................ 5.8
10.7, 10.17, 10.19, 10.24, 10.26,
7A(2) ............................................................ 5.8
10.27, 10.30, 10.32, 10.34, 10.35
7A(3) ............................................................ 5.5
10.63, 10.66, 10.70, 10.75, 12.5, 12.6,
7B .............................................................. 5.33
12.7, 12.9, 12.11, 12.12, 14.7,
7C……………………………………………11.11
15.10, 15.16, 16.3, 16.4, 16.5, 16.7,
7D .............................................................. 7.12
16.8, 16.23, 16.26, 16.34, 17.16,
7E .............................................................. 7.13
19.2, 21.24, 21.25
3(4)( f) ................................................................. 16.15
7F .............................................................. 7.13
4A ....................................................................... 18.12
8(1)( a) ............................. 5.25, 5.26, 5.27, 5.28
5 ...................................................................... 1.1, 1.2
8(1)( a)(ii) .................................................... 5.29
5(10) ........................................................ 12.7, 12.11
8(1)( a)(iv) ................................................... 5.11
6 .................................................................... 2.8, 11.9
8(1)( b) ....................................................... 5.28
6(2)( a) .................................................................... 2.9
8(1)( c) ........................................................ 5.27
6(2)( b) .................................................................. 2.10
8(1)( d) ....................................................... 5.26
6(2)( c) .................................................................. 2.11
8(1)( e) ........................................................ 5.26
6(4) ....................................................................... 2.12
8(1)( f) ......................................................... 5.26
6A ...................................................... 2.5, 10.46
8(1)( g) ....................................................... 5.26
6A(3)………………………………….………11.2
8(4) ...................................... 10.1, 16.22, 16.36
6B ............................................ 2.5, 10.46, 11.2
8(4)( a) ............. 6.2, 8.2, 10.7, 10.59, 12.2, 16.8
6B(4)………………………………………….11.2
8(4)( b) ....................................................... 10.7
6 quat .......................................................... 15.4
8(4)( e) ........................................................ 10.7
6 quat(4) ................................................... 10.74

8(4)( e A) ..................................................... 10.7
6 quat(5) ................................................... 10.74
8(4)( e B) ..................................................... 10.7
6 quat(6) ................................................... 10.74
8(4)( e C) ..................................................... 10.7
6 quin .......................................................... 15.5
8(4)( e D) ..................................................... 10.7
xxxvii
xxxviii TABLE OF SECTIONS
Section
Para
Section
Para
continued
continued
8(4)( e E) ...................................................... 10.7
10(1)( c Q) .......................................... 16.3, 16.9
8(4)( f) ......................................................... 10.7
10(1)( d) ..................................................... 16.9
8(4)( k) ................................................. 9.1, 10.7
10(1)( d)(iv) ................................................ 16.5
8(4)( l) ......................................................... 10.7
10(1)( e) ...................................................... 16.4
8(4)( m) ....................................................... 10.7
10(1)( g) ..................................................... 5.24
8(4)( n) ........................................................ 10.7
10(1)( g A) ................................................... 5.20

8(4)( o) ...................................................... 10.13
10(1)( g B) ................................................... 5.20
8(4)( p) ...................................................... 10.13
10(1)( g C) ............................................ 5.6, 5.13
8(4A) .......................................................... 10.7
10(1)( g C)(i) ................................................ 5.14
8(5) ............................................................ 10.9
10(1)( g C)(ii) ................................................. 5.6
8(5)( a) .......................................................... 5.4
10(1)( g D) ................................................... 5.20
8A ................................................................ 5.9
10(1)( g E) ..................................................... 6.4
8B ................................................................ 5.2
10(1)( g G) ................................................... 10.6
8C ................................................................ 5.3
10(1)( g H) ................................................... 10.6
8E .......................................................... 7.5, 9.2
10(1)( g J)……………………………………..5.20
8EA ....................................................... 7.6, 9.2
10(1)( g I) .................................................... 10.6
8EA(1) .......................................................... 7.5
10(1)( h) .................................. 7.4, 15.11, 15.14
8F ................................................... 7.5, 7.7, 9.2
10(1)( h A) ..................................................... 7.4
8FA ....................................................... 7.7, 9.2
10(1)( i) ........................................... 1.4, 7.1, 7.2
9 ................................................................. 15.7
10(1)( i B) ................................................... 16.7
9(1)( b) ...................................................... 10.10
10(1)( j) ............................................ 15.10, 16.9

9(1)( b A) ................................................... 10.10
10(1)( k) ........................................................ 9.1
9(2)( g) ........................................................ 5.11
10(1)( k)(i) ................................. 9.1, 16.7, 16.37
9(2)( h) ........................................................ 5.11
10(1)( k)(i)( aa) .......................... 9.1, 16.7, 16.30
9(2)( i) .................................................. 5.6, 6.10
10(1)( k)(i)( dd), ( ee), ( ff), ( gg), ( hh), ( ii), ( jj) .. 9.1
9A .............................................................. 15.1
10(1)( l) ..................................................... 15.16
9C ............................................................ 16.31
10(1)( l A) .................................................. 15.18
9D .............................................................. 15.2
10(1)( m B) ........................................... 5.15, 6.4
9D(1) ........................................................ 16.37
10(1)( n A) ................................................... 5.23
9D(2) ............................................. 10.74, 16.37
10(1)( n B) ................................................... 5.21
9D(6) ........................................................ 10.74
10(1)( n C) ............................................ 5.2, 5.19
9D(9A) ....................................................... 15.2
10(1)( n D) ............................................ 5.3, 5.18
9H .......................................... 15.8, 16.37, 21.2
10(1)( n E) ................................................... 5.16
9HA ................................................. 11.1, 21.15
10(1)( o) ...................................................... 5.12
9HA(1) ....................................................... 11.1
10(1)( p) ......................................... 5.11, 15.13
9HA(2) ....................................................... 11.1
10(1)( q) ..................................................... 5.17

9HA(3) ....................................................... 11.1
10(1)( r) ...................................................... 5.22
9HB .......................................... 3.9, 12.6, 21.19
10(1)( s) ...................................................... 5.35
9I .............................................................. 16.37
10(1)( t) ....................................................... 16.9
10(1)( a) ...................................................... 16.9
10(1)( u) ........................................................ 4.2
10(1)( b A) ................................................... 16.9
10(1)( y) ....................................... 16.12, 16.10A 10(1)( b B) ................................................... 16.9
10(1)( y A) ................................................. 10.11
10(1)( c) .................................. 5.15, 15.12, 16.9
10(1)( i B) .................................................... 16.7
10(1)( c A) .................................................... 16.2
10(1)( z B) ................................................. 10.12
10(1)( c A)(i) ................................................ 19.1
10(1)( z E) .................................................... 16.9
10(1)( c E) .................................................... 16.9
10(1)( z H) ................................................. 16.12
10(1)( c G) ........................................ 16.1, 16.32
10(1)( z I) ................................................... 16.28
10(1)( c N) ........................................ 16.9, 16.27
10(1)( z J) .................................................. 16.15
10(1)( c O) ................................................. 16.29
10(1)( z K) .......................................... 16.3, 16.9
10(1)( c P) .................................................. 16.23
10(2)( b) ................................................... 11.10
TABLE OF SECTIONS xxxix
Section
Para
Section
Para
continued
continued
10A .............................................................. 2.4
12DA ....................................................... 10.57
10B ................................................... 9.4, 16.37
12E .......................................................... 16.33
10C ............................................................ 6.11
12F .......................................................... 10.15
11( a) ......................... 5.32, 7.1, 7.3, 8.3, 10.14,
12H .......................................................... 10.40
10.30, 10.34, 10.38, 10.44, 10.50,
12I .................................................... 8.3, 10.33
10.65,10.66, 10.67, 12.3, 12.5
12J ........................................................... 10.70
11( c) ........................................................ 10.44
12L ................................................... 8,3, 10.31
11( c A) ............................................... 5.9, 10.54
12M ......................................................... 10.47
11( d) ........................................ 8.3, 10.52, 12.3
12N ............................................... 10.14, 16.28
12NA ..................................... 8.3, 10.68, 16.28
11( e) .................... 8.3, 10.17, 10.27, 12.3, 16.1
12O .......................................................... 16.10
11( e)(iiiA) ................................................. 10.59
12P .................................. 10.13, 16.10A, 16.28

11( f) ......................................................... 10.42
12Q .......................................................... 16.32
11( g) ................................................. 8.3, 10.41
12R ................................................... 8.3, 10.33
11( g A) ...................................................... 10.35
12S ................................................... 8.3, 10.33
11( g B) ...................................................... 10.36
12T .............................................................. 7.4
11( g C) ...................................................... 10.35
12U....................................................8.3, 10.31
11( g D) ..................................................... 10.45
13 ..................................................... 8.3, 10.18
11( h) ............................................................ 8.3
13(3) .......................................................... 10.7
11( h B) ...................................................... 16.25
13 bis ................................................. 8.3, 16.11
11( i) .......................................................... 10.25
13 ter ................................................. 8.3, 10.21
11( j) .......................................................... 10.26
13 quat .............................................. 8.3, 10.22
11( j A) ....................................................... 10.26
13 quin .............................................. 8.3, 10.19
11( k) .................................................... 6.2, 13.1
13 sex ................................................ 8.3, 10.21
11( k)(i) ......................................................... 6.2
13 sept .............................................. 8.3, 10.20
11( k)(ii) ......................................................... 6.2
15 ................................................................ 8.3
11( k)(iii) ........................................................ 6.2
15( a) ........................................................ 16.20

11( k)(iv) ........................................................ 6.2
15( b) ........................................................ 16.26
11( k)(v) ........................................................ 6.2
15A .......................................................... 10.66
11( l) .......................................................... 10.56
17A ................................................... 8.3, 10.61
11( l A) ....................................................... 10.51
18A ............................................................ 19.1
11( m) .............................................. 10.16, 13.1
19 .............................................................. 10.8
11( n) ........................................................ 10.55
20 ................................................... 10.71, 14.4
20(1) .......................................................... 11.3
11( n A) ........................................................ 5.31
20(1)( a) ...................................................... 11.3
11( n B) ........................................................ 5.31
20A ................................................... 8.3, 10.72
11( o) ............................................... 10.58, 16.8
20B .......................................................... 10.58
11( w) ......................................................... 10.34
20C ......................................................... .16.37
11 sex ....................................................... 10.23
21 ................................................................ 4.2
11A ................................................... 8.3, 10.14
22 ................................................... 10.66, 12.2
11D .......................................................... 10.53
22(1) ........................................................ 16.31
11E ........................................................... 10.62
22(3) ........................................................ 10.75
11F ...................................................... 6.2, 13.1

22(3)( a)(ii) ................................................ 21.10
11F(1) .......................................................... 6.2
22(4) ........................................................ 16.31
11F(2) .......................................................... 6.2
22(4A) ...................................................... 16.31
11F(3) .......................................................... 6.2
22(8) ............................................................ 9.1
11F(4) .......................................................... 6.2
22(9) ........................................................ 16.31
11F(5) .......................................................... 6.2
22A .......................................................... 10.66
12B ................................................. 10.69, 12.3
22B .............................................................. 9.2
12C ................................ 8.3, 10.63, 16.1, 16.8,
23 ................................................... 5.34, 10.79
16.11, 16.32
23( a) .......................................................... 5.34
12D .......................................................... 10.48
23( b) ........................................ 5.34, 8.3, 10.49
xl TABLE OF SECTIONS
Section
Para
Section
Para
continued
continued
23( c) ............................................................ 8.3

25D .......................................................... 10.74
23( d) ............................................... 5.34, 17.14
25D(4) ..................................................... 16.37
23( g) ............................... 8.3, 10.14, 10.67, 6.2
25D(7) ..................................................... 16.37
23( l) .............................................................. 5.9
26 .............................................................. 12.1
23( m) .................................. 5.3, 5.32, 5.34, 6.2
26A .............................................. 1.2, 1.3, 21.1
23( m)(i) ........................................................ 6.2
26B .......................................................... 16.24
23( p) ................................................. ……10.34
27 ..................................................... 12.5, 16.8
23( r) .............................................. 10.14, 10.34
28 ............................................................ 16.14
23A .............................................................. 8.4
29A .......................................................... 16.13
23A(1) .......................................................... 5.4
29B .......................................................... 16.13
23B ............................................... 10.14, 10.79
30 ............................................................ 16.27
30A .......................................................... 16.29
23B(5) ...................................................... 10.34
30B ............................................................ 16.5
23C(1) ...................................................... 10.14
30C ............................................................ 16.3
23D ............................... 8.5, 10.27, 16.1, 16.32
31 ................................................... 16.37, 18.9
23E ........................................................... 10.43
31(5) ........................................................ 16.37

23F ........................................................... 10.66
33 .......................................... 16.1, 16.32, 21.5
23G .............................................................. 8.5
34 .............................................................. 21.5
23H .......................................................... 10.14
35A .......................................................... 15.17
23I ............................................................ 10.37
23K ................................................... 7.4, 10.80
36 ..................................................... 8.3, 16.20
23L ........................................................... 10.39
37 ................................................. 16.20, 16.21
23M ................................................. 10.1, 10.38
37A .......................................................... 16.23
23N .......................................................... 10.80
37B ................................................... 8.3, 10.31
23O ............................................................ 16.3
37C ................................................... 8.3, 10.31
24 ....................................... 10.24, 16.34, 17.14
37D ................................................... 8.3, 10.31
24A ............................................................ 10.4
38 ......... 14.7, 16.1, 16.13, 16.14, 16.27, 16.32
24BA .......................................................... 10.4
38(2)( b) ................................................... 14.10
24C ............................................... 10.32, 16.34
38(2)( d) ..................................................... 16.8
24D .......................................................... 10.59
40A .......................................................... 14.10
24E .......................................................... 10.62
40B ................................................. 14.10, 16.8
24G .......................................................... 16.36

40C ............................................................ 10.4
24H ............................................................ 13.2
40CA ......................................................... 10.4
24H(5) ........................................................ 13.1
40D .......................................................... 10.73
24I ................................................. 10.75, 16.37
40E ................................................... 15.8, 16.8
24J ............... 7.1, 7.5, 7.8, 7.9, 8.5, 10.38, 21.5
41 .............................................................. 22.1
24JA .................................................... 7.1, 7.10
41(1) ........................................................ 16.37
24JB ......................................................... 10.76
42 .............................................................. 22.2
24K .............................................................. 7.9
43 .............................................................. 22.3
24L ............................................................... 7.9
43A ............................................................ 21.4
24M ................................................. 10.1, 10.14
44 .............................................................. 22.4
24N ............................................................ 10.1
24O .......................................................... 10.77
45 .............................................................. 22.5
24P ........................................................... 16.32
46 .............................................................. 22.6
25 ............................................. 5.2, 11.1, 21.15
46A ............................................................ 22.7
25A .............................................................. 3.2
47 .............................................................. 22.8
25B ............................................................ 11.5
47A–47K .................................................. 15.18

25B(2A), (2B) ............................................. 11.6
48 ............................................................ 16.15
25BA ................................................... 7.1, 16.7
48A–48C .................................................. 16.15
25BB ........................................................ 16.30
49A–49H .................................................. 15.16
25C ................................................. 11.3, 21.16
49D .......................................................... 16.37
TABLE OF SECTIONS xli
Section
Para
Section
Para
continued
continued
50A–50H .................................................. 15.19
1st Sch para 4 .................................. 12.3, 12.6
50B .............................................................. 7.1
1st Sch para 5 ........................................... 12.6
50D(1) ...................................................... 16.37
1st Sch para 6 ........................................... 12.6
53 ............................................................. 21.10
1st Sch para 7 ........................................... 12.6
54 ............................................................... 19.2
1st Sch para 8 ........................................... 12.3
55(1) ...................................... 12.14, 19.2, 19.7
1st Sch para 9 ........................................... 12.6

55(2) ............................................... 12.14, 19.7
1st Sch para 9HB(3) .................................. 12.6
55(3) .......................................................... 19.2
1st Sch para 11 ......................................... 12.2
56(1) .......................................................... 19.6
1st Sch para 12 ......................................... 12.4
56(1)( m) ................................................... 12.13
1st Sch para 12(1B) .................................. 12.2
56(2)( a) ...................................................... 19.5
1st Sch para 12(1C) .................................. 12.2
56(2)( b) ...................................................... 19.4
1st Sch para 12(3A) .................................. 12.2
56(2)( c) ...................................................... 19.3
1st Sch para 12(3B) .................................. 12.2
57 ............................................................... 19.2
1st Sch para 13 ......................................... 12.9
57A ............................................................ 19.2
1st Sch para 13A ....................................... 12.9
58 ............................................................... 19.2
1st Sch para 14 ....................................... 12.11
59 ............................................................... 19.2
1st Sch para 15 ............................ 12.11, 21.12
60 ............................................................... 19.8
1st Sch para 16 ............................ 12.11, 21.12
60(2) ................................................. 19.4, 19.5
1st Sch para 17 ............................ 12.10, 21.12
62 ............................................................... 19.7
1st Sch para 18 ....................................... 21.12
62(1A) ...................................................... 12.14
1st Sch para 19 ......................................... 12.7

64 ............................................................... 19.2
1st Sch para 20 ....................................... 12.12
64C .......................................................... 21.12
1st Sch paras 52–56 ............................... 21.12
64D ................................................... 9.5, 21.12
1st Sch para 57A ..................................... 21.12
64E–N .......................................................... 9.5
2nd Sch para 1 ............................................ 6.3
64E(1) ...................................................... 16.37
2nd Sch para 2 ............................................ 6.4
66 ...................................................... 17.9, 18.2
2nd Sch para 2(1)( a)(ii) ............................... 6.6
67 ............................................................... 18.1
2nd Sch para 2(1)( b) ................................... 6.6
68(1) ............................................................ 3.3
2nd Sch para 2(1)( b)(ii) ............................... 6.6
68(2) ..................................................... 3.3, 3.7
2nd Sch para 2(1)( b)(iA) ............................. 6.6
68(3) ............................................................ 3.5
2nd Sch para 2(1)( b)(iB) ............................. 6.6
72A ................................................... 15.2, 18.3
2nd Sch para 2A ......................................... 6.4
80A–80L ..................................................... 18.8
2nd Sch para 2C ......................................... 6.4
89 ............................................................... 18.5
2nd Sch para 2D ......................................... 6.4
89 bis(2) ......................................... 17.14, 17.16
2nd Sch para 3 ............................................ 6.4
89 quat ........................................... 17.14, 17.16
2nd Sch para 3A ......................................... 6.4

89 quin ............................................. 17.16, 18.5
2nd Sch para 4 ............................................ 6.4
90 ............................................. 3.5, 18.5, 21.20
2nd Sch para 5 ............................................ 6.5
91 ............................................................... 18.5
2nd Sch para 6 ............................................ 6.6
91(4) ................................................... 3.5, 11.7
2nd Sch para 6(1)( a)(i) ................................ 6.6
91(4A) .......................................................... 3.5
2nd Sch para 6(1)( b) ................................... 6.6
102(1A) ...................................................... 18.7
2nd Sch para 6A ......................................... 6.6
103(2), (4), (5) ............................................ 18.8
4th Sch para 1 ................... 5.4, 5.6, 5.11, 5.26,
103(6) ...................................................... 17.14
5.27, 5.28, 5.29, 6.10, 14.10,
108 ........................................................... 18.10
15.15, 16.3, 17.2, 17.3, 17.4,
1st Sch ....................................................... 12.1
17.5, 17.6, 17.8, 17.12
1st Sch para 1 ......................................... 21.12
4th Sch para 2 ......................................... 17.10
1st Sch para 2 .................................. 12.2, 12.3
4th Sch para 2(1) ...................................... 17.2
1st Sch para 3 .................................. 12.2, 12.3
4th Sch para 2(1A) .................................... 17.5
xlii TABLE OF SECTIONS
Section
Para
Section
Para
continued
continued
4th Sch para 2(1B) ........................... 5.33, 17.2
7th Sch para 2( m) ....................................... 5.4
4th Sch para 2(2) ....................................... 17.2
7th Sch para 3 ............................................. 5.4
4th Sch para 2(4) ....................................... 17.3
7th Sch para 4 ............................................. 5.4
4th Sch para 2(5) ....................................... 17.5
7th Sch para 5 ............................................. 5.4
4th Sch para 2(6) ................................ 5.7, 17.3
7th Sch para 6 ............................................. 5.4
4th Sch para 5 ......................................... 17.10
7th Sch para 7 ............................................. 5.4
4th Sch para 6 ......................................... 17.10
7th Sch para 8 ............................................. 5.4
4th Sch para 6(1)( b) .................................... 6.6
7th Sch para 9 ............................................. 5.4
7th Sch para 10 ........................................... 5.4
4th Sch para 9 ........................................... 17.6
7th Sch para 10A ........................................ 5.4
4th Sch para 9(1) ....................................... 17.2
7th Sch para 11 ........................................... 5.4
4th Sch para 9(2) ....................................... 17.2
7th Sch para 11(1) ...................................... 6.2
4th Sch para 9(3) ....................................... 17.8

7th Sch para 12 ........................................... 5.4
4th Sch para 9(4) ....................................... 17.8
7th Sch para 12A ........................................ 5.4
4th Sch para 9(6) ....................................... 17.2
7th Sch para 12B ........................................ 5.4
4th Sch para 10 ......................................... 17.8
7th Sch para 12C ........................................ 5.4
4th Sch para 11 ......................................... 17.8
7th Sch para 12D ........................................ 5.4
4th Sch para 11A .................. 5.2, 5.3, 5.9, 17.8
7th Sch para 12E……………………………..5.4
4th Sch para 11C ....................................... 17.6
7th Sch para 13 ........................................... 5.4
4th Sch para 13 ......................................... 17.9
7th Sch para 16 ........................................... 5.4
4th Sch para 14 ......................................... 17.9
7th Sch para 17 ........................................... 5.4
4th Sch para 15 ......................................... 17.7
7th Sch para 18 ........................................... 5.4
4th Sch para 17 ....................................... 17.14
8th Sch para 1 ........................ 21.2, 21.6, 21.8,
4th Sch para 17(8) ................................... 17.12
21.9, 21.10, 21.12, 21.31
4th Sch para 19 ....................................... 17.14
8th Sch para 2 ........................................... 21.2
4th Sch para 20 ............................ 17.14, 17.16
8th Sch para 3 ........................................... 21.3
4th Sch para 20A .......................... 17.14, 17.16
8th Sch para 4 ........................................... 21.3
4th Sch para 21 ............................ 17.13, 17.14

8th Sch para 5 ........................................... 21.3
4th Sch para 23 ............................ 17.13, 17.14
8th Sch para 6 ........................................... 21.3
4th Sch para 23A .......................... 17.13, 17.14
8th Sch para 7 ........................................... 21.3
4th Sch para 24 ....................................... 17.14
8th Sch para 8 ........................................... 21.3
4th Sch para 27 ....................................... 17.16
8th Sch para 9 ........................................... 21.3
4th Sch para 28(1) .......................... 17.9, 17.15
8th Sch para 10 ......................................... 21.3
4th Sch para 30 ....................................... 17.16
8th Sch para 11 ......................................... 21.9
4th Sch Part III ......................................... 17.11
8th Sch para 11(1)( g) .............................. 21.22
6th Sch ..................................................... 16.15
8th Sch para 12 ..................... 21.2, 21.8, 21.10
7th Sch ......................................................... 5.4
8th Sch para 12A .................................... 21.10
7th Sch para 1 ............................................. 5.4
8th Sch para 12E…………………………….5.4
7th Sch para 2( a) ......................................... 5.4
8th Sch para 13 ....................................... 21.11
7th Sch para 2( b) ......................................... 5.4
8th Sch para 14 ......................................... 21.9
7th Sch para 2( c) ......................................... 5.4
8th Sch para 15 ....................................... 21.12
7th Sch para 2( d) ......................................... 5.4
8th Sch para 16 ...................................... 21.12,
7th Sch para 2( e) ......................................... 5.4

21.22, 21.31
7th Sch para 2( f) ................................... 5.4, 6.2
8th Sch para 17 ....................................... 21.12
7th Sch para 2( g) ......................................... 5.4
8th Sch para 18 ....................................... 21.12
7th Sch para 2( g A) ...................................... 5.4
8th Sch para 20 .............................. 21.5, 21.21
7th Sch para 2( h) ......................................... 5.4
8th Sch para 20A ...................................... 21.5
7th Sch para 2( i) .......................................... 5.4
8th Sch para 21 ......................................... 21.5
7th Sch para 2( j) .......................................... 5.4
8th Sch para 22 ......................................... 21.5
7th Sch para 2( k) ......................................... 5.4
8th Sch para 24 ......................................... 21.5
7th Sch para 2( l) .......................................... 5.4
8th Sch para 25 ......................................... 21.5
TABLE OF SECTIONS xliii
Section
Para
Section
Para
continued
continued
8th Sch para 26 ......................................... 21.5
8th Sch para 64B .................................... 21.12
8th Sch para 27 ......................................... 21.5

8th Sch para 64B(2) ................................ 16.37
8th Sch para 28 .............................. 21.5, 21.22
8th Sch para 64C ......................... 21.12, 21.14
8th Sch para 29 ......................................... 21.6
8th Sch para 64D .................................... 21.12
8th Sch para 30 ......................................... 21.7
8th Sch para 64E .......................... 21.12, 21.14
8th Sch para 31 ......................................... 21.8
8th Sch para 65 ....................................... 21.24
8th Sch para 32 ......................................... 21.8
8th Sch para 65B .................................... 21.12
8th Sch para 33 ......................................... 21.5
8th Sch para 66 ....................................... 21.25
8th Sch para 34 ......................................... 21.5
8th Sch para 67 ....................................... 21.15
8th Sch para 35 ......................................... 21.4
8th Sch para 67A .................................... 21.12
8th Sch para 35(2) ................................... 21.22
8th Sch para 67B .................................... 21.12
8th Sch para 35(3)( a) .............................. 21.28
8th Sch para 67C .................................... 21.12
8th Sch para 35A ..................................... 21.10
8th Sch para 67D .................................... 21.12
8th Sch para 36 ....................................... 21.11
8th Sch para 68 ....................................... 21.20
8th Sch para 37 ....................................... 21.23
8th Sch para 69 ....................................... 21.20
8th Sch para 38 .............................. 21.8, 21.17
8th Sch para 70 ....................................... 21.20
8th Sch para 39 ....................................... 21.18

8th Sch para 71 ....................................... 21.20
8th Sch para 39A ....................................... 21.4
8th Sch para 72 ....................................... 21.20
8th Sch para 40 .............................. 21.8, 21.15
8th Sch para 73 ....................................... 21.20
8th Sch para 41 ....................................... 21.15
8th Sch para 74 ....................................... 21.28
8th Sch para 42 ....................................... 21.21
8th Sch para 75 ............................ 21.11, 21.28
8th Sch para 43 ............................ 16.37, 21.31
8th Sch para 76 ....................................... 21.28
8th Sch para 43(7) ................................... 16.37
8th Sch para 76A .................................... 21.28
8th Sch para 43A ....................................... 21.4
8th Sch para 76B .................................... 21.28
8th Sch para 43B ..................................... 21.31
8th Sch para 77 ....................................... 21.30
8th Sch para 44 ....................................... 21.13
8th Sch para 79 ....................................... 21.29
8th Sch para 45 ....................................... 21.13
8th Sch para 80 ....................................... 21.14
8th Sch para 46 ....................................... 21.13
8th Sch para 81 ....................................... 21.14
8th Sch para 47 ....................................... 21.13
8th Sch para 82 ....................................... 21.14
8th Sch para 48 ....................................... 21.13
8th Sch para 83 ....................................... 21.16
8th Sch para 49 ....................................... 21.13
9th Sch .................................................... 16.27
8th Sch para 50 ....................................... 21.13

10th Sch ................................................... 16.24
8th Sch para 52 ....................................... 21.12
11th Sch ...................................... 10.13, 16.10A
8th Sch para 53 ............................ 21.10, 21.12
8th Sch para 54 ....................................... 21.12
Estate Duty Act 45 of 1955
8th Sch para 55 ....................................... 21.12
1 ................................................................ 20.9
8th Sch para 56 ....................................... 21.12
2 ................................................................ 20.1
8th Sch para 57 ....................................... 21.26
3 ..................................................... 20.1, 20.11
8th Sch para 57A ..................................... 21.12
3(2)( a) ........................................................ 20.2
8th Sch para 58 ....................................... 21.12
3(2)( b) ....................................................... 20.2
8th Sch para 59 ....................................... 21.12
3(3)( a) ........................................................ 20.2
8th Sch para 60 ....................................... 21.12
3(3)( a) bis ................................................... 20.2
8th Sch para 61 ....................................... 21.12
3(3)( c A) ..................................................... 20.2
8th Sch para 62 ....................................... 21.12
3(3)( c B) ..................................................... 20.2
8th Sch para 63 ....................................... 21.12
4 ....................................................... 20.1, 20.3
8th Sch para 63A ..................................... 21.12
4( e) .......................................................... 20.12
8th Sch para 63B ............................ 16.3, 21.12
4A ..................................................... 20.1, 20.4

8th Sch para 64 ....................................... 21.12
5 ................................................................ 20.2
8th Sch para 64A ..................................... 21.12
11 ............................................................ 20.10
xliv TABLE OF SECTIONS
Section
Para
Section
Para
Estate Duty Act 45 of 1955 –
Rates and Monetary Amounts and
continued
Amendment of Revenue Laws
12 ............................................................. 20.10
Act 32 of 2019 – continued
13 ............................................................. 20.10
para 3( b) ................................................. 16.17
26 ............................................................. 20.13
para 3( c) .................................................. 16.17
1st Sch .............................................. 20.5, 20.7
para 3( d) ................................................. 16.13
para 4 ........................................... 16.27, 16.29
Other legislative sources
para 4( b) ................................................... 11.9
GN 169 of 2018 ......................................... 5.26
para 5 ...................................................... 16.33
GN 170 of 2018 ......................................... 5.27
para 7 ...................................................... 16.33
Interpretation Note 69 (issue 2) of 2017 .... 12.8

para 8 ...................................................... 16.15
para 9( a) ...................................................... 6.7
Rates and Monetary Amounts and
para 9( b) ..................................................... 6.8
Amendment of Revenue Laws
para 9( c) ...................................................... 6.9
Act 32 of 2019
para 12 .................................................... 16.17
Schedule I ........................ 2.6, 2.7, 6.7, 6.8, 6.9
para 1 .......................................... 2.6, 2.7, 11.9
Employment Tax Incentive
para 2 ........................................ 2.6, 11.9, 17.5
Act 26 of 2013
para 3( a) ........................... 16.14, 16.16, 16.17,
10(1)( s) ...................................................... 5.35
16.18, 16.19, 17.5
Basic principles of income tax
1.1 Who is liable to tax?
ss 1, 5
In South Africa every natural or artificial ‘person’ deriving taxable income is liable to pay tax.
Individuals, companies, close corporations, estates of insolvent persons, estates of deceased persons,
clubs, associations, trusts and any other legal entity with a taxable income will pay tax, either because
they are legal ‘persons’ or are defined as such for tax purposes.
The Act of Parliament dealing with various forms and types of tax is the Income Tax Act, which is the Act
whose consequences are described in this book. Should you wish to look up the section or provision of
the Act described in a particular paragraph of this book, you will find the section number (or principal
section number) given alongside the paragraph heading. Another Act dealt with here, although in a
separate chapter, is the Estate Duty Act. Taxation Acts are subject to regular change, which is the reason
why this book is updated annually.
Not dealt with in this book is the Tax Administration Act, 2011 which deals with the administrative
aspects of various tax Acts.
The age of an individual taxpayer does not affect his or her liability for tax, and minor children or even
newborn babies might be liable to tax. Nevertheless, three concessions are made to aged taxpayers (see
2.5, 2.10 and 7.2).
Husbands and wives generally pay tax separately but in certain exceptional circumstances the income
derived by one spouse may be taxed in the hands of the other (see 3.3). There are also special rules for
the taxation of income derived by persons married in community of property (see 3.2).
Certain individuals with small taxable incomes will not be liable to tax (see 1.4).
Companies are taxed on a favourable basis if they qualify as small business corporations (see 16.33), and
companies and individuals that qualify as micro businesses (see 16.15) are taxed on a special basis.
Partnerships as such are not liable to tax; instead, the taxable income of the individual partners, whether
they are natural or artificial persons, is calculated (see 13.1). The estate of an insolvent person is liable
to tax (see 11.3), and so is the estate of a deceased person (see 11.1), as well as a company in liquidation,
for whatever reason (see 14.9). While trusts are also liable to tax, their income is often included with
that of some other taxpayer who or that then bears the liability, with the result that the trust is left with
a reduced or even no liability.
Although liability for the principal taxes attaches to a person’s ‘taxable income’, that is an amount
derived, in the main, from the concept of ‘gross income’, which is computed differently according to a
person’s ‘residence’. Residence for this purpose has nothing to do with citizenship, domicile, emigration
or immigration. It is, rather, an artificial concept applying solely to the Income Tax Act.
Generally speaking, while South African residents bear the full burden of South African taxes, non-
residents are liable on a much more limited basis.
The relationship between ‘gross income’ and ‘taxable income’ is that gross income less exempt income
(see 1.6) less deductions (see 10.14) equals the principal form of ‘taxable income’ – what may be called
taxable income on income account. This is how gross income differs for residents and non-residents:
• The
‘gross income’ of a resident is the total amount, in cash or otherwise, derived by the resident, excluding
amounts of a capital nature, unless these fall into a long list of special inclusions in 1
2 BASIC PRINCIPLES OF INCOME TAX
gross income described in various places in this book. The word ‘derived’ is used here and elsewhere in
this book as meaning ‘received by or accrued to or in favour of’.
• The ‘gross income’ of a non-resident is the total amount, in cash or otherwise, derived by the non-
resident from a source within South Africa, excluding amounts of a capital nature, unless these fall into
the same long list of special inclusions in gross income, although, presumably, only if these refer to items
having an actual or deemed local source.
The result is that, while South African residents pay tax on their worldwide taxable incomes, derived
from their worldwide gross incomes, non-residents pay only on that part of their taxable incomes
derived from their gross incomes having either an actual or a deemed, that is, artificial, source here.
Who is a ‘resident’?
It follows that the definition of a ‘resident’ is central to the tax system.

For artificial persons, such as companies and trusts, this definition is seemingly simple, since such a
person will be resident here when it is incorporated, established or formed in South Africa or when it
has its place of effective management here. In reality, though, the location of an artificial person’s place
of effective management can be a difficult – and highly charged – issue.
In order for a natural person to be a ‘resident’, he or she must be ‘ordinarily resident’ in South Africa.
What this requirement is taken to mean is that the person must have his or her principal residence here,
and that this be the residence to which he or she returns from his or her wander-ings. It does not matter
who actually owns such a residence. Once a person is no longer ordinarily resident here, he or she will
be a resident for part of that tax year, and a non-resident for the rest of the year.
Nevertheless, even an individual who is not ordinarily resident in South Africa at any time during the tax
year may be a resident. This will be someone who is physically present here for a period or periods
exceeding ninety-one days in aggregate during the tax year concerned, as well as for a period or periods
exceeding ninety-one days in aggregate during each of the five preceding tax years, and for a period or
periods exceeding 915 days in aggregate during those five preceding years of assessment. For this
purpose, a part of a day is treated as being a full day. Days during which a person is in transit through
South Africa between two places outside South Africa does not count as long as he or she does not
formally enter the country through a ‘port of entry’ as defined in s 9(1) of the Immigration Act 13 of
2002 or, at any other place permitted by the Director General of the Department of Home Affairs or the
Minister of Home Affairs in terms of that Act. Once a person satisfies these ‘physical-presence’ criteria,
he or she will be a resident from the first day of the tax year in which he or she qualifies. One
consequence of this complicated rule is that someone who is not ordinarily resident here will end his or
her residence here from the beginning of a tax year if he or she is not physically present here for a
period or periods exceeding ninety-one days in that year.
There is also a rapid-exit rule that comes into force even when the person concerned leaves South Africa
after having been here for the period or periods exceeding ninety-one days in the current year. This
comes into force when the person concerned is physically outside South Africa for a continuous period
of at least 330 full days immediately after the day on which he or she ceased to be physically present
here. He or she is then treated as not having been a resident from the day on which he or she ceased to
be physically present here, that is, from the start of the 330-day period.
Despite the rules set out above, a person will not be regarded as a resident if he or she is deemed to be
exclusively a resident of another country for the purposes of the application of any of the double
taxation agreements entered into by South Africa (see 18.10).
When a person who is a resident ceases to be a resident during a tax year, the person must be regarded
as not being a resident from the day on which the person ceases to be a resident.
BASIC PRINCIPLES OF INCOME TAX 3
In the determination whether a person that is a ‘foreign investment entity’ (see below) has its place of
effective management in South Africa, no regard must be had to any activity that constitutes a financial
service as defined in s 1 of the Financial Advisory and Intermediary Services Act 37
of 2002, or any service that is incidental to that financial service when the incidental service is in respect
of a financial product that is exempted from the provisions of that Act, as contemplated in s 1(2) of that
Act, and is carried on by a financial service provider as defined in s 1 of the Financial Advisory and
Intermediary Services Act in terms of a licence issued to the financial service provider under s 8 of that
Act.
A ‘foreign investment entity’ is defined as a person other than a natural person that is not
incorporated, established or formed in South Africa the assets of which consist solely of a portfolio of
one or more of the following:
• amounts in cash or that constitute cash equivalents;
• financial instruments that:
– are issued by a listed company or by the government of South Africa in the national, provincial or local
sphere; or
– if not issued by a listed company or by the government of South Africa in the national, provincial or
local sphere, are traded by members of the general public and a market for that trade exists;
• financial instruments, the values of which are determined with reference to financial instruments
contemplated in the previous bulleted item; or
• rights to receive any asset contemplated in any of the bulleted items above, which amounts, financial
instruments and rights are held by the person for investment purposes.
In addition, no more than 10% of the shares, units or other form of participatory interest in the person
must be directly or indirectly held by residents, and the person must have no employees and have no
directors or trustees that are engaged in the management of the person on a full-time basis.
Who is a taxpayer?
A person liable to pay tax or obliged to submit income tax returns is known as a ‘taxpayer’.
Tax is an annual affair
Tax is payable and returns must be submitted by those obliged to submit them (see 18.2) for each
‘year of assessment’ or ‘tax year’, which will sometimes be a period of less than a full year (see 2.2).
1.2 What taxes are payable?
ss 1, 5, 26A, 4th Sch
The principal tax payable is that levied on a person’s taxable income. It is officially an ‘income tax’, and
its technical name is ‘normal tax’, but in the public’s mind it will always be seen as comprising two taxes,
the income tax proper, or ‘ordinary’ income tax, and the capital gains tax, or CGT. Where appropriate,
this distinction is maintained in this book.
As already noted (see 1.1), the relationship between ‘gross income’ and ‘taxable income’ is that gross
income less exempt income (see 1.6) less deductions (see 10.14) equals the principal form of
‘taxable income’, that derived on income account. But ‘taxable income’ is more than this component
derived from gross income; it also includes all amounts included or deemed to be included in a person’s
taxable income. One of the most important of these inclusions is a person’s ‘taxable capital gain’ (see
21.3) for a particular tax year.
In other words, taxable income will include both gross-income-derived taxable income and taxable
capital gains. To put it another way, taxable income will be computed both on income and on capital
account. Nevertheless, the income tax will be levied on a single, combined taxable income. But, to the
public, the person concerned will be paying both income tax and the capital gains tax or CGT.
Advances against liability for ordinary income tax due are made by way of payments called ‘employees’
tax’ or PAYE (see 17.2) by ‘employees’ (see 17.2) deriving ‘remuneration’ (see 17.3), unless certain
exemptions apply.
Advances in the form of ‘provisional tax’ (see 17.11) against liability for both income tax and the CGT are
made by ‘provisional taxpayers’ (see 17.12) deriving other forms of taxable income, unless certain
exemptions apply.
The Income Tax Act also imposes a withholding tax on royalties (see 15.16), a withholding tax on
dividends known as the ‘dividends tax’ (see 9.4), a withholding tax on interest (see 15.19), the donations
tax (see 19.2), a so-called liftings tax on non-resident owners or charterers of aircraft and ships (see 16.1
and 16.32) a withholding tax on amounts paid to non-resident sellers of immovable property (see
15.17), a withholding tax on foreign entertainers and sportspersons (see 15.18) and a withholding tax
on interest (see 15.19).
1.3 What is taxable?
ss 1, 26A
Essentially, you will determine what is taxable by making two calculations of your taxable income, the
one on income account and the other on capital account. The calculation on capital account is dealt with
in Chapter 20.
The calculation on income account depends upon your ‘gross income’ (see 1.1). Under this heading, all
income you received or to which you became entitled during the tax year is taxable, whether it is derived
in cash or in kind. Income derived other than in cash is generally valued at market value on the day you
became entitled to it (although there are exceptions to this rule). For example, if, instead of paying you
your fee for independent programming work in cash, your client bought 1 000 quoted shares worth R3
each and gave them to you, you would be liable to tax on R3 000. Employment benefits in kind are taxed
according to special rules (see Chapter 5).
If you are a resident (see 1.1), your world-wide income from all sources will be taxable, subject to
certain exemptions. If you are a non-resident, only your income from actual or deemed sources in South
Africa will be taxable, although, again, subject to certain exemptions.
Most capital profits and certain other exempt or tax-free income (see 1.6) is not taxable under this
calculation.
From your ‘income’ that is taxable you may deduct certain deductions and allowances to which you are
entitled. The balance remaining is your ‘taxable income’ on income account.
A taxpayer’s taxable income on income account is calculated in the following manner: All amounts
received or accrued from world-wide sources
R70 000
Less: Untaxed capital receipts or accruals
..................................................................
7 000
‘ Gross income’
R63
000
Less: Exempt (tax-free) income
..................................................................
000
‘ Income’
R58
000
Less: Allowable deductions
..................................................................
500
‘ Taxable income’
R48
500
To this, your taxable income on income account, is added your taxable capital gain for the year and
income tax is chargeable on your total taxable income. The actual amount payable by you will depend
upon the rebates to which you are entitled. The personal rebates (see 2.8), which are unavailable to
companies or other taxpayers that are not natural persons, such as estates and trusts, are deducted from
the income tax chargeable. Also deductible, by all taxpayers entitled to it, is the rebate for foreign taxes
on income (see 15.4). Only the net amount remaining is actually payable.
BASIC PRINCIPLES OF INCOME TAX 5
1.4 Taxable incomes that are free of tax
s 10(1)( i)
Although the way in which taxable income is calculated or the amounts and types of various rebates
have not yet been described in detail, it is nevertheless not too early to state that, because of the
minimum rebates to which you are entitled (see 2.8), you will become liable to tax only once your
taxable income exceeds R79 000 if you are under 65 years old, R122 300 if you are 65 years old or older
on the last day of February and R136 750 if you are 75 years old or older on the last day of February.
In addition, if you are under 65 years old, the first R23 800 of your interest income that would otherwise
be taxable and taxable dividends, including foreign dividends (see 9.3), is freed from tax.
If you are at least 65 years old on the last day of February, this amount is increased to R34 500
(See 7.2 and 9.4.). These exemptions will apply to interest that is not exempt from tax under the special
exemption for tax-free investments (see 7.4).
1.5 Capital vs income
The difference between your capital and your income is important because of the two types of taxable
income, the one calculated on income account and the other on capital account (see 1.3).
Under the calculation on income account, capital profits are not taxable, unless they fall into the long list
of special inclusions in gross income detailed in various places throughout this book. By contrast, the
calculation on capital account is all about your capital gains and capital losses, which, if these leave you
with a ‘taxable capital gain’ (see 21.3), will lead to an inclusion in your taxable income. These gains and
losses are dealt with in Chapter 21. What follows has to do exclusively with the calculation of your
taxable income on income account.
What is a capital receipt or accrual? This sometimes can be an extremely difficult question to answer
but, generally speaking, a capital receipt or accrual will arise when you sell an asset and it is clear that
you are not making it your business to buy and sell assets of that type in order to earn profits. On the
other hand, if you conduct a business of dealing in such assets, the proceeds will be income.
Examples of capital transactions (not taxable on income account)
The sale of the house you live in.
The sale of your private motor car.
The sale of shares you held as investments.
The sale of a plot of land you inherited.

The receipt of the proceeds of your endowment policy.
The sale of the goodwill of your business.
The receipt of a prize in a competition.
The receipt of an inheritance, donation or gift.
Your receipt of any winnings as an occasional punter.
Examples of income transactions (taxable on income account)
The sale of houses and land if you are a property-dealer.
The sale of motor cars if you are a motor-dealer.
The sale of shares if you are a share-dealer.
The receipt of a pension.
The receipt of salaries, commissions, interest, rent or royalties.
1.6 Tax-free
income
Certain amounts of your income may be entirely free of tax (exempt) and will consequently be excluded
from your taxable income. You will find the various types of tax-free or partly tax-free income dealt with
in the appropriate sections of this book as indicated below: Alimony, allowance or maintenance – See
4.2.
Annuities (purchased) – See 2.4.
Associations, bodies, clubs, funds and companies – See 16.4, 16.5, 16.6, 16.9, 16.25 and 16.30.
Bursaries – See 5.16.
Dividends – See 9.1.
Employment income – See 5.14.
Fund benefits – See 6.6.
Interest – See 7.4 (individuals and companies), (tax-free investments), 15.6 (non-residents) and 16.7
(collective investment schemes or unit trusts).
Mining operations – See 16.23.
Shipping income – See 16.32.
Subsidies, rebates and assistance – See 10.12 (employers training employees), 10.13 (exporters) and
12.2 (farmers).
Unemployment benefits – See 5.14.
How to calculate your taxes
2.1 The year of assessment
s1
Income tax is an annual tax; therefore it is your income over each twelve-month period that is subjected
to – or assessed for – tax. Most individuals have a ‘year of assessment’ – or tax year –
running from 1 March to the last day of February. It is their income derived during this period that must
be disclosed in their tax returns.
2.2 Period of assessment less than a year
It is possible for a taxpayer to have a period of assessment of less than twelve months. For example, a
baby born during any year has a period of assessment running from the date of birth to the last day of
February. If a taxpayer dies, the period of assessment runs from 1 March to the date of death. For
convenience, even these ‘broken’ periods of assessment are referred to as ‘years of assessment’ (or tax
years).
On the other hand, an immigrant to South Africa (no matter when he or she arrives) and a South African
who starts working for the first time (no matter when he or she starts) both have the same period of
assessment: the twelve months to the last day of February. Similarly, someone who is both a resident
(see 1.1) and a non-resident during the twelve months to the last day of February has a single, full
period of assessment, even though the basis of the calculation of his or her gross income will change
over that period (see 1.1).
2.3 Calculating your taxable income
In order to calculate your taxable income on income account (see 1.3) in a particular tax year, you have
to follow the procedure outlined in 1.2 and exclude from your total receipts or accruals capital receipts
or accruals (see 1.5) and tax-free income (see 1.6), and deduct from the balance remaining any
deductions to which you are entitled (see 10.14).
2.4 Tax-free portion of purchased annuities
s 10A
A portion of an annuity, identified as the ‘capital element’, that you derive from an annuity policy that
you have purchased will be free of tax.
This exemption applies also to the capital element of a purchased annuity policy derived by your spouse
or, upon your death, your deceased estate or surviving spouse or, upon your insolvency, your insolvent
estate or the deceased or insolvent estate of your spouse or surviving spouse.
A similar concession applies to an annuity policy acquired by a curator bonis of, or a trust created solely
for the benefit of, a natural person whom the High Court has declared to be of unsound mind and
incapable of managing his or her own affairs, as long as the court has ordered the appointment of the
curator or the creation of the trust.
Also exempted is the capital element of an amount payable in consequence of the commutation or
termination of the policy.
This exemption applies only when you have paid a lump sum in cash to an insurer for the annuity policy.
It will not apply to annuities that you derive from a pension, pension preservation, provident, 7
8 HOW TO CALCULATE YOUR TAXES
provident preservation or retirement annuity fund, as an inheritance, as a gift, for services you have
rendered, or as part of the selling price of an asset that you have sold.
The tax-free portion of the annuity you receive is normally calculated by means of a special formula:
Lump-sum cash amount you paid for annuity contract
The annuity you derive
The value of the annuity over your life expectancy
If any amount to be paid as an annuity is uncertain at the date when the first annuity payment becomes
due, the tax-free portion of the annuity will be calculated differently, but it may not exceed the amount
derived under the following formula:
Lump-sum cash amount
The probable number of years during which annuity amounts will
paid for annuity contract
be payable under the contract
The tax-free portion of an amount payable in consequence of the commutation or termination of an

annuity contract is calculated by means of the following formula:
Lump-sum cash amount you paid for the annuity contract – The sum of the tax-free portions of the
annuities payable under the annuity contract prior to the commutation or termination of the contract as
determined under the two formulae above.
The insurer is obliged to furnish you with two copies of a statutory actuary’s calculation of the tax-free
portion of your annuity within one month after the date on which the calculation is made. You must
attach one of these copies to your tax return.
Should your contract with the insurer be varied, a recalculation of the tax-free portion of your purchased
annuity may have to be made.
These rules apply also to a foreign annuity required to be included in your taxable income (see 5.4 and
15.1). Should you have paid the lump-sum cash amount in a foreign currency and should the annuity
also be payable in a foreign currency, for purposes of the calculation of the tax-free amount, you must
usually apply the spot rates (see 10.74) on the dates on which the lump-sum was paid and the annuities
are received or accrue, but you may choose to use the average exchange rate (see 10.74) for the relevant
tax years instead.
2.5 Tax credits for medical scheme contributions and qualifying
medical expenses
ss 1, 6A, 6B
Medical scheme fees tax credit (s 6A)
You are allowed to deduct a rebate known as the medical scheme fees tax credit of the following
amounts from the normal tax payable by you for contributions made by you to a registered local medical
scheme or equivalent foreign scheme that relate to benefits from the fund for you or any of your
dependants:
• R310 a month when the contributions were made solely for you. You may also claim this amount if you
are not a member of a medical scheme but make contributions for a dependant who is a member of a
medical scheme or is a dependant of a member of a medical scheme.
• R620 a month when the contributions were made for you and one dependant or not for you but for
two dependants.
• Plus an extra monthly amount of R209 for every additional dependant.
For the purposes of the rebate, you will be deemed to have paid any amounts paid by your employer to
the extent that they have been included in your income as a fringe benefit. Amounts paid by your
employer that are taxed as a fringe benefit will therefore be treated as contributions paid by you when
your rebate is determined.
And any amounts paid by a person’s estate will be deemed to have been paid by that person on the day
before his or her death for the purposes of the rebate.
HOW TO CALCULATE YOUR TAXES 9
When more than one person pays towards the contributions for the same dependant, each person who
contributed is allowed to deduct a proportionate share of the medical scheme fees tax credit, the
proportion being based on the ratio that the amount of each person’s share of the total contributions
paid for that dependant bears to the total contributions paid for that dependant.
For the purposes of the medical scheme fees tax credit, a ‘dependant’ is defined in relation to a taxpayer
as a ‘dependant’ as defined in the provision dealing with the additional medical expenses tax credit (see
below).
If the Minister of Finance announces in his annual budget speech a change in the amounts of the rebate
with effect as from a certain date or certain dates, the change will come into effect on that date or those
dates and continue to apply for a period of twelve months subject to Parliament’s passing legislation
giving effect to the announcement within that twelve-month period.
Additional medical expenses tax credit (s 6B)
You are, in addition, allowed to deduct a rebate known as the additional medical expenses tax credit of
the following amounts from the normal tax payable by you for contributions made by you to a registered
local medical scheme or equivalent foreign scheme and qualifying medical expenses paid by you.
If you are aged over 65 or you or your spouse or child has a disability
• 33,3% of so much of the amount of the medical-aid contributions paid by you during the tax year as
exceeds three times the amount of the medical schemes fees tax credit (see above) to which you are
entitled; plus
• 33,3% of the amount of qualifying medical expenses paid by you during the tax year.
For example, say a man aged 65 or more or disabled but with no dependants pays medical-aid
contributions of R2 430 a month and other qualifying medical expenses of R36 000 during the year.
His tax credit would be determined a follows:
Medical-aid contributions for year
R29 160
Less:
3 × medical scheme fees tax credit (3 × 12 × 310)
11 160
Excess
18 000
33,3%
5 994
Plus:
33,3% of qualifying medical expenses
11 988
Additional medical expenses tax credit
R17 982
If you are aged under 65 and have no family member with a disability If the aggregate of:
• so much of the amount of the medical-aid contributions paid by you during the tax year as exceeds four
times the amount of the medical schemes fees tax credit (see above) to which you are entitled; plus
• the amount of qualifying medical expenses paid by you during the tax year, exceeds 7,5% of your
taxable income for the tax year (excluding retirement fund lump sum benefits, retirement fund lump
sum withdrawal benefits and severance benefits), 25% of the excess.
For example, say a man with no dependants pays medical-aid contributions of R2 240 a month and other
qualifying medical expenses of R24 000 during the tax year. His taxable income is R114 000. His tax
credit would be determined as follows:
Medical-aid contributions for year
R26 880
Less:
4 × medical schemes fees tax credit (4 × 12 × 310)
14 880
Excess
12 000
Plus:
Qualifying medical expenses
24 000
36 000
Less:
7,5% of qualifying taxable income
8 550
R27 450
Additional medical expenses tax credit ( 25% of R27 450)
R6 862,50
Definitions
In order for expenditure incurred for a ‘child’ to qualify for the deduction, the child must be the child of
you or your spouse and must be alive during some part of the current tax year and, on the last day of
that year, unmarried. In addition, on that day the child must not be over the age listed below (if the child
has died during the year, this age requirement is judged by the age he or she would have attained on the
last day of the tax year). Children over 18 have to satisfy the further requirements also listed below:
• Not over the age of 18.
• Over 18 but not over the age of 21, but then must also have been wholly or partly dependent upon you,
the taxpayer, for maintenance and must not have become liable for the payment of income tax or the
capital gains tax (CGT) for the relevant tax year.
• Over 21 but not over the age of 26, but then must also have been wholly or partly dependent upon you,
the taxpayer, for maintenance, must not have become liable for the payment of income tax or the CGT for
the relevant tax year and must have been a full-time student at an educational institution of a public
character.
• A child or stepchild of any age, married or unmarried, incapacitated by a disability from maintaining
himself or herself who was wholly or partly dependent upon you, the taxpayer, for maintenance and has
not become liable for the payment of income tax or the CGT for the relevant tax year qualifies for this
purpose.
A ‘dependant’ is defined in relation to a taxpayer as:
• his or her spouse;
• his or her child and the child of his or her spouse;
• any member of his or her immediate family for whom he or she is liable for family care and support;
and
• any other person recognised as a dependant of the taxpayer under the rules of a medical scheme or
fund,
at the time when the contributions were made or the medical and dental expenses were paid or the
disability expenses were incurred and paid.
‘Disability’ for this purpose means a moderate to severe limitation of a person’s ability to function or
perform daily activities as a result of a physical, sensory, communication, intellectual or mental
impairment, if the limitation:
( a) has lasted or has a prognosis of lasting more than a year; and ( b) is diagnosed by a duly registered
medical practitioner in accordance with criteria prescribed by the Commissioner.
‘Qualifying medical expenses’
(1) Amounts paid by you during the tax year to any duly registered:
(i) medical practitioner, dentist, optometrist, homeopath, naturopath, osteopath, herbalist,
physiotherapist, chiropractor or orthopedist for professional services rendered to you or your spouse or
to your or your spouse’s children or to your dependants; (ii) nursing home or hospital or any duly
registered or enrolled nurse, midwife or nursing assistant (or to any nursing agency for the services of
such a nurse, midwife or nursing assistant) in respect of your illness or confinement or the illness or
confinement of your spouse or your or your spouse’s children or any of your dependants;
(iii) pharmacist for medicines supplied on the prescription of any person mentioned in item (i) for you
or your spouse or your or your spouse’s children or any of your dependants.
(2) Amounts paid by you during the tax year for expenditure incurred outside South Africa on services
rendered or medicines supplied to you or your spouse or children (there is no mention of your spouse’s
children here) or any of your dependants that are substantially similar to the services and medicines
described in item 1 above.
(3) Any of your expenditure that is prescribed by the Commissioner that you necessarily incur and pay
as a result of a physical impairment or disability suffered by you or your spouse or your or your spouse’s
child or any of your dependants. You must be able to show that the expenditure was necessarily
incurred.
Any of your expenditure under items 2 and 3 above that you or your spouse may recover (for example,
from a medical scheme) does not qualify for the deduction.
If the Minister of Finance announces in the annual budget speech a change in the amounts of the credit
with effect as from a certain date or certain dates, the change will come into effect on that date or those
dates and continue to apply for a period of twelve months subject to Parliament’s passing legislation
giving effect to the announcement within that twelve-month period.
2.6 The tax tables and rebates
Schedule 1 paras 1, 2 Act 32 of 2019
Once you have calculated your taxable income the next step is to calculate the tax on your taxable
income in accordance with the table given in 2.7.
Taxpayers who are natural persons calculate their liability for tax by deducting the rebates to which
they are entitled from the tax according to the table. While only natural persons are entitled to deduct
the rebates listed in 2.8 and the medical scheme fees tax credit and the additional medical expenses tax
credit in 2.5 and, the rebates for foreign taxes on income (see 15.4 and 15.5) are available to all
taxpayers.
The rebates are deducted from the tax payable on your taxable income excluding the tax payable on your
retirement fund lump-sum benefits, retirement fund lump-sum withdrawal benefits and severance
benefits (see 6.10).
There is a special tax table for taxpayers who are natural persons or that are estates of deceased or
insolvent persons or special trusts (see 11.4). Excluded are trusts that are qualifying public benefit
organisations, which pay tax at the rate of 28% in tax years ending on 29 February 2020, and
recreational clubs. Any other trust (see 11.4) pays tax at the rate of 45%.
For the rates of tax for companies, see Chapter 14.
2.7 Table of tax – natural persons,
Schedule 1 para 1 Act 32 of 2019
deceased or insolvent
estates and special trusts
Taxable income
But
does
Exceeds not
exceed
Rates of tax
R
R
195 850
18%
Of each R1
195 850
305 850
35 253
26%
Of the excess over
159 850
305 850
423 300
63 853
31%
,, ,, ,, ,, 305
850
423 300
555 600
100 263
+
36%
,, ,, ,, ,, 423
300
555 600
708 310
147 891
39%
,, ,, ,, ,, 555
600
708 310
1 500 000
207 448
41%
,, ,, ,, ,, 708
310
1 500 000
532 041
45%
,, ,, ,, ,,
1 500 000

2.8 Your rebates at a glance
s6
Primary
Primary rebate .................................................................................................................................. 14
220
Persons 65 or over
Secondary rebate .............................................................................................................................
7 794
Persons 75 or over
Tertiary rebate ..................................................................................................................................
2 601
If the Minister of Finance announces in the annual budget speech a change in any of the rebates with
effect as from a certain date or certain dates, the change will come into effect on that date or those dates
and continue to apply for a period of twelve months subject to Parliament’s passing legislation giving
effect to the announcement within that twelve-month period.
2.9 Primary
rebate
s 6(2)( a)
The primary rebate, which is available to every taxpayer who is a natural person, that is, an individual,
amounts to R14 220.
2.10 Persons 65 or over – secondary rebate
s 6(2)( b)
If you are 65 years old or older on the last day of February in a particular tax year, you are entitled to an
additional rebate of R7 794.
For a taxpayer who has died during the tax year, this age qualification is judged by the age he or she
would have attained had he or she lived to the last day of February.
2.11 Persons 75 or over – tertiary rebate

s 6(2)( c)
If you are 75 years old or older on the last day of February in a particular tax year, you are entitled to an
additional rebate of R2 601.
For a taxpayer who has died during the tax year, this age qualification is judged by the age he or she
would have attained had he or she lived to the last day of February.
2.12 Rebates – period of assessment less than a year
s 6(4)
If your period of assessment is less than a full year (see 2.2), the total of your primary, secondary and
tertiary rebates must be multiplied by:
Days in your period of assessment
365 (366 in a leap year)
This point is illustrated in the example in 2.13. The rebates for foreign taxes on income (see 15.4) are not
apportioned in this fashion even if the period of assessment is less than a year.
2.13 Example – rebates
Mr A, who is married, is 77 years old. What rebates may he claim?
Rebates:
Primary
...........................................................................................................................................
R14 220
Secondary
‘65
or over’ ...................................................................................................................
7 794
Tertiary
‘75
or over’ ........................................................................................................................
2 601
R24 615
2.14 Example – rebates
Assume that the facts are the same as in 2.12 except that Mr A died on 30 August. His period of
assessment is therefore 183 days (1 March to 30 August).
Rebates:
Primary
...........................................................................................................................................
R14 220
Secondary
‘65
or over’ ...................................................................................................................
7 794
Tertiary
‘75
or over’ ........................................................................................................................
2 601
R24 615
Proportionate
reduction:
183/365 (366 in a leap year) × R24 615 .....................................................................................
R12 308
2.15 Example – how to calculate tax liability
Mr B, a married man, derived a taxable income of R100 000. He is entitled to a rebate of R14 220. What
tax is payable?
Taxable
income ................................................................................................................................ R100 000
Tax according to tables on R100 000 (see 2.7) ............................................................................... R18
000
Less: Rebate ..............................................................................................................................
14 220
Tax payable................................................................................... R3
780
2.16 Example – how to calculate tax liability
Mr B of the preceding example derived a taxable income of R265 000. What tax is payable?
Taxable
income ................................................................................................................................ R265
000
Tax according to tables on R195 850 (see 2.7) ...............................................................................
R35 253
Tax according to tables on R69 150 (26% × R 69 150) .................................................................. 17
979
R53 232
Less: Rebate ..............................................................................................................................
14 220
Tax payable...................................................................................
R39 012
2.17 Tax liability and marginal and average rates
A quicker way of calculating your approximate liability for tax is to use the table given at the back of this
book. That table also shows your ‘average’ and ‘marginal’ rates of tax, concepts that are often used.
Your average rate of tax is the rate you pay on your total taxable income. For example, you may find that
you pay away in income tax 22% of your taxable income. Your average rate is calculated in the following
manner:
Total tax paid
× 100 = ×%
Taxable income
Your marginal rate of tax is the rate you pay on an increase in your taxable income. Marginal rates are
usually calculated on increases of R1 000 in taxable income. For example, you may find that should your
taxable income increase by R1 000, you will pay away in tax 36% of that increase. Your marginal rate is
calculated in the following manner:
Net increase in tax as a result of increase in taxable income
× 100 = ×%
Increase in taxable income
Husband and wife
3.1 When you marry
s1
It is only in very special circumstances that your marital status will have any bearing upon your liability
for taxation, and then everything will depend on whether you are the ‘spouse’ of another person or
whether you are a ‘married woman’.
Your ‘spouse’ is your partner in a marriage or customary union recognized in terms of South African
law; in a union recognized as a marriage in accordance with the tenets of any religion; or in a same-sex
or heterosexual union that is intended to be permanent. If you are in such a partnership, you are
‘married’, and you are a ‘husband’ or a ‘wife’.
For provisions affecting spouses, see 3.1–3.4. In the absence of proof to the contrary, a religious
marriage or a same-sex or heterosexual union will be treated as a marriage or union out of community
of property. For the relevance of the marital regime, see 3.2.
The marriage of a couple during a tax year will have no bearing upon their separate liabilities to income
tax. And nothing will affect their separate responsibilities to submit income tax returns, except those
circumstances, described in 18.2, in which either or both of them may be exempted from having to
submit a return.
3.2 A spouse’s income
ss 7(2A), (2B), (2C), 25A
Each spouse (see 3.1) is assessed to tax in his or her own right on all his or her income. Each pays tax on
this income at the rates applicable to individuals (see 2.7) and qualifies for the primary rebate (see 2.9)
as well as the secondary, ‘over-65’ rebate (see 2.10) and the tertiary, ‘over-75’
rebate (see 2.11). Each is also entitled to the rebates for foreign taxes on income (see 15.4 and 15.5).
Even so, certain income derived by one spouse will in certain circumstances be treated as having been
derived by the other spouse (see 3.3).
Marriages in community of property
Special rules apply to the taxation of income derived by spouses married in community of property or
treated as being married in community of property (see 3.1). These rules depend upon the nature of the
income:
Income from trade, except the letting of fixed property
Ordinarily, income derived from the letting of property is treated as being derived from the carrying on
of a ‘trade’ (see 10.14) but, for this immediate purpose, it is excluded. Also treated as being income
derived from trade by a particular spouse are benefits paid or payable to that spouse as a member or
past member of a pension, pension preservation, provident, provident preservation, benefit or
retirement annuity fund or any similar fund; purchased annuities (see 2.4) payable to that spouse; and
royalties derived by that spouse as the registered holder of a qualifying patent, design or trade mark, the
author or owner of a qualifying copyrighted work or the holder of any similar property or right.
On this basis, income derived from the carrying on of a trade is dealt with in the following manner:
• The income from such a trade carried on by only one of the spouses is treated as having been derived
by that particular spouse.
14
HUSBAND AND WIFE 15
• The income from such a trade carried on jointly by both of them is treated as having been derived by
each of them in their agreed profit-sharing ratios. Should they have no agreed profit-sharing ratios, the
income is treated as having been derived by them in the proportions to which each would reasonably be
entitled in the light of their trade, their respective participation, the services they rendered and any
other relevant factor. But this rule applies to this type of income only to the extent that it is not
‘excessive’ and is not required to be included in the income of one of the spouses under the appropriate
rule described in 3.3 treating one person’s income as being another’s.
Non-trading income and income from the letting of fixed property
This income is dealt with in the following manner:
• Such income to which the spouses have equal claims is treated as having been derived by them in equal
shares.
• Such income that does not fall into the joint estate of the spouses is treated as having been derived by
the spouse who was entitled to it. For example, the income from an asset inherited by just one of the
spouses and out of the community of property would be treated as being just that spouse’s income and
would not be divided equally between the spouses.
Deductions and allowances
The general rule is that deductions and allowances appropriate to or associated with any particular
amount of income ‘follow’ that income. In other words, the spouse who is treated as having derived the
income is also treated as being entitled to the relevant deduction or allowance.
Permanently separated spouses
When spouses who are married in community of property and live apart from each other and are likely
to be permanently separated, the taxable income of each one must be determined as if they were not
married in community of property.
3.3 Income treated as being a spouse’s
ss 7(2), 68(1), (2)

In the following circumstances the income derived by a person married (see 3.1) in or out of community
of property, referred to here as the ‘recipient’ spouse, is treated as being derived by his or her spouse,
referred to here as the ‘donor’ spouse:
• The recipient spouse derives income in consequence of a disqualified donation, settlement or other
disposition made or a disqualified transaction, operation or scheme entered into or carried out by the
donor spouse. Such a transaction will be disqualified for this purpose if it is made, entered into or
carried out by the donor with the sole or main purpose of reducing, postponing or avoiding the donor’s
liability for any tax that would otherwise have become payable by the donor.
The tax avoided might be income tax or any other tax administered by SARS.
• The recipient spouse derives ‘excessive’ income from a trade carried on by him or her in partnership or
association with the donor spouse or that is in any way connected with a trade carried on by the donor.
• The recipient spouse derives ‘excessive’ income from the donor spouse.
• The recipient spouse derives ‘excessive’ income from a partnership in which the donor spouse was a
member at the time the recipient derived the income.
• The recipient spouse derives ‘excessive’ income from a private company in which the donor spouse
was the sole or main shareholder or one of the principal shareholders at the time the recipient derived
the income. The same rule applies to a close corporation of which the donor was the main member or
one of the principal members.
16 HUSBAND AND WIFE
‘Excessive income’ in this context means income that exceeds the amount that the recipient spouse
would reasonably have been entitled to in the light of the nature of the relevant trade, the extent of his
or her participation in it, the services rendered by him or her or any other relevant factor.
Similar rules apply to capital gains derived by the recipient spouse but treated as being the gains of the
donor spouse (see 21.20).
In terms of these rules the income or capital gains of either spouse may in the appropriate
circumstances be treated as having been derived by the other. Should they apply to you, in the sense that
you are the donor spouse, you are required to include the income or capital gains concerned in your own
return. At the same time, it would be a good idea for the recipient spouse also to report the same income
or capital gains, although under the head of tax-free income or capital gains, on the basis that it is the
donor spouse who will pay the tax. Nothing is said in this context about capital losses.
On the death of the donor spouse during the tax year, these rules will apply only up to the date of death,
after which the recipient spouse will include the income or capital gains as being his or her own income.
In your return you must state whether any income was derived by your spouse from a trade carried on
by you or as a result of a donation made by you, or vice versa. If your answer is in the affirmative, you
must state the amount derived by you or your spouse and the nature of the donation made, the services
performed by either of you or the extent of the participation of either of you in any business from which
the income was derived.
For the special rules applying to couples married in community of property, see 3.2.
3.4 Husband and wife as provisional taxpayers
Since married couples are separately assessed, each will have to make his or her own separate
provisional tax estimates if he or she qualifies as a provisional taxpayer (see 17.12).
3.5 The income of your children
ss 1, 7(3), (4), 68(3), 90, 91(4), (4A)
No matter how young they are, there is nothing to prevent your children from earning income or capital
gains or suffering capital losses in their own right and being liable to tax on the resulting taxable income.
The proper procedure, if they are minors and earn income or a taxable capital gain or are beneficiaries
of any income or a taxable capital gain from a trust or an estate and have a taxable income exceeding a
certain amount set for each tax year from all sources, is for you, as
‘representative taxpayer’, to obtain and complete a tax return each year on their behalf.
Children who are no longer minors may handle their own tax affairs.
A weekly or monthly allowance that you give your child is not ‘income’, as long as it is voluntary, and
need not be disclosed in your child’s return.
There are two circumstances in which your minor child or stepchild’s income will be included in your
own taxable income:
• When your child or stepchild derives income from an asset donated by you to the child or stepchild for
his or her benefit or he or she is maintained, educated or benefited by the expenditure of the income
earned on your donation or the income is accumulated for his or her benefit. (See also 12.13.)
• When someone else donates the asset that earns the income to your child or stepchild in return for a
benefit conferred by you or your wife on that person or on anyone in his or her family (see the example
in 3.6.)
HUSBAND AND WIFE 17
Similar rules apply to capital gains derived by your minor child but treated as being your gains (see
21.20).
In terms of these rules the income or capital gains of your minor child may in the appropriate
circumstances be treated as being derived by you. Should they apply to you, you are required to include
the income or capital gains concerned in your own return. At the same time, it would be a good idea for
you also to report in your minor child’s return the same income or capital gains, although under the
head of tax-free income or capital gains, on the basis that it is you who will pay the tax. Nothing is said in
this context about capital losses.
Such income or capital gains must be shown separately in your own tax return even if you do complete a
return on behalf of your child for any other income he or she may derive.
You are entitled to recover from your child or stepchild or from your his or her assets or from the assets
donated by you to a trust of which he or she is a beneficiary, that part of the tax you pay as a result of the
inclusion of his or her income or capital gains with yours.
In general, your minor child is, in terms of the relevant statute, an unmarried child under the age of
eighteen, including a legally adopted child but excluding a stepchild; hence the specific inclusion of a
stepchild in the above provisions.
Income from a donation made by a grandparent to a grandchild is taxable in the grandchild’s hands.
3.6 Example – child’s income included with parent’s
Mr A agreed with Mr B that A would make a donation of R10 000 to B’s twelve-year-old son if B would
make a similar donation to A’s nineteen-year-old married son. A earned a salary of R840 000 and B a
salary of R720 000 in the tax year. A’s son earned R1 000 as interest on the sum donated to him, and B’s
son earned R800 interest on the sum donated to him.
What are the taxable incomes of A, A’s son, B and B’s son?
Mr A
A’s son
Mr B
B’s son
RR
RR
Salaries
.............................................................................
840 000
720 000
–
Interest to his son included in B’s income ........................
800
A’s son is not a minor therefore no amount is
included in A’s income ..................................................
1 000
Taxable incomes .................................................. R840 000
R1 000
R720 800
Nil
3.7 Death of husband or wife
s 68(2)
When a spouse (see 3.1) dies during a tax year, his or her income for the period from 1 March to the day
of his or her death will be subject to tax. This income must be reported in a tax return by his or her
executor, who must arrange for payment of tax out of the estate funds. Since the deceased’s period of
assessment will be less than a full year, his or her rebates must be apportioned on a time basis in the
manner described in 2.12.
On a taxpayer’s death, any of the surviving spouse’s income previously treated as being the deceased
spouse’s income (see 3.2 and 3.3) will from then on have to be returned separately by the surviving
spouse and will be treated as that spouse’s income.
See the example in 3.8.
18 HUSBAND AND WIFE
3.8 Example – death during the year
Mr A earned a salary of R100 000 from 1 March 2019 to 30 August 2019, the date of his death. He was
57 years old. What is the tax payable by Mr A?
Period of assessment: 1 March 2019 to 30 August 2019 ( 183 days) Taxable income –
salary .............................................................................
R100 000,00
Tax as per tables on R100 000 (see 2.7) ....................................................
R18 000,00
Less: Primary rebate .............................................................................
14 220
Reduced: R14 220 × 183/366 .............................................................
7 110,00
Tax payable ...........................................................................
R10
890,00
Note: The calculation of tax payable is identical whichever spouse dies.
3.9 Transfer of asset between spouses
s 9HB
Special rules apply for capital gains tax purposes to the transfer of an asset between spouses (see 21.19)
and to the transfer of trading stock, livestock and produce between spouses (see 10.66 and 12.2).
Divorced and separated persons
4.1 Divorce or separation

Essentially, your divorce or separation will not affect your liability for income tax, although it might
mean that any inclusion in your income of your spouse’s income (see 3.3) will come to an end.
4.2 Alimony and maintenance payments
ss 1, 10(1)( u), 21
Current divorce or separations
If you were divorced or permanently separated after 21 March 1962, any alimony, maintenance
payments or allowance you pay for the support of your former or separated spouse or your children will
not entitle you to a deduction. There is therefore no need to include details of such payments in your tax
return. At the same time your former or separated spouse will not have to pay tax on the amounts he or
she receives by way of alimony or allowance or maintenance under an order of judicial separation or
divorce granted in consequence of proceedings instituted after that date or under an agreement of
separation entered into after that date or by way of deduction from the minimum individual reserve of a
person under s 37D(1)( d) of the Pension Funds Act 24 of 1956 if the deduction is of a recurrent nature
(except an amount that accrued under the rule dealing with pension payments in 4.3). There is therefore
equally no need for your spouse to include details of such payments in his or her return.
Divorce or separation on or before 21 March 1962
The position is quite different if you were divorced or separated by judicial order or written agreement
on or before 21 March 1962 and you are required to make such payments, that is, in terms of a court
order or agreement of separation. You will be entitled to reduce your taxable income (see 1.3) by the
amount of the payments you make, and you should therefore claim this deduction in your return. You
should also indicate the name and address of your former or separated spouse and the names and dates
of birth of your children for whom you make maintenance payments. To claim this deduction, however,
you must make the payment out of your taxable income, and the amount of your deduction is limited to
your taxable income.
For example, if you are in business as a sole trader and have a loss in any tax year, you will not be
entitled to a deduction in that year, since you will have no taxable income. And if your taxable income is,
say, R30 000 and you pay alimony of R32 000 a year, your taxable income will be reduced to nil. The
excess of R2 000 may not be deducted.
On the other hand, your former or separated spouse will pay tax on the full payments he or she derives,
and must include them in his or her return. Voluntary payments will not entitle you to a deduction; nor
will they be included in your former or separated spouse’s income.
Special rules apply when your order of divorce or judicial separation is superseded by a later order.
If your separation is permanent but was not effected by a judicial order or written agreement, your
position will be the same as if you separated after 21 March 1962.
19
20 DIVORCED AND SEPARATED PERSONS
Foreign orders and agreements
If your divorce or separation on or before 21 March 1962 was effected by means of an order of a court
outside South Africa or if you entered into a written agreement of separation outside South Africa on or
before that date, your alimony and maintenance payments will be allowed on the same basis as if a local
order or agreement were involved. Your former or separated spouse will pay tax on only so much of
such payments as are allowed to you as a deduction.
For example, a woman who was divorced outside South Africa in 1961 and now lives here will not pay
tax on alimony she receives in terms of the court order if her former husband is not allowed a deduction
for his payments, perhaps because he lives abroad and derives no taxable income (South African
income) from which to make a deduction.
4.3 Pension
payments
s 7(11)
Amounts deducted on a recurrent basis from a member’s minimum individual reserve in terms of s
37D(1)( d)(iA) or ( e) of the Pension Funds Act 24 of 1956 are deemed to have accrued to the member
on the date of the deduction.
Income from employment
5.1 Amounts included in your income
s1
Any amount you derive from employment, for services rendered or to be rendered or for holding an
office is included in your gross income (see 1.1) and therefore in your taxable income (see 1.3) and,
except in special circumstances, also your remuneration (see 17.3) from which employees’ tax (PAYE) is
deducted. It makes no difference whether you are rewarded in cash or kind or whether your employer is
obliged to pay you an amount – for example, in terms of a contract – or pays you a voluntary award, for
example, under a discretionary bonus-scheme or as a prize.
Nor does it matter whether the amount payable for your services is paid to someone else. It will be
treated as having been derived by you and will still be taxable in your hands. There is one exception to
this rule allowed in practice by SARS. If you are nominated by your employer to act as a director of a
company of which your employer is a shareholder and the director’s fees for your directorship are paid
either directly to your employer or to you subject to your paying them over to your employer, you will
not pay tax on the fees, which will instead be taxed in the hands of your employer.
The general rule, to which there are some limited exceptions (see 15.1), is that, as a resident (see 1.1),
amounts you derive from employment anywhere in the world will be included in your gross income.
Non-residents will have included in their gross income only amounts derived from employment in South
Africa or otherwise derived from a source in South Africa (see 15.6).
An amount derived from employment is taxable in the tax year in which you receive it or become
entitled to it even though it may relate to services rendered in previous years or to services still to be
rendered.
The following items are examples of payments derived from employment, services rendered or the
holding of an office that would be included in your gross income:
• Annual or occasional bonuses.

• A normal salary or wage.
• Climatic
allowances.
• Commission.
• Cost-of-living
allowances.
• Director’s
fees.
• Director’s other remuneration.
• Executor’s fees and administrator’s and trustee’s commission.
• Fringe benefits from employment (see 5.4).
• Gratuities from an employer (for example, a voluntary bonus or gratuity for services to be rendered).
• Holiday
pay.
• Honoraria (for example, an amount paid to the secretary of a sports club).
• Lump-sum payments by an employer for past services (see 5.7).
• Overtime
pay.
21
22 INCOME FROM EMPLOYMENT
• Payments by an employer of an employee’s share of contributions to the Unemployment Insurance

Fund or to a medical aid or a retirement fund, or of premiums on insurance policies belonging to an
employee.
• Payments for entering into a contract of employment.
• Payments made in commutation of amounts due under a contract of employment or service.
• Payments in restraint of trade (see 5.10).
• Prizes awarded by an employer for an employee’s achievement in promoting business.
• Remuneration for part-time work of any nature.
• Salary from an employer while an employee is temporarily in a foreign country (see 5.11 and 5.12).
• Salary
in lieu of leave.
• Salary
in lieu of notice.
• Salary or other payments made in advance.
• Sick-leave
pay.
• Tips from an employer or from customers or clients of an employer.
Special rules apply to particular types of income from employment, which are dealt with elsewhere in
this chapter.
5.2 Broad-based employee share plans
ss 8B, 10(1)( n C), 25,
4th Sch para 11A
You must include in your income and therefore in your taxable income (see 1.3) any gain made during
the tax year from the disposal of a ‘qualifying equity share’ or a right or interest in a qualifying equity
share that is disposed of by you within five years from the date you were granted the share, which is
known as the ‘date of grant’.
Nevertheless, you may without fiscal consequence dispose of a qualifying equity share in exchange
solely for any other equity share either of your employer company or of any company (see 14.1) that is
an associated institution (see 5.4) of your employer-company. What then happens is that the other
equity share acquired in exchange is deemed to be a qualifying equity share acquired by you on the same
date (date of grant) you were granted the original qualifying equity share and to have been acquired for
a consideration equal to any consideration given for the qualifying equity share disposed of in exchange.
If you acquire any equity share by virtue of a qualifying equity share held by you, the other equity share
that you acquire is deemed to be a qualifying equity share acquired by you on the date of grant of the
qualifying equity share held by you. And if you dispose of a right or interest in a qualifying equity share,
the amount of consideration incurred in respect of the acquisition of that qualifying equity share that is
attributable to that right or interest must be determined in accordance with the ratio that the amount
received for the disposal of that right or interest bears to the market value of that qualifying equity share
immediately before the disposal.
Employee’s death or insolvency while holding qualifying equity shares The usual rules calling for
the taxation of income-related amounts upon the death of a taxpayer (see 11.1) or insolvency do not
apply to an amount derived from the disposal of a qualifying equity share after an employee’s death or
insolvency.
General
Qualifying equity shares you derive under a broad-based employee share plan are themselves exempt
from tax, even though you acquire them cheaply (see 5.18). They are excluded from the treatment
ordinarily meted out upon the vesting of an equity instrument acquired by an employee or director (see
5.3). In addition, they represent a tax-free fringe benefit (see 5.4). But when you dispose of them within
the five-year qualifying period their market value will be included in your remuneration for PAYE
purposes (see 17.3).
INCOME FROM EMPLOYMENT 23
Definitions
An employer’s ‘broad-based employee share plan’ is a plan meeting all of the following requirements:
• Employees must acquire equity shares in the employer-company or in a company that is its associated
institution (see 5.4).
• Employees participating in any other equity scheme of the employer-company or of a company that is
its associated institution may not be entitled to participate in the broad-based employee share plan.
• At least 80% of all employees not participating in some other equity scheme employed by the
employer-company on a permanent basis on the date of grant who have continuously been so employed
on a full-time basis for at least one year must be entitled to participate.
• Employees acquiring equity shares must be entitled to all dividends and foreign dividends declared on
and full voting rights attached to their shares.
• No restrictions may be imposed upon the disposal of their equity shares by employees. Nevertheless, a
restriction imposed by legislation, a right of a person to acquire the shares from employees or former
employees who are guilty of misconduct or poor performance at the lower of the market value at the
date of grant or the market value on the date of acquisition by the employer or, in any other instance, at
the market value on the date of acquisition by the person acquiring the equity shares and a restriction
preventing employees or former employees from disposing of their shares for a period not exceeding
five years from the date of grant all represent permissible restrictions.
The ‘date of grant’ of an equity share is the date on which the granting of that share is approved by the
directors of the employer company or some other person or body of persons with comparable authority.
A ‘gain’ in relation to the disposal by a person of a qualifying equity share or a right or interest in a
qualifying equity share means the amount by which any amount received by or accrued to that person
from that disposal exceeds the consideration given by him or her for that qualifying equity share, right
or interest (otherwise than in the form of services rendered or to be rendered or anything done or to be
done or not to be done).
The ‘market value’ of an equity share is the price that could be obtained upon its sale between a willing
buyer and a willing seller dealing freely at arm’s length in an open market and without having regard to
any restrictions imposed upon the share.
A person’s ‘qualifying equity share’ is an equity share acquired in a tax year under a broad-based
employee share plan, as long as the market value of all equity shares acquired by him or her under the
plan does not in aggregate exceed R50 000 in that year and the four immediately preceding tax years.
Qualification under this R50 000 threshold must be determined on the date of grant of each equity
share. The market value of any qualifying equity shares acquired by a person by virtue of qualifying
equity shares held by him or her must be excluded.
Broad-based employee share plans and PAYE

You must inform your employer of the amount of any gain you have made on the disposal of any
qualifying equity share, since the gain made is deemed to constitute remuneration payable by your
employer from whom the qualifying equity share was acquired from which PAYE must be deducted.
Unless SARS has granted authority to the contrary, this amount must then be deducted from the cash
remuneration paid or payable by your employer after the qualifying equity share has to your employer’s
knowledge been disposed of. Your employer must notify the receiver immediately, however, should he
or she be unable to deduct or withhold the full amount of PAYE during the year of assessment in which
the gain arises by reason of the fact that that the amount to be deducted or withheld exceeds the amount
from which it is to be deducted or withheld.
5.3 Equity instruments vesting
ss 8C, 10(1)( n D),
4th Sch para 11A
Upon the ‘vesting’ during a tax year of an ‘equity instrument’ acquired by you by virtue of your
employment or office of director (see 5.4) of a company (see 14.1), or from any person by arrangement
with your employer or by virtue of any qualifying restricted equity instrument held by you, or as a
restricted equity instrument during the period of your employment by or office of director of a company
from the company or an associated institution (see 5.4) of the company, or from any person employed
by or that is a director of the company or an associated institution of the company, you are required to
calculate the resulting gain or loss and either include the gain in or deduct the loss from your income
(see 14.3).
If a return of capital (see 21.28) or foreign return of capital (see 21.28), other than a return of capital or
foreign return of capital by way of a distribution of an equity instrument, is received by you or accrues to
you on a restricted equity instrument (see below), you must include the amount of the return of capital
or foreign return of capital in your income for the tax year during which the amount is received or
accrues.
Even if the equity instrument is an ‘affected share’ or a ‘qualifying share’, you are prohibited from
electing to be subjected to tax under the capital gains tax system (see 16.31) and so must suffer the
inclusion of a gain in your income. At the same time, the normal prohibition against employment-related
deductions (see 10.74) is suspended, with the result that you are enabled to deduct a loss from your
income.
But these rules do not apply to an equity instrument acquired by the exercise or conversion of, or in
exchange for the disposal of, any other equity instrument when these rules applied in respect of the
vesting of that other equity instrument before the exercise, conversion or exchange of the instrument.
They also do not apply to an equity instrument that is a qualifying equity share acquired under a broad-
based employee share plan (see 5.2).
Law as from 1 March 2017
You must include in your income for a particular tax year any amount received by or accrued to you
during that year in respect of a restricted equity instrument if the amount does not constitute a return of
capital or foreign return of capital by way of a restricted equity instrument, a dividend or foreign
dividend in respect of that restricted equity instrument or an amount that must be taken into account in
the determination of the gain or loss under this provision in respect of that restricted equity instrument.
Law before and after 1 March 2017
Calculating the gain or loss
Your gain will ordinarily be measured by the excess of the ‘market value’ of your equity instrument at
the time that it vests in you over the ‘consideration’ you gave for it.
Your loss will ordinarily be measured by the excess of the consideration you gave for your equity
instrument over its market value at the time that it vests in you.
Special rules apply when you dispose of a ‘restricted equity instrument’ to your employer, your
employer’s ‘associated institution’ or some other person by arrangement with your employer under a
restriction imposed on the equity instrument for an amount not exceeding the consideration you gave
for it. Your gain is then the excess of the amount you derive from the disposal over the consideration you
gave for it. And your loss is the excess of the consideration you gave for it over the amount you derive
from the disposal. The same rules apply to the determination of a gain or loss on a disposal by way of
release, abandonment or lapse of an equity instrument comprising an option or financial instrument.
‘Vesting’
An ‘unrestricted equity instrument’ acquired by you is deemed to vest in you at the time of its
acquisition.
A ‘restricted equity instrument’ acquired by you is deemed to vest in you at the earliest of the following
dates:
• When all the restrictions resulting in its being a restricted equity instrument cease to have effect.
• Immediately before you dispose of it, unless the disposal is a sheltered exchange (see below) or a
related-party transaction (see below).
• Immediately after an equity instrument that is an option to acquire a share or member’s interest or a
financial instrument that is convertible to a share, part of a share or a member’s interest in a close
corporation terminates, except when it terminates by the exercise or conversion of the equity
instrument.
• Immediately before you die if all the restrictions relating to the equity instrument are or may be lifted
on or after your death.
• At the time a qualifying disposal occurs.
Sheltered exchange
Although you do not trigger a gain or loss when you dispose of a restricted equity instrument for an
amount consisting of or including any other restricted equity instrument in your employer or your
employer’s associated institution, the other restricted equity instrument acquired in exchange is deemed
to be acquired by you by virtue of your employment or office of director of a company.
In other words, the restricted equity instrument acquired in exchange will eventually be treated in
exactly the same way as the original restricted equity instrument. Since the exchange price you enjoy for
such an exchange need not exclusively comprise some other restricted equity instrument, the possibility
arises that you might immediately enjoy a gain upon the exchange arising from the balance of the
exchange price.
This possibility is catered for by a rule that is probably meant immediately to include in your income the
excess of the balance of the exchange price over the consideration you gave to acquire the original
restricted equity instrument. In terms of this rule, if the amount received or accrued in respect of the
restricted equity instrument that is disposed of includes any payment in a form other than restricted
equity instruments, that payment less any consideration attributable to that payment must be deemed
to be a gain or loss that must be included in or deducted from your income in the year of assessment
during which the restricted equity instrument is disposed of.
Related-party transactions
Special rules come into play when you dispose of a restricted equity instrument acquired by you to your
connected person (see 10.27) or to any other person in a non-arm’s-length transaction. Not only will a
gain or loss made by that person be calculated as if he, she or it were you but the gain or loss will be
deemed to be made by you upon the vesting of the restricted equity instrument. But these rules do not
apply when you dispose of a restricted equity instrument (including by way of forfeiture, lapse or
cancellation) to your employer, your employer’s associated institution or some other person by
arrangement with your employer under a restriction imposed upon the equity instrument for an amount
that is less than its market value.
Presumably only when the rules apply, the person acquiring a restricted equity instrument in this way
from you may not simply get rid of the restricted equity instrument by disposing of it to your connected
person or to any other person in a non-arm’s-length transaction. The rules will continue to apply as if
the other person acquired the restricted equity instrument directly from you.
Nor may you avoid these consequences by having some other person acquire an equity instrument by
virtue of your employment or office of director. The equity instrument will then be deemed to have been
acquired by you and disposed of by you to that person in a related-party transaction.
General
Qualifying equity instruments you acquire by virtue of your employment or office of director of a
company that have not yet vested are exempt from tax. Also exempt is any consideration you derive
from the disposal of such equity instruments that have not yet vested. See 5.17.
Definitions
An ‘associated institution’ is an ‘associated institution’ for fringe-benefits purposes (see 5.4).
Your ‘consideration’ for an equity instrument is an amount given or to be given (but not in the form of
services rendered or to be rendered or anything done, to be done or not to be done):
• by you for the equity instrument;
• by you for any other restricted equity instrument disposed of by you in exchange for the equity
instrument, reduced by any amount attributable to the gain or loss determined under the sheltered-
exchange rule (see above); and
• by your connected person to whom you disposed of a restricted equity instrument, by any person to
whom or which you disposed of a restricted equity instrument under a non-arm’s-length transaction or
by some other person who or that acquired a restricted equity instrument by virtue of your employment
or office of director for the equity instrument to the extent that the amount does not exceed the amount
that you would have had to give to acquire the equity instrument had it not been disposed of or deemed
to have been disposed of by you, excluding any amount given or to be given to you by the person
concerned to acquire the restricted equity instrument. (Do not be alarmed if you do not understand this
last element of your ‘consideration’; no one else understands it either).
In a sheltered exchange you may not take into account the market value of the equity instrument given
in exchange in determining your consideration for the equity instrument acquired under the exchange.
And when you acquire a right to acquire a marketable security in exchange for any other such right and
the right so acquired constitutes an equity instrument acquired in the normal manner contemplated in
these rules, the consideration for the equity instrument must be determined as if it were acquired on the
disposal of a restricted equity instrument for an amount consisting of or including any other restricted
equity instrument acquired from your employer, your employer’s associated institution or some other
person by arrangement with your employer.
An ‘employer’ is an ‘employer’ for fringe-benefits purposes (see 5.2).
An ‘equity instrument’ is a share or a member’s interest in a company or a close corporation (see

14.10). Also qualifying as an ‘equity instrument’ is an option to acquire such a share, part of a share or
member’s interest, as well as any financial instrument (see 21.8) that is convertible to a share or
member’s interest. Also qualifying is any contractual right or obligation the value of which is determined
directly or indirectly with reference to a share or member’s interest.
The ‘market value’ of an equity instrument of a private company under the Companies Act 71 of 2008
or a company that would be regarded as a private company if it were incorporated under that Act means
an amount determined as its value in terms of a method of valuation prescribed in the rules relating to
the acquisition and disposal of the equity instrument, which is regarded as a proxy for the market value
of the equity instrument for the purposes of those rules, if it used consistently to determine both the
consideration for its acquisition and the price of its repurchase from the taxpayer after it has vested in
him or her. For any other company it is the price that could be obtained upon its sale by a willing seller
to a willing buyer dealing freely at arm’s length in an open market, restrictions imposed upon a
restricted equity instrument being treated as being non-existent.
An equity instrument will be your ‘restricted equity instrument’ if it satisfies any one of the following
criteria:
• It is subject to a restriction preventing you from freely disposing of it at its market value. But a
restriction imposed by legislation does not count.
• It is subject to a restriction that could result in your forfeiting its ownership or your right to acquire its
ownership ‘otherwise than at market value’ or being penalised financially in any other manner for not
complying with the terms of the agreement for the acquisition of the equity instrument.
• Some person has retained the right to impose either one of the preceding restrictions upon its disposal.
• It is an option to acquire a share or a part of a share in the equity share capital of a company or a
member’s interest in a close corporation and the equity instrument acquirable under it will be a
restricted equity instrument.
• It is a financial instrument that is convertible to a share, part of a share or member’s interest and the
equity instrument to which it can be converted will be a restricted equity instrument.
• Your employer, your employer’s associated institution or some other person by arrangement with
your employer has at the time of your acquisition of the equity instrument undertaken, if its value
declines after your acquisition, to cancel the transaction under which you acquired it or to repurchase it
from you at a price exceeding its market value on the date of repurchase.
• It is not deliverable to the taxpayer until the happening of an event, whether fixed or contingent.
An ‘unrestricted equity instrument’ is an equity instrument that is not a restricted equity instrument.
Equity instruments vesting and PAYE
You must inform your employer of the amount of any gain you have made under a transaction to which
your employer is not a party, since the gain made is deemed to constitute remuneration payable by your
employer from whom the equity instrument was acquired from which PAYE must be deducted.
Before deducting PAYE, your employer must ascertain from SARS the amount to be deducted.
remuneration paid or payable by your employer after the equity instrument has to your employer’s
knowledge vested. Your employer must notify the receiver immediately, however, should he or she be
unable to deduct or withhold the full amount of PAYE during the year of assessment in which the gain
arises by reason of the fact that the amount to be deducted or withheld exceeds the amount from which
it is to be deducted or withheld.
5.4 Fringe
benefits
s 1, 4th Sch para 1, 7th Sch
The cash equivalent of the value during the tax year of any ‘taxable benefit’ or advantage granted to
you for your employment or on account of your holding of an office must be included in your gross
income (see 1.1), and therefore your taxable income (see 1.3) and, except in special circumstances, in
your remuneration (see 17.3) from which PAYE is deducted.
A ‘taxable benefit’ may arise whether it is granted voluntarily or otherwise, but excludes:
• a benefit the amount or value of which is exempt from normal tax;
• a benefit provided by a benefit fund in respect of medical, dental and similar services, hospital services,
nursing services and medicines;
• a qualifying lump sum benefit payable by a benefit fund, pension fund, pension preservation fund,
provident fund or provident preservation fund;
• a benefit or privilege received by or accrued to a governmental or quasi-governmental employee

stationed outside the Republic that is attributable to the person’s services rendered outside the
Republic; and
•a
severance
benefit.

Your employer is treated as having granted you a taxable benefit for your employment, including the
holding of an office, if it provides you, whether by contract or voluntarily, with any of the fringe benefits
described here as a benefit or advantage of or by virtue of your employment or as a reward for services
that you have rendered to it or will render to it in the future. Special rules are laid down for the
valuation of the cash equivalents of these taxable benefits.
For this purpose you will be regarded as an ‘employee’ of an employer if you are an employee of that
employer for the purposes of employees’ tax, that is, if you derive any remuneration from that employer.
But you cannot fall into this category if you retired from employment with the employer concerned
because of superannuation, ill health or other infirmity before 1 March 1992, unless you qualify as an
employee for this purpose under any one of the following categories:
• A director of a company (see 14.1), whether the company is a private or a public company (see 14.7)
for tax purposes. This would include a ‘director’ of a close corporation, that is, a person who holds an
office in or performs functions in a close corporation in the same manner as would a director of a
company.
• A former employee or director of a company or a close corporation if you are or ever were the sole
holder of shares in (see 14.1) or member of or one of the controlling holders of shares or members of the
company or corporation.
• A retiree from employment who has been released by your employer from an obligation; see
‘Discharge or release of employee’s debts’ below.
A partner is also treated as an employee of the partnership for the purposes of the taxation of taxable
benefits.
An ‘employer’ for this purpose is:
• An ‘employer’ for the purposes of employees’ tax (see 17.7).
• A company or close corporation.
• The state, in so far as concerns anyone who derives remuneration from employment in the public
service or an administration or undertaking of the state or holds office under the Republic.
Your employer’s associated institution (see below) can also award taxable benefits.
Excluded from taxable benefits is any benefit specifically exempt from tax (see 1.6). Also exempt are
benefits from benefit funds in the form of medical, dental and similar services, hospital and nursing
services and medicines. Lump-sum benefits from approved pension, pension preservation, provident,
provident preservation and retirement annuity funds (see 6.6) are not taxable benefits under the
taxation of fringe benefits but may nevertheless be taxable under other provisions (see Chapter 6).
The benefits that are taxable are described below, as are the methods of valuation of the cash
equivalents of these benefits. Your employer must reflect your various fringe benefits under the
appropriate codes on your employees’ tax certificate (IRP 5).
Acquisition of asset at less than actual value (s 8(5)( a), 7th Sch paras 2( a), 5) You are regarded as
having derived a taxable benefit if, as an employee, you acquire any asset consisting of goods,
commodities, financial instruments (see 21.8) or property of any nature – other than money – from your
employer, its associated institution (see below) or any other person by arrangement with your employer
either free or for a consideration that is less than its value. The taxable benefit is the value of the asset
less the value of any consideration that you give for the asset.
The value of the asset is its market value at the time that you acquire it. But if it is a movable asset and
your employer acquired it in order to dispose of it to you, the employer’s cost price will be taken as its
value. The value of a movable asset held by your employer as trading stock will be the lower of its cost
price and the market value of the stock when you acquired it. But this special rule relating to movables
does not apply to financial instruments, such as listed shares, or to an asset your
employer used prior to acquiring it in order to dispose of it to you, for example, a motor vehicle it
previously hired, which will be treated in the same way as other assets.
When the asset you acquire was previously hired, for example, by your employer, the usual rule calling
for the taxation of any recoupment of past rentals (see 10.8) falls away if your acquisition of the asset
gives rise to a taxable benefit. In addition, in certain circumstances you may acquire residential
accommodation at less than its value without giving rise to a taxable benefit because of the acquisition;
see ‘Deemed loans’ below.
Exempted from taxation are:
• The first R5 000 of the cost to your employer of all the assets – but not money – presented to you by
your employer during a particular tax year as awards for bravery.
• The first R5 000 of the cost to your employer of all the assets – but, again, not money – given to you by
your employer during a particular tax year for ‘long service’, which is taken as being an initial unbroken
period of service of at least fifteen years or any subsequent period of at least ten years.
• Fuel or lubricants supplied by your employer for use in a motor vehicle whose private use by you is a
fringe benefit; see ‘Right of use of motor vehicle’ below.
• Immovable property, but this exemption does not apply if the remuneration proxy of the employee
exceeds R250 000 in relation to the tax year during which the immovable property is acquired by the
employee, the market value of the immovable property on the date it is acquired by the employee
exceeds R450 000 or the employee is a connected person (see 10.27) of the employer.
Your ‘remuneration proxy’ in relation to a tax year is your ‘remuneration’ for employees’ tax purposes
(see 17.3) during the immediately preceding tax year. If you were not employed by your current
employer or by its associated institution during the whole of the preceding year, your remuneration
must be ‘grossed up’ according to the remuneration you earned in the period you were so employed. If
you commenced your employment with the employer providing the accommodation or with its
associated institution only in the current year, you must ‘gross up’ your remuneration according to your
remuneration in your first month of such employment. For example, if you worked for only eighteen
days in the first month of a year that is not a leap year and your remuneration for that month amounted
to R1 480, your remuneration proxy will be: 365
R30 000 (R1 480 ×
18
Certain assets or goods given to you are excluded under this heading but are included as taxable benefits
under other headings, namely, meals, refreshments, vouchers, board, fuel, power, water, marketable
securities that you acquire under a share-option scheme (see 5.9) and equity instruments acquired by
employees (directors are probably also meant to be included) (see 5.3).
Also excluded under this heading but possibly otherwise taxable are amounts you derive under a broad-
based employee share plan (see 5.2).
Right to use of an asset (s 3(4), 7th Sch paras 2( b), 6) A taxable benefit will arise if, as an employee,
you are granted the right to use an asset for your private or domestic purposes either free of charge or
for a consideration that is less than the value of its private or domestic use. As a general rule, you will
pay tax on the value of its private or domestic use over a period less any consideration that you give for
its use over that period and any amounts that you spend on its maintenance or repair.
The value of the private or domestic use of the asset will be:
• The rental payable by your employer for a hired asset for the period during which you have the use of
it.
• An amount calculated for the period during which you have the use of an asset owned by your
employer at the rate of 15% a year on the lesser of its cost and its market value at the date when your
period of use started.
But when you are granted the sole right of use of the asset for all or a major part of its useful life the
value of your private or domestic use of the asset will be its cost to your employer. You pay tax on this
value on the date on which you are first granted the use of the asset.
For PAYE purposes, an appropriate portion of your taxable benefit is attributed to each period in which
your cash remuneration is payable. For example, one-twelfth of the calculated benefit will be subject to
the deduction of employees’ tax each month if you are paid monthly.
Your private or domestic use of assets supplied by your employer will be tax-free in any one of the
following circumstances:
• Your private or domestic use of the asset (other than clothing) is incidental to its use in your
employer’s business.
• It is provided by your employer as an amenity to be enjoyed by you at work.
• It is provided by your employer for recreational purposes at work.
• It is provided by your employer at any place of recreation for the use of its employees in general.
• It consists of equipment or a machine that your employer allows its employees in general to use from
time to time for short periods and the value of your private or domestic use does not exceed an amount
determined on a basis set out in a public notice issued by the Commissioner for SARS.
• It consists of telephone or computer equipment that you use mainly for the purposes of your
• It consists of books, literature, recordings or works of art.
These rules do not apply to the use of residential accommodation or household goods supplied with the
accommodation or motor vehicles, which are dealt with separately below.
Right of use of motor vehicles (s 23A(1), 7th Sch paras 2( b), 7) You are liable to tax on the value of
the private or domestic use over a period of a motor vehicle granted to you as an employee by your
employer less any consideration that you give the employer for its use over that period, other than
consideration for the cost of the licence, insurance, maintenance or fuel for the vehicle.
The value of your private use of a motor vehicle must be determined for each month or part of a month
during which you are entitled to use it for private purposes. Your travelling to and from work is
regarded as a private use of the vehicle, as is any other travelling done for your private or domestic
purposes.
The monthly value of the private use of a motor vehicle is an amount equal to 3,5% of the determined
value (see below) of the vehicle. But when the motor vehicle is the subject of a maintenance plan at the
time the employer acquires it or the right to use it, the amount must be reduced from 3,5% to 3,25% of
its determined value. A ‘maintenance plan’, in relation to a motor vehicle, means a contractual
obligation undertaken by a provider in the ordinary course of trade with the general public to
underwrite the costs of all maintenance of the motor vehicle, other than the costs related to top-up
fluids, tyres or abuse of the motor vehicle, for a period of no less than three years and a distance
travelled by the motor vehicle of no less than 60 000 kilometres from the date that the provider
undertakes the contractual obligation. Nevertheless, the contractual obligation may terminate at the
earlier of the end of the period of three years and the date on which the distance of 60 000 kilometres is
travelled by the motor vehicle.
When the vehicle is acquired by your employer under an operating lease (see below) concluded by
parties transacting at arm’s length who are not connected persons (see 10.27) of each other, the
monthly value of your private use of the motor vehicle is the actual cost incurred by your employer
under the operating lease and the cost of fuel for the vehicle.
If you have the use of a vehicle for only part of a month, the amount you calculate as being the value of
the use of the vehicle for the full month must be reduced proportionately according to the number of
days you used the vehicle. But no reduction may be made simply because you temporarily do not use the
vehicle for private purposes.
The ‘determined value’ of a vehicle for this purpose is:
• For a vehicle acquired by your employer before 1 March 2015 under a genuine agreement of sale or
exchange concluded by parties acting at arm’s length, other than on the termination of your employer’s
hiring of the vehicle under a lease, its original cost to your employer excluding finance charges or
interest payable by the employer on the acquisition of the vehicle.
• For a vehicle acquired by your employer on or after 1 March 2015, other than on the termination of
your employer’s hiring of the vehicle under a lease, the retail market value as determined by the
Minister of Finance by regulation, excluding finance charges or interest payable by the employer on the
acquisition of the vehicle.
• For a vehicle held by your employer under a lease or originally held by it under a lease (but not an
operating lease); and acquired by it on the termination of the lease, the retail market value of the vehicle
when your employer first obtained the right of using it. The determined value when the lease was an
‘instalment credit agreement’ for value-added tax purposes will again not be its retail market value but
its ‘cash value’ for value-added tax purposes.
• For any other vehicle acquired by your employer before 1 March 2015, its market value at the time
when your employer first obtained it or the right of using it.
• For any other vehicle acquired by your employer on or after 1 March 2015, its retail market value as
determined by the Minister of Finance by regulation at the time when your employer first obtained it or
the right of using it or manufactured it.
The determined value of a vehicle (other than a vehicle acquired under an operating lease) may be
reduced if your employer first acquired it or the right to use it at least twelve months before it granted
you the right to use it for private purposes. In these circumstances the determined value may be reduced
by a depreciation allowance on the reducing-balance basis (see 10.27), calculated at the rate of 15% for
each completed period of twelve months from the date on which your employer first obtained the
vehicle or the right to use it to the date on which you were first granted the right to use it. But should the
vehicle or the right of its use have been acquired by your employer from its associated institution (see
below) and you used to enjoy the right to use it prior to its acquisition by your current employer, its
determined value will not be reduced by this depreciation allowance. Instead the determined value will
be set at the same determined value as was fixed when you were first granted the right to use it.
In practice the determined value of a vehicle bought (not hired) by your employer will be reduced by
any amount you personally contribute towards its cost.
An ‘operating lease’ is a lease of movable property concluded by a lessor in the ordinary course of a
business – but not a banking, financial services or insurance business – of letting movable property if:
• the property may be hired by the general public directly from that lessor under that lease for less than
one month;
• the cost of maintaining and repairing it in order to counter normal wear-and-tear is borne by the
lessor; and
• the risk of destruction or loss of or other disadvantage to the property is not assumed by the lessee,
except for any claim that may be made against it if it fails to take proper care of the property. Your
employer may transfer its rights and obligations under a lease of a motor vehicle to you. You will then be
deemed to have been granted the right to use it for the remainder of the lease. Its determined value will
be calculated in the same way as if your employer had granted you the use of a vehicle held by it under a
lease or acquired by it on the termination of a lease,
and the rentals that you pay under the lease will be treated as a consideration given by you to your
employer for the right of use of the vehicle and will therefore reduce the taxable value of your private
use.
SARS must, when you are assessed, reduce the taxable value of your private use of a vehicle from the
derived monthly value if you keep accurate records of the distance that you travel for business purposes.
SARS must reduce the value placed on the private use of the vehicle by an amount that bears to the
calculated value the same ratio as the number of kilometres travelled for business purposes bears to the
total amount of kilometres travelled in the vehicle during the tax year. In this context, ‘accurate records’
are taken to mean a logbook.
When you keep accurate records of distances travelled for private purposes in the vehicle (other than a
vehicle acquired under an operating lease) in the form of a logbook and you bear the full cost of the
licensing, insurance or maintenance of the vehicle, the calculated value of the private use of the vehicle
must be reduced by an amount that bears to the amount of the relevant costs borne by you the same
ratio as the number of kilometres travelled for business purposes bears to the total number of
kilometres travelled in the vehicle during the tax year.
When you keep accurate records of distances travelled for private purposes in the vehicle (other than a
vehicle acquired under an operating lease) in the form of a logbook and you bear the full cost of fuel for
the private use of the vehicle, the calculated value placed on the private use of the vehicle during the tax
year must be reduced by an amount determined for the total kilometres travelled for business purposes
by applying the rate per kilometre for fuel fixed by the Minister in the Government Gazette for the
purposes of the taxation of travelling allowances.
While travelling between your residence and your place of work is usually regarded as private travel,
there is an exception to this rule when you are a ‘judge’ or a ‘Constitutional Court judge’ as defined in the
relevant legislation. The kilometres travelled between your place of residence and the court over which
you preside is then deemed to be travelled for business purposes and not private purposes.
If you are given the use of more than one vehicle at the same time and your local receiver is satisfied that
all the vehicles used by you are used primarily for business purposes, you will be subjected to tax as if
you were given the use of only one vehicle. Unless you apply to the receiver to decide otherwise, you will
pay tax on the value attributable to the vehicle with the higher or highest value of private use. But this
rule will not apply when you keep a logbook. Your private use of a motor vehicle will not constitute a
taxable benefit if the vehicle is available to and in fact is used by the employees of your employer in
general, your private use is infrequent or merely incidental to its business use and it is not usually kept
at or near your residence when it is not in use outside of business hours.
You will also not pay tax on the private use of a vehicle if the nature of your duties is such that you are
regularly required to use it for the performance of your duties outside your normal hours of work and
are not permitted to use it for private purposes other than in travelling between your place of residence
and your place of work and your private use is infrequent or merely incidental to its business use.
Eighty percent of the amount of the taxable benefit is subject to PAYE, unless your employer is satisfied
that at least 80% of the use of the motor vehicle for a tax year will be for business purposes, in which
event only 20% of the amount will be subject to PAYE (see 17.3).
Certain of the Commissioner’s decisions affecting this fringe benefit are made subject to objection and
appeal (see 18.6).
For the basis of taxation of travelling allowances, see 5.27.
Meals, refreshments and vouchers for meals and refreshments (7th Sch paras 2( c), 8) A taxable
benefit will arise when, as an employee, you are provided with a meal or refreshment or a voucher
entitling you to a meal or refreshment – but not board or meals supplied with residential
accommodation – either free of charge or for a consideration that is less than its value. You will pay tax
on the value of the meal, refreshment or voucher less any consideration that you give for it.
The value of a meal, refreshment or voucher will be its cost to your employer.
You will not pay tax on:
• A meal or refreshment supplied by your employer in a canteen, cafeteria or dining room operated by it
or on its behalf and patronized wholly or mainly by its employees.
• A meal or refreshment supplied by your employer in a canteen, cafeteria or dining room operated by it
or on its behalf on its business premises.
• A meal or refreshment supplied by your employer during business hours or extended working hours.
• A meal or refreshment supplied by your employer on a special occasion.
• A meal or refreshment that you enjoy in the course of providing a meal or refreshment to a person
whom you are required to entertain on your employer’s behalf.
Residential accommodation (7th Sch paras 2( d), 9)
You will derive a taxable benefit if, as an employee, you are provided with residential accommodation,
furnished or unfurnished and with or without board, meals, fuel, power or water, either free of charge or
for a rental consideration that is less than its rental value. You will pay tax on its rental value less any
rental consideration that you give for it or for household goods supplied with it and any charges that
your employer makes for power or fuel provided with it.
Its rental value is an amount determined in accordance with the following formula: C
(A – B)
100 12
In this formula:
A = ‘Remuneration proxy’ (see above) for the year.
B = Abatement of R79 000.
C = 17; or if the accommodation consists of at least four rooms and it is either furnished or power or fuel
are supplied by your employer, 18; or if it is furnished and power or fuel are supplied by your employer,
19.
D = Number of months in the tax year during which you were entitled to occupy the accommodation.
The actual rentals and other expenditure incurred are not taken into account.
‘Remuneration proxy’ for this purpose (item ‘A’ in the formula) is your ‘remuneration’ during the
immediately preceding tax year, but excluding any taxable fringe benefit in the form of the provision of
residential accommodation. If you were not employed by the employer providing the accommodation or
by its associated institution during the whole of the preceding year, your remuneration factor must be
‘grossed up’ according to the remuneration you earned in the period you were so employed. If you
commenced your employment with the employer providing the accommodation or with its associated
institution only in the current year, you must ‘gross up’ your remuneration factor according to your
remuneration in your first month of such employment. For example, if you worked for only eighteen
days in the first month of a year that is not a leap year and your remuneration for that month amounted
to R1 480, your remuneration factor will be:
365
R30 000 (R1 480 ×

)
18
The abatement of R79 000 (item ‘B’ in the formula) is unavailable if:
• Your employer is a private company for tax purposes (see 14.7) or a close corporation and you control
or your spouse (see 3.1) controls the company or corporation or you are or your spouse is one of the
persons controlling the company or corporation, either directly as a shareholder in the company or
member of the corporation or as a shareholder in another company or a member of another corporation.
• You, your spouse or your minor child has been granted the option or a pre-emptive right to become the
owner of the accommodation – either directly or indirectly by virtue of a controlling interest in a
company or in some other way – by your employer or any other person by arrangement with your
employer or with your employer’s associated institution.
SARS is empowered to reduce the calculated rental value of your accommodation if it is satisfied that its
rental value is less than that determined from the formula by reason of its situation, nature or condition.
This reduction is often made in favour of school staff living on the school premises and of ministers of
religion living on church grounds.
A special rule applies when you have an ‘interest’ in the accommodation, the accommodation has been
let to your employer or its associated institution and it is made available for your use by your employer
or its associated institution. While the rental value will still be determined in the manner already
described, the actual rental itself is then disregarded for all other tax purposes if it is derived by you, the
employee, or by your connected person (see 10.27). For example, the rental will not also be taxable as
constituting income from the letting of property (see 8.2).
You will be regarded as having an interest in the accommodation for this purpose if you own or your
connected person owns it, any increase in its value directly or indirectly accrues, in any possible way, for
your benefit or that of your connected person, or you have or your connected person has a right to
acquire it from your employer.
You will pay tax as if you were given only one residential unit if you are provided with two or more units
situated at different places that you are entitled to occupy from time to time while performing your
duties. But the rental value will then be the rental value of the unit having the higher or highest rental
value determined under the rules already described, applied over the full period during which you were
entitled to occupy more than one unit.
You will not pay tax on the benefit of accommodation provided by your employer away from your usual
place of residence in South Africa while you are absent from your usual residence for the purpose of
performing your duties. (Special rules apply when you are provided with more than one residential unit
as described in the preceding paragraph.)
You will also not pay tax on the benefit of accommodation provided by your employer away from your
usual place of residence outside South Africa for a period not exceeding two years from the date of your
arrival in South Africa for the purpose of performing the duties of your employment if the
accommodation is provided to you during the tax year and you are physically present in South Africa for
a period of less than ninety days in the year. This exemption is, however, inapplicable if you were
present in South Africa for a period exceeding ninety days during the tax year immediately preceding the
date of your arrival. It is also unavailable to the extent that the cash equivalent of the value of the taxable
benefit derived by you from your occupation of the residential accommodation exceeds an amount equal
to R25 000 multiplied by the number of months for which you are granted occupation. This seems to be
the meaning of this concession, but the relevant legislation is so badly drafted that it is almost
meaningless.
For special circumstances in which the provision of residential accommodation is treated as a loan, see
‘Interest-free or low-interest loans’ below.
When your employer or its associated institution supplies accommodation obtained in terms of a
transaction at arm’s length with a person that is not a connected person (see 10.27) of the employer or
associated institution and the full ownership does not vest in the employer or associated institution, the
value to be placed on the accommodation will be the lower of:
• the amount determined in accordance with the formula above; and
• the amount of the expenditure incurred on the accommodation by the employer or associated
institution.
Holiday accommodation (7th Sch paras 2( d), 9)
Temporary holiday accommodation provided by your employer also has a rental value.
Holiday accommodation hired by your employer from a person other than its associated institution (see
below) will have a rental value equal to the rental payable and any amount chargeable for meals,
refreshments or services relating to the accommodation that is borne by your employer and is
connected with the period during which you occupy it.
Holiday accommodation not hired by your employer – for example, accommodation owned by it –
will have a rental value calculated at the prevailing rate per day at which it could normally be let to a
person who is not an employee of your employer or of its associated institution for each day during
which you occupy it.
SARS is empowered to reduce the rental value of your holiday accommodation if it is satisfied that its
rental value is less than that determined on the basis described by reason of its situation, nature or
condition. Such a decision is subject to objection and appeal (see 18.6).
For PAYE purposes, an appropriate portion of your taxable benefit is attributed to each period during
the tax year in which your cash remuneration is payable. For example, if you are paid monthly, one-
twelfth of the taxable benefit will be subject to employees’ tax each month.
Free or cheap services (7th Sch paras 2( e), 10)
A taxable benefit will arise when a service is rendered to you as an employee by your employer or by
someone else at the expense of your employer, the service is used by you for your private or domestic
purposes, and you give no consideration to your employer for the service or the consideration that you
give is less than a certain amount. You will pay tax on the value of the service less the consideration that
you give for it. (This rule does not apply to the services relating to hired temporary holiday
accommodation already referred to.)
The value of the service will generally be the cost to your employer of rendering the service or having
the service rendered. But there are special rules for the valuation of travel facilities granted by
employers who are passenger-transport operators.
The value of a travel facility granted by your employer engaged in the business of conveying passengers
for reward by sea or by air to enable you or any of your relatives (see item 17 in 12.4) to travel to any
destination outside South Africa for your private or domestic purposes will be the lowest fare payable by
a paying passenger using the same facility and paying the full fare at the relevant time, if it exceeds
R500, less any consideration given by you or your relative. Cheaper travel facilities in this category are
tax-free.
No taxable benefit will arise if your employer is engaged in the business of conveying passengers for
reward by land, sea or air and grants you, your wife or your minor child the facility of:
• Travelling by any means to any destination in South Africa, whatever the usual fare for this travelling
may be.
• Travelling overland to any destination outside South Africa, whatever the usual fare for this travelling
may be.
• Travelling to any destination outside South Africa on a flight or voyage made in the ordinary course of
your employer’s business, provided that you, your spouse or your minor child are not permitted to make
a firm advance reservation of the seat or berth occupied by you or them, or if the lowest fare for the
travel facility does not exceed R500.
Also tax-free are:
• Transport services rendered by your employer to its employees in general for their conveyance from
their homes to their place of employment and back.
• Communication services provided by your employer if you use them mainly for the purposes of your
• Any services rendered by your employer to its employees at their place of work for the better
performance of their duties, as a benefit to be enjoyed by them for recreational purposes or for
recreational purposes at a place of recreation provided by it for the use of its employees in general.
• Travel facilities granted by your employer to your spouse or minor child if you are for the duration of
the term of your employment stationed for purposes of your employer’s business at a specific place in
South Africa further than 250 kilometres away from your usual place of residence in South Africa, you
are required to spend more than 183 days during the relevant year of assessment at that specific place
for purposes of your employer’s business and the facility is granted for travel between your usual place
of residence in South Africa and the specific place where you are stationed.
Interest-free or low-interest debt (s 1, 7th Sch paras 1, 2( f ), 11) A taxable benefit will arise when a
debt has been incurred by you in favour of your employer or any other person by arrangement with
your employer or its associated institution (see below) interest free or at a rate lower than the ‘official
rate of interest’.
The rate has been 7,5% from 1 August 2019, was 7,75% from 1 December 2018 to 31 July 2019, was
7,5% from 1 April 2018 to 30 November 2018 was 7,5%, from 1 August 2017 to 31 March 2018
was 7,75%, from 1 April 2016 to 31 July 2017 was 8%; from 1 February 2016 to 31 March 2016 was
7,75%; from 1 December 2015 to 31 January 2016 was 7,25%; from 1 August 2015 to 30 November
2015 was 7%; from 1 August 2014 to 31 July 2015 was 6,75%; from 1 February 2014 to 31 July 2014
was 6,5%; from 1 August 2012 to 31 January 2014 was 6%; from 1 March 2011 to 31 July 2012 was
6,5%; from 1 October 2010 to 28 February 2011 was 7%; from 1 September 2009 to 30 September 2010
was 8%; from 1 July 2009 to 31 August 2009 was 8,5%; from 1 June 2009 to 30 June 2009 was 9,5%;
from 1 March 2009 to 31 May 2009 was 11,5%; from 1 September 2008 to 28 February 2009
was 13%; from 1 March 2008 to 31 August 2008 was 12%; from 1 September 2007 to 29 February 2008
was 11%; from 1 March 2007 to 31 August 2007 was 10%; from 1 September 2006 to 28 February 2007
was 9%; from 1 September 2005 to 31 August 2006 was 8%; from 1 September 2004 to 31 August 2005
was 8,5%; from 1 March 2004 to 31 August 2004 was 9%; from 1 December 2003 to 29 February 2004
was 9,5%; from 1 September 2003 to 30 November 2003 was 12%; from 1 July 2003 to 31 August 2003
was 13%; from 1 March 2003 to 30 June 2003 was 14,5%; from 1 September 2002 to 28 February 2003
was 13,5%; from 1 March 2002 to 31 August 2002 was 11,5%; from 1 October 2001 to 28 February
2002 was 10,5%; from 1 March 2000 to 30 September 2001 was 13%; from 1 September 1999 to 29
February 2000 was 14,5%; from 1 May 1999 to 31 August 1999 was 16%; and immediately before that
date, 19%.
The ‘official rate of interest’ is, for a debt denominated in the currency of the Republic, that is, Rands, a
rate of interest equal to the South African repurchase rate plus 100 basis points and, for a debt
denominated in any other currency, a rate of interest that is the equivalent of the South African
repurchase rate applicable in that currency plus 100 basis points. When a new repurchase rate or
equivalent rate is determined, the new rate of interest will apply for the purposes of the definition of the
‘official rate of interest’ from the first day of the month following the date on which the new repurchase
rate or equivalent rate came into operation. The current official rate of interest has been 7,5% with
effect as from 1 August 2019.
You will pay tax on the difference between interest on the debt calculated at the official rate and the
actual interest charged.
A portion of the amount is deemed to have accrued to you, when interest on the debt is payable by you
at regular intervals, on each date during the tax year on which interest becomes payable for a portion of
the year, and when interest on the debt is payable by you at irregular intervals or when no interest is
payable by you on the debt, on the last day of each period during the tax year for which any cash
remuneration becomes payable to you by your employer. A different method of calculation of the fringe
benefit may be used if the Commissioner, on application by you, decides that the alternative method
achieves substantially the same result. The Commissioner’s decision is subject to objection and appeal.
These rules do not apply to debts that are subsidized by your employer, to which different rules apply;
see ‘Subsidies’ below.
They also do not apply to a loan made to enable you to pay for a qualifying equity share under a broad-
based employee share plan (see 5.2) and so comply with the minimum requirements of the Companies
Act 71 of 2008 or to securities transfer tax payable on such a share.
You may deduct as an expense an amount equivalent to the taxable benefit included in your taxable
income if you use the money lent to you in the production of your income and you would have qualified
for a deduction (see 7.3) had you actually paid your employer interest on the debt. For example, if your
employer lends you R100 000 interest free when the official rate is 7,5% and you invest the money to
earn rentals of, say, R12 000, you must include R7 500 (7,5% of R100 000) in your income for a full year
as a taxable benefit but may in turn deduct a similar amount as if you had actually paid interest of R7
500 on the debt, since you will have used the debt to produce the rental income. You will be left with a
taxable fringe benefit of R7 500, and a taxable net income from letting of R4 500 (R12 000 less R7 500).
The following debts owing to your employer will not give rise to a taxable benefit:
• Debts owed to your employer if the debt or the aggregate of such debts does not at any relevant time
exceed R3 000.
• Debts owed to your employer that were incurred for the purpose of enabling you to further your own
studies.
• From 1 March 2019: Debts owed to your employer (not your connected person; see 10.27) under a
loan not exceeding R450 000 assumed for the purpose of enabling you to acquire immovable property
with a market value not exceeding R450 000 in the tax year in which it is acquired, as long as your
remuneration proxy does not exceed R250 000 in the tax year in which loan is granted.
An appropriate portion of your taxable benefit is deemed to accrue to you on each date during the tax
year on which interest is payable by you on the debt if the interest is payable at regular intervals.
But if your payments of interest are irregular or the debt is interest free, an appropriate portion of the
taxable benefit is deemed to accrue to you on each date on which you usually receive your salary or
wages, for example, at the end of each week or month. Any interest you pay relating to the relevant
period is deducted from the portion of the benefit taxable in that period. In special circumstances a
different method of calculation may be used.
When the official rate of interest is changed with effect from a particular date, taxable benefits that are
deemed to have accrued to you before that date must be determined at the previous rate or rates of
interest that applied at the dates of the deemed accruals.
Special provisions apply to loans under housing or home-ownership schemes (see below).
Deemed loans (7th Sch paras 2( f), 10A, 11)
You will be deemed to have been granted a loan when:
• you have been granted the right to occupy residential accommodation owned by your employer or by
its associated institution (see below);
• you, your spouse or minor child are entitled or obliged to acquire the residential accommodation at a
future date at a stated purchase price; and
• you are required to pay a rental for the accommodation calculated wholly or partly as a percentage of
its stated purchase price.
The amount of the loan will be deemed to be the stated purchase price of the accommodation, and you
will be deemed to be paying interest on the loan at a rate equal to the percentage of the stated purchase
price constituting the rental.
Your taxable benefit will be the amount by which the deemed rate of interest on the loan is less than the
official rate of interest.
You will not pay tax on the taxable benefit of the residential accommodation as well (see ‘Residential
accommodation’ above). You will also not be regarded as having derived a further taxable benefit from
the acquisition of an asset at less than its actual value (see ‘Acquisition of asset at less than actual value’
above) if you eventually acquire the accommodation for less than its value at the time, provided that the
purchase price that you pay is not lower than the market value of the residential accommodation at the
time of the agreement entitling or obliging you, your spouse or minor child to acquire it. (If the
agreement was entered into before 14 March 1990, this result will be achieved if the purchase price was
not less than the cost of the accommodation to your employer.) Subsidies (7th Sch paras 2( g), ( gA),
12) A subsidy that your employer pays on the interest or capital repayments payable by you on a debt is
taxable in full in your hands as a taxable benefit.
Also taxable in full is a subsidy that your employer pays a lender on a debt owed by you to the lender, if
the amount of the subsidy, together with the interest that you pay on the debt, exceeds the amount of
interest that would have been payable on the debt at the official rate of interest (see above).
For example, if you pay 4% interest on a debt, your employer pays the lender a further 5% as a subsidy
and the official rate of interest is 7,5%, the full subsidy will constitute a taxable benefit.
Medical scheme contributions (7th Sch paras 2( i), 12A) A taxable benefit will arise if your employer
directly or indirectly makes a contribution or payment to a qualifying local or foreign medical scheme
for your benefit or for the benefit of your dependants.
The full amount will constitute a taxable fringe benefit.
In practice, a contribution made ‘for your benefit’ is treated as including one made ‘on your behalf’. In
other words, even though the law governing medical schemes may make you personally liable for the
full contributions, you will still pay tax on the basis described here. You will not be treated as having had
a personal liability discharged by your employer (see ‘Discharge or release of employee’s debt’ below).
When a contribution or payment made by your employer is made in such a manner that an appropriate
portion cannot be attributed to you or your dependants, a special rule applies. The amount of the
contribution or payment in relation to you and your dependants is deemed for the above purpose to be
an amount equal to the total contribution or payment by your employer during the relevant period for
the benefit of all employees and their dependants divided by the number of employees in respect of
whom the contribution or payment is made. The Commissioner may, however, if you apply for him to do
so, make the apportionment on some other basis that he considers is fair and reasonable if the
apportionment of the contribution or payment among all employees on the basis provided above does
not reasonably represent a fair apportionment of the contribution or payment amongst the employees.
The amount paid by your employer that is a fringe benefit under these rules is treated as an amount
contributed by you when it comes to the determination of the deduction allowed to you for the
contributions (see 2.5).
General
The benefit will effectively be tax-free when an employer makes contributions or payments for the
benefit of:
• A person who retired from its employ by reason of superannuation, ill-health or any other infirmity.
• The dependants of a deceased former employee who was in its employ at the date of his or her death.
• The dependants of a deceased former employee who retired from its employ by reason of
superannuation, ill-health or any other infirmity.
Incurral of costs relating to medical services (7th Sch paras 2( j), 12B) A taxable benefit will arise if
your employer has, directly or indirectly, incurred any amount (other than a contribution or payment
dealt with under the previous heading) on any medical, dental and similar services, hospital services,
nursing services or medicines provided to you or your spouse, child, relative or dependant.
The cash equivalent of the value of this taxable benefit is the amount incurred by your employer during
any month, directly or indirectly, on medical, dental and similar services, hospital services, nursing
services or medicines for you, your spouse, child or other relative or dependants.
When the payment of such an amount is made in such a manner that an appropriate portion of it cannot
be attributed to you and your spouse, children, relatives and dependants, the amount of the payment in
relation to you and your spouse, children, relatives and dependants is for purposes of the determination
of the taxable benefit deemed to be an amount equal to the total amount incurred by your employer
during the relevant period on all medical, dental and similar services, hospital services, nursing services
or medicines for the benefit of all employees and their spouses, children, relatives and dependants
divided by the number of employees who are entitled to make use of those services.
No taxable benefit arises from the provision of medical treatment listed in any category of the
prescribed minimum benefits determined by the Minister of Health in terms of s 67(1)( g) of the
Medical Schemes Act 131 of 1998 that is provided to you or your spouse or children in terms of your
employer’s scheme or programme that constitutes the carrying on of the business of a medical scheme if
the scheme or programme has been approved by the Registrar of Medical Schemes as being exempt from
complying with the requirements of medical schemes in terms of that Act or does not constitute the
carrying on of the business of a medical scheme, if the employee and his or her spouse and children are
not beneficiaries of a registered medical scheme or are beneficiaries of such a scheme and the total cost
of their treatment is recovered from the medical scheme.
A taxable benefit will also not arise when the services are rendered or the medicines are supplied for
purposes of compliance with any South African law.
Nor will a taxable benefit be derived from the employer of the following persons:
• A person who retired from the employ of that employer by reason of superannuation, ill-health or
other infirmity.
• The dependants of a person after that person’s death, if that person was in the employ of that employer
on the date of death.
• The dependants of a person after that person’s death, if that person retired from the employ of that
employer by reason of superannuation, ill-health or other infirmity.
• A person who during the relevant year of assessment is entitled to the over-65 rebate (see 2.10).
There will also be no taxable benefit when the services are rendered by an employer to his or her
employees in general at their place of work for the better performance of their duties.
Incurral of premiums under insurance policies (7th Sch paras 2( k), 12C) A taxable benefit will
arise if your employer has made a payment to an insurer under an insurance policy directly or indirectly
for your benefit or that of your spouse, child, dependant or nominee. But no taxable benefit will arise on
an insurance policy that relates to an event arising solely out of and in the course of your employment,
for example, a workplace accident.

The cash equivalent of the value of this taxable benefit is the amount of expenditure incurred by your
employer during the tax year on premiums payable under a policy of insurance directly or indirectly for
your benefit or the benefit of your spouse, child, dependant or nominee.
When the payment of such an amount is made in such a manner that an appropriate portion of it cannot
be attributed to you, the amount of the payment in relation to you is for purposes of the determination
of the taxable benefit deemed to be an amount equal to the total expenditure incurred by your employer
during the tax year for the benefit of all employees divided by the number of employees for whom the
expenditure is incurred.
Fund contributions (7th Sch paras 1, 2( l), 12D)
A taxable benefit arises if your employer makes a contribution for your benefit to a pension fund or a
provident fund.
When the taxable benefit payable to members in a fund member category of a fund consists solely of
defined contribution components, the cash equivalent of the value of the benefit is the value of the
amount contributed by your employer for your benefit as a member of the fund. Otherwise, the cash
equivalent of the value of the taxable benefit is determined by the application of the following formula:
X = (A × B) – C
In the formula
‘X’ represents the amount to be determined;
‘A’ represents the fund member category factor of the fund member category of which the employee is a
member;
‘B’ represents the retirement-funding income of the employee; and
‘C’ represents the sum of the amounts contributed by the employee to the fund under its rules, excluding
any additional voluntary contributions made to the fund by the employee and buyback, in respect of the
year of assessment.
The board of a fund must provide the employer of the employees who are members of a fund with a
contribution certificate for the benefit contemplated in the above formula. It must do so no later than
one month before the commencement of the year of assessment for which the contribution certificate is
issued. But the board must not provide a contribution certificate for a tax year for which those benefits
remain unaltered subsequent to the issue of the contribution certificate.
When the rules of the fund are amended and those amendments, for any reason, affect the value of or
entitlement to any benefit payable to a member of the fund or a dependant or nominee of the member,
the contribution certificate must be supplied to the employer no later than one month after the day on
which the amendments become effective.
Should an error have occurred in the calculation of the fund member category factor, a corrected
contribution certificate must be supplied to the employer. It will have effect from the first day of the
month following the month during which it was received.
When the fund member category factor changes during the tax year, the contribution certificate must be
supplied to the employer no later than one month after the day on which the change becomes effective.
The Minister must make regulations prescribing the manner in which a fund must determine all fund
member category factors and the information that the contribution certificate must contain.
No value is placed on the taxable benefit derived from a contribution made by an employer to a fund for
the benefit of a member of the fund who has retired from the fund or for the dependants or nominees of
a deceased member of the fund.
Definitions
‘Benefit’ in relation to an employee that is a member of a pension fund, provident fund or retirement
annuity fund, means any amount payable to the member or a dependant or nominee of the member by
that fund in terms of its rules.
‘Contribution certificate’ means the certificate mentioned above.
‘Defined benefit component’ means a benefit or part of a benefit receivable from a pension fund,
provident fund or retirement annuity fund by a member of the fund or a dependant or nominee of the
member other than a defined contribution component or underpin component of a fund.
‘Defined contribution component’ means a benefit or part of a benefit receivable from a pension fund,
provident fund or retirement annuity fund:
• when the interest of each member in the fund in respect of that benefit has a value equal to the value
of:
– the contributions paid by the member and by the employer in terms of the rules of the fund that
determine the rates of both their contributions at a fixed rate;
– less such expenses as the board of the fund determines should be deducted from the contributions
paid;
– plus any amount credited to the member’s individual account upon:
• the commencement of the member’s membership of the fund;
• the conversion of the component of the fund to which the member belongs from a defined benefit
component to a defined contribution component; or
• the amalgamation of the fund with another fund, if any, other than amounts taken into account in
terms of the item that follows;
– plus any other amounts lawfully permitted, credited to or debited from the member’s individual
account, if any,
as increased or decreased by fund return; or
• which consists of a risk benefit provided by the fund directly or indirectly for the benefit of a member
of the fund if the risk benefit is provided solely by means of a policy of insurance.
‘Fund member category’ in relation to members of a pension fund, provident fund or retirement
annuity fund, means any group of members in respect of whom, in terms of the rules of the fund:
• the employers of those members and those members must respectively make a contribution to that
fund in an amount in respect of retirement funding income at the same fixed rate; and
• the determination of the value of the benefits of the members referred to above and the determination
of the entitlement of those members to those benefits are made according to the same method.
‘Fund member category factor’ means the fund member category factor contemplated in the part
above dealing with contribution certificates.
‘Fund return’, in relation to:
• the assets of a fund, means any income (received or accrued) and capital gains and losses (realised or
unrealised) earned on the assets of the fund, net of expenses and tax charges, associated with the
acquisition, holding or disposal of assets; or
• any portion of the assets of a fund if the assets are separately identifiable, means any income (received
or accrued) and capital gains and losses (realised or unrealised) earned on those assets, net of expenses
and tax charges associated with the acquisition, holding or disposal of assets; or
• the assets of a fund, to the extent that those assets consist of long-term policies which are ‘fund
member policies’ as defined in Part 5 of the Regulations under the Long-term Insurance Act 52 of
1998 means the ‘growth rate’ (as defined in those Regulations) applicable to those policies, as
determined in accordance with those Regulations.
‘Member’ means in relation to a pension, provident or retirement annuity fund, any member or former
member of that fund but does not include any member or former member or person who has received
all the benefits which may be due to them from the fund and whose membership has thereafter been
terminated in accordance with rules of the fund.
‘Retirement-funding income’ means:
• in relation to any employee or the holder of an office (including a member of a body of persons
whether or not established by or in terms of any law) who in respect of his or her employment derives
any income constituting remuneration as defined in para 1 of the Fourth Schedule (see 17.3) and who is
a member of or, as an employee, contributes to a pension fund or provident fund established for the
benefit of employees of the employer from whom such income is derived, the income that is taken into
account in the determination of the contributions made by the employer or the pension fund or
provident fund for the benefit of the employee to such pension fund or provident fund in terms of the
rules of the fund; or
• in relation to a partner in a partnership (other than a partner contemplated above, that part of the
partner’s income from the partnership in the form of the partner’s share of profits as is taken into
account in the determination of the contributions made by the partnership for the benefit of the partner
to a pension fund or provident fund in terms of the rules of the fund: Provided that for the purposes of
this definition a partner in a partnership must be deemed to be an employee of the partnership and a
partnership must be deemed to be the employer of the partners in that partnership.
‘Risk benefit’ means a benefit payable by the fund in respect of the death or permanent disablement of
a member to that member or to a dependant or nominee of that member.
‘Underpin component’ means a benefit receivable from a pension fund, provident fund or retirement
annuity fund the value of which benefit, in terms of the rules of the fund, is the greater of the amount of a
defined contribution component and a defined benefit component other than a risk benefit.
Scheme or fund contributions to bargaining council (7th Sch paras 1, 2( m), 12E) A taxable benefit
arises if your employer makes a contribution for your benefit to a bargaining council established under s
27 of the Labour Relations Act 66 of 1995 operating a qualifying scheme or fund (other than a pension
fund or a provident fund).
The cash equivalent of the value of the taxable benefit is the amount of the contribution or payment
made by your employer for a tax year directly or indirectly to such a bargaining council towards a
qualifying scheme or fund.
Should it not be possible to attribute an appropriate portion of such expenditure to the employee for
whose benefit the amount is paid, the required amount is deemed to be an amount equal to the total
expenditure incurred by the employer during the tax year for the benefit of all employees divided by the
number of employees for whom the expenditure is incurred.
Discharge or release of employee’s debt (7th Sch paras 1, 2( h), 13) A taxable benefit will arise if
your employer directly or indirectly pays a debt (other than amounts dealt with under the headings
‘Medical scheme contributions’ and ‘Incurral of costs relating to medical services’ above) that you owe to
a third person without requiring you to reimburse it for the amount paid or releases you from an
obligation to pay an amount that you owe it. The taxable benefit will be the amount it pays or the
amount that was owing.
Your employer is treated as having released you from your obligation to pay it an amount that you owe
it if the debt is extinguished by prescription (the passage of time) and it could have recovered
the amount owing or caused the running of the prescription to be interrupted, unless its failure to
recover the amount owing or to cause the running of the prescription to be interrupted was not due to
its intention to confer a benefit on you.
If you are released from the obligation to pay a debt owing to your employer after you retire from its
employ by reason of superannuation, ill health or any other infirmity and the debt arose before your
retirement, you will pay tax on the resulting benefit as if you had remained an employee.
There will be no taxable benefit if your employer pays your subscriptions to a professional body of
which you are required to be a member as a term of your employment.
There will also be no taxable benefit if your employer pays insurance premiums on a policy in-
demnifying you solely against claims arising from negligent acts or omissions on your part in rendering
services to your employer.
Nor will there be a taxable benefit when your employer pays any portion of the value of a benefit that is
payable by a former member of a non-statutory force or service as defined in the Government
Employees Pension Law 1996 (Proclamation 21 of 1996) to the Government Employees’ Pension Fund
as contemplated in Rule 10(6)( d) or ( e) of the Rules of the Government Employees Pension Fund
contained in Schedule 1 to that Proclamation.
There will also be no taxable benefit when you change employment and your new employer pays the
amount you owe your former employer on account of educational assistance you enjoyed. This must
have been by way of a bursary, study loan or similar assistance granted to you by your former employer
in exchange for your undertaking to work for it for an agreed period. You must have become liable to
repay some amount to it because you have stopped working for it before the end of that period, and that
must be the amount paid on your behalf by your new employer. In addition, you must have bound
yourself to work for your new employer for a period at least equal to the period for which you were still
obliged to work for your former employer.
Benefits from associated institutions (7th Sch paras 1, 4)
When your employer’s ‘associated institution’ grants you any of the taxable benefits mentioned above
because of your employment with or the services that you render to your employer, you will pay tax on
the benefit in the same way as if it had been granted by your employer itself.
An ‘associated institution’ in relation to your employer:
• If your employer is a company or close corporation, is any other company or close corporation that is
associated with your employer company or close corporation by reason of the fact that both companies
or both the company and the close corporation are managed or controlled directly or indirectly by
substantially the same persons.
• If your employer is not a company or close corporation, is any company or close corporation that is
managed or controlled directly or indirectly by your employer or by any partnership of which your
employer is a member.
• With certain exceptions, is any fund established solely or mainly to provide benefits for employees or
former employees of your employer and any companies or close corporations that are associated
institutions in relation to it.
Benefits to relatives and others (s 1, 7th Sch para 16)
If your employer directly or indirectly grants a taxable benefit to one of your ‘relatives’ (other than a
travel facility granted to your spouse or minor child described under the heading ‘Free or cheap
services’ above) or any other person as a benefit or advantage of or by virtue of your employment or as a
reward for services rendered or to be rendered by you, the benefit will be regarded as your benefit and
will be included in your income.
Your ‘relative’ is your spouse and those related to you or your spouse within the third degree of
consanguinity (descendants or sharing a common ancestor), including the spouses of those so
related. An adopted child is considered to be a child of the adoptive parent for this purpose. First degree:
your parents, your (full) brothers and sisters, your children. Second degree: Your grandparents,
grandchildren, aunts, uncles, nephews, nieces and half-brothers and half-sisters. Third degree: Includes
your first-cousins, great-grandparents and great grandchildren.
Employer’s obligations (s 3(4), 7th Sch paras 3, 17, 18)
Your employer is required to determine the cash equivalent of taxable benefits granted to you in
accordance with these rules and, since these benefits constitute remuneration (see 17.3), must deduct
employees’ tax (PAYE) from them.
If your employer fails to make a determination or if the determination that is made appears to the
Commissioner to be incorrect, he may re-determine the cash equivalents and issue the employer with a
notice of assessment under the PAYE rules for the unpaid amount of PAYE that is required to be
deducted or withheld from the cash equivalent. Alternatively, SARS may re-determine any incorrect cash
equivalent of your taxable benefits in assessing your liability for tax when you submit your return. If you
are dissatisfied with the determination – by your employer – or redetermination –
by SARS – of the cash equivalent of any taxable benefit granted to you, you or your employer may refer
the matter to the Commissioner for SARS for a directive. The Commissioner’s decision on such a matter
is subject to objection and appeal (see 18.6).
Within thirty days after the end of each tax year or a longer period allowed by the Commissioner for
SARS your employer must provide you with a certificate showing the nature and the full cash equivalent
of all taxable benefits granted to you during the tax year, except those from which it deducted the
correct amount of PAYE and reported in the usual PAYE certificate (IRP 5; see 17.9).
The certificate must also include any benefits granted for your services to your relatives (see above) or
by your employer’s associated institutions (see above). Your employer must at the same time also send a
copy of the certificate to SARS.
In its annual return of employees and their remuneration rendered for PAYE purposes (see 17.9) your
employer must also declare that all taxable benefits enjoyed by them during the period covered by the
return are declared on their tax certificates or on a return submitted at the request of the Commissioner.
The director of a company or his or her equivalent in a close corporation (see 14.10) must certify that
the return is correct when the employer is a company or a close corporation.
5.5 Gratuity to members of citizen force or commandos
s 7A(3)
If you are a member of the citizen force or the commandos and have bound yourself to serve for a
continuous period of at least eighteen months, you may elect to have any gratuity that becomes payable
to you by the state upon and by reason of the completion of your service taxed as if it were an antedated
salary or pension granted permanently and with retrospective effect for your period of service (see 5.8).
In other words, the gratuity will be taxed over your period of service and not as one lump sum.
5.6 Lump sums, pensions and annuities from employment
ss 9(2)( i), 10(1)( g C)(ii),
4th Sch para 1
A pension or annuity from your former employer is taxable and must be shown separately from your
other remuneration in your tax return, together with the name of your former employer and the period
during the tax year for which you derived it.
A lump sum, pension or annuity payable by a pension fund, pension preservation fund, provident fund
or provident preservation fund has its source in South Africa if the services in respect of which it is
received or accrues were rendered within South Africa. But if the lump sum, pension or annuity is
received or accrues for services that were rendered partly within and partly outside South Africa, only
so much of the amount as bears to the total of the amount the same ratio as the period during
which the services were rendered in South Africa bears to the total period during which the services
were rendered must be regarded as having been received by or accrued to you from a source within
South Africa.
This source rule applies to both residents and non-residents.
For residents, a lump sum, pension or annuity derived from a source outside South Africa as
consideration for past employment outside South Africa is exempt from income tax. Excluded from this
exemption is a payment from a pension fund, pension preservation fund, provident fund, provident
preservation fund or retirement annuity fund. Also excluded from the exemption is a payment from a
resident company registered under the Long-term Insurance Act 52 of 1998 as a person carrying on
long-term insurance business. But amounts transferred to such a fund or such a company from a source
outside South Africa relating to a resident remain eligible for the exemption.
PAYE must be deducted from a pension or an annuity you receive that is not exempt from income tax.
5.7 Public-sector funds – ‘transfer’ or ‘conversion’ benefits
s 1, 4th Sch para 2(6)
‘Public-sector funds’ are identified in 6.6. A very substantial inclusion will be made in your gross income
(see 1.1) should your benefits under such a fund be transferred to another fund or the original fund be
converted in such a way as to release a lump-sum payment. This inclusion will apply to you as a member
of the public-sector fund who effectively remains in the employment of the same employer or as a
dependant or nominee of a deceased member. The targeted transfers or conversions arise in the
following circumstances:
• The rules of your public-sector fund require that on the retirement of a member a portion of his or her
benefit has to be taken in the form of an annuity. An amount from this fund is transferred to another
fund whose rules entitle the member or the dependants or nominees of a deceased member to a lump-
sum benefit on retirement exceeding one-third of the capitalized value of all benefits (including lump-
sum payments and annuities). What is included in gross income is an amount equal to two-thirds of the
amount transferred.
• The rules of your public-sector fund again require that on the retirement of a member a portion of his
or her benefit has to be taken in the form of an annuity. The rules are amended or other means are
adopted so that the fund is wholly or partially converted to one that entitles the member or the
dependants or nominees of a deceased member to a lump-sum benefit on retirement exceeding one-
third of the capitalized value of all benefits (including lump-sum payments and annuities). What is
included in gross income is an amount equal to two-thirds of the amount converted for the benefit or
ultimate benefit of the member or the dependants or nominees of a deceased member and it is deemed
to be received by or accrue to the member or his dependants or nominees, whichever is appropriate. If a
court granting a decree of divorce of the member of a fund has made an order that a part of the
member’s pension interest must be paid to his or her former spouse in terms of the Divorce Act 70 of
1979, that part will be deemed to have been converted for the benefit or ultimate benefit of the member,
who may nevertheless recover the tax attributable to the amount from the former spouse to whom it is
payable.
• An amount in a public-sector fund has become payable to a member or is being used to redeem his or
her debt. What is included in gross income is the amount payable to the member or used to redeem the
debt.
Upon application by a fund to the Commissioner for SARS, the one-third limitation may be increased to a
maximum of one-half, subject to the satisfaction of specified requirements.
These amounts included in gross income are for PAYE purposes regarded as amounts of remuneration
(see 17.3) payable by an employer (see 17.7) to an employee (see 17.2) and so are subject to employees’
tax (see 17.2).
5.8 Retrospective increases of salary or pension
s 7A(1), (2)
You are entitled to choose to pay tax on a special basis on an ‘antedated salary or pension’ that you
derive. An ‘antedated salary or pension’ is an amount of ‘salary’ or ‘pension’ paid to you under a
permanent grant, made with retrospective effect, of a salary or pension or of an increase in a salary or
pension that is payable for a period ending on or before the date on which the grant becomes effective.
The special basis enables the antedated salary or pension to be spread over a period instead of being
taxed as one lump sum.
A ‘pension’ for this purpose is an annuity payable under any law or under the rules of a pension or
provident fund or by an employer to its former employee or to the dependant or nominee of its deceased
employee.
A ‘salary’ for this purpose is a salary, wage or similar remuneration payable by an employer to an
employee but is not meant to include a bonus.
If you derive an antedated salary or pension during the current tax year, 2019, which is payable for a
period – the accrual period – that commenced before the beginning of the current year, you have the
following choices:
• You may choose not to pay tax on the special basis and pay tax on the full antedated salary or pension
in the year in which you derive it, the current year.
• If the accrual period began not more than two years before the beginning of the current year, you may
regard the antedated salary or pension as having been derived in part during each of the years in which
any portion of the accrual period falls. The amount will then be apportioned between the various years
according to the portion of the accrual period that falls into each year.
• If the accrual period began more than two years before the beginning of the current year, 2020, you
may regard the antedated salary or pension as having been derived in three equal annual instalments,
the first in 2018, the second in 2019 and the third on the date in 2020 on which you derived it.
For example, if on 29 February 2020 you receive a permanent grant with retrospective effect of an
increase in salary amounting to R15 000, and the salary relates to the period 1 September 2018 to 28
February 2020, it will be treated as having accrued to you as follows if you choose to pay tax on the
special basis:
In 2019 tax year (six months of accrual period in this year) ....................................................... R5 000 (6/18) In
2020 tax year (twelve months of accrual period in this year) ............................................. R10 000 (12/18) If
the accrual period commenced more than two years before 1 March 2019, the beginning of the 2020 tax
year, for example, on 1 September 2015, the R15 000 is deemed to have accrued to you as follows if you
choose to pay tax on the special basis:
In 2018 tax year ............................................................................................................................ R5 000 (1/3) In 2019 tax

year ............................................................................................................................ R5 000 (1/3) In 2020 tax
year ............................................................................................................................ R5 000 (1/3) Your employer or fund
will have to obtain a directive from SARS before paying out the antedated salary or pension in order to
discover what PAYE to deduct. At that time you should inform SARS
whether you choose to pay tax on this special basis.
5.9 Restraint-of-trade
payments
ss 1, 11( c A), 23( l)
An amount derived as compensation for a restraint of trade imposed upon a labour broker without a
PAYE exemption-certificate (see 17.5), or a personal service provider (see 17.5), although of a capital
nature, will specifically be included in its ‘gross income’ and thus be taxable.
It is only a restraint-of-trade payment that is taxable in this way that may be claimed as an income tax
deduction by the person paying it (see 10.54).
5.10 Rights to acquire marketable securities
s 8A, 4th Sch para 11A
As a director or former director of a company (see 14.1) or for services rendered or to be rendered by
you as an employee you may be granted the right to take up shares or other ‘marketable securities’
in a company. The rules described here apply only to such a right you obtained before 26 October 2004.
Any gain that you make on the exercise, cession or release of the right will be included in your taxable
income. The gain will be calculated in the following manner:
Market value of the shares on the day you exercise the right (that is when you take up the
shares) ..............................................................................................................
Rxxx
Less: Price paid by you for the shares .......................................................................... Rxxx Price paid by you for the
right (if any) .................................................................. xxx xxx
Gain ............................................................................................................
Rxxx
Suppose that your employer, instead of paying you a cash bonus of R10 000 in December 2014
gave you a right to take up 500 shares in the company at any time before December 2019 at their
current price of R2 a share. The market value of the shares then rose to R5 a share, and you exercised
your right on 15 October 2019. The amount that will be taxed in the 2020 year will be: Market value of
the shares on 15 October 2019 (500 × R5) ...............................................
R2 500
Less: Cost to you of shares (500 × R2) ..........................................................................
1 000
Gain ............................................................................................................
R1
500
Any profit that you realize on a subsequent sale of the shares will be a capital profit (see 1.5) and will
not be subject to tax on income account unless you are considered to have exercised your right and
disposed of the shares in a profit-making scheme. For the capital gains tax consequences, see 21.3.
You may also pay tax if, instead of exercising the right, you dispose of it by ceding it to another person or
give it up in return for a consideration. The amount to be included in your taxable income is then:
Amount you derive on cession or release of the rights .......................................................
Rxxx
Less: Price paid by you for the right (if any) ...................................................................
xxx
Gain ............................................................................................................
Rxxx
Special rules apply where you cede or release a right for a consideration that consists of or includes
another right to acquire shares.
The terms of your right may prohibit you for a certain period from selling the shares you take up. If so,
you may elect – by enclosing a written application with your tax return – to pay tax on your gain only
when that period has elapsed. In other words, you need pay the tax only when you are in a position to
raise the necessary funds by selling the shares should you wish to do so.
In the event of your death or insolvency before you are entitled to sell your shares, the gain as
determined at the date of exercise of the right is included in your taxable income for the period up to the
date of your death or insolvency.
A gain made by another person on the exercise, cession or release of a right to acquire shares will be
included in your taxable income if:
• the right was originally obtained by any person other than yourself by reason of your office or former
office as a director of any company or of any services rendered or to be rendered by you as an employee;
or
• the right was originally obtained by you as a director or former director of any company or for services
rendered or to be rendered by you as an employee and was ceded by you to any person otherwise than
by or under a cession made by way of a bargain at arm’s length or the gain was made by your relative
(see item 17 in 12.4).
A special exemption applies to certain amounts that you derive under a share-incentive scheme
operated by your employer (see 5.15).
Rights to acquire shares and PAYE
You must inform your employer of the amount of any gain you have made on the exercise, cession or
release of a right to acquire shares, since the gain made constitutes remuneration from which PAYE
must be deducted. The need to inform your employer will not arise, however, if your employer was a
party to the transaction under which you have made your gain.
Before deducting PAYE, your employer must ascertain from SARS the amount to be deducted.
remuneration you receive or are to receive after the date you inform your employer or your employer
has become aware of your gain. Your employer must notify SARS immediately, however, should the
amount of tax to be deducted exceed the remuneration you are to receive.
5.11 Services outside South Africa –
ss 8(1)( a)(iv), 9(2)( g), ( h),
public
service
10(1)( p), 4th Sch para 1
Amounts you derive from the holding of a public office to which you have been appointed or are treated
as having been appointed under an Act of Parliament are derived from a source in South Africa, no
matter where in the world you hold your public office.
Amounts you derive for services rendered to or work or labour performed for or on behalf of an
employer in the national, provincial or local sphere of government of South Africa, a constitutional
institution listed in Schedule 1 to the Public Finance Management Act 1 of 1999, a public entity listed in
Schedule 2 or 3 to that Act or a municipal entity as defined in s 1 of the Local Government: Municipal
Systems Act 32 of 2000 are similarly derived from a source in South Africa.
Nevertheless, an amount paid or granted to you as an allowance or advance derived by you on account
of your holding such a public office, or on account of such services rendered or work or labour
performed by you will effectively be exempt from income tax, as long as you are stationed outside South
Africa and the amount is attributable to services rendered by you outside South Africa.
As long as you are a non-resident, an amount will be exempt from income tax if it is derived by you for
services rendered or work or labour done by you outside South Africa for or on behalf of an employer in
the national or provincial sphere of Government or a municipality in South Africa or a national or
provincial public entity, with no less than 80% of the entity’s expenditure is defrayed directly or
indirectly from funds voted by Parliament, if the amount is chargeable with income tax in the country in
which you are ordinarily resident and the income tax so chargeable is borne by yourself and is not paid
on your behalf by the Government, the municipality concerned or the public entity.

5.12 Services outside South Africa – other service
ss 1, 10(1)( o)
The general rule is that, as a resident (see 1.1), amounts you derive from rendering services anywhere in
the world will be included in your ‘gross income’.
Then there are exemptions, which are available both to residents and non-residents. These will apply if
you derive any form of remuneration:
• If the remuneration is remuneration (see 17.3) from which PAYE would ordinarily be deducted that
you derived as an officer or a member of the crew of a ship engaged in the international transportation
for reward of passengers or goods if you were outside South Africa for a period or periods totalling more
than 183 full days in aggregate during the tax year.
you derived as an officer or a member of the crew of a ship engaged in prospecting, exploration or
mining – including surveying and other similar work – for or production of minerals, including natural
oils, from the seabed outside South Africa, as long as you are employed on board the ship solely for the
purposes of the ‘passage’ of the ship and were outside South Africa for a period or periods totalling more
than 183 full days in aggregate during the tax year.
you derive as an officer or a member of the crew of a ‘South African ship’ (see 16.32) mainly engaged in
‘international shipping’ (see 16.32) or in fishing outside South Africa.
• As an employee by way of salary, leave pay, wage, overtime pay, bonus, gratuity, commission, fee,
emolument or allowance, fringe benefit, amounts derived under a broad-based employee share plan (see
5.2) or a gain on the vesting of an equity instrument (see 5.3) for services rendered outside South Africa
for or on behalf of an employer, as long as you were outside South Africa for a period or periods
exceeding 183 full days in aggregate during any twelve-month period as well as for a continuous period
exceeding sixty full days during that twelve-month period, and you rendered the services during this
period or these periods. When you derive remuneration during a tax year for services rendered by you
in more than one tax year, the remuneration is deemed to have accrued evenly over the period that the
services were rendered. While you are in transit through South Africa between two places outside the
country and do not formally enter South Africa through a ‘port of entry’ as defined in the Immigration
Act 13 of 2002 or at any other place permitted by the Director-General of the Department of Home
Affairs or the Minister of Home Affairs in terms of that Act, you are regarded as remaining outside South
Africa. This exemption is unavailable to employees in the public service referred to in 5.11. With effect as
from 1 March 2020 and for tax years commencing on or after that date, this exemption will be limited to
R1 million a year.
5.13 Severance benefits
s1
A ‘severance benefit’ is defined as an amount (other than a lump-sum benefit or an amount payable
under targeted insurance policies; see 10.6) received by or accrued to a person by way of a lump sum
from or by arrangement with the person’s employer or the employer’s associated institution (see 5.4) on
account of the relinquishment, termination, loss, repudiation, cancellation or variation of the person’s
office or employment or of the person’s appointment (or right or claim to be appointed) to any office or
employment if:
• the person has attained the age of 55 years;

• the relinquishment, termination, loss, repudiation, cancellation or variation is due to the person’s
becoming permanently incapable of holding the person’s office or employment due to sickness, accident,
injury or incapacity through infirmity of mind or body; or
• the termination or loss is due to the person’s employers having ceased to carry on or intending to
cease carrying on the trade in which the person was employed or appointed, or the person’s having
become redundant in consequence of a general reduction in personnel or a reduction in personnel of a
particular class by the person’s employer, unless, when the person’s employer is
a company, the person at any time held more than 5% of the issued share capital or members’
interest in the company.
Any such amount that becomes payable in consequence of or following upon the death of a person must
be deemed to be an amount that accrued to the person immediately prior to his or her death.
Severance benefits are taxed together with retirement fund lump sum benefits and retirement fund
lump sum withdrawal benefits under the special tables applying to these benefits (see 6.9 and 6.11).
5.14 Social security benefits s
10(1)( g C)(i)
As a resident, an amount received by or accrued to you under the social security system of a foreign
country is exempt from income tax.
Under the Social Assistance Act 13 of 2004, a ‘social grant’ is a child support grant, a care dependency
grant, a foster child grant, a disability grant, an older person’s grant, a war veteran’s grant and a grant-
in-aid. Although the need for a specific exemption covering such grants appears to have been
overlooked, the intention appears to be that they should be exempt from income tax.
5.15 Tax-free income from employment s
10(1)( c), ( m B)
The salaries and emoluments payable to the following persons are free of tax:
• A person holding office in South Africa as an official of a foreign government who is stationed in South
Africa for that purpose and does not ordinarily live in South Africa.
• A domestic or private servant of such a person payable for domestic or private services rendered or to
be rendered who is not a South African citizen and does not ordinarily live in South Africa.
• A subject of a foreign state temporarily employed in South Africa as long as the exemption is
authorized by an agreement entered into by his or her government and the South African government.
• A subject of a foreign state who is not a resident, to the extent that the salary or the emoluments are
paid by an institution or body established by a foreign government to administer its responsibilities and
functions under a qualifying binding official development assistance agreement; or a multinational
organisation providing foreign donor funding under a qualifying binding official development assistance
agreement relating to approved projects .
A pension payable by the state to a former State President or former Vice State President or to the
widow of a former State President or former Vice State President is also free of tax. But this exemption
does not apply to a President elected under the Constitution or to such a President’s surviving spouse.
Also free of tax is a benefit or an allowance payable to you under the Unemployment Insurance Act 63 of
2001.
The following amounts derived from or paid by an employer are also free of tax:
• Amounts expended by your employer as its share of Unemployment Insurance Fund, medical scheme,
pension or provident fund contributions. With the exception of contributions to a medical scheme (see
5.4), such amounts are expended by your employer ‘for your benefit’ but not ‘on your behalf’.
• Wedding, birthday and other presents given to you by your employer that are not given in return for
your services as an employee.
5.16 Tax-free amounts derived under share-incentive
s 10(1)( n E)
schemes
Amounts that you derive as an employee (see 5.4) under a share-incentive scheme (but not a gain or loss
as a result of a transaction or the cancellation of a transaction of the type described in 5.3) are free of
tax. The amounts that are free of tax are those derived by you upon the cancellation of your purchase of
shares under the scheme or upon the repurchase from you, at a price not exceeding your cost, of the
shares that you bought under the scheme. These amounts will be tax-free only if you do not derive any
compensation or consideration other than the repayment of portion of the purchase price actually paid
by you for the shares.
5.17 Tax-free bursaries and scholarships
s 10(1)( q), ( q B)
A bona fide bursary or scholarship granted to you to enable or assist you to study at a recognized
educational or research institution is tax-free. But special rules govern scholarships or bursaries granted
by employers and their associated institutions.
There are two types of bursary or scholarship involved. The one is available to employees in general and
the other is available to persons with a disability.
First, there are scholarships or bursaries granted by an employer (see 5.4) or its associated institution
(see 5.4) to an employee (see 5.4) or to an employee’s relative (see 5.4). The general rule is that such a
scholarship or bursary will not be tax-free under this particular concession unless, for a scholarship or
bursary granted to so enable or assist an employee, he or she agrees to reimburse the employer for any
scholarship or bursary granted to him or her if he or she fails to complete his or her studies for reasons
other than death, ill-health or injury.
When an employee’s relative is the beneficiary the scholarship or bursary will not be tax-free under this
particular concession if the employee’s remuneration proxy (see 5.4) in relation to the tax year
concerned exceeds R600 000. And, even if this rule is satisfied, the scholarship or bursary will be tax-
free only to the extent of a maximum of:
• R20 000 for the tax year for grade R to grade twelve as contemplated in the definition of ‘school’
in s 1 of the South African Schools Act 84 of 1996 or a qualification for which an NQF level from 1
up to and including 4 has been allocated in accordance with Chapter 2 of the National Qualifications
Framework Act 67 of 2008; and
• R60 000 for a qualification to which an NQF level from 5 up to and including 10 has been so allocated.
These maxima apply to each of the employee’s relatives who might be beneficiaries.
And the second type is for bona fide scholarships or bursaries granted to enable or assist a person with a
disability (see 2.5) to study at a recognized educational or research institution. But, if it is granted by an
employer or its associated institution to an employee with a disability or to a disabled family member of
an employee to whom the employee is liable to provide family care and support, there are strings
attached.
If the scholarship or bursary is granted to enable or assist a disabled employee, the exemption will be
inapplicable unless the employee agrees to reimburse the employer for a scholarship or bursary granted
to him or her if the employee fails to complete his or her studies for reasons other than death, ill-health
or injury. And if it is granted to enable or assist a disabled family member of an employee that the
employee is liable to care for and support to study, the exemption will be inapplicable:
• if the remuneration proxy derived by the employee in a tax year exceeds R600 000; and
• if that qualification is met, the exemption will be inapplicable to so much of a scholarship or bursary
granted to the family member as during the tax year exceeds:
– R30 000 for grade R to grade twelve as contemplated in the definition of ‘school’ (see above) or a
qualification to which an NQF level from 1 up to and including 4 has been allocated in accordance with
Chapter 2 of the National Qualifications Framework Act 67 of 2008; and
– R90 000 for a qualification to which an NQF level from 5 up to and including 10 has been allocated in
accordance with Chapter 2 of the National Qualifications Framework Act.
5.18 Tax-free equity instruments
s 10(1)( n D)
Qualifying equity instruments (see 5.3) you acquire by virtue of your employment or office of director
(see 5.4) of a company (see 14.1) that have not yet vested (see 5.3) are exempt from tax. Also exempt is
any consideration you derive from the disposal of such equity instruments that have not yet vested.
Instead, your gain or loss is calculated and included in or deducted from your income. For details, see
5.3.
5.19 Tax-free equity shares (broad-based plan)
s 10(1)( n C)
Qualifying equity shares you derive under a broad-based employee share plan are exempt from tax. But
under certain circumstances the proceeds arising from the disposal of such shares will be taxable. For
details, see 5.2.
5.20 Tax-free pensions and compensation
s 10(1)( g A), ( g B), ( g D), ( g J)
A disability pension paid to you under s 2 of the Social Assistance Act 59 of 1992 is exempt from income
tax.
Compensation paid to you under the Workmen’s Compensation Act 30 of 1941 or the Compensation for
Occupational Injuries and Diseases Act 130 of 1993 is exempt from income tax.
Also exempt from income tax is a pension paid upon death or disablement caused by an occupational
injury or disease sustained or contracted by an employee before 1 March 1994 in the course of
employment, if the employee concerned would have qualified for compensation under the
Compensation for Occupational Injuries and Diseases Act had that injury or disease been sustained or
contracted on or after 1 March 1994.
There is also an exemption from income tax for compensation paid on the death of a person whose death
arises out of and in the course of his or her employment. The exemption applies to the extent that the
compensation was paid by the person’s employer in addition to any compensation under the Workmen’s
Compensation Act and does not exceed an amount of R300 000.
Also exempt from income tax is compensation paid under s 17 of the Road Accident Fund Act 56
of 1996.
Also exempt from income tax is a funeral benefit payable under s 6F of the Special Pensions Act 69 of
1996.
An amount derived by a person who is a member of a bargaining council established under s 27
of the Labour Relations Act 66 of 1995 from a qualifying scheme or fund described in that Act is exempt
from income tax. This exemption does not apply to an amount from a pension fund or a provident fund.
5.21 Tax-free relocation benefits
ss 3(4), 10(1)( n B)
You will not be liable to income tax on the benefit or advantage that you derive as an employee (see 5.4)
when your employer (see 5.4) bears qualifying expenses in consequence of:
• your transfer from one place of employment to another;
• your appointment as an employee; or
• the termination of your employment.
The expenses involved are those:
• of transportation of you and members of your household and your and their personal goods or
possessions from your previous to your new place of residence;
• incurred by you on the sale of your previous residence and in settling in permanent residential
accommodation at your new place of residence; and
• of hiring temporary residential accommodation in a hotel or elsewhere for you or members of your
household during the period ending 183 days after your transfer takes effect or after your appointment,
pending your obtaining permanent residential accommodation.
5.22 Tax-free retirement gratuities in the public service
s 10(1)( r)
Gratuities – other than leave gratuities – from public funds paid on your retirement from government
service, the South African Transport Services or any provincial administration or as a member of the
board of the Land and Agricultural Bank of South Africa are free of tax if the Treasury declares them to
be so. (Leave gratuities are treated in the same way as ordinary income from employment; see 5.1).
5.23 Tax-free uniforms and allowances for uniforms
s 10(1)( n A)
When as a term of your employment you are required while on duty to wear a special uniform that is
clearly distinguishable from ordinary clothing the value of any such uniform given to you by your
employer or any reasonable allowance made to you by your employer in lieu of the uniform is free of
income tax.
5.24 Tax-free war pensions and compensation for
s 10(1)( g)
mining diseases
An amount you receive as a war pension or as an award or benefit under any law relating to the
payment of compensation for diseases contracted as an employee in mining operations is free of income
tax.
5.25 Allowances
or
advances s
8(1)( a)
An amount paid or granted during the tax year to you, ‘the recipient’, by your ‘principal’ as an allowance
or advance must be included in your taxable income (see 1.1) for that year. Nevertheless, you may
exclude any part of the allowance or advance to the extent that it is expressly made exempt from tax or
is actually expended by you on qualifying subsistence or travelling on business or on the qualifying
duties of a public office. But you may not exclude any part of an allowance for travelling on business if
the allowance is given for a motor vehicle provided by your employer as a fringe benefit (see 5.4).
Apart from these three exceptional allowances or advances, all other allowances or advances paid or
granted to you, for example, for entertainment or for the use of a cell phone, must be included in your
taxable income in full, without any reduction whatsoever.
Nevertheless, qualifying reimbursive allowances or advances will not be included in your taxable
income.
And an amount paid or granted to you as an allowance or advance derived by you on account of your
holding a qualifying public office, or on account of qualifying services rendered or work or labour
performed by you will effectively be exempt from income tax, as long as you are stationed outside South
Africa and the amount is attributable to services rendered by you outside South Africa (see 5.11).
In relation to a recipient, a ‘principal’ includes the recipient’s employer; the authority, company, body
or other organization in which an office is held; and any such employer’s, authority’s, company’s, body’s
or organization’s associated institution (see 5.4).
5.26 Allowances to holders of public office
s 8(1)( a), ( d), ( e), ( f), ( g), 4th Sch para 1
An amount paid or granted during the tax year to you, ‘the recipient’, as the ‘holder of a public office’
by your principal (see 5.24) as an allowance or advance must be included in your taxable income (see
1.1) for that year. Nevertheless, you may exclude any part of the allowance or advance actually expended
by you by reason of the duties attendant upon your office.
Deemed expenditure (s 8(1)( d))
You will be deemed to have expended an allowance (but, strangely, not an advance) granted to you to
defray expenditure incurred by you in connection with your office to the extent that you actually incur
expenditure relevant to the allowance and not otherwise recoverable by you on:
• Secretarial
services.
• Duplicating
services.
• Stationery.
• Postages.
• Telephone
calls.
• The hire and maintenance of office accommodation.
• Travelling.
• Hospitality extended at any official or civic function that you are normally expected to arrange by
reason of the nature of your office.
• Subsistence and incidental costs incurred when you are obliged by reason of your duties to spend at
least one night away from your usual place of residence.
Any other allowance is taxable in the manner described in 5.24.
Holder of public office (s 8(1)( e))
A ‘holder of a public office’ is:

• The
President.
• The Deputy President.
• A Minister or Deputy Minister.
• A member of the National Assembly (parliamentarians).
• A permanent delegate to the National Council of Provinces.
•A
Premier.
• A member of an Executive Council.
• A member of a provincial legislature.
• A member of a municipal council, a traditional leader, a member of a provincial House of Traditional

Leaders and a member of the Council of Traditional Leaders.
• The president, chairman or chief executive officer of a national or regional non-profit making
organization that represents persons with common interests and derives funds wholly or mainly from
subscriptions of members or donations from the general public.
Deemed allowances (s 8(1)( f))
A special rule applies to the President, the Deputy President, a Minister or Deputy Minister, a member of
the National Assembly, a permanent delegate to the National Council of Provinces, a Premier, a member
of an Executive Council and a member of a provincial legislature. Since these holders of a public office do
not actually receive allowances to meet this type of expenditure, that portion of their salaries allocated
to this purpose, as determined by the National Assembly or the
President, as provided for in the Remuneration of Public Office Bearers Act 92 of 1997, is deemed to be
an allowance granted to the holder of a public office concerned.
Holding office for less than twelve months (s 8(1)( g)) For a holder of public office who has held a
public office for less than twelve months, the deemed allowance determined in the manner just
described is reduced to an amount bearing to the deemed amount the same ratio as the number of
months for which the office was held bears to twelve months. A part of a month is reckoned as a full
month for this purpose.
PAYE
PAYE must be deducted from an amount equal to 50% of your allowance or advance, which is the
amount regarded as being part of your remuneration (see 17.3) for PAYE purposes.
5.27 Subsistence allowances
s 8(1)( a), ( c), 4th Sch para 1,

GN 268 GG 42258 of 1 March 2019
An amount paid or granted during the tax year to you, ‘the recipient’, by your ‘principal’ (see 5.24) as an
allowance or advance must be included in your taxable income (see 1.1) for that year. Nevertheless, you
may exclude any part of the allowance or advance to the extent that it is expressly made exempt from tax
or is actually expended by you on any accommodation, meals and other incidental costs while you are
obliged, by reason of the duties of your office or employment, to spend at least one night away from your
usual place of residence in South Africa. Any balance is taxable.
No matter what you actually spent, here is what you are deemed to have actually expended: When you
can prove what you spent (s 8(1)( c)(i))
As long as you can prove to the Commissioner for SARS, the amount of the expenses you incurred on
accommodation, meals or other incidental costs, the amount you actually incurred will be deemed to be
what you actually expended. But your deemed expenditure will be limited to the amount of the
allowance or advance paid or granted to meet these expenses. And you have to leave out any amount of
expenditure borne by your employer (or, presumably, your principal) otherwise than by way of
payment or granting of the allowance.
When you do not prove your expenditure (s 8(1)( c)(ii)) For each day or part of a day in the period
during which you are absent from your usual place of residence, you will be deemed to have actually
expended an amount on meals and other incidental costs or an amount on incidental costs only
determined by the Commissioner for a country or region for the relevant tax year by way of notice in the
Government Gazette. But, again, your deemed expenditure will be limited to the amount of the allowance
(or, presumably, advance) paid or granted to meet these expenses. And you may not resort to these
amounts determined by the Commissioner to the extent that your employer (or, presumably, principal)
has borne the expenses, otherwise than by way of granting the allowance or advance, for which the
allowance (or, presumably, advance) was paid or granted for that day or part-day. Nor may you resort to
them when you have proved your actual expenditure on meals or incidental costs for that day or part-
day in the manner already described immediately above.
In his latest determination, the Commissioner has determined the following amounts in the Gazette:
• If the accommodation to which the allowance or advance relates is in South Africa and the allowance or
advance is paid or granted to defray incidental costs only, an amount equal to R134 for each day in the
tax year commencing on 1 March 2019.
• If the accommodation to which the allowance or advance relates is in South Africa and the allowance or
advance is paid or granted to defray the cost of meals and incidental costs, an amount equal to R435 a
day for the tax year commencing on 1 March 2019.
• If the accommodation to which the allowance or advance relates is outside South Africa, the amount is
an amount determined in accordance with a table issued by the Commissioner for the country in which
the accommodation is located. If the country is not listed, it is an amount equal to US $215 a day. These
amounts apply to the tax year commencing on 1 March 2019.
Incidental costs are, for example, the costs of any beverages, including alcoholic beverages, private
telephone calls, gratuities and room service.
For example, say you are required to be away from your usual place of residence but in South Africa for
two days during the year ended 29 February 2020 and your employer gives you a subsistence allowance
of R980 to cover your meals and incidental costs. You will pay tax on your allowance of R980, less your
deemed expenditure of R870 (2 × R435), that is, on R110, unless you can prove that you spent more
than R435 a day. But if your employer also paid R50 for your dinner each day, your deemed expenditure
would have been R820 (2 × (R435 – R50)), and you would have paid tax on R160 (R980 – R820). If your
employer had paid R150 for your accommodation and given you an allowance of, say, R600 a day for
your meals and incidental costs, you would pay tax on your allowance of R1 200 less your deemed
expenditure of R870 (2 × R435), that is, R330, again, unless you can prove that you spent more than
R435 a day.
PAYE (‘remuneration’)
Your employer need not deduct PAYE from your allowance or advance, even if it exceeds the amount
that you are deemed to have spent, since it is not regarded as being part of your remuneration (see 17.3)
for PAYE purposes. But the full amount of the allowance must be shown on your PAYE certificate (IRP 5)
under the appropriate codes. The code to be used will depend upon whether your allowance exceeds the
amount that you are deemed to have spent.
When an allowance or advance was paid or granted to you during any month for a night away from your
usual place of residence and you have not by the last day of the following month either spent the night
away from your usual place of residence or refunded the allowance or advance to your employer, the
allowance or advance is deemed not to have been paid or granted to you during the first month for
accommodation, meals or other incidental costs, but is instead deemed to be an amount that has become
payable to you in the following month for services rendered by you. This rule means that PAYE will then
be deductible in that following month.
5.28 Travelling and motoring
s 8(1)( a), ( b), 4th Sch para 1,
allowances
GN 170 GG 41473 of 2 March 2018
An amount paid or granted during the tax year to you, ‘the recipient’, by your ‘principal’ (see 5.24) as an
allowance or advance must be included in your taxable income (see 1.1) for that year. Nevertheless, you
may exclude any part of the allowance or advance actually expended by you on qualifying travelling on
business, unless you have been granted an allowance or advance by your employer for the use of a
motor vehicle that is taxed as a fringe benefit (see 5.4), in which event no exclusion is allowed.
Private travelling (s 8(1)( b)(i))
The portion of an allowance or advance paid to you for your transport expenses relating to private
travelling, which includes travelling between your residence and your place of work, is taxable, being
deemed not to have been actually expended on travelling on business.
Allowance or advance for use of motor vehicle (s 8(1)( b)(ii)) An allowance or advance paid to you
in order that it may be used for defraying expenditure on a motor vehicle used by you will be analysed
for the portion of the allowance or (presumably) advance expended by you during the tax year business
purposes.
• You may choose to produce and furnish to SARS an acceptable calculation based on accurate data.

• Alternatively, you may rely upon a deemed amount, which you calculate by applying the rate per
kilometre determined in the manner prescribed by the Minister of Finance by notice in the Government
Gazette for the category of vehicle used, on a distance travelled during the tax year for business
purposes (excluding private travelling).
From 1 March 2018: The deemed rate per kilometre is determined in accordance with the cost scale set
out in table reproduced below. It is the sum of:
• The fixed cost divided by the total distance in kilometres (for both private and business purposes)
shown to have been travelled in the vehicle during the tax year of assessment. Should the vehicle have
been used for business purposes during a period in the tax year less than the full period of that year, the
fixed cost must be an amount bearing to the fixed cost the same ratio as the period of use for business
purposes bears to 365 days.
• As long as you have borne the full cost of the fuel used in the vehicle, the fuel cost.
• As long as you have borne the full cost of maintaining the vehicle (including the cost of repairs,
servicing, lubrication and tyres), the maintenance cost.
Allowance or advance based on actual distance or actual distance proved (s 8(1)( b)(iii)) Should
the allowance or advance be based on the actual distance travelled by you in using a motor vehicle on
business (excluding private travelling), or should the actual distance be proved to the satisfaction of the
Commissioner for SARS to have been travelled by you, the amount expended by you on business
travelling will be deemed to be an amount determined on the actual distance at the rate per kilometre
fixed by the Minister of Finance by notice in the Government Gazette for the category of vehicle used. You
are nevertheless free to rely upon some other rate (such a rate produced by the Automobile
Association).
From 1 March 2019: The deemed rate per kilometre is determined in accordance with the cost scale set
out in table reproduced below. It is the sum of:
• The fixed cost divided by the total distance in kilometres (for both private and business purposes)
shown to have been travelled in the vehicle during the tax year of assessment. Should the vehicle have
been used for business purposes during a period in the tax year less than the full period of that year, the
fixed cost must be an amount bearing to the fixed cost the same ratio as the period of use for business
purposes bears to 365 days.
• As long as you have borne the full cost of the fuel used in the vehicle, the fuel cost.
• As long as you have borne the full cost of maintaining the vehicle (including the cost of repairs,
servicing, lubrication and tyres), the maintenance cost.
From 1 March 2018: Alternatively, as long as no other compensation in the form of a further allowance
or reimbursement (other than for parking or toll fees) is payable to you by your employer, that rate per
kilometre is, at your option, equal to 361 cents per kilometre. This is known as the ‘simplified method’.
Amount expended based on accurate data (s 8(1)( b)(iiiA)) Should the portion of the allowance or
advance claimed by you to be actually expended be calculated on the basis of accurate data furnished by
you relating to a particular vehicle:
• That is being leased: the total amount of payments under the lease may not in any tax year exceed an
amount of the fixed cost determined by the prescribed by the Minister of Finance by notice in the
Government Gazette for the category of vehicle used.
• In other circumstances: the wear and tear of the vehicle must be determined over a period of seven
years from the date of its original acquisition by you, while its cost is limited to R595 000 or any other
amount determined by the Minister by notice in the Government Gazette. Finance charges on a debt
incurred on the purchase of the vehicle must be limited to an amount that
would have been incurred had the original debt been R595 000 or any other amount determined by the
Minister by notice in the Government Gazette.
Motor vehicle let to employer or employer’s associated institution (s 8(1)( b)(iv)) A special rule
applies when a motor vehicle owned or leased by you, your spouse or your child, whether directly or
indirectly by virtue of an interest in a company or trust or otherwise, has been let to your employer or
your employer’s associated institution (see 5.4). The sum of the rental paid by your employer or its
associated institution and any expenditure defrayed by the employer or its associated institution on the
vehicle is deemed to be an allowance paid to the you for transport expenses. For all purposes of the
Income Tax Act, the rental is then deemed not to have been derived by the lessor of the motor vehicle.
And, for the purposes of the taxation of fringe benefits (see 5.4), you are deemed not to have been
granted the right to use the motor vehicle.
The gazetted table
From 1 March 2019: The official cost per kilometre is divided into three elements, that is, fixed cost,
fuel cost and maintenance cost. The fixed-cost element covers depreciation, loss of interest, licensing
and insurance for the year and must be divided by the total distance travelled in the vehicle during the
tax year in order for a rate per kilometre to be established. The fuel costs and maintenance costs are
based on a rate per kilometre. The fixed cost and the rates per kilometre for fuel and maintenance costs
are shown in the table below:
Where the value of the
Vehicle (see below)
Fixed
Fuel
Maintenance
cost
cost cost
c per km
c per km
Does not exceed R85 000
28 352
95,7
43,4
Exceeds
R85 000
but does not exceed
R170 000
50 631
106,8
43,1
Exceeds
R170 000
but does not exceed
R255 000
72 983
116,0
47,5
Exceeds
R255 000
but does not exceed R340 000
92
683 124,8
51,9
Exceeds
R340 000
but does not exceed
R425 000
112 443
133,5
60,9
Exceeds
R425 000
but does not exceed
R510 000
133 147
153,2
71,6
Exceeds
R510 000
but does not exceed
R595 000
153 850
158,4
88,9
Exceeds
R595 000
153 850
158,4
88,9
The value of the vehicle for the purposes of the table is:
• If the vehicle was acquired by you under a bona fide agreement of sale or exchange concluded by
parties dealing at arm’s length, the original cost of the vehicle to you, including value-added tax but
excluding finance charges or interest payable on account of the acquisition of the vehicle.
• If the vehicle is held by you under a lease regarded as an ‘instalment credit agreement’ for value-added
tax purposes or was held by you under such a lease and was acquired by you on the termination of the
lease, the cash value of the vehicle for value-added tax purposes. (When value-added tax was paid, it will
have been included in the cash value of the vehicle.)
• In any other circumstances, the market value of the vehicle at the time you first obtained it or the right
to use it plus any value-added tax that would have been payable by you at that time on its market value.
If, during the whole or any portion of the tax year, you have interchangeably used more than one vehicle
for business purposes, these rules for the determination of the taxable portion of your allowance must
be applied separately to each vehicle.
An example will help to illustrate the workings of these rules. Say you own a vehicle with a ‘value’
of R365 000 and receive a travelling allowance of R1 500 a month for the tax year. During the tax
year you travel 20 000 km and your logbook shows that you travelled 18 000 km for private purposes
and 2 000 km for business purposes. The taxable portion of your allowance will be determined as
follows on the basis of the table:
Fixed-cost element according to the table ...................................................................................
R112
443
Fixed-cost element per kilometre
( 112 443 ) ................................................................
R5,62
20 000
Allowance
received .......................................................................................................................
R18 000
Tax-free amount for ‘business use’ (your records show that you have travelled 2 000 km for business
purposes and 18 000 km for private purposes)
Fixed-cost
element (2 000 × R5,62)............................................................................... R11 240
Fuel-cost element (2 000 × 133,5c) ...............................................................................
2 670
Maintenance-cost
element (2 000 × 60,9c) ...................................................................
1 218
15 128
Taxable portion of allowance ................................................................................................
R2 872
Under the alternative basis, if the allowance was based on the actual distance travelled, the taxable
portion of your allowance would be determined as follows:
Allowance
received
........................................................................................................................ R18 000
Tax-free amount for ‘business use’ (again based on travel on business of 2 000 km) (2 000 ×
R3,61) .............................................................................................................
7 220
Taxable portion of allowance ................................................................................................. R 10 780
If you can show that your actual cost of travelling on business is greater than the official cost according
to the table you have used, your tax-free amount will be increased accordingly. For example, if you can
show that your actual expenses relating to these kilometres in the examples above amounted to R15
800, the taxable portion of your allowance would be reduced to R2 200 in both examples.
PAYE must be deducted from an amount equal to 80% of a travelling allowance or advance, which is
regarded as being part of your remuneration (see 17.3) for PAYE purposes. But when your employer is
satisfied that at least 80% of your use of the motor vehicle for a tax year will be for business purposes,
then only 20% of the amount of the allowance or advance will be subject to the deduction of PAYE.
Alternatively, if the allowance or advance is based on your actual business travel or you are able to
prove the actual distance that you have travelled on business and the allowance or advance is paid at a
rate per kilometre not exceeding the appropriate rate per kilometre fixed under the simplified method
described above, PAYE need not be deducted from the allowance or advance.
5.29 Reimbursive
payments
s 8(1)( a)(ii), 4th Sch para 1
Although allowances or advances granted to you, the recipient, by your ‘principal’ (see 5.24) must
generally be included in your taxable income in the circumstances described in 5.25, 5.26, 5.27 and 5.28,
nothing will be included in your taxable income (see 1.1) of an amount paid or granted by your principal
in reimbursement of or as an advance for expenditure incurred or to be incurred by you on your
principal’s instruction in the furtherance of your principal’s trade (see 10.14), as long as you are
required to produce proof to your principal that the expenditure was wholly incurred on this basis and
to account to the principal for that expenditure. In addition, should the expenditure have been incurred
to acquire any asset, ownership in that asset must vest in your principal.
Your employer need not deduct PAYE from any such reimbursement paid or granted to you, since an
amount paid or payable to you as an employee wholly in reimbursement of expenditure actually
incurred by you in the course of your employment is not regarded as being part of your remuneration
(see 17.3) for PAYE purposes. Nor need any such reimbursement be shown on your PAYE certificate
(IRP 5).
5.30 Deductions of contributions to approved funds
Details of the deductions allowed for contributions to approved funds are given in 6.2.
5.31 Deduction of amounts refunded
ss 11( n A), ( n B)
You may deduct so much of any amounts, including voluntary awards, derived by you for services
rendered or to be rendered or by virtue of your employment or the holding of an office that have been
included in your taxable income and have been refunded by you.
You may also deduct so much of any amount derived by you and included in your gross income as a
restraint of trade awards (see 5.10) that are refunded by you.
5.32 Deduction of travelling expenses
ss 11( a), 23( m)
As an employee or holder of an office from which you derive remuneration (see 17.3), you may deduct
those travelling expenses, losses or allowances you incur that may be said to have produced your
income, that is, when it is a term of your employment that you must travel, only if:
• You are an agent or representative whose remuneration is normally derived mainly in the form of
commissions based on your sales or the turnover attributable to you, for example, if you are a
commercial traveller.
• Alternatively, what you are claiming is one of the expenses, losses or allowances that is not prohibited
under the rules described in 5.34, for example, if you are in a position to claim a depreciation allowance
(see 10.27).
(For the special rules relating to travelling allowances paid by your employer, see 5.27, and those
relating to the use of a motor car supplied by your employer, see 5.4).
But, as an independent contractor, you are free to claim your travelling expenses under the general
deduction formula (see 10.14).
You should retain a record of the amounts claimed as a deduction for your travelling expenses in case
this is called for by the Commissioner for SARS. This record should contain the following information:
• Full particulars of your expenses.
• If you run a motor vehicle, full particulars of:
( a) the registration number;
( b) the make and model;
( c) the date you acquired the vehicle or, if you hired it under a lease, the date of the lease; ( d) the cost
price of the vehicle or, if you hired it under a lease, the ‘cash value’ according to the lease;
( e) the date of sale or trade-in and selling price or trade-in price; ( f)
the cost of fuel and oil;
( g) the cost of repairs and maintenance;
( h) the cost of insurance and licenses;
( i) other
expenses;
( j)
depreciation of the vehicle over the tax year;

( k) rental payments for the hire of the vehicle; and
( l) kilometres travelled during the year on business trips and on private trips (the ratio of the one to the
other may be estimated but must be reasonable).
Your deduction for the cost of running your motor vehicle will be:
Kilometres
business
on
trips
Total of ( f) to ( i) + ( j) or ( k) ×
kilometres
Total
year
the
for
Depreciation on motor cars is usually allowed at the rate of 20% a year on the ‘reducing-balance’
basis, unless you choose to use the straight-line basis (see 10.27). For example, if your car cost R300 000
and you have chosen the straight-line basis, the depreciation would be R60 000 (20% of R300 000) a
year. Your depreciation claim must be reduced proportionately if you used your motor car for business
purposes for only part of the tax year. You must base your claim on its retail market value on the date
you acquired it if you acquired it for no consideration, for example, by donation. If it was previously used
only for private purposes and you began to use it for business purposes for the first time during the tax
year, you must base your claim for the year on its artificially depreciated value at the date on which you
began to use it.
For more information about depreciation, see 10.27.
You may also be entitled to deduct a scrapping allowance (see 10.59).
Any amounts of expenditure or allowances previously allowed to you as deductions that you recover in
any way will be taxable.
You may not claim your travelling expenses from your home to your work but may claim your expenses
in travelling from your place of work or base to other places in the performance of your duties for your
employer. If you are employed by two separate and unconnected employers, you may not deduct your
expenses in travelling from one place of employment to the other. You may also not deduct the cost of
travelling to undergo refresher courses or to undertake research (but see 10.50 and 10.53).
It is essential to maintain a logbook, clearly distinguishing between your business and private travel.
5.33 Variable
remuneration
s 7B, 4th Sch para 2(1B)
In the determination of the taxable income derived by you as an ‘employee’ during a tax year, an
amount to which you become entitled from your employer by way of ‘variable remuneration’ is
deemed to accrue to you and to constitute expenditure incurred by your employer on the date during
the tax year on which the amount is paid to you by your employer.
Definitions
‘Employee’ means an employee as defined for PAYE purposes (see 17.5).
‘Employer’ means an employer as defined for PAYE purposes (see 7.2).
‘Variable remuneration’ means:
• Overtime pay, bonus or commission contemplated for PAYE purposes in the definition of
‘remuneration’ for PAYE purposes (see 17.3).
• An allowance or advance paid for transport expenses (see 5.27).
• An amount that an employer has during a particular tax year become liable to pay to an employee in
consequence of the employee’s having during that year become entitled to a period of leave that had not
been taken by the employee during that year.
The following items were added with effect from 1 March 2020:
• A night shift allowance.
• A standby allowance.
• A reimbursive payment (see 5.29).

PAYE
A special rule requires the PAYE on variable remuneration to be deducted on the date when the variable
remuneration is paid to the employee by the employer rather than when it is due or payable (see 17.2).
5.34 Deductions you may not claim
s 23( a), ( b), ( d), ( m)
You may not deduct the cost of maintaining yourself and your family, your private or domestic expenses,
the rental of your home or other costs of maintaining your home (but see 10.48 for circumstances in
which you may claim a portion of such costs), the tax imposed by the Income Tax Act or the interest or
penalties imposed under any other Act administered by the Commissioner for SARS.
In addition, although subject to certain exclusions not dealt with here, you may not deduct any
expenditure, loss or allowance relating to any employment or office that you hold from which you derive
remuneration (see 17.3). This prohibition does not apply to:
• Your
deductible
contributions
to approved funds (see 6.2).
• Allowances or expenses that may be deducted from your income for legal expenses (see 10.43),
depreciation (see 10.27), bad debts (see 10.25) or doubtful debts (see 10.26).
• A deduction allowed to you for the refund by you of amounts, including voluntary awards, derived by
you for services rendered or by virtue of your employment or the holding of an office that have been
included in your taxable income (see 5.32).
• A deduction allowed to you for a restraint of trade award included in your gross income that has been
refunded by you (see 5.32).
• A deduction allowable under the general deduction formula (see 10.14) or under the special deduction
for repairs (see 10.52) that is allowable for the rent of, or the cost of repairs of or expenses in connection
with, a dwelling house or domestic premises to the extent that the deduction is not otherwise prohibited
under the rule mentioned above.
Moreover, you will be free of the prohibition in its entirety should you be an agent or representative
whose remuneration is normally derived mainly in the form of commissions based on your sales or on
the turnover attributable to you.
5.35 Employment Tax Incentive Act
s 10(1)( s), Act 26 of 2013
The Employment Tax Incentive Act 26 of 2013 was promulgated on 18 December 2013 and, except for
the provision dealing with reimbursements (see below), took effect as from 1 January 2014.
There is also a termination provision providing that an employer may not receive the incentive after 28
February 2029. It provides for an employment tax incentive (‘ETI’), taking the form of the deduction of
qualifying amounts from the PAYE payable to SARS by eligible employers.
Eligible employers
Eligible for the ETI are employers who are registered as employers for PAYE purposes under para 15 of
the Fourth Schedule to the Income Tax Act. But even these employers may be disqualified by the
Minister of Finance in the event of their displacement of existing employees or their failure to meet
conditions imposed by the Minister in consultation with the Minister of Labour.
Certain employers are absolutely ineligible, namely:
• All spheres of Government.
• Qualifying public entities, other than those designated by the Minister of Finance.
• Municipal
entities.
Also, an employer is not eligible to enjoy the ETI for an employee for a month in which the wage paid to
the employee is less than the higher of the amount payable under an applicable ‘wage regulating
measure’, that is a collective agreement, sectoral determination or binding bargaining council agreement
under the relevant statutes and the amount contemplated in s 4(1) of the National Minimum Wage Act
2018 or Schedule 2 to that Act, or if the wage payable to an employee is not subject to s 3 of that Act or
exempt under s 15 of that Act.
If there is no applicable wage regulating measure, the employer will not be eligible to enjoy the ETI for
an employee whose wage is less than R2 000 a month when the employee is employed and paid
remuneration for at least 160 hours a month or a proportion of that amount when the employee is
employed and paid remuneration for less than 160 hours a month.
Penalties
An employer who claims the ETI for an employee despite not being eligible by reason of paying wages
that are too low is liable for a penalty equal to 100% of the ETI enjoyed for that employee for each
month that the employer received it.
Another penalty, known as the displacement penalty, is payable by an employer who is deemed to have
displaced an employee in an unfair dismissal and replaced him or her with an employee for whom the
employer is eligible to enjoy the ETI. The penalty is R30 000 for the displaced employee and the
employer may be disqualified from enjoying the ETI by the Minister of Finance by notice in the Gazette.
In deciding whether to act against the employer the Minister must take into account the number of
employees that have been displaced by the employer and the effect that the disqualification may directly
or indirectly have on the employees of the employer.
Qualifying employees
A qualifying employee must:
• be no less than 18 years and no more than 29 years old at the end of any month for which the ETI is
claimed;
• be employed by an employer that is a ‘qualifying company’ as defined in s 12R of the Act (see 10.33)
and the employee renders services to the employer mainly within the ‘special economic zone’ where the
employer carries on trade;
• possess a qualifying identity card or asylum seeker permit or an identity document issued under s 30
of the Refugees Act 130 of 1998;
• not be a ‘connected person’ of the employer;
• not be a domestic worker;
• have commenced employment by the employer or an associated person on or after 1 October 2013;
• not be a disqualified employee; and
• receive remuneration of less than R6 500 a month.
Calculation of ETI
The amount of the ETI for an employee each month depends upon his or her remuneration. In the first
twelve months of service, the ETI each month for:
• monthly remuneration of less than R2 000, is 50% of the monthly remuneration,
• monthly remuneration of more than R2 000 but less than R4 000, is R1 000,
• monthly remuneration of more than R4 000 but less than R6 000, is calculated by the use of a formula
(see below),
• monthly
remuneration
of
R6 000 or more, is nil.
The formula is R1 000 – (0,5 x (monthly remuneration – 4 000)).
In the second twelve months of service, the ETI each month for:
• monthly remuneration less than R 2000, is 25% of the monthly remuneration,
• monthly remuneration of R 2000 or more but less than R4 000, is R500,
• monthly remuneration of R 4000 or more but less than R6 000, is calculated by the use of a formula
(see below),
• monthly
remuneration
of
R6 000 or more, is nil.
This formula is R500 – (0,25 x (monthly remuneration – 4 000)).
(The term ‘monthly remuneration’ is defined; see below.)
The ETI is deducted from the PAYE for the month.
The number of months, on or after 1 January 2014, that the employee was employed by an ‘associated
person’ (as defined; see below) of the current employer are for the purposes of the determination of the
ETI to be enjoyed by the current employer treated as if the employee concerned had been employed by
the current employer during those months.
This is an important provision, since the amount of the ETI is less in the second than in the first twelve
months of employment.
The amount of the ETI determined for a month must be apportioned if the employee was employed for
only a part of the month. The apportionment must be made only if the employee is employed for less
than 160 hours a month.
The Minister of Finance may announce changes in the various amounts in the Budget speech with effect
from a date or dates mentioned in the announcement. That rate continues to apply for a period of twelve
months from that date subject to Parliament passing legislation giving effect to the announcement
within that twelve-month period.
Forfeiture of ETI
An employer will lose the benefit of the ETI for a month if by the last day of that month the employer:
• has failed to submit any ‘returns’; or
• has an outstanding ‘tax debt’.
Excluded are debts:
• subject to an instalment credit agreement or compromise;
• that have been suspended pending an objection or appeal; or
• that are less than R100.
Rollover of excess
If the amount of the ETI for a month exceeds the PAYE payable for that month, the undeducted excess is
carried forward for deduction in the next month.
Then, if there is an excess of ETI over PAYE at the end of the tax year, the employer must claim it from
SARS in the prescribed form and manner and at the prescribed time and place. But it must not be paid by
SARS to an employer who has any return outstanding or any tax debt other than the exceptions
mentioned under the heading ‘Forfeiture of ETI’ above. The amount not paid because of this rule must
be paid to the employer during the first month in the subsequent period for which he

or she is required to render a PAYE return in which the employer’s omission has been remedied. If the
amount is not paid by virtue of the employer’s continuing defaulting, the law apparently provides for it
to be forfeited.
A significant feature of the ETI is that its application has no relationship to the PAYE, if any, deducted
from the remuneration of the employees concerned. It is deducted from the PAYE that would otherwise
be payable to SARS for all the employees of the employer.
Definitions
The following terms are defined in s 1 of the Act: ‘associated person’, ‘company’, ‘employee’,
‘employees’ tax’, ‘hour’, ‘Income Tax Act’, ‘Labour Relations Act’, ‘monthly remuneration’,
‘qualifying employee’, ‘special economic zone’, ‘Tax Administration Act’ and ‘wage’. Also
indirectly defined for certain purposes are the terms ‘remuneration’ and ‘relative’.
Three of them are worth examining:
First, the definition of an ‘employee’ is restricted to natural persons and excludes independent
contractors.
Secondly, an ‘associated person’ of an employer that is a company is another company that is

associated with the employer by reason of the fact that both companies are managed or controlled
directly or indirectly by substantially the same persons. When the employer is not a company, a
company that is managed or controlled directly or indirectly by the employer or by a partnership of
which the employer is a member is an associated person. And, finally, when the employer is a natural
person, it is any relative of the employer.
Lastly, ‘monthly remuneration’ means, when an employer employs and pays remuneration to a
qualifying employee for at least 160 hours in a month, the amount paid or payable for the month.
When the employer employs a qualifying employee and pays remuneration to that employee for less
than 160 hours in a month, it is a portion of the full amount based on the number of hours employed as a
proportion of 160 hours. This definition is qualified by the provision that states that remuneration has
the meaning ascribed to it in the Fourth Schedule to the Income Tax Act, which deals with PAYE
and includes taxable fringe benefits amongst other things (see 17.3).
PAYE under the Income Tax Act
The PAYE system allows employers to reduce their PAYE payments to SARS by ETI amounts.
Exemption from income tax (s 10(1)( s))
An amount by which PAYE payable by an employer is reduced or paid under the Employment Tax
Incentive Act is exempt from income tax.
Membership of approved funds
6.1 Contributions to qualifying retirement funds
s1
As from 1 March 2016, the rules governing the deduction of contributions to qualifying retirement funds
changed dramatically. For this purpose, a qualifying retirement fund is a fund qualifying as a pension
fund, provident fund or retirement annuity fund.
The definitions of a ‘pension fund’, ‘provident fund’ and ‘retirement annuity fund’ are very long and
complex but you will be able to establish the nature of the fund of which you are a member from the
fund’s rules. Qualifying retirement funds are simply funds satisfying the requirements of these
definitions, while funds unable to meet these requirements are usually referred to as ‘unap-proved
funds’.
6.2 Deduction
of
contributions
ss 8(4)( a), 11F, 23( g), ( m)(i)
General principles (s 11F(1))
As a member of a qualifying retirement fund, you may claim as a deduction in the calculation of your
taxable income (see 1.1) an amount contributed in a particular tax year to the fund in accordance with
the fund rules. The deduction is allowed despite:
• The rule requiring a taxpayer claiming deductions to be carrying on a trade (see 10.14).
• The rule restricting deductions available to taxpayers in employment or holding an office (see 5.34).
Maximum total annual deduction (s 11F(2))
During any particular tax year, your total deduction for contributions to a qualifying retirement fund
may not exceed the least of:
• R350
000.
• 27,5% of the higher of:
– your remuneration from which PAYE deductions are made (see 17.3) – excluding a retirement fund
lump-sum benefit (see 6.3), a retirement fund lump-sum withdrawal benefit (see 6.3) and a severance
benefit (see 6.3); and
– your taxable income – again, excluding a retirement fund lump-sum benefit, a retirement fund lump-
sum withdrawal benefit and a severance benefit – before any deduction of retirement fund
contributions, before any deduction for foreign income taxes paid by residents (see 15.4), and before
any deduction for deductible donations (see 19.1).
• Your taxable income – again, excluding a retirement fund lump-sum benefit, a retirement fund lump-
sum withdrawal benefit and a severance benefit – before any deduction of retirement fund
contributions, before any deduction for foreign income taxes paid by residents, before any deduction for
deductible donations, and before the inclusion of a taxable capital gain (see 21.3).
Disallowed excess carried forward (s 11F(3))
Your contributions to a qualifying retirement fund in a previous tax year that were disallowed solely
because the total amount contributed exceeded the maximum total annual deduction for that year 66
MEMBERSHIP OF APPROVED FUNDS 67
are dealt with in the current tax year as if they are current contributions, available for deduction, subject
to the current tax year’s maximum total annual deduction. Excluded from this carry-forward are past
contributions that were:
• Already allowed as a deduction against your income.
• Allowed as deduction in the computation of the tax-free portion of a lump-sum retirement benefit (see
6.6) or lump-sum death benefit (see 6.5).
• Taken into account in the determination of amounts exempted as a non-deductible element of a

compulsory annuity (see 6.11).
Amounts contributed by your employer (s 11F(4))
Amounts paid or contributed to a qualifying retirement fund by your employer on your behalf or for
your benefit are treated as if you had contributed them, in an amount equal to the cash equivalent of the
value of the taxable benefit, that is, the amount included in your gross income as a taxable fringe benefit
(see 5.4). More specifically, an amount paid by your employer on your behalf or for your benefit to a
retirement annuity fund is treated as if you had contributed it, in an amount equal to the cash equivalent
of the value of the taxable benefit, that is, the amount included in your gross income as a taxable fringe
benefit under the applicable special rule (see 5.4).
Partners in partnership (s 11F(5))
As a partner in a partnership, your deduction for contributions to a qualifying retirement fund is

calculated as if you were an employee of the partnership, and as if the partnership were your employer.
Recoupment (s 8(4)( a))
The rule including in income recoupments of amounts previously deducted (see 10.7) does not apply to
recovered contributions to a qualifying retirement fund previously deducted. Instead, lump-sum
benefits from funds are taxed on a special basis, as is described below.
6.3 Lump-sum benefits – definitions
s 1, 2nd Sch para 1
A ‘living annuity’ is a right of a member or former member of a pension fund, pension preservation
fund, provident fund, provident preservation fund or retirement annuity fund, or of his or her dependant
or nominee, or of any subsequent nominee, to an annuity purchased from a person or provided by the
fund on or after the member’s or former member’s retirement date, as long as:
• The value of the annuity is determined solely by reference to the value of assets specified in the
annuity agreement and held for purposes of providing the annuity.
• The amount of the annuity is determined in accordance with a method or formula prescribed by the
Minister of Finance by notice in the Government Gazette.
• The full remaining value of the assets may be paid as a lump sum when their value at any time is less
than an amount so prescribed by the Minister .
• The amount of the annuity is not guaranteed by the person or fund.
• On the death of the member or former member, the value of the assets may be paid to the member’s or
former member’s nominee as an annuity or lump sum, or, in the absence of a nominee, to the deceased’s
estate as a lump sum.
Further requirements governing the annuity may be prescribed by the Minister by notice in the Gazette.
A ‘lump-sum benefit’ is a retirement fund lump-sum benefit or retirement fund lump-sum withdrawal
benefit.
68 MEMBERSHIP OF APPROVED FUNDS
For the purposes of the taxation of such benefits, a ‘lump-sum benefit’ includes:
• an amount determined upon the commutation of an annuity or portion of an annuity payable by or

provided in consequence of membership or past membership of a pension fund, pension preservation
fund, provident fund, provident preservation fund or retirement annuity fund, whether it is payable in
one amount or in instalments; and
• a fixed or an ascertainable amount that is not an annuity payable by or provided in consequence of

membership or past membership of a pension fund, pension preservation fund, provident fund,
provident preservation fund or retirement annuity fund, again, whether it is payable in one amount or in
instalments.
Excluded are pre-retirement withdrawals from retirement savings deemed to be income derived by the
fund member (as opposed to the recipient) (see 4.3) when the withdrawal stems from a maintenance
order under s 37D(1)( d)(iA) of the Pension Funds Act 24 of 1956 or the resulting deduction of PAYE
under s 37D( e) of that Act.
For the purposes of the taxation of lump-sum retirement fund benefits, a ‘pension fund’ is a fund that in
a particular tax year or any previous tax year has been approved by the Commissioner as a
‘pension fund’ under para ( c) of the definition of a ‘pension fund’ in s 1 of the current or a past Income
Tax Act, or a public sector fund (but not a public sector fund qualifying as a provident fund) whose rules
wholly or mainly provide for annuities on retirement to its members, as long as you were a member of
the fund during that year.
Again for the purposes of the taxation of lump-sum retirement fund benefits, a ‘provident fund’ is a
fund that in a particular tax year or any previous tax year has been approved by the Commissioner as a
‘provident fund’ as defined in s 1 of the current or a past Income Tax Act, or a public sector fund whose
rules provide for benefits in a lump sum exceeding one-third of the capitalized value of all benefits
(including lump-sum payments and annuities) to its members on retirement, as long as you were a
member of the fund during that year.
‘Normal retirement age’, for a member of a pension fund or provident fund, is the date on which he or
she becomes entitled to retire from employment for reasons other than sickness, accident, injury or
incapacity through infirmity of mind or body. For a member of a retirement annuity fund, a pension
preservation fund or a provident preservation fund, it is the date on which he or she attains 55 years of
age. And for a member of any such fund, it is the date on which he or she becomes permanently
incapable of carrying on his or her occupation, owing to sickness, accident, injury or incapacity through
infirmity of mind or body.
A ‘public-sector fund’ is:
• A pension, provident or dependants’ fund or pension scheme established by law, but excluding the
Government Employees Pension Fund (Government Employees Pension Law, 1996, Proclamation 21 of
1996).
• A pension or dependants’ fund or pension scheme established for the benefit of the employees of a
municipality or of a ‘local authority’ (as defined under old rules, that was established while those rules
were still in operation).
• A fund of the type just listed including as its members employees of a municipal entity created under
the Municipal Systems Act 32 of 2000, over which one or more municipalities or ‘local authorities’
(again, as defined under old rules, that was established while those rules were still in operation)
exercise ownership control under that Act, as long as the fund was established ( a) on or before 14
November 2000 and its employees were employees of the same type of ‘local authority’ immediately
before becoming employees of the municipal entity, or ( b) after 14 November 2000 and has been
approved by the Commissioner, subject to specified limitations, conditions and requirements.
• With effect from a date determined by the Commissioner in relation to a particular qualifying fund, a
pension fund established for the benefit of employees of a ‘control board’ as defined in s 1 of the
Marketing of Agricultural Products Act 47 of 1996 or for the benefit of employees of the Development
Bank of Southern Africa, as long as the fund rules are in all material respects identical to those of the
Government Employees’ Pension Fund.
• A provident fund established for the benefit of the employees of a municipality or of a ‘local authority’
(as defined under old rules, that was established while those rules were in operation).
• A provident fund of the type just listed including as its members employees of a municipal entity
created under Municipal Systems Act 32 of 2000, over which one or more municipalities or ‘local
authorities’ (again, as defined under old rules, that was established while those rules were still in
operation) exercise ownership control under that Act, as long as the fund was established ( a) on or
before 14 November 2000 and its employees were employees of the same type of ‘local authority’ before
becoming employees of such municipal entity, or ( b) after 14 November 2000 and has been approved
by the Commissioner subject to specified limitations, conditions and requirements.
A ‘public-sector fund’ is a ‘pension fund’ if its rules wholly or mainly provide for annuities to its
members upon their retirement.
It is a ‘provident fund’ if its rules provide for lump-sum benefits exceeding one-third of the capitalized
value of all benefits, including lump-sum payments and annuities, to its members upon their retirement.
In addition, a public sector fund is required to comply with a detailed list of rules.
To ‘retire’, in relation to a member of a pension fund, pension preservation fund, provident fund,
provident preservation fund or retirement annuity fund, is to become entitled to the annuity or a lump-
sum benefit as described in the definition of ‘retirement date’.
The ‘retirement date’ of such a member is the date he or she elects to retire and, under the rules of the
fund, becomes entitled to an annuity or a taxable lump-sum benefit on or subsequent to attaining normal
retirement age. Alternatively, it is the date a nominee or dependent of a deceased member of such a fund
becomes entitled to an annuity or a taxable lump-sum benefit on the death of the member.
A ‘retirement fund lump-sum benefit’, for all purposes of the Act, is an amount derived by way of a
lump-sum benefit in consequence of or following upon:
• a person’s retirement or death;
• the termination or loss of a person’s employment, owing to his or her employer’s having ceased to
carry on or intending to cease carrying on the trade (see 10.14) in which he or she was employed or
appointed, or that person’s having become redundant in consequence of his or her employer’s having
effected a general reduction in personnel or a reduction in personnel of a particular class (excluded is an
amount derived by a person by way of a lump sum whose employer is a company – see 14.1 – and he or
she at any time held more than 5% of the equity shares –
see 14.7 – or members’ interest in the company); or
• the commutation of an annuity or portion of an annuity.
From such an amount a deduction is made under the rules governing retirement or death benefits or the
rules governing withdrawal, resignation or winding-up benefits.
A ‘retirement fund lump-sum withdrawal benefit’, also for all purposes of the Act, is an amount:
• assigned in a divorce order granted on or after 13 September 2007 under s 7(8)( a) of the Divorce Act
70 of 1979, to the extent that the amount constitutes a part of a ‘pension interest’, as defined in s 1 of the
Divorce Act of a member of a pension fund, pension preservation fund, provident fund, provident
preservation fund or retirement annuity fund, and is due and payable on or after 1 March 2012 to a
person who is the former spouse of the member of the fund;
• that is transferred for a person’s benefit to a pension fund, pension preservation fund, provident fund,
provident preservation fund or retirement annuity fund from a pension fund, pension preservation fund,
provident fund, provident preservation fund or retirement annuity fund of which he or she is or
previously was a member; and
• derived by person by way of a lump-sum benefit from or in consequence of membership or past

membership of a pension fund, pension preservation fund, provident fund, provident preservation fund
or retirement annuity fund but not qualifying either as a retirement fund lump-sum benefit or otherwise
as a retirement fund lump-sum withdrawal benefit.
From such an amount a deduction is made under the rules governing withdrawal, resignation or
winding-up benefits.
A ‘retirement interest’ is a member’s share of the value of a pension fund, pension preservation fund,
provident fund, provident preservation fund or retirement annuity fund as determined under the fund
rules on the date on which he or she elects to retire.
A ‘severance benefit’ is an amount derived by you by way of a lump sum from or by arrangement with
your employer or your employer’s associated institution (see 5.4) for the relinquishment, termination,
loss, repudiation, cancellation or variation of your office or employment or your appointment (or right
or claim to be appointed) to an office or employment. But you must have attained the age of 55 years,
and the relinquishment, termination, loss, repudiation, cancellation or variation must be due to your
becoming permanently incapable of holding your office or employment, owing to sickness, accident,
injury or incapacity through infirmity of mind or body. Alternatively, the termination or loss must be due
to your employer’s having ceased to carry on or intending to cease carrying on the trade (see 10.14) in
which you were employed or appointed, or your having become redundant in consequence of a general
reduction in personnel or a reduction in personnel of a particular class by your employer. But you will
be disqualified from this alternative if your employer is a company (see 14.1) and you at any time held
more than 5% of the issued shares or members’
interest in the company.
A severance benefit that becomes payable in consequence of or following upon your death is deemed to
be an amount that you derived immediately before your death.
Altogether excluded from being a severance benefit is a lump-sum benefit or amount, including a
voluntary award, derived:
• by you or your dependant or nominee directly or indirectly as proceeds of an insurance policy if you
are or were the policyholder’s employee or director, or
• by or to you or your dependant or nominee by way of an insurance policy (but not a risk policy with no
cash value or surrender value) that has been ceded to you, your dependant or nominee of the person for
your benefit or that of your dependant or nominee by your employer or former employer or the
company of which you are or were a director.
6.4 Lump-sum benefits – general rules
ss 1, 10(1)( g E), ( m B),
2nd Sch paras 2, 2A, 2C, 2D, 3, 3A, 4
Some lump-sum benefits are excluded entirely from gross income (see 1.1) and are consequently
entirely tax-free. For example, amounts awarded to you by a ‘beneficiary fund’ as defined in the Pensions
Fund Act 24 of 1956 are exempt from taxation. Qualifying events leading to the award of lump-sum
benefits after a person’s retirement, death, withdrawal or resignation from a retirement fund are also
exempt from taxation. And benefits or allowances (not necessarily lump-sum benefits) payable under
the Unemployment Insurance Act 63 of 2001 are also exempt.
Inclusion in gross income – retirement, death, termination or commutation lump-sum benefits

(para 2(1)( a))
The amount to be included in your gross income is, in the first place, the amount you derive by way of a
lump-sum benefit derived in consequence of or following upon:
• Your retirement or death.
• The termination or loss of your employment owing to your employer’s having ceased to carry on or
intending to cease carrying on the trade (see 10.14) in which you were employed or appointed or your
having become redundant in consequence of your employers having effected a general reduction in
personnel or a reduction in personnel of a particular class. Excluded is an amount derived by you by way
of a lump sum when your employer is a company (see 14.1) and you at any time held more than 5% of
its equity shares (see 14.7) or members’ interest.
• The commutation of an annuity or portion of an annuity.
But this amount is reduced by the deductions to which you are entitled, whether upon retirement or
death (see 6.5) or upon your withdrawal or resignation from or the winding-up of the fund (see 6.6).
In other words, it is the lump-sum benefit less the deductions to which you are entitled that is included
in your gross income. Thus the deductions represent the tax-free portion of the lump-sum benefit.
Deemed date of accrual upon death (para 3)
A lump-sum benefit that becomes recoverable in consequence of or following upon the death of a person
who is or was a member of a fund is deemed, on the date of its payment, to have accrued to the deceased
immediately before his or her death. This rule applies to a lump-sum benefit recoverable from:
• a pension fund, pension preservation fund, provident fund, provident preservation fund or retirement
annuity fund; or
• a ‘long-term insurer’ as defined in s 1 of the Long-term Insurance Act 52 of 1998, if it is payable by or

provided in consequence of membership or past membership of such a fund.
But so much of the tax payable as a consequence is recoverable from the person by whom the lump-sum
benefit is actually received.
If an annuity or portion of an annuity (including a living annuity) that becomes payable on or in

consequence of or following upon the death of a person who is or was a member of such a fund has been
commuted for a lump sum, the lump sum is deemed for this purpose alone to be a lump-sum benefit that
has become recoverable in consequence of or following upon his or her death.
If a lump-sum benefit becomes payable but the deceased’s dependants or nominees elect an annuity
(including a living annuity) purchased or provided by the fund, no lump-sum benefit is deemed to have
accrued to the deceased, to the extent that the lump-sum benefit was used to purchase or provide the
annuity.
If a lump-sum benefit is paid to a pension preservation fund or provident preservation fund as an
‘unclaimed benefit’ as defined in the Pension Funds Act 24 of 1956, no lump-sum benefit is deemed to
have accrued to the deceased.
Deemed accrual to deceased non-member (para 3A)
A lump-sum benefit that becomes recoverable in consequence of or following upon the death of a person
who was not a member of a fund is deemed, on the date of its payment, to have accrued to the deceased
immediately before his or her death. This rule applies to a lump-sum benefit recoverable from:
annuity fund; or
• a ‘long-term insurer’ as defined in s 1 of the Long-term Insurance Act 52 of 1998, if it is payable by or

provided in consequence of membership or past membership of such a fund.
But so much of the tax payable as a consequence is recoverable from the person by whom the lump-sum
benefit is actually received.
If an annuity or portion of an annuity (including a living annuity) that becomes payable on or in

consequence of or following upon the death of the non-member has been commuted for a lump sum, the
lump sum is deemed for this purpose alone to be a lump-sum benefit that has become recoverable in
consequence of or following upon his or her death.
If a lump-sum benefit becomes payable but the deceased’s dependants or nominees elect an annuity
(including a living annuity) purchased or provided by the fund, no lump-sum benefit is deemed to have
accrued to the deceased, to the extent that the lump-sum benefit was used to purchase or provide the
annuity.
If a lump-sum benefit is paid to a pension preservation fund or provident preservation fund as an
‘unclaimed benefit’ as defined in the Pension Funds Act 24 of 1956, no lump-sum benefit is deemed to
have accrued to the deceased.
Inclusions in gross income – amounts assigned under a divorce order (paras 2(1)( b), (2)) The
amount to be included in your gross income is, in the first place, the amount assigned under a divorce
order (granted on or after 13 September 2007) under s 7(8)( a) of the Divorce Act 70
of 1979), although only to the extent that it constitutes a part of a ‘pension interest’ as defined in s 1
of that Act, of a member of a pension fund, pension preservation fund, provident fund, provident
preservation fund or retirement annuity fund and is due and payable (on or after 1 March 2012) to a
person who is the former spouse of the member by the fund.
But, again, this amount is reduced by the deductions to which you are entitled (see 6.2). In other words,
it is the lump-sum benefit less the deductions to which you are entitled that is included in your gross
income. Thus the deductions again represent the tax-free portion of the lump-sum benefit.
Such an amount is deemed to be derived by you on the date on which it is so due and payable.
Inclusions in gross income – amounts transferred from one fund to another (paras 2(1)( b), (2))
The amount to be included in your gross income is, in the first place, the amount that is transferred for
your benefit to:
annuity fund,
from
annuity fund of which you are or previously were a member.
But, again, this amount is reduced by the deductions to which you are entitled (see 6.2). In other words,
it is the lump-sum benefit less the deductions to which you are entitled that is included in your gross
income. Thus the deductions again represent the tax-free portion of the lump-sum benefit.
Such an amount is deemed to be derived by you on the date of its transfer.
Inclusions in gross income – other lump-sum benefits (para 2(1)( b)) The amount to be included in
your gross income is, in the first place, any other amount derived by you by way of a lump-sum benefit
from or in consequence of membership or past membership of a pension fund, pension preservation
fund, provident fund, provident preservation fund or retirement annuity fund.
And, yet again, this amount is reduced by the deductions to which you are entitled (see 6.2). In other
words, it is the lump-sum benefit less the deductions to which you are entitled that is included in your
gross income. Thus the deductions again represent the tax-free portion of the lump-sum benefit.
Inclusion in gross income – transfer on or after normal retirement date (para 2(1)( c)) From 1
March 2018: The amount to be included in your gross income is, in the first place, an amount
transferred for your benefit on or after your normal retirement age, as defined in the rules of the fund,
but before retirement date.
And, yet again, this amount is reduced by the deductions to which you are entitled (see 6.2). In other
words, it is the lump-sum benefit less the deductions to which you are entitled that is included in your
gross income. Thus the deductions again represent the tax-free portion of the lump-sum benefit.
Inclusions in gross income – public sector funds (para 2A)
The amount to be included in your gross income is the lump-sum benefit you derive from a public sector
fund after the application to it of a special formula, which, very briefly stated, looks like this: A = B/C × D
= Number of qualifying years after 1 March 1998 taken into account ÷ Total number of years taken into
account × Actual lump-sum benefit
No deductions are allowed from such an amount.
Tax-free lump-sum benefits (para 2C)
Entirely excluded from gross income is a lump-sum benefit or part of it derived by a person subsequent
to his or her retirement or death or withdrawal or resignation from a pension fund, pension
preservation fund, provident fund, provident preservation fund or retirement annuity fund or the
winding-up of such a fund. The benefit must arise in consequence of or following upon an event
prescribed by the Minister of Finance in the Government Gazette. In addition, it must be allowed for by
the fund rules or the approval of a scheme under s 15B of the Pension Funds Act 24 of 1956 or para
5.3(1)( b) of the Schedule amending regulation 30 of the Regulations under the Long-term Insurance Act
52 of 1998.
General deemed date of accrual and assessment to tax (para 4(1))

Unless the two deemed-accrual rules applying to death benefits apply (see above), regardless of the
rules of a pension fund, pension preservation fund, provident fund, provident preservation fund or
retirement annuity fund, a lump-sum benefit is deemed to have accrued to a member of the fund on the
earliest of the following dates:
• The date on which an election is made rendering the benefit recoverable.
• The date on which an amount is deducted from the benefit under s 37D(1)( a), ( b) or ( c) of the
Pension Funds Act 24 of 1956 (permissible deductions from pension benefits).
• The date on which the benefit is transferred to another pension fund, pension preservation fund,
provident fund, provident preservation fund or retirement annuity fund.
• The date of his or her death.
The benefit is assessed to tax in the tax year during which it is deemed to accrue.
Cession of insurance policy (para 4(2) bis)
If a policy of insurance is ceded or otherwise made over to or in favour of a member of a pension fund,
pension preservation fund, provident fund, provident preservation fund or retirement annuity fund by
the fund, its surrender value is deemed, only for the present purposes, to be a lump-sum benefit accruing
to him or her from the fund on the date of its cession or making-over.
Early retirement (para 4(3))
The lump-sum benefits derived by a member of a provident fund in consequence of or following upon
his or her retirement from the fund before he or she reaches the age of 55 years, on grounds
other than ill-health, are assessed to tax not as retirement benefits but as if they were derived in
consequence of or following upon his or her withdrawal or resignation from the fund (see above).
Nevertheless, on application by the member, the Commissioner, having regard to the circumstances, has
the power to reverse this rule and treat the benefits as retirement benefits after all (see 6.6).
6.5 Deductions – retirement and death benefits
2nd Sch para 5
The deductions to which you are entitled from benefits derived upon retirement or deemed to have been
derived immediately before death:
• Your own contributions to a pension fund, pension preservation fund, provident fund, provident
preservation fund or retirement annuity fund of which you are or previously were a member that did
not rank for a deduction against your income as contributions to a qualifying retirement fund (see 6.2),
presumably, whether under the current or any previous version of this particular deduction rule.
• An amount transferred for your benefit to a pension fund, pension preservation fund, provident fund,
provident preservation fund or retirement annuity fund as a result of an election made under s 37D(4)(
b)(ii) of the Pension Funds Act 24 of 1956, which applies upon divorce.
• An amount deemed to have been derived by you upon the transfer of benefits between qualifying
funds.
• An amount, to the extent that it was paid or transferred to a pension preservation fund or provident
preservation fund as an ‘unclaimed benefit’ as defined in s 1 of the Pension Funds Act 24
of 1956 and was subject to tax before its payment or transfer.
• From 1 March 2018: A lump-sum benefit derived from a public sector fund subjected to the
application of the special formula described in 6.4 and paid into a pension fund, pension preservation
fund, provident fund, provident preservation fund or retirement annuity fund for your benefit by the
fund, and transferred into a pension fund, pension preservation fund, provident fund, provident
preservation fund or retirement annuity fund directly from the fund into which payment was made,
again, for your benefit, less the amount of one of the elements of the formula.
The sum of these amounts is deductible to the extent that it has not been exempted as a non-deductible
element of a compulsory annuity (see 6.11) and has not previously been allowed to you as a deduction
under these rules in the determination of an amount to be included in your gross income.
Furthermore, the amount to be deducted may not exceed the amount of the lump-sum benefit to which it
applies.
For this purpose, the surrender value of a policy of insurance ceded or otherwise made over to you by a
pension fund, pension preservation fund, provident fund, provident preservation fund or retirement
annuity fund and ceded or otherwise made over by you to another such fund, or an amount paid by you
into the receiving fund in lieu of or as representing that surrender value or a portion of it, will be
deemed to be an amount paid into the receiving fund by the former fund for your benefit.
6.6 Deductions – withdrawal, resignation,
winding-up and transfer benefits
2nd Sch paras 2(1)( a)(ii), ( b), 6, 6A
Withdrawal, resignation, winding-up (paras 2(1)( b)(ii), 6(1)( b)) Upon your withdrawal or
resignation from a qualifying retirement fund or the winding-up of such a fund there will be included in
your gross income (see 1.1) the amount you derive by way of a lump-sum benefit from or in
consequence of membership or past membership of a pension fund, pension preservation fund,
provident fund, provident preservation fund or retirement annuity fund, less the aggregate deduction
described below to which you are entitled.
Termination or loss of employment (paras 2(1)( a)(ii), 6(1)( b)) Also included in your gross income
is the amount you derive by way of a lump-sum benefit in consequence of or following upon the
termination or loss of your employment owing to your employer’s having ceased to carry on or
intending to cease carrying on the trade (see 10.14) in which you were employed or appointed or your
having become redundant in consequence of your employer’s having effected a general reduction in
personnel or a reduction in personnel of a particular class.
Excluded is an amount derived by you by way of a lump sum when your employer is a company (see
14.1) and you at any time held more than 5% of its equity shares (see 14.7) or members’
interest. Again, this inclusion is reduced by the aggregate deduction described below to which you are
entitled.
The deduction available (para 6(1)( b))
The deduction to which you are entitled in the event of a withdrawal, resignation, winding-up or
termination or loss of employment is so much of the aggregate of the following amounts as has not been
exempted as a non-deductible element of a compulsory annuity (see 6.11) and has not previously been
allowed to you as a deduction under the lump-sum-benefit rules (as they stood at different times) in
determining an amount to be included in your gross income (see 1.1):
• Your own contributions that did not rank for a deduction against your income as contributions to a
qualifying retirement fund (see 6.2) (or, presumably, the corresponding deduction in earlier tax years)
to pension funds, pension preservation funds, provident funds, provident preservation funds and
retirement annuity funds of which you are or were previously a member.
• An amount transferred for your benefit to a pension fund, pension preservation fund, provident fund,
provident preservation fund or retirement annuity fund as a result of an election made under s 37D(4)(
b)(ii)( cc) of the Pension Funds Act 24 of 1956 (election by non-member spouse up-on divorce).
• An amount deemed to have accrued to you as a result of an amount transferred for your benefit to a
pension fund, pension preservation fund, provident fund, provident preservation fund or retirement
annuity fund from a pension fund, pension preservation fund, provident fund, provident preservation
fund or retirement annuity fund of which you are or previously were a member.
• An amount, to the extent that it was paid or transferred to a pension preservation fund or provident
preservation fund as an ‘unclaimed benefit’ as defined in s 1 of the Pension Funds Act 24
of 1956 and was subject to tax before the transfer or payment.
• Any other amounts you derive from a public sector fund subject to the application of the special
formula described in 6.4 that have been paid into a pension fund, pension preservation fund, provident
fund, provident preservation fund or retirement annuity fund for your benefit by the public sector fund,
and transferred into a pension fund, pension preservation fund, provident fund, provident preservation
fund or retirement annuity fund directly from the fund into which payment was made, again, for your
benefit, less the amount of one of the elements of the formula.
The aggregate of these deductions may not exceed the amount of the lump-sum benefit from which it is
allowable as a deduction.
For the purposes of these deductions, the surrender value of an insurance policy ceded or otherwise
made over to you by a pension fund, pension preservation fund, provident fund, provident preservation
fund or retirement annuity fund and ceded or otherwise made over by you to any other such fund, or an
amount paid by you into the receiving fund in lieu of or as representing that surrender value or a portion
of it, is deemed to be an amount paid into the receiving fund by the paying fund for your benefit.
Amount assigned under a divorce order (paras 2(1)( b)(iA), 6(1)( a)(i)) Also included in your gross
income is the amount assigned under a divorce order (granted on or after 13 September 2007) under s
7(8)( a) of the Divorce Act 70 of 1979, although only to the extent

that it constitutes a part of a ‘pension interest’ as defined in s 1 of that Act, of a member of a pension
fund, pension preservation fund, provident fund, provident preservation fund or retirement annuity
fund and is due and payable (on or after 1 March 2012) to a person who is the former spouse of the
member by the fund, less the deduction to which you are entitled.
From 1 March 2019: You may claim as a deduction so much of the benefit as is paid or transferred for
your benefit from a:
• pension fund into a pension fund, pension preservation fund or retirement annuity fund;
• pension preservation fund into a pension fund, pension preservation fund or retirement annuity fund;
• provident fund into a pension fund, pension preservation fund, provident fund, provident preservation
fund or retirement annuity fund;
• provident preservation fund into a pension fund, pension preservation fund, provident fund, provident
preservation fund or retirement annuity fund; and
• retirement annuity fund into a retirement annuity fund.
Amount transferred from one fund to another (paras 2(1)( b)(iB), 6(1)( a)(ii)) Also included in
your gross income, less the deduction to which you are entitled, is the amount transferred for your
benefit to:
annuity fund,
from
annuity fund of which you are or previously were a member.
From 1 March 2019: You may claim as a deduction so much of the benefit as is paid or transferred for
your benefit from a:
• pension fund into a pension fund, pension preservation fund or retirement annuity fund;
• pension preservation fund into a pension fund, pension preservation fund or retirement annuity fund;
• provident fund into a pension fund, pension preservation fund, provident fund, provident preservation
fund or retirement annuity fund;
• provident preservation fund into a pension fund, pension preservation fund, provident fund, provident
preservation fund or retirement annuity fund; and
Amount transferred from one fund to another or assigned under a divorce order (paras 2(1)( b)
(iA), 2(1)( b)(iB), 6(1)( a) From 1 March 2021: You may claim as a deduction so much of the
benefit as is paid or transferred for your benefit from a:
• pension fund, pension preservation fund, provident fund, provident preservation fund into a pension
fund, pension preservation fund, provident fund, provident preservation fund; or

Amount transferred on or after normal retirement date (paras 2(1)( c), 6A) Also included in your
gross income, less the deduction to which you are entitled, is an amount transferred for your benefit on
or after your normal retirement age, as defined in the rules of the fund, but before retirement date.
You may claim as a deduction so much of the lump-sum benefit as is transferred for your benefit from a
pension fund into a pension preservation fund or a retirement annuity fund, from a provident fund into
a pension preservation fund, provident preservation fund or a retirement annuity fund.
6.7 Tax rates – withdrawal benefits
Schedule I, para 9( a) Act 32 of 2019
The table to be used for withdrawal benefits
Taxable income from lump sum benefits
Rate of tax
Not exceeding R25 000
0 per cent of taxable income
Exceeding R25 000 but not exceeding R660 000
18 per cent of taxable income exceeding R25 000
R114 300 plus 27 per cent of taxable income ex-
ceeding R660 000
Exceeding R990 000
ceeding R990 000
When the table applies
It applies to a retirement fund lump sum withdrawal benefit derived by you in a tax year commencing on
or after 1 March 2019, and the rate of tax it lays down is levied on your taxable income comprising the
aggregate of:
• the current retirement fund lump-sum withdrawal benefit;
• retirement fund lump-sum withdrawal benefits derived by you on or after 1 March 2009 but before
you derived the current withdrawal benefit;
• retirement fund lump-sum benefits derived by you on or after 1 October 2007 but before you derived
the current retirement fund lump-sum withdrawal benefit; and
• severance benefits derived by you on or after 1 March 2011 but before you derived the current
retirement fund lump-sum withdrawal benefit.
You may claim the following deduction
From the amount of tax calculated under the table, you are entitled to a deduction of an amount equal to
the tax that would be leviable under the table on a taxable income comprising the aggregate of:
• retirement fund lump-sum withdrawal benefits derived by you on or after 1 March 2009 but before
you derived the current retirement fund lump-sum withdrawal benefit;
• retirement fund lump-sum benefits derived by you on or after 1 October 2007 but before you derived
the current retirement fund lump-sum withdrawal benefit; and
• severance benefits derived by you on or after 1 March 2011 but before you derived the current
retirement fund lump-sum withdrawal benefit.
6.8 Tax rates – retirement and death benefits
Schedule I, para 9( b) Act 32 of 2019
The table to be used for retirement fund lump-sum retirement and death benefits Taxable
income from lump sum benefits
Rate of tax
R36 000 plus 27 per cent of taxable income exceed-
Exceeding R700 000 but not exceeding R1 050 000
ing R700 000
Exceeding R1 050 000
ceeding R1 050 000

It applies to a retirement fund lump sum benefit you derive in a tax year commencing on or after 1
March 2019, and the rate of tax it lays down is levied on your taxable income comprising the aggregate
of:
• the current retirement fund lump-sum benefit;
• retirement fund lump-sum withdrawal benefits you derived on or after 1 March 2009 but before you
derived the current retirement fund lump-sum benefit;
• retirement fund lump-sum benefits you derived on or after 1 October 2007 but before you derived the
current retirement fund lump-sum benefit; and
• severance benefits you derived on or after 1 March 2011 but before you derived the current
retirement fund lump-sum benefit.
• retirement fund lump-sum withdrawal benefits you derived on or after 1 March 2009 but before you
derived the current retirement fund lump-sum benefit;
• retirement fund lump-sum benefits you derived on or after 1 October 2007 but before you derived the
current retirement fund lump-sum benefit; and
• severance benefits you derived on or after 1 March 2011 but before you derived the current
retirement fund lump-sum benefit.
6.9
Tax rates – severance benefits
Schedule I, para 9( c) Act 32 of 2019
The table to be used for severance benefits
Taxable income from lump sum benefits
Rate of tax
R36 000 plus 27 per cent of taxable income exceed-
Exceeding R700 000 but not exceeding R1 050 000
ing R700 000

Exceeding R1 050 000
ceeding R1 050 000
It applies to a severance benefit you derive in a tax year commencing on or after 1 March 2018, and the
rate of tax it lays down is levied on your taxable income comprising the aggregate of:
• the current severance benefit;
• severance benefits you derived on or after 1 March 2011 but before you derived the current severance
benefit;
• retirement fund lump sum withdrawal benefits you derived on or after 1 March 2009 but before you
derived the current severance benefit; and
• retirement fund lump sum benefits you derived on or after 1 October 2007 but before you derived the
current severance benefit.
• severance benefits you derived on or after 1 March 2011 but before you derived the current severance
benefit;
• retirement fund lump sum withdrawal benefits you derived on or after 1 March 2009 but before you
derived the current severance benefit; and
• retirement fund lump sum benefits you derived on or after 1 October 2007 but before you derived the
current severance benefit.
6.10 Pensions and annuities from funds
ss 1, 9(2)( i), 4th Sch, para 1
A lump sum, pension or an annuity you derive from a retirement fund must be included in your gross
income (see 1.1) and is taxable.
When a lump sum, pension or annuity payable by a pension fund, pension preservation fund, provident
fund or provident preservation fund is for services both in and outside South Africa, the portion taxable
will be based on services in South Africa (see 5.6).
Lump sums, pensions and annuities also form part of remuneration (see 17.3) and are therefore subject
to PAYE (see 17.3).
6.11 Exemption for annuities from funds
s 10C
You are entitled to an exemption from income tax of the aggregate of qualifying annuities payable to you
equal to so much of your own contributions to a pension fund, provident fund and retirement annuity
fund that did not, in an earlier tax year, rank for a deduction against your income under the current or
any previous version of the deduction rule described in 6.2 or that were not exempted under this rule.
Excluded are such contributions previously allowed to you as a deduction against taxable lump-sum
benefits and contributions previously qualifying for this exemption.
A ‘qualifying annuity’ is the amount of your retirement interest payable in the form of an annuity
(including a living annuity) specially identified in the definition of a ‘pension fund’, the definition of a
‘pension preservation fund’, the definition of a ‘provident preservation fund’ or the definition of a
‘retirement annuity fund’.
Income from interest
7.1 Interest included in your income
ss 1, 10(1)( i), 11( a), 24J, 24JA, 25BA, 50B
With the exception of amounts of tax-free interest (see 7.2 and 7.4), all the interest you derive as a
resident (see 1.1) from loans and investments made anywhere in the world is included in your gross
income (see 1.1) and is taxable. Special rules apply to Sharia-compliant financing arrangements (see
7.8).
Your interest income will include interest on savings and similar accounts and deposits in banks, as well
as interest payments made to you by SARS. Also included is the interest portion of the distributions
made to you by a collective investment scheme (although not a collective investment scheme in
property) (see 16.7).
Non-residents are subjected to tax upon a more restrictive basis (see 5.1). Complex rules apply to
foreign investment income derived through a controlled foreign company (see 15.2). A withholding tax
is levied on interest payable to non-residents (identified as ‘foreign persons’) (see 15.19).
In your income tax return you must show the total amount of local interest income derived by you.
If you are married in community of property, you are required to show your own interest income, that of
your spouse and that of minor children, even though you will not actually be liable to taxation on the
total amount. You will usually be liable to tax on half only of the net interest income (after deductions) of
you and your spouse (see 3.2), and the income of your minor children is included with your own only in
exceptional circumstances (see 3.5). Since programmatic mistakes by SARS are likely in such
circumstances, be sure to check your resulting assessment carefully.
You must show the total amount of foreign interest income derived by you, and, if you paid withholding
tax on such interest, show the gross amount of withholding tax.
From these gross amounts you are entitled to deduct the deductions for which you qualify (see 7.3).
Unless special terms affect your entitlement to interest, when you make an interest-bearing fixed
deposit or loan the full interest accrues to you immediately. This astonishing principle, which arises
from the reciprocal nature of the type of agreement known as a ‘loan for consumption’, applies even
though the interest might be payable upon a stipulated future date only. More usually, though, the
special rules for the accrual of interest described in 7.8 will apply, and will prevail over the general
principle. Essentially, these treat interest as accruing on a day-to-day basis over the period of the
investment.
Interest paid in advance will be taxed in the year of its receipt.
Under special rules, the dividends that you derive on redeemable preference shares and other similarly
targeted shares will be treated as being interest received by you from a South African source (see 7.5).
7.2 Investment income exemption
s 10(1)( i)
The first R23 800 of local interest that you derive in any tax year is exempt and thus tax free. But if you
are at least 65 years of age on the last day of the tax year, the first R34 500 of local interest is 80
INCOME FROM INTEREST 81
exempt. The age of a taxpayer who has died is taken for this purpose as being the age he or she would
have been had he or she lived until the last day of the tax year.
Only natural persons, that is, individuals, qualify for this exemption, and then only on local interest
income. Foreign interest income does not qualify.
All interest derived by you must be reflected in your return. The SARS computer will calculate the
exemption to which you are entitled.
7.3 The deductions you may claim
s 11( a)
You may deduct any expenditure you incur in the tax year in order to earn taxable interest income.
Such expenditure might include:
• Interest you pay on money that you borrow to lend out or invest at the same or a higher rate of
interest, for example, interest on a bank overdraft that you raised for this purpose. For the special rules
governing the calculation of interest paid, see 7.6.
• An administration fee charged by the institution with which you make a loan investment, for example,
a fee charged by a trust company offering investments in first mortgage loans.
• Mortgage-loan interest – but not capital redemptions – you pay on a property that you sold under a
suspensive sale in circumstances in which you derive interest on the outstanding purchase price.
• Commission you pay to someone for introducing you to a borrower.
• Commission you pay to an agent who collects interest on your behalf.
If you are in fact carrying on what amounts to a business of money-lending or if what you have lost
amounts to a loss of working capital, other deductions might also be available (see 10.14).
It may be that, on buying interest-bearing securities, such as government stocks, the price you are
required to pay includes an amount for interest accumulated but not yet paid since the last interest
payment. Even though the whole interest payment will be taxable when you receive it, you are not
entitled to any deduction for the increased price you had to pay. Usually, though, effective relief will be
available under the special timing and valuation rules governing ‘instruments’ (see 7.6).
It is advisable to submit with your return full details of all the deductions you claim. Should you claim
interest you have paid or incurred as a deduction against your investment income, include full
particulars of your claim, comprising the amounts invested and borrowed, the interest rates and the
date of each loan and investment. (See also 10.77).
7.4 Tax-free
interest
ss 10(1)( h), ( h A), 12T, 23K
Most non-residents are entitled to derive qualifying interest free of tax, although there are exclusions
from this exemption (see 15.14).
In qualifying reorganization and acquisition transactions, non-deductible interest paid by one company
in a group of companies (see 10.80) to another company in the same group is exempt and thus tax free.
Interest received by or accrued to a natural person on a tax-free investment is exempt from tax.
A ‘tax-free investment’ is defined as any financial instrument or long-term insurance policy

administered by a person or entity designated by the Minister of Finance by notice in the Gazette. It must
be owned by a natural person or the deceased or insolvent estate of a natural person that is deemed to
be one and the same person as the natural person as far as contributions are concerned. And it must
comply with the requirements of the regulations made by the Minister.
Capital gains or capital losses on the disposal of a tax-free investment must also be disregarded for
capital gains tax purposes.
82 INCOME FROM INTEREST
Contributions to tax-free investments are limited to R33 000 a tax year and to R500 000 in aggregate.
And they must be a cash amount. But, according to a badly worded part of the provision, it would seem
that reinvested tax-free amounts derived on the investment must not be taken into account in the
determination whether a person has contributed more than is allowed.
Amounts transferred between a person’s tax-free investments and amounts received or accruing on
these investments must also not be taken into account in the determination whether he or she has
contributed an excessive amount.
If, during a tax year, a person contributes more than the amount of R33 000 to the investment, an
amount equal to 40% of the excess is deemed to be an amount of normal tax payable by that person for
that tax year. And if in any tax year a person contributes an amount that brings the aggregate amount
invested to more than R500 000, an amount equal to 40% of the excess that has not previously been
taken into account is also deemed to be an amount of normal tax payable by that person for that tax
year.
The Minister must make regulations prescribing the requirements:

• with which a financial instrument or long-term insurance policy must conform to qualify as a tax-free
investment;
• that must be complied with when a tax free investment is transferred; and
• governing disclosure by a person administering tax-free investments.
The Financial Sector Conduct Authority is responsible for supervising and enforcing compliance with
regulations, while the supervision and enforcement of compliance will form part of its legislative
mandate. The Financial Sector Conduct Authority exercises the power of the ‘registrar’, as defined in s 1
of the Financial Institutions (Protection of Funds) Act 28 of 2001.
7.5 Hybrid equity instruments and debt instruments
ss 1, 8E, 8EA(1), 8F, 24J
Hybrid equity instruments (s 8E)
The dividends (see 9.2) or foreign dividends (see 9.3) derived by you during a tax year on a share or an
equity instrument are deemed to be income accruing to you if the share or equity instrument constitutes
a hybrid equity instrument at any time during that tax year. In other words, the dividends or foreign
dividends are treated as if they were interest.
When a share or preference share that was issued under an agreement, all the terms of which were
agreed to by all the parties before 1 April 2012, constitutes a hybrid equity instrument solely by reason
of a right of redemption or a security arrangement acquired under the agreement, and that right or
arrangement is cancelled on or after 26 October 2016 and on or before 31 December 2017, the deeming
provision described in the previous paragraph does not apply to a dividend or foreign dividend accruing
on the share after the date of cancellation of the right or arrangement. But the cancellation of the right or
arrangement must not be treated as a disposal of the share if no consideration is payable on account of
the cancellation.
An ‘equity instrument’ is defined as a right or an interest the value of which is determined directly or
indirectly with reference to a share or an amount derived from a share.
A ‘hybrid equity instrument’ is, in the first place, a share (but not an equity share; see 16.31) whose
issuer is obliged to redeem it in whole or in part or which, at the option of you, its holder, may be
redeemed in whole or in part within a period of three years from its date of issue.
The second type of hybrid equity instrument is some other share:
• whose issuer is obliged to redeem it in whole or in part within a period of three years from the date of
its issue;
• which, at the option of you, its holder, may be redeemed in whole or in part within a period of three
years from the date of its issue; or
• which, at the time of its issue, was issued by a company whose existence is to be terminated within a
period of three years or, upon a reasonable consideration of all the facts at that time, is likely to be
terminated within a period of three years; and
• which does not enjoy the same participatory dividend or foreign dividend rights as those attaching to
all the other equity shares in the issuing company’s capital (see 14.1) or, if the equity shares are divided
into two or more classes, as those attaching to at least one of those classes; or
• which promises a dividend or foreign dividend payable calculated directly or indirectly by reference to
a specified rate of interest or the time-value of money.
The third type of hybrid equity instrument is a preference share secured by a financial instrument or is
subject to an arrangement under which a financial instrument may not be disposed of. But this rule does
not apply if the share was issued for a qualifying purpose.
The fourth type of hybrid equity instrument is one the value of which is determined directly or indirectly
with reference to a share dealt with in the first and second types of hybrid equity instrument or a
preference share dealt with in the third type of hybrid equity instrument or an amount derived from
these shares or preference shares.
The fifth type of hybrid equity instrument is an equity instrument (but not of the fourth type of hybrid
equity instrument) if it is subject to a right or arrangement that would have constituted a right of
redemption or security arrangement under the first three types of hybrid equity instrument had the
right or arrangement applied to the share with reference to which the value of the equity instrument is
directly or indirectly determined.
From 21 July 2019: A ‘hybrid equity instrument’ is, in the first place, a share (but not an equity share;
see 16.31) whose issuer is obliged to redeem it or distribute an amount constituting a return of its ‘issue
price’, in whole or in part, within a period of three years from its date of issue, or whose holder may
exercise an option compelling the issuer to redeem it or distribute an amount constituting a return of its
issue price, in whole or in part, within a period of three years from its date of issue.
The second type of hybrid equity instrument is some other share:
• whose issuer is obliged to redeem it or distribute an amount constituting a return of its issue price, in
whole or in part, within a period of three years from the date of its issue;
• whose holder may exercise an option compelling the issuer to redeem it or distribute an amount
constituting a return of its issue price, in whole or in part, within a period of three years from its date of
issue;
• which, at the time of its issue, was issued by a company whose existence is to be terminated within a
period of three years or, upon a reasonable consideration of all the facts at that time, is likely to be
terminated within a period of three years; and
• which does not enjoy the same participatory dividend or foreign dividend rights as those attaching to
all the other equity shares in the issuing company’s capital (see 14.1) or, if the equity shares are divided
into two or more classes, as those attaching to at least one of those classes; or
• which promises a dividend or foreign dividend payable, calculated directly or indirectly by reference to
a specified rate of interest or the time-value of money.
The third type of hybrid equity instrument is a preference share secured by a financial instrument or is
subject to an arrangement under which a financial instrument may not be disposed of. However, this
rule does not apply if the share was issued for a qualifying purpose.
The fourth type of hybrid equity instrument is one the value of which is determined directly or indirectly
with reference to a share dealt with in the first and second types of hybrid equity instrument or a
preference share dealt with in the third type of hybrid equity instrument or an amount derived from
these shares or preference shares.
The fifth type of hybrid equity instrument is an equity instrument (but not of the fourth type of hybrid
equity instrument) if it is subject to a right or arrangement that would have constituted a right or
security arrangement under the first three types of hybrid equity instrument had the right or
arrangement applied to the share with reference to which the value of the equity instrument is directly
or indirectly determined.
The ‘date of issue’ in relation to a share in a company is:
• the date on which it is issued by the company;
• the date on which the company issuing it, at any time after it is issued, undertakes the obligation to
redeem it in whole or in part; or
• the date on which you, the holder, at any time after it is issued, obtain the right to require that it be
redeemed in whole or in part, otherwise than as a result of its acquisition by you.
A ‘financial instrument’ is an interest-bearing arrangement or a financial arrangement based on or

determined with reference to a specified rate of interest or the time-value of money.
The ‘issue price’ in relation to a share in a company is the amount received or accrued to the company
for its issue.
A ‘preference share’ is a share other than an equity share, or that is an equity share, if an amount of a
dividend or foreign dividend on the share is based on or determined with reference to a specified rate of
interest or the time-value of money.
A ‘qualifying purpose’, in relation to the funds derived from the issue of a preference share, means one
or more of the following purposes:
• The direct or indirect acquisition of an equity share by a person in a company that is an operating
company (see 10.77) at the time of the receipt or accrual of any dividend or foreign dividend on the
preference share issued, but not a direct or indirect acquisition of an equity share from a company that,
immediately before the acquisition, formed part of the same group of companies (see 14.1) as the person
acquiring the equity share.
• The partial or full settlement by a person of ( a) a debt incurred for one or more acceptable purposes
or ( b) interest accrued on such a debt. For this purpose, an acceptable purpose arises in the following
circumstances: (1) When a debt is incurred for the purpose of the direct or indirect acquisition of an
equity share by a person in an operating company at the time that a dividend or foreign dividend is
derived on the preference share issued, but not a direct or indirect acquisition of an equity share from a
company that, immediately before the acquisition, formed part of the same group of companies as the
person acquiring the equity share. (2) When a debt is incurred for the purpose of a direct or an indirect
acquisition or a redemption that itself satisfies the requirements of the third qualifying purpose listed
here. (3) When a debt is incurred for the purpose of the payment of a dividend or foreign dividend
satisfying the requirements of the fourth qualifying purpose listed here. (4) When a debt is incurred for
the purpose of the partial or full settlement, directly or indirectly, of a debt incurred for one of these
acceptable purposes.
• The direct or indirect acquisition by a person or a redemption by a person of some other preference
share, if the other preference share was issued for a qualifying purpose, and the amount derived by its
issuer as consideration for its issue does not exceed the amount outstanding on the other preference
share being acquired or redeemed. The amount outstanding is allowed to be increased by the total of
dividends, foreign dividends or interest accrued on the preference share.
• The payment by a person of a dividend or foreign dividend on the other preference share as identified
in the immediately preceding item.
Hybrid equity instruments (ss 8F, 24J)
No deduction is allowed for interest incurred by a company (see 14.1) on or after the date on which an
instrument becomes a hybrid debt instrument. It is deemed to be a dividend in specie (see 9.4)
declared and paid by the company to the person to whom it accrued on the last day of the company’s tax
year. (Presumably, ‘hybrid interest’ is the interest defined in 9.1).
But these rules do not apply to a complicated list of excluded instruments, which are briefly described
here:
• An instrument under which all amounts are owed by a small business corporation (see 10.60).
• An instrument constituting a tier 1 or tier 2 capital instrument (under banking regulations) issued by a
bank, its controlling company.
• An instrument of a class subject to approval under the Short-term Insurance Act 53 of 1998 in
accordance with specified terms, when an amount is owed on the instrument by a short-term insurer.
• An instrument of a class subject to approval under the Long-term Insurance Act 52 of 1998 in
accordance with the specified terms, when an amount is owed on the instrument by a long-term insurer.
• An instrument constituting a linked unit in a company, when the linked unit is held by a long-term
insurer, a pension fund, a provident fund, a REIT (see 16.30) or a short-term insurer, if it holds at least
20% of the linked units in the company, it acquired the linked units before 1 January 2013, and, at the
end of the previous tax year, 80% or more of the value of the company’s assets, as reflected in its annual
financial statements prepared in accordance with the Companies Act 71
of 2008 for the previous tax year, is directly or indirectly attributable to immovable property.
• An instrument constituting a third-party backed instrument (see 7.6).
• An instrument constituting a hybrid debt instrument solely of the second type described below, as long
as a registered auditor has certified that the payment by a company of an amount owed on the
instrument has been or is to be deferred, because the market value of the company’s assets is less than
its liabilities.
In order to qualify as one of three types of ‘hybrid debt instrument’, an instrument must be one under
which a company owes an amount during a tax year in terms of an ‘arrangement’ (see 18.8), that is, an
arrangement aimed at tax avoidance.
The first type of hybrid equity instrument arises when the company is in that tax year entitled or obliged
to convert or exchange it, wholly or partly, for shares, unless the market value of the shares is equal to
the amount owed under the instrument at the time of conversion or exchange.
The second type of hybrid equity instrument arises when, on a date or dates falling within that tax year,
the obligation to pay the amounts so owed has been deferred, because the obligation is conditional upon
the market value of the company’s assets being not less than the amount of its liabilities, and the market
fell below that threshold.
The third type of hybrid equity instrument arises when the company owes the amount to its connected
person (see 10.27) and is not obliged to redeem the instrument, excluding an instrument payable on
demand, within thirty years from the date of its issue. For this purpose, when the company has the right
to convert the instrument to or exchange it for a financial instrument (see 21.8) other than a share (see
below), the conversion or exchange is deemed to be an arrangement involving the instrument, and the
instrument and the financial instrument are deemed to be one and the same instrument for the purposes
of determining the period within which the company is obliged to redeem the instrument.
An ‘instrument’ is any form of interest-bearing arrangement or debt issued by:
• a resident company;
• a non-resident company, if the interest on the instrument is attributable to a permanent establishment

(see 10.74) of the company in South Africa; or
• a company that is a controlled foreign company (see 15.2), if the interest on the instrument is taken
into account in the determination of its net income.
In relation to an instrument, an ‘enforcement right’ is any right, whether fixed or contingent, to require
a person other than the issuer of the instrument to ( a) acquire the instrument from its holder; ( b) make
a payment springing from the instrument under a guarantee, an indemnity or some similar
arrangement; or ( c) procure, facilitate or assist with any such acquisition or the making of any such
payment.
‘Interest’ is interest as computed on a day-to-day basis over the period of the investment (see 7.8).
In relation to an instrument, ‘issue’ means the creation of a liability to pay an amount under the
instrument.
In relation to an instrument, ‘redeem’ means the discharge of all liability to pay all amounts under the
instrument.
In relation to a company, a ‘share’ is any unit into which the proprietary interest in the company is
divided.
A ‘third-party backed instrument’ is any instrument on which an enforcement right is exercisable

because an amount springing from the instrument has not been derived by the person entitled to it.
7.6 Third-party backed shares
s 8EA
The dividends (see 9.2) or foreign dividends (see 9.3) derived by you during a tax year on a share or an
equity instrument, will, as far as you alone are concerned, be deemed to be an amount of income derived
by you if it constitutes a third-party backed share at any time during that year. In other words, the
dividends or foreign dividends are treated as if they were interest.
When a preference share that was issued under an agreement, all the terms of which were finally agreed
to by all the parties before 1 April 2012, constitutes a third-party backed share solely by reason of an
enforcement right acquired under the agreement, and that right is cancelled on or after 26 October 2016
and on or before 31 December 2017, the deeming provision described in the previous paragraph does
not apply to a dividend or foreign dividend accruing on the share after the date of cancellation of the
enforcement right.
A ‘third-party backed share’ is a preference share or an equity instrument over which an enforcement
right is exercisable by you, its holder, because an amount of a specified dividend, foreign dividend,
return of capital or foreign return of capital attributable to it has not been derived by the person entitled
to it.
An ‘enforcement right’ relating to a share or an equity instrument is a right, whether fixed or

contingent, of its holder or its holder’s connected person (see 10.27) to require a person other than its
issuer to acquire it from its holder, make a payment relating to it under a guarantee, an indemnity or a
similar arrangement, or procure, facilitate or assist with such an acquisition or the making of such a
payment.
An ‘equity instrument’ is a right or interest whose value is determined directly or indirectly with
reference to a preference share or an amount derived from a preference share.
An ‘operating company’ is a company (see 14.1) carrying on business continuously that, in the course
or furtherance of its business, provides goods or services for consideration, or carries on exploration for
natural resources, a company that is a controlling group company (see 22.1) in relation to such a
company, or a listed company (see 21.32).
A ‘qualifying purpose’, in relation to the funds derived from the issue of a preference share, means one
or more of the following purposes:
• The direct or indirect acquisition of an equity share by a person in a company that is an operating
company (see 10.77) at the time of the receipt or accrual of any dividend or foreign dividend on the
preference share issued, but not a direct or indirect acquisition of an equity share from a company that,
immediately before the acquisition, formed part of the same group of companies (see 14.1) as the person
acquiring the equity share.
• The partial or full settlement by a person of ( a) a debt incurred for one or more acceptable purposes
or ( b) interest accrued on such a debt. For this purpose, an acceptable purpose arises in the following
circumstances: (1) When a debt is incurred for the purpose of the direct or indirect acquisition of an
equity share by a person in an operating company at the time that a dividend or foreign dividend is
derived on the preference share issued, but not a direct or indirect acquisition of an equity share from a
company that, immediately before the acquisition, formed part of the same group of companies as the
person acquiring the equity share. (2) When a debt is incurred for the purpose of a direct or an indirect
acquisition or a redemption that itself satisfies the requirements of the third qualifying purpose listed
here. (3) When a debt is incurred for the purpose of the payment of a dividend or foreign dividend
satisfying the requirements of the fourth qualifying purpose listed here. (4) When a debt is incurred for
the purpose of the partial or full settlement, directly or indirectly, of a debt incurred for one of these
acceptable purposes.
• The direct or indirect acquisition by a person or a redemption by a person of some other preference
share, if the other preference share was issued for a qualifying purpose, and the amount derived by its
issuer as consideration for its issue does not exceed the amount outstanding on the other preference
share being acquired or redeemed. The amount outstanding is allowed to be increased by the total of
dividends, foreign dividends or interest accrued on the preference share.
• The payment by a person of a dividend or foreign dividend on the other preference share as identified
in the immediately preceding item.
Special rules (s 8EA(3))
These apply when the funds derived from the issue of a preference share were applied for a qualifying
purpose.
In determining whether an enforcement right is exercisable under the preference share, you are
required to disregard any arrangement under which its holder has an exercisable enforcement right
over it, and that right is exercisable against the persons listed below:
• the operating company to which the qualifying purpose relates;
• the issuer of a preference share, if it was issued for a qualifying purpose;
• any other person directly or indirectly holding at least 20% of the equity shares in the operating
company or the issuer;
• a company forming part of the same group of companies (see 22.1) as the operating company, the
issuer, or the other person directly or indirectly holding at least 20% of the equity shares in the
operating company or issuer;
• a natural person;
• an organization that is a ‘non-profit company’ as defined in s 1 of the Companies Act 71 of 2008
or a trust (see 11.4) or association of persons, as long as all of its activities are carried on in a non-profit
manner and none of its activities are intended, directly or indirectly, to promote the economic self
interest of its fiduciaries or employees, save for reasonable remuneration;
• a person holding equity shares is an issuer of preference shares for a qualifying purpose, if the
enforcement right exercisable against that person is limited to any rights in and claims against the issuer
that are held by that person.

7.7 Interest treated as dividends
ss 8F, 8FA
See 9.1.
7.8 Special timing and valuation rules for interest
s 24J
Complicated, special rules come into operation when you are the holder of an income instrument.
Except for a company (see 14.1), an ‘income instrument’ is an instrument with a term of longer than a
year that is issued or acquired at a discount or premium or that bears deferred interest.
‘Deferred interest’, very generally, is either interest payable at a constant rate but at intervals of longer
than a year or interest not payable at a constant rate.
For a company, an ‘income instrument’ is an ‘instrument’.
And an ‘instrument’ is an interest-bearing arrangement or a debt, interest swaps and ‘repurchase

agreements’ or ‘resale agreements’, which are, essentially, interest-bearing arrangements given the form
of asset-disposals. Excluded are all leases, although not a qualifying ‘sale and leaseback arrangement’
(see 8.5 and below) and policies issued by long-term insurers.
The ‘holder’ is, essentially, the person entitled to, or entitled to receive payment of, the interest or any
other amount receivable under the income instrument.
The purpose of these special rules is to require you to report your interest earnings on an income
instrument on a day-by-day basis over the entire period of your investment, taking into account the
effect of fluctuations in the rate of interest, delays in the date for payment of interest, any discount or
premium you might have enjoyed or paid upon the acquisition of the investment and any discount or
premium that you will either suffer or enjoy when you dispose of it or it is redeemed by the borrower.
Two alternative methods of computation of your interest earnings are permitted. Very simply stated,
these require you to:
• Use a method of calculation conforming with generally accepted accounting practice, and use it
consistently for all financial reporting purposes affecting a particular class of instruments. In addition,
the result must not differ significantly from that that would be obtained were you to use the following,
alternative method of computation.
• Alternatively, draw up a cash-flow diagram covering the full period of your investment, calculate the
internal rate of return your investment is expected to generate over that period, and apply that rate to
the balance of your investment at the commencement of each period for the calculation of interest.
‘Interest’ is very widely defined for this purpose and includes or allows for the gross interest carried by
the investment, similar finance charges, discounts, premiums, fixed and variable rates, variable sums
and lump sums. Amounts payable in cash and in kind are both taken into account in the calculation of
interest. In addition, two very special types of ‘interest’ are included:
• The amount or portion of the amount payable by a borrower to a lender in terms of a ‘lending
arrangement’ representing compensation for an amount to which the lender would have been entitled
had there been no such lending arrangement. A ‘lending arrangement’ is an arrangement or agreement
under which a lender lends an instrument to a borrower who in return undertakes to return an
instrument of the same kind and of the same or equivalent quantity and quality to the lender.
• The absolute value of the difference between all amounts receivable and payable by a person under a
qualifying ‘sale and leaseback arrangement’ to which that person is a party throughout the full term of
the arrangement. For the treatment of these sale-and-leasebacks as financial arrangements, see 8.5.
The calculated amount of interest you arrive at under these rules then takes the place of any actual
receipt of interest you might enjoy, which is ignored for income tax purposes. But the general rules
of taxation still apply, and the actual taxability of the calculated amount of interest will depend upon
those rules, for example, the rule that amounts of a capital nature are not normally taxable on income
account (see 1.5) and the rule that amounts from abroad are not normally taxable in the hands of non-
residents (see 1.1).
The rules include a protection against multiple deductions from or multiple inclusions income of the
same amount of interest. Further special rules come into operation when an income instrument has
more than one holder and when you both pay and receive interest. And payments in kind are catered for.
When an instrument is finally transferred or redeemed a final adjustment of the calculated interest is
made. This adjustment also allows for any differences between calculated amounts and actual receipts
or outlays to be brought to account.
The rules do not apply to an instrument if its holder has throughout a particular period in a tax year
during which the holder holds it a right to require its redemption at any time during that period, as long
as it does not provide for the payment of deferred interest.
7.9 Special timing and valuation rules for
ss 24K, 24L
interest rate agreements and option contracts
Interest rate agreements (s 24K)
Amounts arising under an interest rate agreement are required to be dealt with on the basis that they
are either incurred or derived on a day-to-day basis during the period over which the amounts are
calculated.
When a particular calculation requires the use of a variable rate it may be assumed that the currently
applicable variable rate will apply also to all amounts payable or receivable in the future.
An ‘interest rate agreement’ is an agreement under which you either acquire the right to receive or
become liable to pay specified amounts of a purely financial character. Such an amount might be
calculated as an interest rate on a notional principal amount or the difference between two such rates.
Or it might be a fixed amount based upon an income-stream or the difference between two such fixed
amounts.
Option contracts (s 24L)

A premium or similar consideration payable by a person for the acquisition of an option contract (but,
from 1 January 2019, excluding an amount of a capital nature; see 1.5) is treated as having been incurred
on a day-to-day basis during the term of the option contract. But when the option contract is exercised,
terminated or disposed of before the end of its original term, that is, before the full premium or
consideration is treated as having been incurred, the balance not yet incurred, including any intrinsic
value, will then be deemed to be incurred.
But this rule does not apply to option contracts held as trading stock (see 10.66).
For the person receiving the premium or similar consideration, it is treated as accruing on a day-to-day
basis during the term of the option contract. Again, when the option contract is exercised, terminated or
disposed of, the portion of the premium or consideration that is not yet treated as having accrued will
then be treated as having accrued.
An ‘option contract’ is an agreement whose effect is that a person acquires the option (but not a foreign
currency option contract; see 10.75) to buy from or sell to another person a certain quantity of corporeal
or incorporeal things before or on a future date at a pre-arranged price or an agreement 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.
The ‘intrinsic value’ of an option contract is 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.
7.10 Sharia-compliant financing arrangements
s 24JA
Mudaraba (s 24JA(2))
Amounts derived by a client under a mudaraba are deemed to be interest for purposes of the special
timing and valuation rules for interest (see 7.8).
Murabaha (s 24JA(3))
When a murabaha is entered into between a financier and the financier’s client:
• The financier is deemed not to have acquired or disposed of the asset under the sharia arrangement.
• The client is deemed to have acquired the asset from the seller for a consideration equal to the amount
paid by the bank to the seller and at the time that the financier acquired the asset from the seller by
virtue of the transaction between the seller and the financier.
• The murabaha is deemed to be an instrument for the purposes of the special timing and valuation rules
for interest (see 7.8).
• The difference between the amount of consideration paid for the asset by the financier to the seller and
the consideration payable to the financier by the client to acquire the asset is deemed to be a premium
payable or receivable for the purposes of the special timing and valuation rules for interest (see 7.8).
• The amount of consideration paid by the bank to acquire the asset is deemed to be an issue price for
the purposes of the special timing and valuation rules for interest (see 7.8).
Diminishing musharaka (s 24JA(5), (6))
For the purposes of the determination of the tax on income of the client from a diminishing musharaka:
• when the bank and the client jointly acquire an asset the client is deemed to have acquired the bank’s
interest in the asset for an amount equal to the amount paid by the bank for its interest in the asset and
at the time that the seller of the asset was divested of its interest in the asset by virtue of the transaction
between the seller and the bank; or
• when the bank acquires an interest in an asset from the client the client is deemed not to have
disposed of the interest in the asset or to have acquired that interest from the bank.
For these purposes, when an instalment is paid by the client to the bank, a portion of the instalment, the
amount of which must be determined in accordance with the formula below is deemed to be interest for
the purposes of the special timing and valuation rules for interest (see 7.8).
The amount must be determined in accordance with the following formula: X = A – B
In this formula:
• ‘X’ represents the amount.
• ‘A’ represents the total amount of the instalment payable by the client to the bank.
• ‘B’ represents the expenditure incurred by the bank to acquire the portion of the interest in the asset
transferred to the client in exchange for the instalment payable by the client to the bank.
Sukuk (s 24JA(7))
When a sukuk is entered into:
• The trust is deemed not to have acquired the asset from the government, the public entity or the locally
listed company under the sharia arrangement.
• The government, public entity or locally listed company is deemed not to have disposed of or
reacquired the asset.
• Any consideration paid by the government, public entity or locally listed company for the use of the
asset held by the trust is deemed to be interest.
A ‘bank’ is a ‘bank’ as defined in s 1 of the Banks Act 94 of 1990, a ‘ mutual bank’ as defined in s 1
of the Mutual Banks Act 124 of 1993, or a ‘ co-operative bank’ as defined in s 1 of the Co-operative
Banks Act 40 of 2007.
A ‘diminishing musharaka’ is a sharia arrangement between a bank and a client of that bank under
which:
• the bank and the client jointly acquire an asset from a third party (the seller), or the bank acquires an
interest in an asset from the client;
• the client will acquire the bank’s interest in the asset after the acquisition of the asset by the bank in
this manner; and
• the amount of consideration payable by the client to the bank for the acquisition of the bank’s interest
in the asset will be paid over a period of time as agreed between the client and the bank.
A ‘listed company’ is a listed company (see 21.32) listed on an ‘exchange’ as defined in s 1 of the
Financial Markets Act 19 of 2012 and licensed under s 9 of that Act.
A ‘mudaraba’ is a sharia arrangement between a bank and a client of that bank under which:
• funds are deposited with the bank by the client;
• the anticipated return on the sharia arrangement is dependent upon the amount deposited by the
client in combination with the duration of the period for which the funds are deposited;
• the bank invests the funds deposited by the client in other sharia arrangements;
• the client bears the risk of the loss on such sharia arrangements; and
• the return on such sharia arrangements is divided between the client and the bank as agreed at the
time that the client deposits the funds with the bank.
A ‘murabaha’ is defined as a sharia arrangement between a financier and a client of that financier, one
of which is a bank or listed company, under which:
• the financier will acquire an asset from a third party (the seller) for the benefit of the client on such
terms and conditions as are agreed upon between the client and the seller;
• the client will acquire the asset from the financier within 180 days after the acquisition of the asset by
the financier and agrees to pay to the financier a total amount that exceeds the amount payable by the
financier to the seller as consideration to acquire the asset, is calculated with reference to the
consideration payable by the financier to the seller in combination with the duration of the sharia
arrangement, and may not exceed the amount agreed upon between the financier and the client when
the sharia arrangement is entered into; as long as no other amount is derived by the seller for the asset.
A ‘sharia arrangement’ is an arrangement that is open for participation by members of the general
public and presented as being compliant with sharia law when the members of the general public are
invited to participate in it.
A ‘sukuk’ is a sharia arrangement under which the South African government or a qualifying public
entity or a listed company disposes of an interest in an asset to a trust and the disposal is subject to
an agreement under which the government or public entity or listed company undertakes to reacquire it
on a future date from the trust at a cost equal to the cost paid by the trust to the government or public
entity or locally listed company to obtain the asset.
7.11 Example – Sharia-compliant financing arrangements

Financier
Mr X wants to acquire a machine from a dealer for use in his business enterprise. He approaches F
Bank for Murabaha finance. F Bank agrees to purchase the machine for R90 000 in its own name and to
on-sell it to Mr X at R170 000, all of which is payable by him in one lump sum at the end of a twenty-four
month period. F Bank acquires the machine on 5 June 2017, and Mr X acquires it from F Bank on 12 June.
For income tax purposes, Mr X is deemed to have acquired the machine directly from the dealer at a cost
of R90 000 on 5 June. F Bank is deemed not to have acquired or disposed of the printing machine.
The marked-up amount of R80 000 (R170 000 less R90 000) constitutes a ‘premium payable’ by Mr X,
and the amount of R90 000 constitutes the ‘issue price’ for the purposes of the special timing and
valuation rules in 7.8.
Diminishing musharaka
Mr M wants to acquire a residential property worth R1 million and approaches the N Bank for finance
through the use of diminishing musharaka. N Bank agrees to purchase the property jointly with Mr M
from the seller on condition that Mr M pays R200 000 of the purchase price and N Bank pays R800 000
and that Mr M will buy 12,5% of N Bank’s proportionate interest in the property each year over a period
of eight years for R150 000 per year.
For income tax purposes, Mr M is deemed to have directly acquired the residential property from the
dealer at a cost of R1 million (R200000 + R800 000). N Bank is deemed not to have acquired or disposed
of the residential property. Each payment by the client is viewed as representing part capital and part
finance charge. The finance charge element of each payment of R150 000 is R150 000 – (800 000 ÷ 8) =
R50 000.
The bank will report any gains or losses made on each disposal of the interest in the property to the
client as trading stock in accordance with the normal rules for trading stock.
7.12 Calculation
of
interest
s 7D
A special rule governs the calculation of the amount of interest. It applies across the entire Income Tax
Act, and kicks in whenever it must be determined what amount would have accrued or been incurred as
interest on a loan, a debt, an advance or an amount of credit provided to a person or an amount owed by
a person, had that interest accrued or been incurred at a specific rate of interest.
The amount so accrued or incurred must be determined without regard to any rule of the common law
or provision of any Act under which:
• the amount of any interest, fee or similar finance charge that accrues or is incurred on a debt may not
in aggregate exceed the amount of that debt; or
• no interest may accrue or be incurred on a debt once the amount that has accrued or been incurred as
interest is equal to the amount of that debt.
In other words, the so-called in duplum rule must be ignored. Instead, the interest must be determined
as simple interest calculated daily.
7.13
Interest payable to SARS
ss 7E, 7F
A special rule applies to interest payable by SARS. This states that, in determining the taxable income
you derive during a tax year, an amount of interest to which you become entitled and that is payable by
SARS under a tax Act (see 1.1) is deemed to accrue to you on the date on which the amount is paid to
you.
Should you have to repay such interest to SARS, your repayment will be deductible from your income
(see 1.1), to the extent that the amount involved is or was included in your taxable income, in the tax
year during which you make the repayment. In this way it will reduce your taxable income for that year.
Income from letting property
8.1 Taxable income from letting property
The amount of the income you derive during the tax year from letting property, such as a house, flat,
farm, motor vehicle or machinery, less the amount of the deductions you may claim, represents your net
income from letting property and must be shown separately in your tax return.
8.2 Amounts included in your income
ss 1, 8(4)( a)
Besides the ordinary rentals you receive, your gross income (see 1.1) from letting property during the
tax year will include:
• Rentals received in advance.
• Rentals due but not paid at the end of the tax year.
• ‘Key-money’ paid by a new tenant.
• A premium, that is, a lump-sum paid in addition to or in lieu of rentals, paid to you by a lessee for the
right to use or occupy land or premises, use machinery or plant, use motion-picture films, or use any
films, video tapes or discs connected with television or any sound recordings or advertising matter
connected with motion-picture films or such films, video tapes or discs, or use any patents, designs,
trade marks, copyrights, models, patterns, plans, formulae, processes or similar property.
• Amounts you derive for your imparting of your scientific, technical, industrial or commercial know-
how, or for your assistance or services in connection with that know-how.
• Amounts of expenditure previously allowed to you as a deduction that you recover in any way.
• Compensation you derive from your lessee for the cancellation of a lease.
• Payments made by your lessee for the extension of a lease.
• Rent you derive from a lessee to whom you have given an option to purchase the property, even
though this rent is set off against the eventual purchase price of the property.
• The value of any improvements to land or buildings that your lessee is required to effect in terms of the
lease. For example, the lease may require the lessee to erect a building costing R5 000 000: R5 000 000
will be included in your income in the tax year in which the lease becomes final. The value to be taken
into account here is always the least amount that your tenant may spend on the improvements under
the lease. If it makes any improvements voluntarily, that is, without being required to do so in terms of
the lease, your tax liability will not be affected. The value included in your income may in rare
circumstances be reduced by a special allowance; see item 8 in 8.3.
Under the world-wide taxation of residents (see 1.1), as a resident you will have to account for income
from letting property anywhere in the world, while non-residents would be liable to tax on a very much
more limited basis (see 1.1).
94
INCOME FROM LETTING PROPERTY 95
8.3 Deductions you may claim
ss 3(4), 11( a), ( d), ( e), ( g), ( h), 11A, 12C, 12I, 12L, 12NA, 12R, 12S, 12U, 13, 13 bis, 13 ter, 13 quat, 13
quin, 13 sex, 13 sept, 15, 17A, 20A, 23( b), ( c), ( g), 36, 37B, 37C, 37D
In the computation of your taxable income on income account (see 1.3), you may claim as a deduction
any expenditure not of a capital nature (see 10.14) that you incur during the tax year in order to earn
income from the letting of your property. Allowable expenditure will include: General deductions (s
11( a))
• Interest on a mortgage loan – but not capital redemptions – and interest on any other loan raised to
finance the acquisition of the property (see also item 7 below).
• Insurance premiums for fire, theft and public-liability policies but not for mortgage insurance, which is
a policy on your life.
• The cost of commissions and rent-collection fees.
• The cost of electricity, fuel, water, rates, cleaning materials and wages of maintenance staff.
• The cost of drawing up lease agreements and of debt collections.
• If you are subletting property hired from its owner, the rentals you pay to the owner, as long as the
arrangements are bona fide.
Repairs (s 11( d))
• The cost of repairs and maintenance, for example, painting but not the cost of adding to or improving
the property. Your tax return must show full details of all repairs.
• The cost of beetle treatment.
Soil-erosion works (s 17A)
• The cost of soil-erosion works on land let for farming purposes. If this cost exceeds the rental income,
the balance is carried forward as a deduction to the following tax year, and the current income from this
source is nil.
In addition, you may claim the following allowances as deductions from your income, as long as you
satisfy the relevant requirements:
Depreciation (s 11( e))
(1) An allowance for depreciation on machinery or plant, implements, utensils, articles, including
vehicles, owned by you or acquired by you under an instalment credit agreement that you let.
No depreciation allowance is available under this item on ordinary residential or commercial buildings
or any structures or works of a permanent nature you let or for structures that qualify for certain other
allowances, although you may claim depreciation on the cost of the cage, machinery and other moving
parts of a lift, air-conditioning equipment and demountable partitions in a building and on the cost of
qualifying foundations and supporting structures for plant or machinery (see 10.27).
Annual allowances (ss 12C, 13)
(2) On a building, improvements to buildings or machinery or plant used by your lessee for the purposes
of manufacture or a similar process but not for mining or farming:
• The 2% annual allowance on qualifying buildings or improvements commenced by 31 December 1988

(see 10.18).
• The 5% annual allowance on qualifying buildings or improvements commenced on or after 1 January

1989 (see 10.18).
• The 20% straight-line depreciation on machinery or plant owned by you or acquired by you under an
instalment credit agreement and brought into use for the first time after 15 December 1989 but
excluding machinery or plant that has qualified for ‘50/30/20’ depreciation (see 10.63).
96 INCOME FROM LETTING PROPERTY
• The ‘40/20/20/20’ depreciation on new or unused machinery or plant owned by you or acquired by
you under an instalment credit agreement and acquired and brought into use on or after 1 March 2002
(see 10.63).
Hotelkeepers (ss 12C, 13 bis)
(3) On a building, improvements to buildings or equipment used by your lessee for the purposes of its
trade as hotelkeeper (see 16.11):
• The 5% annual allowance on hotel buildings or improvements commenced on or after 4 June 1988.
• The 20% straight-line depreciation on hotel equipment brought into use for the first time after 15
December 1989 but excluding equipment that has qualified for 50/30/20 depreciation (see 10.63).
Residential units (s 13 ter)
(4) On a residential unit that is part of a housing project (see 10.21):
• The 10% initial allowance.
• The 2% annual allowance.
Residential units (s 13 sex)
(5) On a residential unit when you own at least five residential units for the purposes of your trade (see
10.21):
• The 5% annual allowance.
• The additional 5% annual allowance if the units are low-cost residential units.
Residential units (s 13 sept)
(6) On qualifying low-cost residential unit disposed of by you to your employee for an interest-free loan
on a non-profit basis, 10% of the amount of the loan outstanding at the end of each tax year (for the first
ten years after the disposal of the unit to the employee) (see 10.20).
Lessor’s special allowance (s 11( h))
(7) If a premium paid by your lessee is included in your income (see 8.2), on application to SARS
a special allowance may be made to you in limited circumstances, for example, when you are subletting a
property that you have hired from its owner for which you yourself paid a premium to the owner.
Lessor’s special allowance (s 11( h))
(8) If the value of improvements to land or buildings compulsorily effected by your lessee is included in
your income (see 8.2), on application to the Commissioner for SARS a special allowance may be made to
you in view of the fact that you will not enjoy the free use of the improvements until the end of the lease.
This allowance will ordinarily be an amount required to reduce the value of the improvements to their
present value, calculated at 6% over the period of the lease taken into account in the determination of
the deduction allowed to the tenant for the erection of the improvements (see 10.41). This allowance is
unavailable when there is a special relationship between you and your lessee.
Pre-trade expenditure and losses (s 11A)

(9) The qualifying and not otherwise deductible expenditure and losses you actually incurred before the
commencement of and in preparation for carrying on your trade (see 10.14) of letting property that
would have been allowed as a deduction had these been incurred by you after you commenced carrying
on that trade. This deduction may not create or increase your assessed loss, despite the usual rules
governing assessed losses (see 14.4).
Urban development zones (s 13 quat)
(10) The 20% initial and then 8% annual allowance on the qualifying cost of the erection, extension,
addition or improvement of a commercial or residential building within an urban development zone to
be used solely for purposes of your trade (see 10.22).
(11) The 20% initial and then 20% annual allowance on the qualifying cost of the improvement of any
existing building or part of a building that is a commercial or residential building within an urban
development zone to be used solely for purposes of your trade, including an extension or addition that is
incidental to that improvement, should its existing structural or exterior framework be preserved (see
10.22).
Urban development zones (s 13 quin)
(12) The 5% annual allowance on the qualifying cost to you of a new or unused building owned by you
or of new or unused improvements to a building owned by you if the building is or the improvements
are wholly or mainly used by you to produce income in the course of your trade, other than the
provision of residential accommodation (see 10.19).
Industrial policy projects (s 12I)
(13) A 55% additional investment allowance on new and unused buildings constituting ‘manufacturing
assets’ used in a qualifying industrial policy project with preferred status, increased to 100% if the
project is located within an industrial development zone, and a 35% additional investment allowance for
such buildings used in any other qualifying industrial policy project, increased to 75% if it is located
within an industrial development zone (see 10.33).
Special economic zones (ss 12R, 12S)
(14) An allowance to a ‘qualifying company’ of 10% of the cost to it of new and unused buildings and
improvements owned by the company and used by it wholly or mainly for the purpose of producing
income within a special economic zone (see 10.33).
Leasehold improvements (s 11( g))
(15) The allowance available to a tenant who effects improvements in terms of a lease is dealt with in
10.41.
Environmental matters (ss 12L, 37B, 37C, 37D)
(16) A special deduction for qualifying expenditure incurred to conserve or maintain qualifying land
(see 10.31).
Mining operators’ capital expenditure (ss 15, 36)

(17) The deduction allowed to taxpayers carrying on mining operations for housing for residential
occupation by their employees (other than housing intended for sale), hospitals, schools, shops and
similar amenities (see 16.20).
Improvements to government-occupied property (s 12NA)
(18) A special allowance for obligatory expenditure incurred by a person to effect improvements to land
or buildings occupied by the national or a provincial or local government under a Public Private
Partnership; such expenditure being written off over the period of the agreement or 25 years, whichever
is shorter (see 10.68).
Environmental roads and fences (s 12U)
(19) A special deduction for roads and fences constructed for the purpose of the production of
renewable energy (see 10.31).
Self-occupation of property let (ss 11( a), 20A, 23( c)) When you, yourself, live in a part of the
premises you let to others or allow anyone to live in a part of the premises rent-free, you may not deduct
the full amount of your expenditure from your income.
Instead, you must reduce the amount of the expenditure that you claim by some reasonable
proportion in acknowledgement of the fact that the premises were not wholly used to produce income.
You may calculate this proportion as being, for example:
Area (or rooms) used by you or rent free by others × Deductions
Total area (or rooms)
You may not claim any deductions for idle or vacant property that you do not attempt to let during the
tax year but, if the property remains unlet because, despite your efforts, you cannot find a lessee, you
may still claim deductions.
You may also not claim a deduction for any of your expenditure that will eventually be paid back to you,
for example, under an insurance claim or by the lessee. For example, the lessee may pay the costs of the
lease agreement or of repairs to the property. But this is a controversial issue.
For many years it has been the practice of the Commissioner for SARS to limit all your deductions
claimed on the letting of a single-family dwelling-unit to the rent you derive from letting such a unit and
altogether to disallow the excess of those deductions over that rent. This practice is now affected by the
rule calling for the ring-fencing of assessed losses from targeted trades, including the letting of property.
For details on this rule, see 10.72.
The Commissioner for SARS’s decision on certain of these matters is subject to objection and appeal (see
18.6).
8.4 Leased property – lessor’s limitation s
23A
There is a limit to the amount that you, as a lessor, may deduct in any tax year by way of ‘50/30/20’
depreciation (see 10.69), 20% or 33,33% straight-line depreciation (see 10.63), ordinary depreciation
(see 10.27) and scrapping allowances (see 10.58) on ‘affected assets’.
The total of these deductions that you may claim in a particular tax year on affected assets let by you is
limited to the taxable income (see 1.3) as calculated before these deductions derived by you during that
tax year from ‘rental income’. And, to the extent that these deductions exceed your taxable income from
rental income for the tax year, they must be carried forward to the next tax year for deduction, under the
same rule, in that year.
In the determination of your taxable income from rental income, you must make an appropriate
apportionment of any deductions relating to both your rental income and your other income.
‘Rental income’ is income you derive by way of rent from the letting of an ‘affected asset’ for which
ordinary depreciation, 50/30/20 depreciation, 20%, or 33,33% or straight-line depreciation,
40/20/20/20 depreciation, the deduction for rolling stock or the deductions for environmental
treatment and recycling asset has been granted in the current or a previous tax year, and includes an
amount included in your income as a recoupment of an amount deducted in any tax year on an affected
asset and an amount derived from the disposal of an affected asset.
An ‘affected asset’ is any machinery, plant, implement, utensil, article, aircraft or ship that you have let
for which you are or were entitled to ordinary depreciation, 50/30/20 depreciation, 20%
or 33,33% straight-line depreciation, the deduction for rolling stock or the deduction for environmental
expenditure, either in the current or a previous tax year. Also an ‘affected asset’ is machinery or plant
that you have let for which you were entitled to an investment or initial allowance. And a third category
of ‘affected asset’ is an aircraft that you have let for which you are or were entitled to an initial allowance
or annual allowance (see 16.1).
Altogether excluded from ‘affected assets’ are:
• Any asset mainly used by you during the tax year in some trade other than the letting of that asset.
• Any asset let by you under an ‘operating lease’.
An ‘operating lease’ is a lease of movable property concluded by a lessor in the ordinary course of a
business – but not a banking, financial services or insurance business – of letting movable property if:
• the property may be hired by the general public directly from that lessor under that lease for less than
one month;
• the cost of maintaining and repairing it in order to counter normal wear-and-tear is borne by the
lessor; and
• the risk of destruction or loss of or other disadvantage to the property is not assumed by the lessee,
except for any claim that may be made against the it if it fails to take proper care of the property.
8.5 Lease-backs
ss 23D, 23G, 24J
Lease-backs (s 23D)
A special rule applies to so-called lease-backs, governing the allowances to which the lessor or licensor is
entitled on a depreciable asset (see 10.7).
It applies to a taxpayer, the lessor or licensor, that has let or licensed a depreciable asset to a lessee or
licensee, when the lessee or licensee or the lessee’s or licensee’s connected person (see 10.27) or a sub-
lessee or sub-licensee or the sub-lessee’s or sub-licensee’s connected person had held (owned) the
depreciable asset within a period of two years preceding the commencement of the lease or licence.
Should this special rule apply, the cost or value of the depreciable asset and any deduction or allowance
that the lessor or licensor is eligible to claim is required to be calculated on a maximum of the sum of the
following amounts:
(1) The cost of the asset to the most recent lessee, licensee, connected person, sub-lessee or sub-licensee
or connected person, less the sum of:
• all deductions that have been allowed to the lessee, licensee, sub-lessee, sub-licensee or connected
person on the asset; and
• all deductions that are deemed to have been allowed to the lessee, licensee, sub-lessee, sub-licensee or
connected person on the asset under the relevant rule that applies to an asset used by the taxpayer in a
previous financial year or previous financial years for the purposes of a trade carried on by him or her
that did not generate receipts or accrual that were required to be included in his or her income during
those years (see 10.15, 10.18, 10.19, 10.21, 10.27, 10.31, 10.48, 10.57, 10.63, 10.69 and 16.10).
(2) Amounts that are required to be included in the gross income (see 1.1) of the lessee, licensee, sub-
lessee, sub-licensee or connected person as a result of the disposal of the asset.
(3) The applicable percentage of a capital gain of the lessee, licensee, sub-lessor, sub-licensee or
connected person arising as a result of the disposal of the asset (see Chapter 21).
Sale-and-lease-back arrangements (s 23G)
Then there is an entirely different rule applying to a ‘sale-and-lease-back arrangement’. This is an

arrangement under which one person directly or indirectly disposes of an ‘asset’ to a second person and
then directly or indirectly hires that asset from the second person, or under which the first person’s
connected person (see 10.26) so hires it. The type of ‘asset’ envisaged may be movable or immovable,
corporeal or incorporeal. The parties involved are the lessor – who acquired the asset – and the lessee –
who disposed of it and then hired it back – or the sub-lessee.
• When the lessee’s or the sub-lessee’s receipts or accruals do not constitute income (see 1.2), for
example, it is an exempt institution such as a pension fund:
The amount regarded as being derived by the lessor will be limited to the interest component (see 7.8)
of the actual amount the lessor derived, but not if, during the tax year, the lessor is also a lessee under
the same sale and lease-back arrangement. In addition, the lessor is debarred from claiming the
following allowances on the asset: the ordinary depreciation allowance (see 10.27); the allowance for
premiums paid on leasehold property (see 10.42); the allowance for patents and similar property (see
10.35); what remains of ‘50/30/20’ depreciation (see 10.69); the 20% or 33,33% straight-line
depreciation allowance (see 10.63); the allowance for rolling stock (see 10.57); the allowance on
industrial or other qualifying buildings (see 10.18) and the allowance for commercial buildings (see
10.19).
• When the lessor’s receipts or accruals do not constitute income:
The lessee’s or sub-lessee’s deductions will be limited to the interest component (see 7.8) of the actual
amount the lessee or sub-lessee paid. But when what is involved is a premium paid on leasehold
property (see 10.42), the rules governing the allowance for such a premium take precedence. (The result
intended is unclear).
The interest component of a sale and lease-back arrangement is dealt with in exactly the same way as is
the interest component of an income instrument or an instrument (see 7.8). The result is that interest
earnings and interest outlays are computed on a day-to-day basis over the entire period of the
investment. And for this purpose ‘interest’ is defined as the absolute value of the difference between all
amounts receivable and payable by a person under a sale and lease-back arrangement to which that
person is a party throughout the full term of the arrangement.
But a sale and lease-back arrangement will be treated in this manner only if one of the parties derives
receipts or accruals that do not constitute income. (In ‘normal’ lease-backs the lessee pays rent and the
lessor derives rent and claims allowances).
Income from dividends
9.1 How dividends are taxed
ss 1, 8(4)( k),
10(1)( k), 22(8)
A distinction has to be made between domestic dividends, which are generally not subject to income tax,
being exempt, whether they are derived by an individual or by a company, close corporation or trust,
and foreign dividends (see 9.4), which are generally taxable, although some foreign dividends, too, are
exempt (see 9.4). While all dividends are declared by companies (see 14.1), foreign dividends are
declared by foreign companies (see 15.2), which are a special class of company.
The withholding tax on dividends is a separate, stand-alone tax. It is dealt with in 9.5.
First step – include all dividends (‘gross income’)
The taxation of dividends is developed in a curious manner, starting with the inclusion in your gross
income (see 1.1) of any amount you derive by way of dividends.
Thanks to the definitions of the words ‘dividend’ (see 9.3) and ‘foreign dividend’ (see 9.4), what are
included in your gross income at this stage are all of your dividends, both domestic and foreign.
Second step – exclude all local dividends (s 10(1)( k)(i)) Next is the all-important, general exemption
from income tax of dividends, which baldly exempts all dividends you derive other than dividends paid
or declared by a headquarter company (see 16.37), which enjoy separate treatment. At this intermediate
stage, therefore, your dividends are exempt.
Third step – add back taxable domestic dividends (s 10(1)( k)(i)) But such simplicity would be too
good to be true, and, in the third step, a list of local dividends and amounts is excluded from the
exemption. What you are left with is a list of dividends that are not exempt and are therefore left caught
up in your gross income and thus in your income (see 1.3), and are therefore taxable:
Dividends from a REIT (s 10(1)(k)(i)(aa))
(1) Dividends distributed by a company that is a REIT (see 16.30) or a REIT’s controlled company (see
16.30). Such dividends remain in your gross income and are thus taxable.
But such dividends distributed to a non-resident remain exempt and so are free from income tax.
Also remaining exempt and so free from income tax are such dividends taking the form of a share buy-
back (see 9.2), whether distributed to residents or non-residents.
Dividends on a restricted equity instrument (s 10(1)(k)(i)(dd))
(2) Dividends on a ‘restricted equity instrument’ (see 5.3), to the extent that they were acquired in the
circumstances described in 5.3. These are shares awarded in share-incentive schemes to employees and
directors. Such dividends remain in your gross income and are thus taxable.
But dividends on a restricted equity instrument constituting an ‘equity share’ (see 14.7) remain exempt
and so are free from income tax. Excluded from this concession and so taxable are dividends on a
restricted equity instrument constituting an equity share that would have constituted a 101
102 INCOME FROM DIVIDENDS
‘hybrid equity instrument’ (see 7.5) but for the three-year period requirement in the definition of
‘hybrid equity instrument’.
And dividends on a restricted equity instrument themselves constituting ‘equity instruments’ (see 5.3)
remain exempt and so are free from income tax.
And dividends on a restricted equity instrument constituting an interest in a trust (see 11.4) holding
shares, all of which constitute equity shares remain exempt and so are free from income tax. Excluded
from this concession and so taxable are dividends from a trust whose equity shares would have
constituted a ‘hybrid equity instrument’ but for the three-year period requirement in the definition of
‘hybrid equity instrument’.
Dividends derived by company by cession or from a discretionary trust (s 10(1)(k)(i)(ee)) (3) Dividends
received by or accrued to a company in consequence of a cession of the right to the dividend or the
exercise of a discretionary power by a trustee of a trust. Such dividends remain in the company’s gross
income and are thus taxable.
But, should the cession or exercise result in the holding by the company of all of the rights attaching to a
share, the dividends remain exempt and so are free from income tax.
Dividends derived by company on borrowed shares (s 10(1)(k)(i)(ff)) (4) Dividends received by or accrued
to a company on a share borrowed by it. Such dividends remain in the company’s gross income and are
thus taxable.
Dividends derived by company on borrowed shares (s 10(1)(k)(i)(gg)) (5) Dividends received by or

accrued to a company on a share held by it, to the extent that the aggregate of the dividends does not
exceed an amount equal to the aggregate of amounts incurred by the company as compensation for
distributions on another share borrowed by it when the share borrowed and the share held are identical
shares (see 10.66). Such dividends remain in the company’s gross income and are thus taxable. When
the company borrowing the share has lent out another share that is an identical share to the borrowed
share the aggregate amount incurred must be reduced by the amount accrued to the company as
compensation for any distribution on the lent share.
But dividends received by or accrued to a company on a share borrowed by it must be dealt with
exclusively under the immediately preceding item in this list.
Dividends derived by company on shares marked to market (s 10(1)(k)(i)(hh)) (6) Dividends received by
or accrued to a company on a share, to the extent that the aggregate of those dividends does not exceed
an amount equal to the aggregate of any deductible expenditure incurred by the company or an amount
taken into account that has the effect of reducing income in the application of the provision dealing with
the fair value taxation of financial instruments (see 10.76), and the amount of that expenditure or
reduction is determined directly or indirectly with reference to the dividend on an identical share (see
10.66) to that share. Such dividends remain in the company’s gross income and are thus taxable. The
deductible expenditure or amount of the reduction must be reduced by the amount of income accrued to
the company on any distribution on any other share that is an identical share to the share in question.
Dividends derived for services rendered (s 10(1)(k)(i)(ii))
(7) Dividends received by or accrued to a person for services rendered or to be rendered or in respect of
or by virtue of employment or the holding of an office. Such dividends remain in the person’s gross
income and are thus taxable.
INCOME FROM DIVIDENDS 103
But dividends received or accrued on a restricted equity instrument (see 5.3) held (owned) by the
person are dealt with in the manner described earlier in this list, while dividends received or accrued on
a share held (owned) by the person remain exempt and so are free from income tax.
Dividends derived on a restricted equity instrument (s 10(1)(k)(i)(jj)) (8) Dividends on a ‘restricted equity
instrument’ (see 5.3) acquired in the circumstances described in 5.3, if the dividend constitutes an
amount transferred or applied by a company as consideration for the acquisition or redemption of a
share in that company, an amount received or accrued in anticipation or in the course of the winding-up,
liquidation, deregistration or final termination of a company, or an ‘equity instrument’ (see 5.3) that
does not qualify at the time of the receipt or accrual of the dividend as a restricted equity instrument.
Such dividends remain in the person’s gross income and are thus taxable. This rule overrides the earlier
items in this list dealing with restricted equity instruments.
Dividends derived on a restricted equity instrument (s 10(1)(k)(i)(kk)) (9) Dividends on a ‘restricted

equity instrument’ (see 5.3) acquired in the circumstances described in 5.3, if the dividend is derived
directly or indirectly from an amount transferred or applied by a company as consideration for the
acquisition or redemption of a share in that company or an amount received or accrued in anticipation
or in the course of the winding-up, liquidation, deregistration or final termination of a company. Such
dividends remain in the person’s gross income and are thus taxable. This rule overrides the earlier items
in this list dealing with restricted equity instruments.
Special circumstances (ss 8(4)( k), 22(8))
A distribution by a company or close corporation not qualifying as a dividend will not enjoy the tax-free
status of many dividends and might be taxable, on general principles, whether under the capital gains
tax or, if you are a trader in shares, under the general rules of taxation applying to business.
A company transferring an asset to a shareholder in whatever manner or form, including by way of a

dividend, is in qualifying circumstances required to include in its income an amount equal to the current
market value of the asset (see 10.7).
A company distributing trading stock to a shareholder by way of a dividend or in other targeted ways is
in qualifying circumstances required to include in its income an amount equal to the current market
value of the stock (see 10.66).
9.2 Dividends as income and interest as dividends
ss 8E, 8EA, 8F, 8FA, 22B

Hybrid equity instruments (s 8E)
The dividends (see 9.3) or foreign dividends (see 9.4) derived by you during a tax year on a share (see
9.3) or an equity instrument (see 5.3) are deemed to be income (see 1.1) accruing to you if the share or
equity instrument (see 7.5) constitutes a hybrid equity instrument (see 7.5) at any time during that tax
year. In other words, the dividends or foreign dividends are treated as if they were interest.
This rule is dealt with in 7.5.
Third-party backed shares (s 8EA)
The dividends (see 9.3) or foreign dividends (see 9.4) derived by you during a tax year on a share (see
9.3) or an equity instrument (see 5.3), will, as far as you alone are concerned, be deemed to be an
amount of income (see 1.1) derived by you if it constitutes a third-party backed share (see 7.6)
at any time during that year. In other words, the dividends or foreign dividends are treated as if they
were interest. This rule is dealt with in 7.6.
Interest on hybrid debt instrument treated as dividend in specie (s 8F) Interest incurred by a
company on or after the date the instrument (see 7.5) becomes a hybrid debt instrument (see 7.5) is
deemed to be a dividend in specie on a share (see 9.3) declared and paid by the company to the person to
whom it accrued on the last day of the company’s tax year during which it was incurred, and is not
deductible by the company. This rule is dealt with in 7.5.
Hybrid interest treated as dividend in specie (s 8FA) Interest incurred by a company on or after the
date the interest concerned becomes a ‘hybrid interest’ is deemed to be a dividend in specie on a share
(see 9.3) declared and paid by the company to the person to whom it accrued on the last day of the
company’s tax year during which it was incurred, and is not deductible by the company.
This rule does not apply to interest owed on:
• A debt owed by a small business corporation (see 16.33).
• An instrument constituting a tier 1 or tier 2 capital instrument referred to in the relevant regulations
issued under the Banks Act 94 of 1990 issued by a ‘bank’ as defined in that Act or by such a bank’s
controlling company.
• An instrument of any class subject to approval under the Short-term Insurance Act 53 of 1998 or the
Long-term Insurance Act 52 of 1998 when the amount is owed on an instrument by a short-term insurer
or long-term insurer.
• An instrument constituting a linked unit (see 16.30) in a company when the linked unit is held by a
long-term insurer, a pension fund, a provident fund, a REIT or a short-term insurer holding at least 20%
of the linked units in the company that were acquired before 1 January 2013, and, at the end of the
previous year of assessment, 80% or more of the value of the assets of the company, 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.
(Not applicable as from 1 January 2019.)
• An instrument constituting a third-party backed instrument (see 7.5).

Definitions
‘Hybrid interest’ in relation to a debt owed by a company under an instrument is interest whose
amount is not determined with reference to a specified rate of interest or not determined with reference
to the time value of money. Alternatively, if the rate of interest has under the instrument been raised by
reason of an increase in the company’s profits, it is so much of the amount of interest that has been
determined with reference to the raised rate of interest as exceeds the amount of interest that would
have been determined with reference to the lowest rate of interest under the instrument during the
current tax year of assessment and the previous five tax years.
An ‘instrument’ is any form of interest-bearing arrangement or debt issued by:
• a resident company;
• a non-resident company, if the interest on the instrument is attributable to a permanent establishment

(see 10.74) of the company in South Africa; or
• a company that is a controlled foreign company (see 15.2), if the interest on the instrument is taken
into account in the determination of its net income.
‘Interest’ is interest as computed on a day-to-day basis over the period of the investment (see 7.8).
‘Issue’, in relation to an instrument, is the creation of a liability to pay or a right to receive an amount
under the instrument.
Dividends treated as income (s 22B)
This rule applies when a company holds shares (see 9.3) in another company and disposes of any of
those shares under a transaction (but not under a ‘deferral transaction’) and that company held a
‘qualifying interest’ in the other company at any time during the period of 18 months before the
disposal, as long as the company immediately before the disposal held the shares disposed of as trading
stock (see 10.66). The amount of an ‘exempt dividend’ derived by the company on the shares disposed
of must be included in its income (see 1.1) in the tax year in which the shares are disposed of or, if the
dividend is derived after that tax year, in the tax year in which the dividend is derived, to the extent that
the exempt dividend constitutes an ‘extraordinary dividend’.
From 20 February 2019: But if the disposal was previously treated as having been disposed of (see
immediately below), the extraordinary dividend concerned must be included in the company’s income
only to the extent it was not previously so included.
Special consequences arise when a company holds shares in another company and disposes of any of
those shares under a transaction that is not a deferral transaction within eighteen months after having
acquired them under a deferral transaction (unless it was an unbundling transaction –
see 22.6 – in which event no special consequences arise):
• Within eighteen months before the disposal an exempt dividend was derived on the shares by a person
who was the company’s connected person (see 10.27) at any time within that period, who disposed of
them under a deferral transaction. For the purposes only of the dividends-treated-as-income rule, the
dividend must be treated as a dividend derived by the company on the shares within the period during
which it held them.
• The company acquired the shares (the new shares) under the deferral transaction in return for or by
virtue of its holding of other shares (the old shares) that were disposed of under the deferral
transaction, and an exempt dividend on the old shares (unless it was a dividend consisting of new
shares) was derived by the company within a period of eighteen months before its disposal of the new
shares. For the purposes only of the dividends-treated-as-income rule, the dividend must be treated as
an amount derived by the company as an exempt dividend on the new shares.
From 20 February 2019: And a special rule applies when a company holds equity shares (see 14.7) in
another company (the target company) and the target company issues shares (the new shares) to a
person other than the company and the effective interest of the company in the target company’s equity
shares is reduced as a result. For the purposes of this rule only, the company is treated as having made a
disposal of shares immediately after the issue of the new shares by the target company. What it is
deemed to have disposed of is a percentage of the equity shares equal to the percentage by which its
effective interest in the target company’s equity shares has been reduced as a result of the target
company’s issue of the new shares. New shares convertible to equity shares are for this purpose treated
as equity shares.
Definitions
A ‘deferral transaction’ is a transaction subject to one of the corporate restructuring reliefs (see
Chapter 22).
An ‘exempt dividend’ is a dividend (see 9.3) or foreign dividend (see 9.4), to the extent that it is not
subject to the dividends tax (see 9.5), and is exempt from income tax in the circumstances described in
9.1 or in qualifying circumstances described in 9.4.
In relation to a preference share, an ‘extraordinary dividend’ is so much of the dividend derived on the
share as exceeds the amount that would have been derived had the dividend been determined at 15% a
year on the issue consideration over the period the dividend was actually derived.
In relation to any other share, an ‘extraordinary dividend’ is so much of the dividend derived within a
period of eighteen months before its disposal or in respect, by reason or in consequence of its disposal
as exceeds 15% of the higher of ( a) its market value as at the beginning of the eighteen-month period
and ( b) as at the date of its disposal.
From 30 October 2019: A dividend in specie distributed under a deferral transaction is excluded to the
extent that the distribution was made under an unbundling transaction (see 22.6) or a liquidation
distribution (see 22.8).
A ‘qualifying interest’ is an interest held (owned) by a company in another company, the target
company, whether alone or together with its connected persons (see 10.27), constituting:
• If the target company is a listed company (see 7.10), at least 10% of the equity shares (see 14.7) or
voting rights in the target company.
• If the target company is not a listed company, at least 50% of the equity shares or voting rights in the
target company; or, if no other person (whether alone or together with a connected person) holds the
majority of the equity shares or voting rights in the target company, 20% of the equity shares or voting
rights in the target company.
9.3 What is a ‘dividend’ for tax purposes? s
Because dividends are not generally subject to income tax but sometimes are (see 9.1), are sometimes
exempt if they constitute foreign dividends (see 9.4), and are sometimes subject to the withholding tax
on dividends (see 9.5), it is important to know what constitutes an actual ‘dividend’ for tax purposes.
A ‘dividend’ is an amount transferred or applied by a company (see 14.1) that is a resident (see 1.1) for
the benefit or on behalf of a person on a ‘share’ in the company, whether the amount is transferred or
applied by way of a distribution made by or as consideration for the acquisition of a share in the
company (a share buy-back). Excluded (and so not dividends) are amounts so transferred or applied to
the extent that the amount transferred or applied:
• Results in a reduction of the company’s ‘contributed tax capital’.
• Constitutes shares in the company (the issue of capitalization shares).
• Constitutes an acquisition by the company of its own securities (a share buy-back) by way of a general
repurchase of securities under the JSE Limited Listings Requirements, as long as the applicable
requirements are satisfied, or a general repurchase of securities (a share buy-back) under the listings
requirements of any other exchange licensed under the Financial Markets Act 19 of 2012 that are
substantially the same as the requirements under the JSE Limited Listings Requirements, as long as the
applicable requirements are satisfied.
Also excluded is a deemed dividend consisting of a distribution of an asset in specie declared and paid in
the manner envisaged in the transfer-pricing rules (see 18.9).
Thus the normal distribution by a company of a dividend on ordinary or preference shares will be
regarded as a dividend. In a close corporation, it will be a distribution to the members of the
corporation. Distributions of both realized and unrealized profits are included, regardless whether those
unrealized profits have been recognized in the company’s financial records.
A ‘share’, in relation to a company, is any unit into which the proprietary interest in the company is
divided.
‘Contributed tax capital’ is a hugely complicated concept, applying to each class of shares in a
company, and depending upon whether the company concerned is an ordinary company (see 14.1) of a
foreign company (see 15.2):
Companies:
The stated capital or share capital and share premium of the company immediately before 1 January
2011 in relation to its shares that class issued by it before that date.
Less: So much of the stated capital or share capital and share premium as would have constituted a
‘dividend’ as defined before that date had the stated capital or share capital and share premium been
distributed by that company immediately before that date.
Plus: The consideration derived by the company for the issue of shares of that class on or after 1 January
2011.
Plus: If the shares of that class include or consist of shares converted from another class of the
company’s shares company to that class of shares, any consideration derived by the company upon the
conversion, as well as an amount determined (see below) for shares of another class of shares that were
so converted.
Less: So much of the total so far as the company has transferred on or after 1 January 2011
for the benefit of persons holding shares in the company of that class on those shares.
Less: So much of the total so far as the company has by the date of the transfer been determined by its
directors or by some other person or body of persons with comparable authority to be an amount so
transferred.
Less: For a convertible class of shares, some of which have been converted to another class of shares, so
much of the total so far relating to that convertible class of shares immediately before the conversion as
bears to that amount the same ratio as the number of shares so converted bears to the total number of
that convertible class of shares before the conversion.
Rider: The amount transferred by a company for the benefit of a person holding shares of any class of its
shares must not exceed an amount bearing to the total of the amount of contributed tax capital
attributable to that class of shares immediately before the transfer the same ratio as the number of
shares of that class held by that person bears to the total number of shares of that class.
• Foreign companies becoming a resident (see 1.1) on or after 1 January 2011: The market value of all
the company’s shares of that class immediately before the date on which it becomes a resident.
Plus: The consideration derived by the company for the issue of shares of that class on or after the date
on which it becomes a resident.
Plus: If the shares of that class include or consist of shares converted from another class of the
company’s shares to that class of shares, any consideration derived by the company upon the
conversion, as well as an amount determined (see below) for shares of another class of shares that were
so converted.
Less: So much of the total so far as the company has transferred on or after the date on which the
company becomes a resident for the benefit of persons holding shares in the company of that class on
those shares.
Less: So much of the total so far as the company has by the date of the transfer been determined by its
directors or some other person or body of persons with comparable authority to be an amount so
transferred.
Less: For a convertible class of shares, some of which have been converted to another class of shares, so
much of the total so far relating to that convertible class of shares immediately before the conversion as
bears to that amount the same ratio as the number of shares so converted bears to the total number of
that convertible class of shares before the conversion.
Rider: The amount transferred by a company for the benefit of a person holding shares of any class of its
shares must not exceed an amount bearing to the total of the amount of contributed tax capital
attributable to that class of shares immediately before the transfer the same ratio as the number of
shares of that class held by that person bears to the total number of shares of that class.
9.4 Foreign
dividends
ss 1, 10B
Strangely, all dividends are included in your gross income (see 1.1), although almost all domestic
dividends are exempt from income tax (see 9.1). But, as a resident (see 1.1), the ‘foreign dividends’ you
derive will not only be included in your gross income but will, subject to the inevitable exceptions, be
taxable, not being eligible for any exemption. Other foreign dividends will be exempt and so free of
income tax, although your possible liability for capital gains tax might then have to be considered (see
21.4) or, if you are a trader in shares, under the general rules of taxation applying to business (see
Chapter 10).
Also generally not exempt from taxation are dividends paid or declared by a headquarter company,
subject to the exceptions detailed below.
A ‘foreign dividend’ is an amount paid or payable by a foreign company (see 15.2) on a share (see 9.2)
in that foreign company when that amount is treated as a dividend or similar payment by the foreign
company for the purposes of the laws relating to tax on income of companies of the country in which the
foreign company has its place of effective management (see 1.1) or the laws relating to companies of the
country in which that foreign company is incorporated, formed or established when the country in
which the foreign company has its place of effective management does not have any applicable laws
relating to tax on income. But it does not include:
• An amount so paid or payable constituting a redemption of a participatory interest in a collective

investment scheme in securities (unit trust).
• An amount so paid or payable constituting a share in the foreign company (a capitalization issue).
The general rule, then, is that, as a resident, you must include in your gross income for a particular tax
year an amount arising from the taxable foreign dividends you have derived during that year.
The foreign dividends described next will be exempt and so excluded from your income (see 1.1) and
hence tax free.
Exempt foreign dividends and dividends paid or declared by headquarter companies (ss 1,
10B(1), (2), (4), (5))
For this purpose, a ‘foreign dividend’ is a ‘foreign dividend’ as ordinarily defined (see above) as well as
a dividend paid or declared by a headquarter company (see 16.37).
(1) A foreign dividend is exempt if it is derived by a person holding (owning) at least 10% of the total
equity shares (see 14.7) and voting rights in the company declaring the foreign dividend. The person
may hold the shares and rights either alone or together with another company forming part of the same
group of companies (see 14.1) to which the person belongs.
This first exemption does not apply to a foreign dividend, to the extent that it is deductible by the foreign
company declaring or paying it in the determination of the tax on income of companies of the country in
which the foreign company has its place of effective management. It also does not apply to foreign
dividends derived by a person on a share other than an equity share.
It also does not apply to a foreign dividend derived by a person if an amount of the foreign dividend is
determined directly or indirectly with reference to, or the foreign dividend arises directly or indirectly
from, an amount paid or payable by any person to any other person, and the amount so paid or payable
is deductible from the income (see 1.1) of the person by whom it is paid or payable and is not subject to
normal tax (see 1.2) in the hands of the other person and, when the other person is a controlled foreign
company (CFC) (see 15.2), is not taken into account in the determination of the CFC’s net income, unless
the amount paid or payable is paid or payable as consideration for the purchase of trading stock by the
person concerned.
It also does not apply to foreign dividends received by or accrued to a person from a targeted portfolio
comprised in any investment scheme carried on outside South Africa.
(2) A foreign dividend is exempt if it is derived by a foreign company, as long as the foreign dividend is
paid or declared by another foreign company that is resident in the same country as the first company.
This second exemption does not apply to a foreign dividend to the extent that it is deductible by the
foreign company declaring or paying it in the determination of the tax on income of companies of the
country in which the foreign company has its place of effective management.
It also does not apply to a foreign dividend derived by a person if an amount of the foreign dividend is
determined directly or indirectly with reference to, or the foreign dividend arises directly or indirectly
from, an amount paid or payable by any person to any other person, and the amount so paid or payable
is deductible from the income (see 1.1) of the person by whom it is paid or payable and is not subject to
normal tax (see 1.2) in the hands of the other person and, when the other person is a controlled foreign
company (CFC) (see 15.2), is not taken into account in the determination of the CFC’s net income, unless
the amount paid or payable is paid or payable as consideration for the purchase of trading stock by the
person concerned.
It also does not apply to foreign dividends received by or accrued to a person from a targeted portfolio
comprised in any investment scheme carried on outside South Africa.
(3) A foreign dividend is exempt if it is derived by a resident, to the extent that the foreign dividend does
not exceed the aggregate of all amounts that have been or will be included in the resident’s income
under the controlled foreign company (CFC) rules (see 15.2) relating to the net income (see 15.2) of ( a)
the company declaring the foreign dividend, or ( b) any other company, that has been included in the
resident’s income under the CFC rules by virtue of the resident’s participation rights (see 15.2) in the
other company held indirectly through the company declaring the foreign dividend. The aggregate of all
such amounts must be reduced by the amount of foreign tax payable on the amounts so included in the
resident’s income. And it must also be reduced by so much of all foreign dividends derived by the
resident at any time from ( a) the company declaring the foreign dividend, or ( b) any other company,
that has been included in the resident’s income under the CFC rules by virtue of the resident’s
participation rights in the other company held indirectly through the company declaring the foreign
dividend, as was exempt from tax under the first, fourth or fifth of the exemptions listed here, or
previously not included in the resident’s income by virtue of any previous inclusion under the CFC rules.
For the purposes of this third exemption, the net income of a company referred to here (‘( a)’ and
‘( b)’) must be determined without regard to the formulaic exemption dealt with below.
Essentially, what you are meant to do to keep track of these exemptions is maintain running totals
relating to a particular CFC, both of your inclusions in income on account of its net income, and of the
foreign dividends you derive from it. For as long as the total of your foreign dividends from it is less than
the total of the inclusions you are required to make, the foreign dividends you derive will be exempt. The
idea is that, if you have already included part of your CFC’s net income, you should not again have to pay
tax on the foreign dividends you derive from it. Your running total of inclusions must be reduced by the
foreign tax payable on those inclusions. It must also be reduced by so much of all the foreign dividends
you derived at any time from your CFC that was exempt under the identified exemptions or was
previously not included in your income on account of having been previously included in your income
under the CFC rules.
(4) A foreign dividend is exempt if it is derived by a person, to the extent that the foreign dividend is
derived by the person on a ‘listed share’ and does not consist of a distribution of an asset in specie. In
other words, it is a cash foreign dividend on a listed share.
(5) A foreign dividend is exempt if it is derived by a person, to the extent that the foreign dividend is
derived by a resident company on a listed share and consists of the distribution of an asset in specie. In
other words, it is dividend in kind on a listed share.
None of these exemptions from tax apply to a portion of an annuity or extend to payments out of a
foreign dividend derived by a person.
A ‘listed share’ is a share that is listed on an ‘exchange’ as defined in the Financial Markets Act 19 of
2012 and licensed under that Act.
Additional exemption (s 10B(3), (5))
Apart from the five exemptions provided for above, there is an additional exemption from normal tax for
so much of the amount of the aggregate of any foreign dividends derived by a person during a tax year as
is not exempt from normal tax under the above exemptions for that tax year and does not during the tax
year exceed an amount determined in accordance with the following formula: A = B × C
in which formula:
• ‘A’ represents the amount to be exempted for a tax year;
• ‘B’
represents:
– when the person is a natural person, deceased estate, insolvent estate or trust, the ratio of the number
25 to the number 45;
– when the person is a person other than a natural person, deceased estate, insolvent estate or trust or
an insurer in respect of its company policyholder fund, corporate fund and risk policy fund, the ratio of
the number 8 to the number 28; or
– when the person is an insurer in respect of its individual policyholder fund, the ratio of the number 10
to the number 30; and
• ‘C’ represents the aggregate of foreign dividends derived by the person during a tax year that is not
exempt from normal tax under the above exemptions.
This exemption from tax does not apply to a portion of an annuity or extend to payments out of a foreign
dividend derived by a person.
The purpose of this exemption is effectively to impose upon taxable foreign dividends the same rate of
tax imposed under the dividends tax (see 9.5).
Overriding exclusion (s 10B(6))
None of the above exemptions apply to a foreign dividend derived by a person:
• On account of services rendered or to be rendered or in respect of or by virtue of employment or the

holding of any office, other than a foreign dividend in respect of a share held by that person; or
• On a restricted equity instrument (see 5.3) acquired in the circumstances described in 5.3 if the foreign
dividend is derived directly or indirectly from or constitutes ( a) an amount transferred or applied by a
company as consideration for the acquisition or redemption of a share in the company; ( b) an amount
derived in anticipation or in the course of the winding-up, liquidation, deregistration or final termination
of a company; or ( a) an equity instrument (see 5.3) not qualifying, at the time of the receipt or accrual of
the foreign dividend, as a restricted equity instrument.
Minister’s power to amend (s 10B(7))
The Minister of Finance may announce in the national annual budget that, with effect from a date or
dates mentioned in the announcement, the numbers used in the additional exemption listed above will
be altered to the extent mentioned in the announcement. If the Minister makes such an announcement,
the alteration comes into effect on the date or dates determined by the Minister in the announcement
and continues to apply for a period of twelve months from that date, subject to Parliament’s passing
legislation giving effect to the announcement within the twelve-month period.
9.5 Dividends
tax
ss
64D–64N
Levy of dividends tax (s 64E)
The dividends tax came into effect as from 1 April 2012. It is currently calculated at the rate of 20%
(15% on dividends paid before 22 February 2017) of the amount of a dividend paid by a company (see
14.1) other than a headquarter company (see 16.37). But the Minister of Finance is empowered to
announce a different rate in the national annual budget, and the date from which that different rate will
come into effect. The new rate will then apply for a period of twelve months from that date, subject to
Parliament’s passing legislation giving effect to the Minister’s announcement within the twelve-month
period.
To the extent that the dividend does not consist of a distribution of an asset in specie (it is a cash
dividend) and is declared by a listed company (see 7.10), it is deemed to be paid on the date on which it
is paid, and, if it is declared by a company that is not a listed company, it is deemed to be paid on the
earlier of the date on which it is paid or becomes due and payable.
On the other hand, if the dividend does consist of a distribution of an asset in specie (it is a dividend in
kind), it is deemed to be paid on the earlier of the date on which it is paid or becomes due and payable.
When a company declares and pays a dividend in specie consisting of a listed financial instrument (see
7.5), the amount of the dividend will be an amount equal to the ruling price of the financial instrument at
the close of business on the last business day before the date that the dividend is deemed to be paid. For
any other asset, it is an amount equal to the market value of the asset on the date that the dividend is
deemed to be paid.
When an amount of a dividend is denominated in a currency other than SA rand the amount must be
translated to the SA rand by the application of the spot rate applicable at the time the dividend is paid.
When a company or a regulated intermediary making payment of a dividend to a person withholds an

amount of dividends tax from the payment the company or regulated intermediary is, for the purposes
of the dividends tax, deemed to have paid the amount withheld to the person concerned.
Deemed-dividend for dividends tax purposes (s 64E(4))
A deemed-dividend arises when during a tax year an amount is owing under a debt to a company by:
• a resident person that is not a company and is a connected person (see 10.2.7) of the lending company;
or
• a resident person that is not a company and is a connected person of a person mentioned in the
bulleted item above.
The lending company is then deemed, for purposes only of the dividends tax, to have paid a dividend, as
long as the debt arises by virtue of a share held in the company by the person mentioned in the first
bulleted item above.
The amount of the dividend that is deemed to have been paid is deemed to consist of a distribution of an
asset in specie (a dividend in kind) and is deemed to be equal to the greater of:
• the market-related interest on the debt, less the amount of interest that is payable to the company
under the debt for the tax year; and
• nil.
The deemed-dividend is deemed to have been paid on the last day of the relevant tax year.
This deemed-dividend rule does not apply to the extent that the amount owing to a company on a debt
was deemed to be a dividend subject to the STC (see 14.11).
‘Market-related interest’ is defined for this purpose, in relation to a debt owed to a company, as the
amount of interest that would be payable to the company on the amount owing to it on the debt for a
period during a tax year if the debt had been owed for that period at the official rate of interest (see 5.4).
Liability for dividends tax (s 64EA)
The person liable for the dividends tax is
• the beneficial owner of a dividend, to the extent that the dividend does not consist of a distribution of
an asset in specie (it is a cash dividend); or
• a company that is a resident declaring and paying a dividend, to the extent that the dividend consists of
a distribution of an asset in specie (it is a dividend in kind).
Deemed beneficial owners of dividends – cessions (s 64EB(1))
When a beneficial owner entitled to derive cash dividends exempt from the dividends tax (see below)
acquires the right to a dividend on a share, including a dividend that has not yet been declared or has not
yet accrued, by way of cession and an amount of the dividend is derived by the person who acquired the
right, the person ceding the right is deemed to be the beneficial owner of the dividend. But this rule does
not apply to a cession of a share if the person to whom the rights are ceded holds all the rights attaching
to the shares after the cession.
Deemed dividends – borrowed shares (s 64EB(2))
When a person that is a company that is a resident, the government of South Africa in the national,
provincial or local sphere, an approved public benefit organization (see 16.27), a closure rehabilitation
trust (see 16.23), a qualifying exempt institution, board or body (see 16.2 and 16.9), a qualifying
retirement fund or benefit fund (see 16.5 and 16.9), a portfolio of a collective investment scheme in
securities (unit trust) (see 16.7), a person, to the extent that the dividend constitutes income (see 1.1) of
that person, a fidelity or indemnity fund (see 16.9) or a small business funding entity (see 16.3) holds a
share in a listed company (see 7.10) that was borrowed from another person or acquired under a
collateral arrangement (see 21.9) entered into with another person, and a dividend on the share is
derived by the person (the borrower), any amount paid by the borrower to the lender not exceeding the
dividend on the share is deemed to be a dividend paid by the borrower for the benefit of the lender.
Deemed dividends – cum-dividend acquisitions (s 64EB(3), (4)) When a beneficial owner entitled to
derive cash dividends exempt from the dividends tax (see below) acquires a share in a listed company
(see 7.10) (or any right in such a share) from another person, the acquisition is part of a resale
agreement between the person acquiring the share and the other person or to another company forming
part of the same group of companies (see 14.1) as the other person, and the dividend on the share is
derived by the person acquiring the share, the other person or other company is deemed to be the
beneficial owner of the dividend.
A ‘resale agreement’ in this context is the acquisition of a share by a person subject to an agreement
under which the person undertakes to dispose of that share or any other share of the same kind and of
the same or equivalent quality at a future date.
Exemption for dividends other than dividends in specie (cash dividends) (s 64F) A dividend is
exempt from the dividends tax to the extent that it does not consist of a dividend comprising a
distribution of an asset in specie if the beneficial owner is one of the following persons:
• A company that is a resident.
• The government of South Africa in the national, provincial or local sphere.
• An approved public benefit organization (see 16.27).
• A closure rehabilitation trust (see 16.23).
• Qualifying tax-exempt persons, institutions, associations, boards or bodies (see 16.2 and 16.9).
• A qualifying retirement fund or benefit fund (see 16.5 and 16.9).
• A holder of shares in a registered micro business paying that dividend, to the extent that the aggregate
amount of dividends paid by the registered micro business to all holders of shares in the registered
micro business during the tax year in which the dividend is paid does not exceed R200 000 (see 16.15).
• A small business funding entity (see 16.3).
• A person that is not a resident when the dividend is a foreign dividend paid by a non-resident listed
company.
• A person, to the extent that the dividend constitutes income (see 1.1) of that person.
• A person, to the extent that the dividend was subject to the now-defunct secondary tax on companies
(STC) (see 14.11).
• A fidelity or indemnity fund (see 16.9).
• A natural person or the deceased or insolvent estate (see 11.3) of that person on a dividend paid on a
tax-free investment (see 7.4).
A dividend paid by a REIT or its controlled company (see 16.30) and derived before 1 January 2014, to
the extent that the dividend does not consist of a dividend comprising a distribution of an asset in specie.
Exemption from and reduction of tax for dividends in specie (s 64FA) When a company declares
and pays a dividend consisting of a distribution of an asset in specie the dividend is exempt from the
dividends tax, to the extent that it constitutes a distribution of an asset in specie, as long as one of the
following requirements is satisfied:
• The person to whom the payment is made has, by the date of payment of the dividend, submitted to the
company the prescribed declaration by the beneficial owner that the portion of the dividend constituting
a distribution of an asset in specie would, if it had not constituted a distribution of an asset in specie, have
been exempt from the dividends tax under the exemptions detailed above, together with the prescribed
written undertaking forthwith to inform the company in writing should the circumstances affecting the
exemption applicable to the beneficial owner change or the beneficial owner cease to be a beneficial
owner.
• The beneficial owner forms part of the same group of companies (see 22.1) as the company that
declared the dividend.
• It is declared by a company to a natural person and constitutes the disposal of an interest in a
residence on or after 1 October 2010 and before 1 January 2013 that is exempt from the capital gains tax
(see 21.13).
• The dividend constitutes the disposal of immovable property by a share block company to a member
(see 21.12).
A company that declares and pays a dividend that consists of a distribution of an asset in specie is liable
for the dividends tax at a reduced rate in respect of the portion of the dividend that constitutes the
distribution of an asset in specie if the person to whom the payment is made has, by the date of payment
of the dividend, submitted to the company a declaration by the beneficial owner in the prescribed form
that the portion of the dividend that constitutes a distribution of an asset in specie would, if it had not
constituted a distribution of an asset in specie, have been subject to that reduced rate as a result of the
application of a double taxation agreement and a written undertaking in the prescribed form to
forthwith inform the company in writing should the circumstances affecting
the reduced rate applicable to the beneficial owner change or the beneficial owner cease to be the
beneficial owner.
Withholding of dividends tax by companies declaring and paying dividends (s 64G) A company
declaring and paying a dividend must withhold dividends tax from the payment, except to the extent
that it consists of a distribution of an asset in specie.
But it must not withhold dividends tax from the payment of the dividend if:
• The person to whom the payment is made has – by a date determined by the company, or, if it has not
determined such a date, by the date of payment of the dividend – submitted to the company the
prescribed declaration by the beneficial owner, to the effect that the dividend is exempt from the
dividends tax, together with the prescribed written undertaking forthwith to inform the company in
writing should the circumstances affecting the exemption applicable to the beneficial owner change or
the beneficial owner cease to be the beneficial owner.
• The beneficial owner forms part of the same group of companies (see 22.1) as the company that paid
the dividend.
• The payment is made to a regulated intermediary.
A company must withhold dividends tax from the payment of a dividend at a reduced rate if the person
to whom the payment is made has – by a date determined by the company, or, if the company has not
determined such a date, by the date of payment of the dividend – submitted to the company a
declaration by the beneficial owner in the prescribed form, to the effect that the dividend is subject to
that reduced rate as a result of the application of a double taxation agreement (see 18.10), together with
a written undertaking in the prescribed form forthwith to inform the company in writing should the
circumstances affecting the reduced rate applicable to the beneficial owner change or the beneficial
owner cease to be the beneficial owner.
Withholding of dividends tax by regulated intermediaries (s 64H)

A regulated intermediary paying a dividend that was declared by another person must withhold an
amount of dividends tax from the payment, except to the extent that the dividend consists of a
distribution of an asset in specie.
But a regulated intermediary must not withhold dividends tax from the payment of a dividend if the
person to whom the payment is made has – by a date determined by the regulated intermediary, or, if no
such date has been determined, by the date of payment of the dividend – submitted to the regulated
intermediary, a declaration by the beneficial owner in the prescribed form, to the effect that the
dividend is exempt from the dividends tax, or that the payment is made to a vesting trust of which the
sole beneficiary is another regulated intermediary, together with a written undertaking, in the
prescribed form, forthwith to inform the regulated intermediary in writing should the circumstances
affecting the exemption applicable to the beneficial owner change or the beneficial owner cease to be the
beneficial owner.
A regulated intermediary must also not withhold dividends tax from the payment of a dividend when the
payment is made to another regulated intermediary.
A regulated intermediary must withhold dividends tax from the payment of a dividend at a reduced rate
if the person to whom the payment is made has – by a date determined by the regulated intermediary,
or, if no such date has been determined, by the date of payment of the dividend –
submitted to the regulated intermediary a declaration by the beneficial owner in the prescribed form, to
the effect that the dividend is subject to that reduced rate as a result of the application of a double
taxation agreement (see 18.10), together with a written undertaking, in the prescribed form, forthwith
to inform the regulated intermediary in writing should the circumstances affecting the reduced rate
applicable to the beneficial owner change or the beneficial owner cease to be the beneficial owner.
Withholding of dividends tax by insurers (s 64I)
If a dividend, to the extent that it is a cash dividend, is paid to a long-term insurer under the Long-term
Insurance Act 52 of 1998, the insurer must be deemed to be a regulated intermediary, and the dividend
must, to the extent that it is allocated to its individual policyholder fund (see 16.13), be deemed to be
paid to a resident natural person by the regulated intermediary on the date that the dividend is paid to
the insurer.
Payment and recovery of tax (s 64K)
If a beneficial owner is liable for an amount of dividends tax on a dividend, the beneficial owner must
pay it to the Commissioner by the last day of the month following the month during which the dividend
is paid by the company that declared the dividend, unless the tax has been paid by another person.
If a company is liable for an amount of dividends tax on a dividend, it must pay it to the Commissioner by
the last day of the month following the month during which the dividend is paid by it.
If a person is required to withhold an amount of dividends tax on a dividend, the person must pay it, less
any amount that is refundable under the rules set out below, to the Commissioner by the last day of the
month following the month during which the dividend is paid by the person.
A person that has paid a dividend or received a dividend that is exempt or partly exempt from the
dividends tax must submit a return to the Commissioner by the last day of the month following the
month during which the dividend is paid or received, unless the dividend received is derived from a tax
free investment (see 7.4), or is received by a pension fund, pension preservation fund, provident fund,
provident preservation fund or retirement annuity fund, or a beneficiary fund under the Pension Funds
Act 24 of 1956, of which the receipts and accruals are exempt from normal tax (see 16.9).
When a person has withheld dividends tax at a reduced rate on the payment of a dividend or is a
company that was liable for dividends tax at a reduced rate on the declaration and payment of a
dividend, the person must submit to the Commissioner any declaration submitted to the person by or on
behalf of a beneficial owner and relied upon by the person in determining the amount of dividends tax
so withheld, at the time and in the manner prescribed by the Commissioner.
Should a person fail to pay any dividends tax within the required period, interest must be paid by the
person on the balance of the tax outstanding at the prescribed rate reckoned from the end of that period.
(This rule is slated to fall away and be replaced by more general rules governing interest payments to
SARS.)
Refund of tax on dividends declared and paid by companies (s 64L)
If an amount is withheld by a company from the payment of a dividend, a relevant declaration is not
submitted to the company by the required date, and both the declaration and the written undertaking
are submitted to the company within three years after the payment of the dividend on which they are
made, so much of the amount as would not have been withheld had the declaration been submitted by
the required date is refundable to the person to whom the dividend was paid.
If an amount is withheld by a company from the payment of a dividend and a rebate of foreign taxes paid
on the dividend should have been deducted (see below), so much of the amount as would not have been
withheld had the rebate been deducted is refundable to the person to whom the dividend was paid. But
the rebate must be claimed within three years after the payment of the dividend.
An amount that is refundable must be refunded by the company that withheld it to the person to whom
the dividend was paid from any amount of dividends tax withheld by the company within a period of one
year after the submission of the relevant declaration or the claim of a rebate. But, to the extent that the
amount that is refundable exceeds the amount of dividends tax withheld, it must be refunded from an
amount recovered by the company from the Commissioner.
If any amount is refundable to a person by a company under these rules and it exceeds the amount of
dividends tax withheld, the company may recover the excess from the Commissioner. But no amount
may be recovered if the company submits the claim for recovery to the Commissioner after the expiry of
a period of four years reckoned from the date of the relevant payment of the dividend.
Refund of tax on dividends in specie (s 64LA)
If dividends tax is paid by a company on a dividend in specie as a result of the company being unable to
obtain the relevant declaration and written undertaking by the required date, and both the declaration
and the written undertaking are submitted to the company within three years after the payment of the
dividends tax, so much of dividends tax as would not have been withheld had the declaration been
submitted by the required date is refundable to the company by SARS, if claimed within three years of
the date of payment of the tax.
Refund of tax on dividends paid by regulated intermediaries (s 64M) If an amount is withheld by a
regulated intermediary from the payment of a dividend, a declaration about the availability of an
exemption or the application of a reduced rate of tax on the dividend is not submitted to the regulated
intermediary by the required date, and both the declaration and the written undertaking are submitted
to the regulated intermediary within three years after the payment of the relevant dividend, so much of
the amount as should not have been withheld had the declaration been submitted by the required date is
refundable to the person to whom the dividend was paid.
If an amount is withheld by a regulated intermediary from the payment of a dividend and a rebate of
foreign taxes paid on the dividend should have been deducted from it (see immediately below), so much
of the amount as would not have been withheld had the rebate been deducted from it is refundable to
the person to whom the dividend was paid. But the rebate must be claimed within three years after the
payment of the relevant dividend.
An amount that is so refundable must be refunded by the regulated intermediary from any amount of
dividends tax withheld by the regulated intermediary after the submission of the relevant declaration or
the claim of the relevant rebate.
Rebate of foreign taxes on dividends (s 64N)
A rebate must be deducted from the dividends tax payable on a foreign dividend paid in cash by a non-
resident company on a listed share.
The rebate is equal to the amount of the tax paid to any sphere of government of a country other than
South Africa without any right of recovery by any person on such a dividend, and must not exceed the
dividends tax imposed on the dividend.
The tax paid must be translated to the SA rand at the same exchange rate used to convert the relevant
dividend to rand.
A company or regulated intermediary must obtain proof of any tax paid to any sphere of government of
a country other than South Africa and deducted from the dividend tax payable in terms of this provision
in the prescribed form and manner.
Definitions (s 64D)
A ‘beneficial owner’ is the person entitled to the benefit of the dividend attaching to a share.
A ‘dividend’ is a dividend (see 9.3) or foreign dividend (see 9.4) paid by a company (see 14.1) that is a
resident (see 1.1), or paid by a foreign company (see 15.2), by way of a foreign dividend, on a listed
share (see 9.4), to the extent that the foreign dividend does not consist of a distribution of an asset in
specie. From 1 January 2019: Included is a deemed dividend in specie determined under the transfer-
pricing rules (see 18.9). In other words, foreign dividends are ‘dividends’ for the
purposes of the dividends tax only if they are cash dividends paid on a listed share. The upshot is that
the cash dividends concerned are those distributed by so-called dual-listed companies.
The ‘effective date’ is the date on which the dividend tax comes into operation, that is, 1 April 2012.
A ‘regulated intermediary’ is a:
• Central securities depository participant under the Financial Markets Act 19 of 2012.
• Authorized user under the Financial Markets Act.
• Approved nominee under the Financial Markets Act.
• Nominee holding investments on behalf of clients under the Codes of Conduct for Administrative and
Discretionary Financial Service Providers, 2003.
• Portfolio of a collective investment scheme in securities (see 16.7).
• Transfer secretary (but not a natural person) approved by the Commissioner for SARS subject to such
conditions and requirements as may be determined by the Commissioner.
• Portfolio of a hedge fund collective scheme (see 16.7).
Income from business
and professions
10.1 Business and professional income
ss 1, 8(4), 24M, 24N
In any particular tax year you must add the amount of the net income after deductions you derived from
carrying on a business or profession to your income from other sources to arrive at your final taxable
income on income account (see 2.3).
Your gross income (see 1.1) from your business will not include any capital profits (see 1.5) but will
include income from, for example, sales, fees, commissions, as well as the additional items dealt with in
10.2 to 10.13. Nevertheless, your taxable income on capital account (see 2.3) will include your taxable
capital gain for capital gains tax purposes for the particular tax year (see 21.3).
A special rule applies to income of all types, not just business or professional income. It comes into
operation when you become entitled to an amount during a tax year that is payable only after the end of
that year. You are then regarded as having derived the full amount during that year.
In other words, just because you have not yet received an amount to which you are entitled does not
mean that it will not be included in your gross income. You are said to ‘derive’ an amount when you
either receive it or you become entitled to it. Such an amount is also said to have ‘accrued’ to you.
This special rule suffers from a technical flaw.
Earn-outs on disposal of assets (s 24M)
When you dispose of an asset, such as trading stock (see 10.66), for a consideration consisting of or
including an amount that cannot be quantified in the tax year of the disposal, so much of the
consideration as cannot be quantified in that year will be deemed not to have accrued to you in that
year. Once it becomes quantifiable during a subsequent tax year, it will be deemed to have accrued to
you from the disposal in that year.
On the other side of the transaction, when you acquire an asset for a consideration consisting of or
including an amount that cannot be quantified in the tax year of acquisition, so much of the
consideration as cannot be quantified in that year will be deemed not to have been incurred by you in
that year. Once it becomes quantifiable during a subsequent tax year, it will be deemed to have been
incurred by you on the acquisition of the asset in that year.
Any recovery or recoupment (see 10.7) you might enjoy of an amount allowed as a deduction on an asset
acquired in these circumstances will be determined with reference to the amounts deemed to have been
derived by you under this rule.
An amount deemed in this fashion in a subsequent tax year to have been actually incurred by you on a
depreciable asset (see 10.7) acquired by you during an earlier tax year that has not been taken into
account in the determination of an allowance on the asset but would have been had it actually been
incurred by you will be allowed as a deduction in that subsequent year, although only to the extent of the
amount that would have been allowed as an allowance in the earlier year.
Earn-outs on disposal of equity shares (s 24N)
As a ‘seller’ disposing of equity shares (see 14.7) during a tax year to a ‘purchaser’ in the circumstances
described here, you will find that any quantified or quantifiable amount payable by the purchaser to you
will, to the extent that it is not due and payable to you during that year, be deemed not to have accrued
to you and not to have been incurred by the purchaser during that year. There 118
INCOME FROM BUSINESS AND PROFESSIONS 119
after, to the extent that it becomes due and payable to you in a later tax year, it will be deemed to have
accrued to you and to have been incurred by the purchaser during that later year.
This is the rule that will apply when you enter into a disposal of equity shares in a company (see 14.1) to
a purchaser and more than 25% of the amount payable becomes due and payable by the purchaser after
the end of your tax year, with the amount payable being based on the company’s future profits. In
addition, the value of the company’s equity shares that in aggregate have been disposed of during that
year to which this rule applies must exceed 25% of the total value of its equity shares. Furthermore,
after that disposal you and the purchaser must not end up being connected persons (see 10.27); the
purchaser must be obliged to return the equity shares to you in the event of the purchaser’s failure to
pay any amount when due; and the amount must not be payable by the purchaser to you under a
financial instrument (see 21.8) payable on demand and readily tradable in the open market.
10.2 Foreign
income
As a resident (see 1.1), your gross income (see 15.1) from a business or profession carried on anywhere
in the world will be taxable. This rule applies whether you operate as an individual, a company (see
14.1), close corporation or any other entity that is a resident, unless you are entitled to a deferral of
taxation on blocked foreign income (see 15.1).
Should you operate abroad through a company or other qualifying entity but not a trust, that entity
might qualify as a controlled foreign company (CFC; see 15.2), with the result that you will pay tax on
portion of its net income (see 15.2), unless an exemption is available.
Any diversion of income into a foreign trust or to a non-resident by means of a donation, disposition or
other settlement would lead to the inclusion of that income with yours (see 11.7).
Diversions of income abroad achieved through targeted types of international transaction, including so-
called transfer-pricing, could also lead to inclusions in your income (see 18.9) or the application of other
means of frustrating the avoidance of tax (see 18.8).
Just as your world-wide income will be included in your gross income, you will be entitled to world-wide
deductions, provided that the deductions you claim satisfy both the criteria established by general
principles of the tax law, such as the general deduction formula (see 10.14), and the specific
requirements of the deduction concerned. Most – but not all – of the available deductions are capable of
being applied to foreign income. Oddly, an assessed loss or balance of assessed loss (see 10.71) you
suffer in a foreign trade cannot be set off against amounts you derive from carrying on a trade (see
10.14) in South Africa. The result is that you will pay tax on your world-wide taxable income,
undiminished by the foreign assessed loss.
Since your foreign income might in these various ways be taxed in South Africa while at the same time
being taxed by a foreign country, you will in qualifying circumstances be entitled to a rebate or
deduction against the tax you pay here on foreign income that is included in your taxable income (see
15.4). You would also have to see whether an international double taxation agreement applies to your
affairs (see 18.10).
For the rules governing the taxation of foreign exchange profits and losses and for the conversion of
foreign currencies, see 10.74 and 10.75. For the position of non-residents, see 15.6 to 15.17.
10.3 Disposal of assets similar to trading stock
s1
An amount you derive from the disposal of an asset manufactured, produced, constructed or assembled
by you that is similar to any other asset manufactured, produced, constructed or assembled by you for
purposes of manufacture, sale or exchange by you or on your behalf will be included in your gross
income (see 1.1).
120 INCOME FROM BUSINESS AND PROFESSIONS
Such a similar asset would in fact constitute an item in your trading stock (see 10.66). The result is that,
say, a motor manufacturer building motor vehicles for use by its staff would have to pay tax upon its
disposal of those vehicles.
10.4 Exchange of assets
ss 24BA, 40C, 40CA
The general rule is that when you trade in or barter a particular asset you hold as trading stock (see
10.66) and exchange it for another, the market value of the asset you receive in exchange will be
included in your gross income (see 1.1), while the cost to you of the asset that you have given up or, in
appropriate circumstances, its written-down value (see 10.66) will be allowed as a deduction. The
outcome is that you pay tax on the difference.
Exchange of assets for shares (s 24BA)
A special rule applies when a company acquires an asset (see 21.2) from a person in exchange for shares
issued by the company and the consideration is not an arm’s-length consideration, ignoring any other
related transaction, operation, scheme, agreement or understanding that directly or indirectly affects
the consideration.
If the market value of the asset immediately before the disposal exceeds the market value of the shares
immediately after the issue, the amount of the excess is deemed to be a capital gain (see 21.3) on a
disposal by the company of the shares. When the shares are acquired by the person as a capital asset, the
excess must be applied to reduce any base cost expenditure incurred by the person in acquiring the
shares, and, if they are acquired as trading stock, the excess must be applied to reduce any amount that
must be taken into account by the person as the cost or value of the trading stock (see 10.66).
Alternatively, when a company acquires an asset from a person in exchange for the issue by the
company to the person concerned of shares in the company and the market value of the shares
immediately after the issue exceeds the market value of the asset immediately before the disposal, the
amount of the excess must, for the purposes of the dividends tax (see 9.4), be deemed to be a dividend
consisting of a distribution of an asset in specie that is paid by the company on the date of the issue.
These rules do not apply when a company acquires an asset from a person if the company and the
person form part of the same group of companies (see 22.1) immediately after the transaction; or the
person concerned holds all the shares in the company immediately after it acquires the asset; or the CGT
rule governing the disposal of assets by donation, for a consideration not measurable in money or by
way of a non-arm’s-length transaction between connected persons applies (see 21.17).
Issue of shares or granting of options or rights for no consideration (s 40C) When a company
issues a share in the company or grants an option or other right to the issue of a share in the company to
a person for no consideration the expenditure actually incurred by the person to acquire the share,
option or right is deemed to be nil.
Acquisition of assets for shares or debt (ss 24BA(3)( a), 40CA) When a company acquires an asset
from a person in exchange for shares issued by the company it is deemed to have actually incurred an
amount of expenditure on the acquisition of the asset equal to the sum of ( a) the market value of the
shares immediately after the acquisition, and ( b) any deemed capital gain arising upon the acquisition
under a rule applying to the acquisition of assets by way of the issue of shares (see 10.4). And when a
company acquires an asset from a person in exchange for an amount of debt issued by the company, it is
deemed to have actually incurred an amount of expenditure on the acquisition of the asset equal to the
amount of debt.
10.5 Improvements made and premiums paid by a lessee
s1
You must include in your gross income (see 1.1) the value of any improvements to land and buildings
that your lessee is required to effect in terms of a lease, and the amount of any premium (see 8.2) that it
might have paid to you for the right to occupy your premises or to use your plant or machinery or your
patents, trademarks or other similar property (see also 10.10).
10.6 Insurance policies on the lives of
employees
ss 1, 10(1)( g G), ( g H), ( g I)
Employer-owned policies (‘key man’ policies) (s 1)
An employer must include in gross income (see 1.1) an amount that derived in respect of a policy of
insurance of which it is the policyholder when the policy is one that relates to the death, disablement or
illness of an employee or, if the employer is a company, a director of the company. This rule also applies
to amounts derived by way of a loan or an advance.
But the amount to be included in gross income on account of such an insurance policy must be reduced
by amounts of loans or advances already included in gross income.
Policies ceded by employer (ss 1, 10(1)( gG), ( gH), ( gL)) In so far as it applies to insurance policies,
a special rule includes in gross income amounts derived by a person, or dependant or nominee of a
person, under a policy of insurance ceded to and for the benefit of the person concerned or a dependant
or nominee of the person by the person’s employer or former employer or the company of which the
person is or was a director.
This special rule does not apply to a risk policy with no cash value or surrender value. An amount that
becomes payable in consequence of or following upon the death of a person is deemed to be an amount
that accrued to the person immediately before death. And an amount actually derived by a dependant or
nominee of a person is deemed to be derived by that person.
An amount included in gross income under this special rule will be exempt from tax in qualifying
circumstances:
• It will be exempt if the policy is a risk policy with no cash value or surrender value and the amount of
premiums paid on the policy by the person’s employer has been taxed as a fringe benefit (see 5.4) since
the later of the date on which the employer or company became the policyholder and 1 March 2012.
• It will be exempt if the policy is any other policy and all the premiums have been taxed as a fringe
benefit since the date on which the policy was entered into.
• It will be exempt if the policy relates to death, disablement or severe illness of an employee or a
director or a former employee or director of the policyholder, no premiums payable on the policy on or
after 1 March 2012 is deductible from the income of the policyholder for the purposes of determining
the taxable income derived by the policyholder from carrying on a trade.
• And it will be exempt when the policy relates to death, disablement, illness or unemployment of the
policyholder or an employee of the policyholder to the extent to which the benefits under the policy are
paid as a result of death, disablement, illness or unemployment, but not a policy of which the benefits
are paid or payable by a retirement fund.
10.7 Recoupment
ss 1, 3(4), 8(4)( a), ( b), ( e), ( e A)–( e E),
( f ), ( k), ( l), ( n), (4A)
Subject to exceptions, amounts previously allowed to you as deductions from your income (see 10.14)
that you recover or recoup in any way must be included in your income, even if they are recovered or
recouped abroad.
The recovery or recoupment may take the form of a refund or credit from a creditor of an expenditure
you have already deducted, or may arise when you sell or trade-in an asset at a price above its income
tax value. For example, on 31 August of one year you sold a motor vehicle for R73 000
which you had originally bought for use in your business for R100 000 eighteen months earlier, on 1
March, and on which you are permitted to deduct depreciation (see 10.27) at 20% a year on the straight-
line basis:
Cost
of
vehicle .........................................................................................................................
R100 000
Less: Depreciation for first full year ended on 28 February (20% of R100
000) .....................................................................................................
20 000
Income tax value at 1 March .......................................................................... R80
000
Less: Depreciation to 31 August of the following year, the date of sale 1/2 × (20% of R100
000) .............................................................................................
10 000
Income tax value at date of sale .................................................................... R70
000
In the year of the sale, your recoupment of previous deductions is R3 000 (that is, the selling price of
R73 000 less the income tax value of R70 000), which will be included in your income, while
depreciation of R10 000 will be allowed as a deduction.
Any profit you make over and above the original cost of the asset cannot be a recovery or recoupment of
a past deduction and is therefore not taxable for income tax purposes. But that profit might lead to an
inclusion in your taxable income on capital account for capital gains tax (CGT) purposes (see 21.3).
If, in the example, the vehicle had been sold for R112 000, the recoupment would be R30 000
(that is, depreciation allowed to 28 February in the first year of R20 000 plus depreciation allowed to 31
August of the second year of R10 000). The excess over the cost of R100 000, that is, R12 000
is not taxable for income tax purposes, since it is of a capital nature.
Recoupments already or otherwise taxed (s 8(4)( a))
Excluded from recoupment is an amount you recover or recoup as the result of the disposal of an asset
you manufacture, produce, construct or assemble that is similar to your trading stock of the same nature
(see 10.3).
Also excluded is an amount you recover or recoup that has been applied to reduce any cost or
expenditure incurred by you under the provision dealing with the reduction of a debt (see below).
And also excluded is an amount you recover or recoup that has been previously taken into account as
the recovery or recoupment under the reduction-of-debt rules or, in tax years commencing on or after 1
January 2018, the concession or compromise of debts rule (see below).
Assets qualifying for deferred recoupments
Recoupment blocked ( s 8(4)(e))
Under the CGT system, you are given the choice to elect two different types of roll-overs (deferrals)
when you dispose of an asset. That choice also has the result that any recoupment arising upon the
disposal of the assets concerned will not be included in your income as an ordinary recoupment for
income tax purposes.
1. Involuntary disposal of asset ( 8th Sch para 65)
The first type of elective roll-over applies to all assets for CGT purposes (see 21.2) other than financial
instruments (see 21.8) that you have disposed of (a CGT concept) by way of operation of law, theft or
destruction. By way of compensation for the disposal of such an asset, you must derive proceeds
(another CGT concept) at least equal to or exceeding to its base cost (see 21.5).
In other words, the roll-over – and therefore the blocked recoupment – applies only when, for CGT
purposes, you have either broken even or made a capital gain in disposing of the original asset.
Then you must comply with a raft of requirements:
• You must expend an amount at least equal to your receipts and accruals from the disposal in acquiring
a replacement asset or replacement assets (but they must not be personal-use assets; see 21.10).
• All the replacement assets must constitute so-called deemed-source assets. These include immovable
property in South Africa (as well as other interests in such immovable property, a resident’s (see 1.1)
movable property not attributable to a foreign permanent establishment, and a non-resident’s (see 15.6)
movable property attributable to a South African permanent establishment.
• Your contracts for the acquisition of the replacement assets must all be concluded within twelve
months after the date of the disposal of the original asset. The Commissioner for SARS may extend this
period by no more than six months, as long as you have taken all reasonable steps to conclude the
contracts.
• The replacement assets must all be brought into use within three years of the disposal of the original
asset. The Commissioner for SARS may extend this period by no more than six months, as long as you
have taken all reasonable steps to bring the assets into use.
• The original asset must not be one that has been deemed to have been disposed of and to have been
reacquired by you under the CGT system.
Other requirements also apply.
2. Reinvestment in replacement assets ( 8th Sch para 66)
The second type of elective roll-over also applies to assets for CGT purposes that you have disposed of,
but the qualifying circumstances are broader:
• The original asset disposed of must have qualified for the depreciation allowance (see 10.27), the
deduction for research and development (see 10.53), ‘50/30/20’ depreciation (see 10.69), straight-line
depreciation (see 10.63), the deduction for rolling stock (see 10.57), the small business corporation
deductions (see 10.60, the now-obsolete allowance on ships (see 16.32), the now-obsolete allowance on
aircraft (see 16.1) or the deduction for environmental expenditure (see 10.31).
• The proceeds you derive from the disposal of the original asset must be at least equal to or exceed its
base cost.
• You must expend an amount at least equal to your receipts and accruals from the disposal of the
original asset to acquire a replacement asset or replacement assets, and all of the replacement assets
must qualify for one of the allowances already listed.
• All the replacement assets must constitute so-called deemed-source assets (see immediately above).
• You must conclude contracts for the acquisition of the replacement assets within twelve months after
the original asset is disposed of. The Commissioner for SARS may extend this period by no more than six
months, as long as you have taken all reasonable steps to conclude the contracts.
• All of the replacement assets must be brought into use within three years after the disposal of the
original asset. The Commissioner for SARS may extend this period by no more than six months, as long
as you have taken all reasonable steps to bring the assets into use.
The original asset must not be one that has been deemed to have been disposed of and to have been
reacquired by you under the CGT system.
Other requirements also apply.
Multiple replacement assets ( s 8( 4)( e A))
Once more than one replacement asset is involved, you are required to apportion the amount you have
recouped on the disposal of the original asset to each replacement asset in the ratio: Receipts and
accruals from the original disposal respectively expended in acquiring each replacement asset
÷
Total amount of those receipts and accruals expended in acquiring all the replacement assets.
Replacement assets are depreciable assets ( s 8( 4)( e B))
A ‘depreciable asset’ is an ‘asset’ as defined for CGT purposes (see 21.2) (which excludes trading stock
as well as a debt) on which a capital deduction or allowance based on its cost or value is allowable for
purposes of the determination of your taxable income on income account (see 2.3), that is, excluding the
determination of a capital gain or capital loss.
Your blocked recoupment will be treated in a special way when your replacement asset is a depreciable
asset. You will be deemed to have recouped in each tax year a part your blocked recoupment calculated
in the following way:
Step 1. Calculate amortization/recoupment %
Deduction or allowance allowed in that tax year on replacement asset
Total amount of deduction or allowance allowable for all tax years on replacement asset determined on
its cost or value at the time of its acquisition
Total blocked recoupment
Step 2. Calculate this year’s unblocked recoupment
Amortization/recoupment %
Blocked recoupment apportioned to replacement asset
Untaxed blocked recoupment on disposal of replacement asset ( s 8( 4)( e C))
Your disposal during a tax year of a replacement asset on which any portion of a blocked recoupment
apportioned to it has not been included in your income under either the preceding or the following rule
will result in your deemed recoupment of that portion in that year.
Cessation of use of replacement asset ( s 8( 4)( e D))
This rule applies only to a blocked recoupment arising under the second type of roll-over described
above, that is, when you have disposed of a qualifying asset and have made a qualifying investment in a
replacement asset.
Your cessation of use of such a replacement asset for the purposes of your trade at a time when any
portion of a blocked recoupment apportioned to it has not been included in your income under either of
the preceding two rules will result in your deemed recoupment of that portion in that year.
Default in concluding contract or bringing replacement asset into use ( s 8( 4)( e E))
Your failure to conclude a contract or to bring a replacement asset into use within the permissible
period will result in the revocation of the blocking of your original recoupment. Instead, the recoupment
will be deemed to take place on the date on which the grace period ends. Moreover, interest at the
prescribed rate (see 18.4) on the recoupment, calculated from the date of your disposal of the original
asset to the end of the grace period, will be deemed to be an additional amount recouped on the date on
which the grace period ends. This additional amount is treated in the same way as a conventional
recoupment (see above).
Subsequent fate of replacement asset – old rules ( s 8( 4)( f))
A further rule perhaps applies only to the old system of deferring recoupments arising upon the disposal
of qualifying assets. It states that if, as a result of the loss, sale or disposal in any other manner by you of
your replacement asset, you have derived an amount in excess of its cost less the amount of a deferred
recoupment, so much of the excess as does not exceed the deferred recoupment will be deemed to have
been recouped and will be included in your income for the tax
year during which it was lost, sold or disposed of. This deemed recoupment will arise in addition to any
conventional recoupment arising (see above). The rule does not apply if the deferred recoupment has
already been included in your income because you defaulted in meeting one of the requirements of the
old rules.
General ( s 3( 4))
The Commissioner for SARS’s decision on some of the matters to do with recoupments is subject to
objection and appeal (see 18.6) (although probably not in relation to the new rules governing
recoupments).
A different type of deferral of recoupments is possible when you recover or recoup the industrial
building allowance on a qualifying building or qualifying improvements used wholly or mainly in a
process of manufacture or similar process and replace the building within a specified time (see 10.18).
Artificial recoupments (s 8(4)( k), ( l), ( n)) Apart from the conventional and deferred forms of
recoupment, an asset on which you have been granted any deductions or allowances qualifying for
recovery or recoupment will give rise to an artificial recoupment if you:
• donate
it;
• being a company, transfer it in any manner or form to a shareholder of the company; or
• dispose of it to your connected person (see 10.27).
You will then be deemed to have disposed of the asset for an amount equal to its market value at the
date of its donation, transfer or disposal.
An artificial recoupment also comes into play when you transfer a financial arrangement to some other
person if, as a result of the transfer, you also transfer your legal obligation or part of it to pay interest or
related finance charges. In addition, you must have been entitled in some tax year to a deduction of the
interest or related finance charges that you incurred or were treated as having incurred under the
financial arrangement, and the interest or related finance charges must actually have been allowed as a
deduction in that year.
You will then be deemed to have recouped the amount of your transferred obligation to pay interest or
related finance charges in the year in which you make the transfer.
A discount or premium is included within the concept of ‘interest or related finance charges’. For the
circumstances in which interest is deemed to be incurred under financial arrangements qualifying as
‘instruments’, see 7.6.
Industrial assets (see 10.64) qualifying for the industrial investment allowance (see 10.64) and
manufacturing assets (see 10.33) qualifying for the additional investment and training allowances for
industrial projects (see 10.33) give rise to an unusual, ‘double’ artificial recoupment, which arises if the
asset is disposed of before the completion of its write-off period. These investment allowances that are
recovered or recouped are treated as artificial recoupments over and above the conventional
recoupment.
Other recoupments (s 8(4)( b), (4A))
When during a tax year an actuarial surplus is paid to you under the provisions of s 15E (1)( f) or ( g) of
the Pension Funds Act 24 of 1956 you are deemed to have recovered or recouped an amount equal to
the amount of that actuarial surplus, less any expenditure incurred by you in respect of that actuarial
surplus that was not allowed as a deduction during any tax year.
Special depreciation rules apply to assets used in a trade that previously did not generate receipts and
accruals required to be included in a taxpayer’s income, for example, because the
trade was conducted offshore before the introduction of world-wide taxation. These rules have the effect
of bringing assets into account at their tax value as if they had been depreciated during the period that
they were excluded from the tax system. In other words, only their remaining depreciable life is of
significance for tax purposes. Their earlier, deemed depreciation, although necessary to the calculation
of current depreciation, remains an artificial amount, and is excluded from taxation upon recoupment. It
is also excluded from consideration when the taxation of a recoupment is deferred because of the
damage to or destruction of an asset and when a depreciable asset is donated or distributed as a
dividend.
General
Further artificial recoupments are of interest to those with qualifying housing for employees and those
who conducted qualifying scientific research in the past (see 10.53).
Because the cost of trading stock is allowed as a deduction, artificial recoupments exist in order to cater
for various forms of non-business use of trading stock and other special situations (see 10.66).
For the treatment of a recovery or recoupment of an allowance improved under the value-added
concessions, see 10.68.
For the deferment of recoupments on industrial buildings, see 10.18.
10.8 Reduction, concession or compromise of

debts as recoupment
s 19
Concession or compromise of debt as recoupment
There are special rules that deal with the concession or compromise of debts. They apply when a debt
benefit arises in respect of a tax year on the concession or compromise of a debt owed by a person
during that tax year and the debt is owed by that person in respect of or was used, directly or indirectly,
to fund expenditure that qualified for a deduction or an allowance. If the reduced debt is owed in respect
of or was used to fund expenditure incurred on trading stock that is held and not disposed of at the time
the debt benefit arises, the debt benefit must, to the extent that an amount is taken into account for
income tax purposes in that tax year, be applied to reduce the amount taken into account for the trading
stock.
When a debt benefit has been applied to reduce the amount taken into account for the trading stock to
the full extent of that amount, the balance of the debt benefit must, to the extent that the debt is owed in
respect of or was used to fund expenditure on an asset that qualified for capital allowances (an
allowance asset), and was not applied to reduce the base cost expenditure on the asset for capital gains
tax purposes (see 21.10) be deemed to be an amount that has been recovered or recouped in the tax
year in which the debt benefit arises.
As from 1 January 2019 and in tax years commencing on or after that date, when a debt benefit arises in
respect of a tax year on the concession or compromise of a debt owed by a person during that tax year
and the debt is owed by that person in respect of or was used, directly or indirectly, to fund expenditure
in respect of an allowance asset that was disposed of in a tax year prior to that in which the debt benefit
arises, that person must if the amount determined in respect of that disposal as a recovery or
recoupment of a deduction or allowance is less than that that would have been determined had that debt
benefit been taken into account in the tax year in which the disposal occurred, treat the amount of the
difference as an amount recovered or recouped in the tax year in which the death benefit arises.
But the deductions and allowances available for an allowance asset may not exceed the total amount
incurred on the acquisition of the asset reduced by the debt benefit on the debt used to finance the
expenditure on the asset and the aggregate amount of all deductions and allowances previously allowed
on the asset.
To the extent that the debt in question was used to fund other deductible expenditure, that is,
expenditure other than that incurred on trading stock or allowance assets, it must be deemed to be an
amount of such expenditure that has been recovered or recouped.
These rules do not apply to a debt benefit on a debt owed by a person:
• that is an heir or legatee of a deceased estate, to the extent that the debt is owed to the deceased estate,
the debt is reduced by the deceased estate, and 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
(see 20.3);
• to the extent that the debt is reduced by way of a donation as defined for donations tax purposes or
any transaction that is a deemed donation for donation tax purposes in respect of which donations tax is
payable (see 19.2);
• to an employer of the person, to the extent that the reduction of the debt is a taxable fringe benefit (see
5.4);
• to another person when the person and that other person are companies that form part of the same
group of companies (see 22.1) and the debtor company has not carried on any trade during the tax year
in which the debt benefit arises and the immediately preceding year, but this does not apply to a debt:
– incurred, directly or indirectly by the company to fund expenditure incurred on an asset that was
subsequently disposed of by the company by way of an asset-for-asset (see 22.2), intra-group (see 22.5)
or amalgamation (see 22.4) transaction or a liquidation distribution (see 22.8); or
– incurred or assumed by the company in order to settle, take over, refinance or renew, directly or
indirectly, a debt incurred by another company that is a controlled foreign company In relation to a
company that forms part of the same group of companies;
• to another person when the person that owes the debt is a company that owes the debt to a company
that forms part of the same group of companies (see 22.1) and reduces or settles the debt, directly or
indirectly, by the issue of shares, but this does not apply to a debt that was incurred or assumed by the
company in order to settle, take over, refinance or renew, directly or indirectly, a debt incurred by
another company that did not form part of the same group of companies at the time the debt was
incurred or does not at the time that company reduces or settles the debt, directly or indirectly, by
issuing shares;
• to the extent that the debt owed is settled by means of an arrangement described in para ( b) of the
definition of ‘concession or compromise’ (see below) and does not consist of or represent an amount
owed by the person concerned in respect of interest incurred by that person during any tax year.
Definitions
‘Allowance asset’ means a capital asset in respect of which a deduction or allowance is allowable in
terms of the Act for purposes other than the determination of any capital gain or capital loss.
‘Capital asset’ means an asset that is not trading stock.
‘Concession or compromise’ means any arrangement in terms of which: ( a) a debt is:
(i) a cancelled or waived; or
(ii)
extinguished
by:
( aa) redemption of the claim in respect of the debt by the person owing the debt or by a connected
person of that person; or
( bb) merger by reason of the acquisition by the person owing the debt of the claim in respect of the
debt;
otherwise than as a result or by reason of the implementation of an arrangement described in ( b)

below.
( b) a debt owed by a company is settled, directly or indirectly: (i) by being converted to or exchanged
for shares in that company; or (ii) by applying the proceeds from shares issued by that company.
‘Debt’ means an amount that is owed by a person in respect of:
• expenditure incurred by the person; or
• a loan, advance or credit that was used, directly or indirectly, to fund expenditure incurred by the
person,
but does not include a tax debt as defined in s 1 of the Tax Administration Act, 2011.
‘Debt benefit’, for a debt owed by a person to another person, means: ( a) for an arrangement described
in para ( a)(i) of the definition of ‘concession or compromise’ (see above) the amount cancelled or
waived;
( b) for the extinction of the debt by means of an arrangement described in para ( a)(ii) of the definition
of ‘concession or compromise’ (see above), the amount by which the face value of the claim held by that
the person to whom the debt is owed prior to the entering into of the arrangement exceeds the
expenditure incurred in respect of the redemption of the debt or the acquisition of the claim in respect
of the debt;
( c) for the settling of the debt by means of an arrangement described in para ( b) of the definition of
‘concession or compromise’ (see above), the market value of the claim in respect of that debt and for one
described in para ( b) of the definition of ‘concession or compromise’ (see above), where the person who
acquired shares in a company in terms of that arrangement did not hold an effective interest in the
shares of the company prior to the entering into of the arrangement, the amount by which the face value
of the claim held in respect of the debt prior to the entering into of the arrangement exceeds the market
value of the shares acquired by reason or as a result of the implementation of the arrangement; or
( d) for the settling of the debt by means of an arrangement described in para ( b) of the definition of
‘concession or compromise’ (see above), when the person who acquired shares in a company in terms of
the arrangement held an effective interest in the shares of the company prior to the entering into of that
arrangement, the amount by which the face value of the claim held in respect of the debt prior to the
entering into of the arrangement exceeds the amount by which the market value of any effective interest
held by that person in the shares of that company immediately after the implementation of that
arrangement exceeds, solely as a result of the implementation of that arrangement, the market value of
the effective interest held by that person in the shares of that company immediately prior to the entering
into of that arrangement.
‘Group of companies’ means a group of companies as defined in s 41 (see 14.1).
‘Market value’ in relation to shares acquired or held by reason or as a result of implementing a

concession or compromise in respect of a debt means the market value of those shares immediately
after the implementation of that concession or compromise.
10.9 Recoupments of lease payments

s 8(5)
If an asset that you have been hiring is acquired by you or by anyone else and a lease premium (see
10.42), the cost of improvements effected to the asset by you (see 10.41) or your payments of rent have
been allowed as deductions in the past, you or the person acquiring the asset will pay tax on any portion
of the deductions that has been set off against the purchase price of the asset, which will be treated as a
recoupment.
Similarly, if the asset is acquired for less than its fair market value, the lesser of:
• the fair market value of the asset less the amount, if any, paid for the asset; and
• the amounts allowed as deductions in the past,
will constitute a recoupment in the hands of the purchaser.
You will be treated as having acquired an asset in the form of corporeal moveable goods or machinery or
plant for which the lessor was entitled to a deduction (see 10.27) for no consideration if, after the
termination of the lease, you are allowed to use, enjoy or deal with the asset as you deem fit with the
express or implied consent or acquiescence of the lessor or owner of the asset without the payment of
any rental or other consideration or for a ‘nominal consideration’ – that is, less than 10% a year of the
fair market value of the asset.
You may initially be required to pay a consideration for the right to use, enjoy or deal with the asset after
the termination of the lease and then cease to pay any consideration or pay a consideration that is
nominal. The lease will then be treated as having terminated on the date that you ceased to pay any
consideration or on the date after which the consideration became nominal. As a result, you will be
treated as having acquired the asset on that date.
If the property was owned by the lessor, its fair market value will be taken to be its cost to the lessor. If
the lease was a ‘financial lease’, its fair market value will be its ‘cash value’ for value-added tax purposes,
which is taken to be:
• The cost of the asset to the lessor, including certain ancillary costs, if the lessor or owner is a banker or
financier.
• The usual cash selling price of the asset, again including certain ancillary costs, if the lessor or owner is
a dealer.
But the fair market value for this purpose must be reduced by depreciation on the reducing-balance
basis (see 10.27) at the rate of 20% a year on the cost or cash selling price of the asset over the period of
the lease.
Unless it can be proved not to have, the lessor or owner of the asset is treated as having consented to its
continued use or enjoyment by you after the termination of the lease if it has not instituted proceedings
for its recovery within a period of three months after the termination of the lease.
It is obliged to advise both you and the Commissioner for SARS of the asset’s fair market value,
determined on the basis already described, when it consents or is treated as having consented to its
continued use or enjoyment by you.
A financial lease will be treated as not having terminated when it has ceased to exist and the
‘leased property’ is then let by the former lessor to the former lessee on substantially the same terms as
under the old lease at a rental that is greater or smaller than any instalment by way of which the
principal debt and finance charges were paid or required to be paid under the old lease.
The old and new leases are regarded as a single, uninterrupted lease. But this rule does not apply if the
amount owing for the principal debt and finance charges under the financial lease on the date when it
ceases to exist is less than 10% of the cash value of the property.
At the end of a lease the hired asset might be sold and the proceeds paid to you. The proceeds would also
be treated as a recoupment.
The amount that may be subjected to tax as a recoupment of payments under a lease may not exceed the
total of the amounts that have been deducted in the past.
Full details of this type of transaction must be stated in your return, in particular the manner in which
the asset was dealt with upon the termination of the lease and the amount of any payments under the
lease previously allowed as a deduction to you. You must also submit a copy of the lease together with
your return.
None of these rules will apply, and you or the person acquiring the asset will not pay tax on the
recoupment, if either of you or any other person is regarded as having derived a taxable fringe benefit as
a consequence of the acquisition of the property (see 5.2).
10.10 Royalties and ‘know-how’ payments
ss 1, 9(1), (2)( c), ( d), ( e), ( f )
In the same way as any other income, your income derived from the use or exploitation of intellectual
property anywhere in the world will be included in your gross income (see 1.1) and be taxable in South
Africa as long as you are a resident (see 1.1).
In addition to this general rule, your gross income specifically includes an amount you derive from
another person as a consideration or payment of like nature for the imparting of or the undertaking to
impart any scientific, technical, industrial or commercial knowledge or information or for the rendering
of or the undertaking to render any assistance or service in connection with the application or use of
that knowledge or information.
For the treatment of non-residents deriving income from the use or exploitation of intellectual property
in South Africa and the withholding tax on royalties paid to them, see 15.16. A royalty will be deemed to
be derived from a source in South Africa if it is attributable to an amount incurred by a resident, unless
the royalty is attributable to a permanent establishment situated outside the country. A ‘royalty’ is
defined for this purpose as an amount derived for the use, right of use or permission to use any patent,
design, trade mark, copyright, or any other property or right of a similar nature or associated know-how.
An amount will also be deemed to have accrued to you from a source within South Africa if it has been
derived by you by virtue of the use or right of use in South Africa or the grant of permission to use in
South Africa any patent, design, trademark, copyright, or any other property or right of a similar nature
or associated know-how.
Also deemed to be from a South African source if you are a resident is an amount derived by you for the
imparting of or undertaking to impart any scientific, technical, industrial or commercial knowledge or
information or the rendering of or undertaking to render any assistance or service in connection with
the application or use of such knowledge or information, unless the amount derived by you is
attributable to a permanent establishment situated outside South Africa.
Finally, also deemed to be from a South African source, regardless of your place of residence, is an
amount derived by you for the imparting of or undertaking to impart any scientific, technical, industrial
or commercial knowledge or information for use in South Africa or the rendering of or undertaking to
render any assistance or service in connection with the application or use of such knowledge or
information.
10.11 Subsidies and reimbursements from the
ss 1, 10(1)( y A)
state and development assistance
All subsidies or reimbursements you derive from the state under a scheme designed to encourage the
establishment, expansion or carrying on of industrial or commercial undertakings in an economic
development area must be included in your gross income (see 1.1).
Certain of these subsidies or reimbursements will nevertheless be free of tax (see 16.11).
Amounts that you derive for goods or services that you provide to beneficiaries in terms of an official
development assistance agreement that is binding in terms of s 231(3) of the Constitution of the
Republic of South Africa 1996 are tax-free to the extent that they are derived for projects approved by
the Minister of Finance, if the agreement provides that the relevant receipts and accruals are tax-free.
10.12 Exempt amounts received from industrial
s 10(1)( z B)
training fund
Any contribution you derive towards the costs of training your employees for skilled work from a fund
established under an industrial council agreement for the training of employees is free of tax.
This exemption would not extend to a grant derived by an employer under the Skills Development Act,
which, while not representing a taxable recoupment (see 10.7), would nevertheless be included in your
gross income (see 1.1) on general principles.
10.13 Exempt
government
grants
ss 8(4)( o), ( p),12P, 11th Sch
Exemption
There is an exemption from normal tax for amounts derived by a person as a beneficiary of a
government grant. It applies if the government grant is listed in the Eleventh Schedule (see below) or is
identified by the Minister of Finance by notice in the Gazette for the purpose of exempting that
government grant with effect from a date specified by the Minister in the notice (including any date that
precedes the date of the notice). The Minister must have regard to the implications of the exemption for
the National Revenue Fund and whether the tax implications were taken into account in allocating the
grant.
When during a tax year an amount is derived by a person by way of such a government grant, other than
a government grant in kind, for the acquisition, creation or improvement, or as a reimbursement for
expenditure incurred on the acquisition, creation or improvement of trading stock, any expenditure
incurred on the trading stock allowed as a deduction or taken into account for the value of trading stock
(see 10.66), must be reduced to the extent that the government grant is applied for that purpose.
With effect as from 1 January 2016, an amount derived by a person from the government in the national,
provincial or local sphere is exempt from normal tax when it is granted for the performance by that
person of its obligations pursuant to a Public Private Partnership and the person is required by the
Public Private Partnership to expend an amount at least equal to that amount on any improvements on
land or to buildings owned by any sphere of government or over which any sphere of government holds
a servitude.
Likewise, when during a tax year an amount is derived by a person by way of a government grant, other
than a government grant in kind, for the acquisition, creation or improvement, or as a reimbursement
for expenditure incurred on the acquisition, creation or improvement, of an allowance asset, the base
cost of the allowance asset must be reduced to the extent that the government grant is applied for that
purpose.
When an amount is derived by a person by way of a government grant for the acquisition, creation or
improvement of an allowance asset or as a reimbursement for expenditure incurred on the acquisition,
creation or improvement, the full amount of the deductions or allowances allowable to the person for
the allowance asset may not exceed an amount equal to the total expenditure incurred in the acquisition,
creation or improvement of that allowance asset, reduced by an amount equal to the sum of the amount
of the government grant and the total amount of all deductions and allowances previously allowed to the
person for the allowance asset.
When during a tax year an amount is derived by a person by way of a government grant, other than a
government grant in kind, for the purpose of the acquisition, creation or improvement of an asset other
than trading stock or an allowance asset, or as a reimbursement for expenditure incurred on the
acquisition, creation or improvement of such an asset, the base cost of the asset must be reduced to the
extent that the amount of the government grant is applied for the acquisition, creation or improvement.
When during a tax year an amount is derived by a person by way of a government grant, other than a
government grant in kind, and none of the above provisions applies to the amount, any amount allowed
to be deducted from the person’s income for that tax year must then be reduced to the extent of the
amount of the government grant.
To the extent that the amount derived by way of a government grant exceeds the amount allowed to be
deducted as contemplated above, the excess is deemed to be an amount derived as a government grant
during the following tax year for the above purposes.
Definitions
‘Allowance asset’ means an asset as defined for CGT purposes (see 21.2), other than trading stock, for
which a deduction or allowance is allowable for purposes other than the determination of a capital gain
or capital loss.
‘Base cost’ means base cost as defined for CGT (see 21.5).
‘Government grant’ means a grant-in-aid, subsidy or contribution by the government of the Republic in
the national, provincial or local sphere.
Schedule of exempt grants (11th Schedule)
The following government grants are exempt from normal tax:
• Automotive Production and Development Programme received or accrued from the Department of
Trade and Industry;
• Automotive Incentive Scheme received or accrued from the Department of Trade and Industry;
• Black Business Supplier Development Programme received or accrued from the Department of Trade
and Industry;
• Business Process Services received or accrued from the Department of Trade and Industry;
• Capital Projects Feasibility Programme received or accrued from the Department of Trade and
Industry;
• Capital Restructuring Grant received or accrued from the Department of Human Settlements;
• Clothing and Textiles Competitiveness Programme received or accrued from the Department of Trade
and Industry;
• Co-operative Incentive Scheme received or accrued from the Department of Trade and Industry;
• Critical Infrastructure Programme received or accrued from the Department of Trade and Industry;
• Eastern Cape Jobs Stimulus Fund received or accrued from the Department of Economic Development,
Environmental Affairs and Tourism of the Eastern Cape;
• Enterprise Investment Programme received or accrued from the Department of Trade and Industry;
• Equity Fund received or accrued from the Department of Science and Technology;
• Export Marketing and Investment Assistance received or accrued from the Department of Trade and
Industry;
• Film Production Incentive received or accrued from the Department of Trade and Industry;
• Food Fortification Grant received or accrued from the Department of Health;
• Idea Development Fund received or accrued from the Department of Science and Technology;
• Industrial Development Zone Programme received or accrued from the Department of Trade and
Industry;
• Industry Matching Fund received or accrued from the Department of Science and Technology;
• Integrated National Electrification Programme Grant: Non-grid electrification service providers

received or accrued from the Department of Energy;
• Integrated National Electrification Programme: Electricity connection to households received or
accrued from the Department of Energy;
• Jobs Fund received or accrued from the National Treasury;
• Manufacturing Competitiveness Enhancement Programme received or accrued from the Department

of Trade and Industry;
• Sector Specific Assistance Scheme received or accrued from the Department of Trade and Industry;
• Small, Medium Enterprise Development Programme received or accrued from the Department of
Trade and Industry;
• Small/Medium Manufacturing Development Programme received or accrued from the Department of

Trade and Industry;
• South African Research Chairs Initiative received or accrued from the Department of Science and
Technology;
• Support Programme for Industrial Innovation received or accrued from the Department of Trade and
Industry;
• Taxi Recapitalisation Programme received or accrued from the Department of Transport;
• Technology Development Fund received or accrued from the Department of Science and Technology;
• Technology and Human Resources for Industry Programme received or accrued from the Department
of Trade and Industry;
• Transfers to the South African National Taxi Council received or accrued from the Department of
Transport;
• Transfers to the University of Pretoria, University of KwaZulu-Natal and University of Stellenbosch

received or accrued from the Department of Transport;
• Youth Technology Innovation Fund received or accrued from the Department of Science and
Technology.
10.14 Deductions from income
ss 1, 11( a), 11A, 12N, 23( g), ( r), 23B,
23C(1), 23H, 24M
You are entitled to certain deductions from your gross income (see 1.1) or income (see 14.3) in the
computation of your taxable income on income account (see 2.3). To be eligible for these deductions,
however, you must be carrying on a ‘trade’, wherever in the world that might be.
The meaning of ‘carrying on a trade’ (s 1)
A ‘trade’ is defined in wide terms, and includes every profession, trade, business, employment, calling,
occupation or venture, including the letting of property and the use or grant of permission to use a
patent, design, trade mark, copyright or other similar property.
A salaried employee, a used-car dealer and a landlord are all carrying on a trade but someone who
invests his or her money in a building society to earn interest or in the share market solely to derive
dividends or who receives no income other than a pension or an annuity is not carrying on a trade for
tax purposes. On the other hand, a person borrowing money at interest in order to earn the same or
more interest is regarded as carrying on a trade.
Amounts not quantifiable (s 24M)
A special rule provides for the situation when you acquire a depreciable asset (see 10.7) during a tax
year for a consideration that consists of or includes an amount that cannot be quantified in that tax year
but becomes quantifiable in a subsequent tax year. The part of the consideration that becomes
quantifiable during a subsequent year is deemed to have been incurred by you on the acquisition of the
asset in that subsequent year. The capital allowances on the asset not taken into account in previous
years because the amount incurred had not yet been quantified during those years will then be allowed
in the subsequent year.
The general deduction formula (ss 11( a), 23( g)) Apart from the specific deductions dealt with in the
remainder of this chapter, there is a so-called general deduction formula, in terms of which you may
deduct any expenditure that you ‘incur’
during the tax year in order to produce your income and is not of a capital nature. An expenditure that
you ‘incur’ is an amount that you become liable to pay during the year or in a subsequent year, no matter
whether you have actually made payment.
In very broad terms, expenditure will be of a capital nature if it is incurred on the acquisition of an
income-earning asset or is money spent to acquire a source of income or an enduring benefit for your
trade. On the other hand, expenditure will be of a revenue nature if it is part of the cost of your income-
earning operations or of working your capital assets. Therefore expenditure you incur to buy a machine
you use to produce goods for sale will be of a capital nature but amounts you pay your staff to work the
machine will be of a revenue nature. If it is your business to buy and sell machines, however,
expenditure you incur to acquire the machines will be of a revenue nature. Some of the specific
deductions nevertheless do permit the deduction of certain capital expenditure, for example, capital
expenditure on pipelines (see 10.48).
Expenditure of a capital nature that is not allowable as a deduction from your gross income might
nevertheless figure in the computation of your liability for the capital gains tax (see 21.5).
A further requirement is that any expenditure you seek to deduct must be laid out or expended for the
purposes of your trade. To the extent that it was not laid out or expended for this purpose, it is
prohibited from deduction. For this reason, if you incur expenditure partly for private, that is, non-
trading purposes and partly for the purposes of carrying on a trade, you must apportion it and may
deduct only the ‘trade’ portion.
In certain circumstances SARS may disallow so much of your expenditure as is considered to be

excessive, on the ground that it is not expended in the production of income or not wholly or exclusively
laid out for the purposes of trade. For example, the salary you pay your son out of the income from your
business may be excessive in relation to the duties he is required to perform. In these circumstances
only a reasonable salary will be permitted as a deduction.
Pre-trading expenditure and losses (s 11A)
An exception to the general rule that deductions may be claimed only when you are carrying on a trade
is made for qualifying start-up costs.
You may deduct from your income derived in a tax year from carrying on a trade your expenditure and
losses you actually incurred before the commencement of and in preparation for your carrying on of that
trade. The expenditure and losses must be such as would have been allowed as a deduction under the
general deduction formula or under a range of special deductions, including the deduction for research
and development (see 10.53) and the special provision governing the incurral and accrual of interest
(see 7.6), had they been incurred after you commenced carrying on that trade. Moreover, they must not
have already been allowed as a deduction, either in the same tax year or in any previous year.
The excess of such expenditure and losses over the income you derive during the tax year from carrying
on the same trade, after deduction of any other amounts allowable in that year, may not be set off
against your income derived otherwise than from carrying on that particular trade, despite the assessed-
loss rule ordinarily allowing the set-off against your income from one trade of a loss from another trade
(see 10.71).
Prohibition of double deductions and precedence of deductions (ss 23( r), 23B) As a general rule
you are not entitled to an allowance for or to take into account the same amount more than once in
determining your taxable income, even if it qualifies more than once for a deduction, an allowance or to
be taken into account. The only exception to this rule arises when a particular deduction comes into play
expressly on the basis that the amount under consideration must have first qualified for some other
deduction (see, for example, 10.59).
You will always be denied a deduction under the general deduction formula (see above) of an
expenditure or a loss of a type for which a deduction or allowance is granted under any other specific
provision, even if that other provision limits the amount of the deduction or allowance available to you
or it grants the deduction or allowance in a different tax year.
You will also be denied a deduction in tax years commencing on or after 1 March 2015 for premiums
paid under an insurance policy if the policy covers you against illness, injury, disability, unemployment
or death.
Value-added tax (s 23C(1))
A special tax rule relating to value-added tax (VAT) applies to a taxpayer that is a ‘vendor’ for VAT
purposes. In general terms, such a vendor pays VAT on its acquisition of assets or its purchase of
services and may be required to pay VAT on its importation of assets or even services, and is then
entitled to claim the VAT back by way of what is called an ‘input-tax deduction’. Thanks to the income
tax rule, the ‘cost’ to it or ‘market value’ of such an asset supplied to or imported by it and the ‘amount of
expenditure’ incurred by it on such a service supplied to or imported by it must, for tax purposes, always
exclude the VAT charged on the asset or service that it is entitled to claim as a VAT input-tax deduction.
For example, any income tax deduction to which it is entitled that is based on the ‘cost’ of an item will in
fact be calculated on its cost net of the VAT effectively recoverable by it by way of the VAT
input-tax deduction. Should no input-tax deduction be available, its cost for tax purpose will include its
VAT component.
The VAT component of each rental payment under a lease that is regarded as an ‘instalment credit
agreement’ for VAT purposes is taken to be an amount that bears to the total VAT on the lease the same
ratio as that rental payment bears to the sum of all the rental payments under the lease.
You must remember to apply this rule to all the deductions described in this chapter. It is unclear how it
is meant to be applied in relation to the market value of an asset. A similar rule applies to recoupments
(see 10.7). These rules are apparently also meant to apply in the context of capital gains tax (see 21.3),
and they are expressly made applicable to the taxation of fringe benefits (see 5.4).
The matching principle (s 23H)
This applies to your expenditure that is deductible under the general deduction formula, pre-trade
expenditure and losses (see above), legal expenses (see 10.44), repairs (see 10.52) and ‘key-man’
insurance policies (see 10.34). It does not apply to expenditure incurred on the acquisition of trading
stock (see 10.66).
And what it does is to limit the deduction for the expenditure you actually incurred in the tax year on
goods or services all of which will not be supplied or rendered to you during that year. It also limits the
deduction for expenditure you actually incurred on any other benefit if the period to which your
expenditure relates extends beyond that year. Your deduction in that year and in subsequent years will
be limited to the following amounts:
• With goods to be supplied, so much of the expenditure as relates to the goods actually supplied to you
in a particular year.
• With services to be rendered, an amount that bears to the total amount of the expenditure the same
ratio as the number of months in the year during which the services are rendered bears to the total
number of months during which the services will be rendered or, when the period during which the
services will be rendered is not determinable, the period during which they are likely to be rendered.
• With any other benefit, an amount that bears to the total amount of the expenditure the same ratio as
the number of months in the year during which you will enjoy the benefit bears to the total number of
months during which you will enjoy it. If the period of the benefit is indeterminable, the total period to
be taken into account is the period over which the benefit is likely to be enjoyed.
This matching principle does not apply in the following circumstances:
• When all the goods or services are to be supplied or rendered within six months after the end of the tax
year during which the expenditure was incurred, unless the expenditure is allowable as a deduction
under the deduction for research and development (see 10.53).
• When you will have the full enjoyment of the benefit on which the expenditure was incurred within six
months after the end of the tax year during which the expenditure was incurred, unless the expenditure
is allowable as a deduction under the deduction for research and development (see 10.53).
• When the aggregate of all amounts of the expenditure that you incurred and would otherwise have
been limited by the principle does not exceed R100 000.
• When the expenditure is dealt with by the special provisions governing interest rate agreements (see
7.7) or option contracts (see 7.7).
• When the expenditure is actually paid under an unconditional liability to pay an amount imposed by
legislation.
If the apportionment of expenditure called for by the matching principle does not reasonably represent
a fair apportionment, you may use some other, fair and reasonable method of apportionment.
And, if you can show that the goods or services will never be received by or be rendered to you or that
you will never enjoy the benefit, the expenditure will be allowed in the same year, although only to the
extent that you have actually paid it.
The Commissioner’s exercise of his discretion under the matching principle is subject to objection and
appeal (see 18.6).
Improvements not owned by taxpayer (s 12N)
A special rule applies when you effect improvements but they are not owned by you, for example, when
they are effected to another person’s asset or property.
It applies when you hold a right of use or occupation of land or a building and effect an improvement
on the land or to the building in terms of a Public Private Partnership or a qualifying agreement, that is,
an agreement in terms of which the right of use or occupation is granted, if the land or building is owned
by the government of South Africa in the national, provincial or local sphere or an entity of which the
receipts and accruals are exempt from tax under certain special exemptions for specified entities, or, as
from 1 January 2013, the Independent Power Producer Procurement Programme administered by the
Department of Energy. The rule applies if you incur expenditure to effect the required improvements
and use or occupy the land or building for the production of income or derive income from the land or
building.
In these circumstances, you are deemed to be the owner of the completed improvements for the
purposes of certain deductions and other provisions (see 10.15, 10.18, 10.19, 10.21, 10.22, 10.33, 10.48,
10.53, 10.63, 10.69, 16.20 and Chapter 21).
When the right of use or occupation terminates, you are deemed to have disposed of the improvement to
the owner of the land or building on the later of the date when the right of use or occupation terminated
and the date when the use or occupation ended.
If the right of use or occupation terminates and you continue to use or occupy the land or building or
renew the right of use or occupation, the renewed right of use or occupation is deemed to be the same
right of use or occupation as the right of use or occupation previously held by you.
These provisions do not apply if you carry a banking, financial services or insurance business. It also
does not apply if you enter into an agreement whereby the right of use or occupation of the land or
building is granted to another person, unless the land or building is occupied by the other person and
the other person is a company that is a member of the same group of companies as you in terms of the
agreement, the cost of maintaining the land or building and of carrying out repairs required in
consequence of normal wear and tear is borne by you, and, subject to any claim that you may have
against the other person by reason of the his or her failure to take proper care of
the land or building, the risk of destruction or loss of or other disadvantage to the land or building is not
assumed by the other person.
Recoupments
Amounts deductible under the general deduction formula are taxable if recovered or recouped (see
10.7).
10.15 Airport and port assets
s 12F
You may deduct an annual allowance of 5% of the cost incurred on an ‘airport asset’ or ‘port asset’.
The affected asset must be new and unused and brought into use for the first time by you and used
directly by you solely for the purposes of carrying on your business as terminal or transport operator or
port authority; and you must have actually incurred the cost of its acquisition, including its construction,
erection or installation. Strangely, the deduction is available only to the extent that the asset is used in
the production of your income (see 10.14).
When you complete an improvement that is not owned by you, for example, when it is effected to
someone else’s asset (see 10.14), the expenditure incurred by you to complete the improvement is
deemed to be the cost actually incurred by you on the acquisition of a new and unused affected asset.
The ‘cost’ to you of an affected asset is treated as being the lesser of:
• its actual cost to you; and
• the cost that a person acquiring it under a cash transaction concluded at arm’s length on the date on
which the transaction for its acquisition was in fact concluded would have incurred on the direct cost of
its acquisition, including the direct cost of its installation or erection.
If it has been acquired to replace an asset that has been damaged or destroyed, its ‘cost’ is the lesser of
these two costs less any amount that has been recovered or recouped from the damaged or destroyed
asset and has been excluded from your corporation’s income under the deferred recoupment rules (see
10.7), whether in the current or any previous tax year.
A further special rule applies to an asset that you used in any previous tax years for the purposes of a
trade carried on by you that did not generate receipts or accruals required to be included in your income
during those years. For example, you might have used it in carrying on a trade conducted abroad, before
the introduction of world-wide taxation. All the allowances you would have been entitled to had the
trade been a taxable one are then deemed to have been granted upon the cost of the asset. The result is
that you are limited in claiming future allowances. In other words, this rule has the effect of bringing an
asset into account at its tax value as if it had been depreciated during the period that it was excluded
from the tax system; only its remaining depreciable life is of significance for tax purposes. No deduction
is available on an asset that you have disposed of during a previous tax year.
And the total deductions allowable or treated as being allowable under this 5% annual allowance or any
other deduction or allowance made available on the cost of an asset may not in the aggregate exceed the
amount of its cost.
A scrapping allowance is available on these assets (see 10.58).

Definitions
An ‘airport asset’ is an aircraft hangar, apron, runway or taxiway on a ‘designated airport’. It includes
any earthworks or supporting structures forming part of the aircraft hangar, apron, runway or taxiway
and any improvements to the aircraft hangar, apron, runway or taxiway.
A ‘port asset’ is a port terminal, breakwater, sand trap, berth, quay wall, bollard, graving dock, slipway,
single point mooring, dolos, fairway, surfacing, wharf, seawall, channel, basin, sand bypass, road, bridge,
jetty or off-dock container depot, and includes any earthworks or supporting structures forming part of
such terminal, breakwater, sand trap, berth, quay wall, bollard, graving
dock, slipway, single point mooring, dolos, fairway, surfacing, wharf, seawall, channel, basin, sand
bypass, road, bridge, jetty or depot and any improvements to them.
A ‘designated airport’ is an airport approved by the Minister of Finance, in consultation with the
Minister of Transport, as a designated airport by notice in the Government Gazette.
10.16 Annuities to former employees and partners and
s 11( m)
their dependants
You may deduct:
• The full amount you paid during the tax year by way of an annuity to former employees who have
retired from your employ because of old age, ill-health or infirmity.
• The full amount you paid during the tax year by way of an annuity to a person who was your partner
for at least five years who retired from the partnership because of old age, ill-health or infirmity,
provided that the amount paid to him or her is reasonable if regard is had to the services rendered by
him or her prior to retirement and the profits made in your undertaking, and the amount is not paid for
his or her interest in the partnership.
• The amount you paid during the tax year by way of an annuity to dependants of your former
employees or partners or persons who were dependent upon your former employees or partners before
they died.
An amount deducted in this way will be taxable if it is recovered or recouped (see 10.7).
10.17 Books
ss 3(4), 11( e)
University professors, ministers of religion, judges, professionals and other persons who have to buy
textbooks for the purposes of carrying out their duties may not deduct the cost of these books but are
granted a straight-line depreciation allowance (see 10.28) of 33,33% a year on their cost.
18.6).
This allowance will be taxable if it is recovered or recouped (see 10.7).

Amounts spent on annual supplements and binding costs are deductible in full under the so-called
general deduction formula (see 10.14).
10.18 Buildings – annual allowance
s 13
You may deduct a building annual allowance on qualifying buildings and ‘improvements’ to buildings.
The rate of the allowance is 2% for buildings and improvements commenced on or before 31 December
1988 and 5% for buildings and improvements commenced on or after 1 January 1989.
You may deduct the allowance for certain buildings that you erect and for improvements – but not
repairs – that you effect to buildings, provided that you use the buildings wholly or mainly for the
purposes of carrying on a process of manufacture, research and development (as from 1 April 2012
or a later date determined by the Minister of Finance) or similar process or you let the buildings and
they are used for these purposes by your tenant. Certain purchased buildings also qualify for the
allowance. The allowance is based on the cost to you of the building or improvements less the amount of
any past ‘building initial allowance’ granted on the building or improvements.
deemed to be the cost to you of a qualifying building or improvement. A lessee who has undertaken in
terms of a lease to effect improvements to a building and incurs expenditure greater than the amount
stipulated in the lease (see 10.41) is entitled to the annual allowance on only that amount by
which its expenditure in effecting the improvements exceeds the amount stipulated in the lease and any
past building initial allowance granted on the improvements.
A special rule applies to a building that you used in a previous financial year or in previous financial
years for the purposes of a trade carried on by you that did not generate receipts or accruals required to
be included in your income during those years. For example, you might have used it in carrying on a
trade conducted abroad, before the introduction of world-wide taxation. All the allowances you would
have been entitled to had the trade been a taxable one are then treated as having been granted upon the
cost of the building, with the result that you are limited in claiming future allowances. In other words,
this rule has the effect of bringing a building into account at its tax value as if it had been depreciated
during the period that they were excluded from the tax system; only its remaining depreciable life is of
significance for tax purposes.
The total amount that may be deducted by way of the annual allowance and the initial allowance may
not exceed 100% of the expenditure or portion of the expenditure that qualifies or, under the rule just
described, has been deemed to qualify for the allowances. Any amount of the allowances that is
recovered or recouped is subject to tax (see 10.7).
‘Improvements’ to a building must comprise extensions, additions or improvements – but not repairs –
effected for the purpose of increasing or improving the industrial capacity of the building to qualify for
the annual allowance.
The annual allowance is granted in full even if the buildings or improvements are used for only part of
the tax year.
This allowance is subject to recoupment (see 10.7). Buildings qualifying for the allowance also qualify
for the scrapping allowance (see 10.58).
For the improvement of this allowance under the value-added concessions, see 10.68.
See 13(3).
10.19 Buildings – commercial buildings
ss 3(4), 13 quin
A special deduction for commercial buildings applies as from 1 April 2007 to buildings or improvements
contracted for on or after that date the construction, erection or installation of which commenced or
commences on or after that date. This deduction is not allowed on the cost of buildings or improvements
if any of that cost has qualified or will qualify for another deduction or allowance.
You may deduct from your income an allowance equal to 5% of the cost to you of a new and unused
building owned by you or new and unused improvements to a building owned by you if the building is or
the improvements are wholly or mainly used by you during the tax year for purposes of producing
income in the course of your trade. The allowance is not available for residential accommodation.
deemed to be the cost to you of a qualifying new and unused building or of a qualifying new and unused
improvement to a building.
The cost to you of a building or improvements is for the purposes of the allowance deemed to be the
lesser of the actual cost to you or the cost that you would have incurred on the direct cost of acquisition,
erection or improvement of the building if you had acquired, erected or improved it under a cash
transaction concluded at arm’s length on the date on which the transaction for the acquisition, erection
or improvement of the building was in fact concluded.
To the extent that you acquire a part of a building on or after 21 October 2008 without erecting or
constructing that part, a certain percentage of the acquisition price is deemed to be the cost incurred by
you on the relevant part or improvement. This percentage is 55% of the acquisition
price when a part is acquired and 30% of the acquisition price when an improvement is acquired.
The drafting of this provision is faulty, in so far as it purports to distinguish parts from improvements.
A special rule applies when a building or improvement was during a previous financial year brought into
use for the first time by you for the purposes of a trade carried on by you, the receipts and accruals of
which were not included in your income during that year. Any deduction that could have been allowed
under this provision during that year or any subsequent years in which the asset was used by you is
deemed to have been allowed during the relevant years as if the receipts and accruals of your trade had
been included in your income.
The deduction is not allowed for any building that has been disposed of by you during any previous tax
year.
The deductions that may be allowed or deemed to have been allowed in terms of this provision and any
other provision on the cost of a building or improvement may not in the aggregate exceed the cost.
10.20 Buildings – low-cost residential units sold to
ss 1, 13 sept
employees on loan account
You are allowed a deduction on the disposal of low-cost residential units to your employee or an
employee of your associated institution (see 5.4). This deduction is an amount equal to 10% of any
amount owing to you by your employee in respect of the unit at the end your tax year. No deduction is,
however, allowed in the eleventh and subsequent tax years after the disposal of the unit.
The deduction is not allowed in any of the following circumstances:
• If the disposal is subject to a condition other than one in terms of which the employee is, on
termination of employment or in the event of his or her consistent failure for a period of three months to
pay an amount owing to you (or your associated institution) for the unit, required to dispose of the unit
to you or your associated institution for an amount equal to the actual cost (other than borrowing or
finance costs) to him or her of the unit and the land on which it is erected.
• If the employee must pay you interest on the amount owing to you for the unit.
• If the disposal to the employee is for an amount that exceeds the actual cost (other than borrowing or
finance costs) to you of the unit and the land on which it is erected.
If the amount owing to you or any part of it is paid to you, you are deemed to have recovered or
recouped an amount equal to the lesser of the amount paid and the amount allowed as a deduction to
you in the current and previous tax years.
A ‘low-cost residential unit’ is defined as:
• an apartment qualifying as a residential unit in a building located within South Africa where the cost of
the apartment does not exceed R350 000 (R250 000 prior to 1 April 2013); and the owner of the
apartment does not charge a monthly rental for the apartment that exceeds 1% of the cost; or
• a building qualifying as a residential unit located within South Africa where the cost of the building
does not exceed R300 000 (R200 000 prior to 1 April 2013) and the owner of the building does not
charge a monthly rental for the building that exceeds 1% of the cost contemplated above plus a
proportionate share of the cost of the land and the bulk infrastructure.
The cost is deemed to be increased by 10% in each year succeeding the year in which the apartment or
building is first brought into use.
A ‘residential unit’, in turn, is defined as a building or self-contained apartment mainly used for
residential accommodation, unless the building or apartment is used by a person in carrying on a trade
as an hotel keeper.
10.21 Buildings – residential units: initial and
ss 13 ter, 13 sex
annual allowances
You may deduct a 10% initial allowance and 2% annual allowances on the cost to you of the erection of a
‘residential unit’ as part of a ‘housing project’.
deemed to be the cost to you of a qualifying residential unit.
A ‘residential unit’ comprises self-contained residential accommodation consisting of more than one
room but not a hostel, hotel or similar accommodation, the erection of which commenced on or after 1
April 1982 and before 21 October 2008, that you erected under your ‘housing project’ in order to let it to
a tenant at a profit or to allow it to be occupied by one of your full-time employees. A ‘housing project’,
in turn, is a project for the erection of a building or buildings in South Africa consisting of or including at
least five residential units.
A company mainly engaged in the provision of housing facilities for the employees of its sole or principal
holder of shares or for the employees of any other company the shares in which are held wholly by its
holding company may treat the employees concerned as its own employees for the purposes of these
allowances, and the accommodation erected for them may thus qualify for the allowances. To a certain
extent this rule applies also to a close corporation.
You may deduct the initial allowance for a residential unit in the year in which the unit is first let or
occupied. If, however, fewer than five units are first let or occupied at the end of that year, you may not
claim the initial allowance in that year but must instead wait until a subsequent year in which at least
five units are let or occupied before claiming the allowance. You must claim the first annual allowance
for the unit in the same year.
A special rule applies to a building that you used in a previous financial year or in previous financial
years for the purposes of a trade carried on by you that did not generate receipts or accruals required to
be included in your income during those years. For example, you might have used it in carrying on a
trade conducted abroad, before the introduction of world-wide taxation. All the allowances you would
have been entitled to had the trade been a taxable one are then treated as having been granted upon the
cost of the building, with the result that you are limited in claiming future allowances. In other words,
this rule has the effect of bringing a building into account at its tax value as if it had been depreciated
during the period that it was excluded from the tax system; only its remaining depreciable life is of
significance for tax purposes.
The total amount that may be deducted by way of the initial allowance and the annual allowances may
not exceed 100% of the cost or the portion of the cost that qualifies for these allowances. But the
allowances you are regarded as having enjoyed under the rule just described are treated for this
purpose as if they were actually deducted.
The initial allowance and the annual allowances may not be claimed on any portion of the cost of a
residential unit that qualifies or will qualify for any other deduction, for example, to the extent that it
qualifies for the deduction as a leasehold improvement (see 10.41).
You may not deduct the allowances for the cost of a residential unit erected on premises not owned by
you unless, on the date on which the erection of the unit is commenced, you are entitled to the
occupation of the premises for a period ending not less than ten years after the date on which the
erection commenced.
Should any unit no longer be available for letting or occupation in the required manner in a particular
year, you must include in your income for that year the whole or portion of the initial allowance
previously claimed, depending upon the period during which the unit was available for letting or
occupation. No such inclusion is required when the allowance was merely treated as having been
allowed to you under the rule just described. In addition, you may not claim an annual allowance in that
year or in any succeeding year in which the unit remains unavailable for letting or occupation.
The unit will also not qualify for a scrapping allowance.
The initial allowance is subject to tax if it is recovered or recouped (see 10.7) but not to the extent that it
is included in your income when a unit becomes unavailable for letting or occupation. You may claim a
scrapping allowance for a residential unit only if it is scrapped more than ten years from the date of
erection of the unit.
Residential units and improvements acquired or erected on or after 21 October 2008
You may deduct a 5% annual allowance on the cost to you of a new and unused residential unit or a new
and unused improvement to such a unit owned by you if the unit or improvement is used by you solely
for the purposes of a trade carried on by you, it is situated within South Africa and you own at least five
residential units within South Africa that are used by you for the purposes of a trade carried on by you. If
the unit in question is a low-cost residential unit, you may also deduct an additional allowance of 5% of
its cost in each tax year.
deemed to be the cost to you of a qualifying new and unused residential unit or a qualifying new and
unused improvement to a residential unit. The cost to you of a residential unit or improvement is for the
purposes of these deductions deemed to be the lesser of the actual cost to you or the cost that you would
have incurred on the direct cost of acquisition or erection of the unit or improvement if you had
acquired or improved it under a cash transaction concluded at arm’s length on the date on which the
transaction for the acquisition of the unit was in fact concluded.
The usual special rule applies to a residential unit or improvement that you used in any tax year for the
purposes of a trade carried on by you that did not generate receipts or accruals required to be included
in your income during those years. For example, you might have used it in carrying on a trade conducted
abroad, before the introduction of world-wide taxation. All the allowances you would have been entitled
to had the trade been a taxable one are then treated as having been allowed to you, with the result that
you are limited in claiming future allowances. In other words, this rule has the effect of bringing a unit
into account as if it had been used and the deductions had been claimed during the period that it was
excluded from the tax system.
The deductions are not allowed for a residential unit or improvement that has been disposed of by you
during any previous tax year.
The deductions for residential units and improvements are not allowed if any part of the cost has
qualified or will qualify for any other deduction.
The deductions dealt with here that may be allowed or are deemed to have been allowed on the cost of
the residential unit or improvement may not in the aggregate exceed that cost.
To the extent that you acquire residential unit or improvement representing a part of a building without
erecting or constructing that unit or improvement, a certain percentage of the acquisition price, is
deemed to be the cost incurred by you on the unit or improvement. This percentage is 55%
of the acquisition price when a unit is acquired and 30% of the acquisition price when an improvement
is acquired.
10.22 Buildings – urban development zones
s 13 quat
You may deduct from your income (see 14.3) an allowance on the ‘cost’ of the erection, extension,
addition or improvement of a commercial or residential building or part of a building that is owned by
you and is used solely for the purposes of your trade (see 10.14) within an ‘urban development zone’.
The erection, extension, addition or improvement must have been commenced by you or the developer
on or after the date of publication of a notice in the Government Gazette by the Minister of Finance
(described below) covering the particular urban development zone under a contract formally and finally
signed by all the parties to it on or after that date. In addition, the erection,
extension, addition or improvement by you or the developer must cover either the entire building or a
floor area of at least 1 000m2 of the building.
When the taxpayer purchased the building or part of a building from a developer, the agreement to
purchase must have been concluded on or after 8 November 2005, the developer must not have claimed
this allowance for the building or part and, if the developer improved the building or part as
contemplated below, the developer must have incurred expenditure on the improvements equal to at
least 20% of the purchase price paid by the taxpayer in respect of the building or part.
Moreover, for buildings the erection, extension, addition or improvement of which commenced before
21 October 2008, a ‘certificate of occupancy’ must have been granted for the building or part erected,
extended, added to or improved.
If a taxpayer completes an improvement that is not owned by it, for example, when it is effected to
someone else’s asset (see 10.14), the expenditure incurred by it to complete the improvement is deemed
to be the cost to it of the qualifying erection, extension, addition or improvement.
Amount of allowance
On the erection of a new building or the extension of or addition to a building, the allowance amounts to
20% of the cost to you of the erection or extension of or addition to the building. This is deductible in the
tax year during which the building is brought into use by you solely for the purposes of your trade. In
each of the ten succeeding tax years, the allowance is 8% of that cost. (For buildings the erection,
extension, addition or improvement of which commenced before 21 October 2008, the allowance was
5% in each of the sixteen years succeeding that in which the building was brought into use.)
This allowance is unavailable on a building qualifying for the following, accelerated allowance:
• On the improvement of an existing building or part of a building, including an extension or addition

that is incidental to the improvement, as long as the existing structural or exterior framework of the
building is preserved, the allowance amounts to 20% of the cost to you of the improvement, extension or
addition. This is deductible in the tax year during which the improved, extended or added-to part of the
building is brought into use by you solely for the purposes of you trade. In each of the four succeeding
tax years, the allowance is 20% of that cost.
Low-cost residential units
On the erection of a new building or the extension of or addition to a building commenced on or after 21
October 2008, to the extent that it relates to a low-cost residential unit, the allowance amounts to 25%
of the cost to you of the erection or extension of or addition to the building. This is deductible in the tax
year during which the building is brought into use by you, 13% of the cost in each of the five succeeding
tax years and 10% of the cost in the following tax year.
This allowance is unavailable on a building qualifying for the following, accelerated allowance:
• On the improvement of an existing building or part of a building, to the extent that it relates to a low-
cost residential unit, including an extension or addition that is incidental to the improvement, as long as
the existing structural or exterior framework of the building is preserved, the allowance amounts to
25% of the cost to you of the improvement. This is deductible in the tax year during which the part of the
building improved is brought into use by you. In each of the three succeeding tax years, the allowance is
25% of that cost.
Building purchased from developer
A certain portion of the purchase price of a building or part is deemed to be the cost incurred by you in
respect of the erection, extension, addition to or improvement of the building or part for the purposes of
the determination of the allowance when you purchase a building or part of a building from a developer.
This part is 55% of the purchase price of the building or part, if it is a new building erected, extended or
added to by the developer and 30% of the purchase price of the building or part, if it is a building
improved by the developer. This rule applies to both low-cost residential units and other qualifying
buildings.
Prohibitions against deduction
A deduction is prohibited unless, together with your tax return for the tax year in which you claim either
of the initial 20% allowances, you provide the Commissioner for SARS with:
• A certificate issued by the municipality to the taxpayer confirming that the building is located within an
urban development zone within that municipality.
• The total of the costs to you (unless you purchased it from a developer) of the erection, extension,
addition or improvement.
• The extent to which those costs relate to a portion of a building.
• Information showing whether the costs referred to above were incurred on the erection or extension
or addition to a new building qualifying for the 20%/5% allowance or on the improvement of a building
qualifying for the 20%/20% allowance.
• If you purchased the building or part of a building from a developer, the purchase price of the building
or part, the amount of the purchase price deemed to be a cost incurred by you in terms of the rule
described under the heading ‘Building purchased from developer’ above and a certificate from the
developer in the form prescribed by the Commissioner confirming that the relevant requirements for
the allowance have been met.
A deduction is also prohibited on a building or part of a building that you have ceased to use solely for
purposes of your trade during any previous tax year in or prior to which an allowance was claimed or
that has been disposed of by you during any previous tax year, as well as a building or part that is
brought into use by you after 31 March 2020.
Demarcation by a municipality
One area may be demarcated by a municipality, on the following basis:
• The area is a developed urban location with the municipality of Buffalo City, Cape Town, Ekurhu-leni,
Emalahleni, Emfuleni, eThekwini, Johannesburg, Mahikeng, Mangaung, Matjhabeng, Mbom-bela,
Msunduzi, Nelson Mandela, Polokwane, Sol Plaatje or Tshwane.
• The area is demarcated through a formal resolution by the municipal council.
• The area is prioritized in the municipality’s integrated development plan adopted and undertaken
under Chapter 5 of the Local Government: Municipal Systems Act 32 of 2000 as a priority area for
further investments to promote business or industrial activity or residential settlements to support such
activity.
• The area proportionately contributes or previously contributed a significant portion of the total
revenue collections for all areas located within the current boundaries of the municipality, as measured
in the form of property rates or assessed property values, and where the contribution from that area is
undergoing a sustained real or nominal decline.
• Significant fiscal measures have been implemented by the municipality to support the regeneration of
that area, including the appropriation of significant funds for developing the area in its annual budget,
special tariffs for categories of residential, commercial or industrial users or partnership arrangements
with the business community for the promotion of urban development within that area.
Alternatively, that area may be approved by the Minister by notice in the Gazette after application by the
municipality in the prescribed form and manner and at the prescribed place and time if the area
complies with criteria prescribed by the Minister by regulation.
Area limitations
The area demarcated by a municipality with a population of not more than 500 000 persons may not
exceed a total area of 150 hectares.
The area demarcated by a municipality with a population of more than 500 000 persons may not exceed
150 hectares plus 20 hectares for each additional 100 000 persons included in its population.
The area demarcated may exceed these limits if the municipality proves to the Minister of Finance that
the excess area is integrally related to the area within the limit; it can prove to the Minister that sound
economic reasons exist for demarcating a larger area; and the Minister is satisfied that the demarcation
of the excess area would fall within Government’s affordability constraints.
The municipal council of a municipality with a population of 1 million (2 million prior to 1 January 2016)
persons or more may demarcate two areas in lieu of the one area ordinarily demarcated, as long as the
two areas do not in total exceed the one area laid down for a municipality with a population of more
than 500 000 persons, and each area otherwise satisfies the ordinary demarcation requirements. The
Minister of Finance may also approve a municipality with a population of less than 1 million persons for
this purpose.
A municipality’s population is set by the population figures as determined by Statistics South Africa in
the Census for 2011, although its total population must be rounded off to the nearest multiple of 100
000.
Publication of notice
The Minister of Finance must publish by notice in the Government Gazette particulars of an area
demarcated by a municipality after it has proved to him or her that the area so demarcated complies
with the demarcation rules.
Annual municipal report
Every municipality is required to provide a report annually to the Commissioner for SARS and the
Minister of Finance for each urban development zone located within that municipality containing such
information, within such time and in such manner as is prescribed by the Minister.
Defaulting municipalities
Should a municipality not provide the required annual report or should the Commissioner report to the
Minister of Finance that it has issued a location certificate for a building located outside an urban
development zone and it fails to take corrective steps within a period specified by the Minister, he or she
may withdraw the notice published by him for that municipality, covering contracts formally and finally
signed by all parties on or after the date of the withdrawal.
Developer’s report
A developer who erects, extends, adds to or improves a building within an urban development zone
must, if the estimated cost of the erection, extension, addition or improvement is likely to exceed R5
million, inform the Commissioner within thirty days after commencement of the erection, extension,
addition or improvement of the estimated costs of the building or the parts that he or she intends to sell
and the estimated selling price of that building or those parts. And the developer must inform the
Commissioner within thirty days after the sale of the building and after all anticipated sales of any parts
of the building of the actual costs incurred in respect of that building or those parts and the actual selling
price of that building or those parts.
If the Commissioner has reason to believe that the information provided in the developer’s certificate is
not correct, he must disallow the allowance, unless sufficient information is provided to him to prove
that the information contained in the certificate is correct.
Commissioner’s annual report
On the annual basis, the Commissioner must submit a report to the Minister of Finance containing
information relating to the number of taxpayers who or that during the relevant year have claimed this
allowance, the total amount of the deductions by taxpayers allowed in that year under this allowance;
and the total amount of the costs to those taxpayers that are or will be allowable as a deduction under
this allowance.
Definitions
‘Cost’ is defined as the costs you actually incurred in erecting or extending, adding to or improving a
building or part of a building. It includes the costs you incurred in demolishing any existing building or
part of a building. It also includes the costs you incurred in excavating the land for purposes of the
erection, extension, addition or improvement of a building. And it also includes the costs you incurred on
structures or works directly adjoining the building or part erected, extended, added to or improved for
the purposes of providing water, power or parking for the building or part, drainage or security for the
building or part, means of waste disposal for the building or part, and access to the building or part,
including its frontage. Altogether excluded are borrowing and finance costs.
A ‘developer’ is defined as a person who erects, extends, adds to or improves a building or part of a
building with the purpose of disposing of it immediately after completion of the erection, extension,
addition or improvement and disposes of the building or part within three years after completion of the
erection, extension, addition or improvement.
‘Purchase price’ is defined, in relation to a building or part of a building purchased by you as the lesser
of:
• the actual cost to you of the purchase of the building or part; or
• the cost that a person would have incurred had he or she purchased the building or part under a cash
transaction concluded at arm’s length on the date on which you purchased the building or part.
An ‘urban development zone’ is an area demarcated by a municipality in the manner described above,
provided that its particulars have been published in the Government Gazette in the manner also
described above.
10.23 Compensation for railway operating losses
s 11 sex
You may deduct the amount of any compensation that you are obliged to pay, whether directly or
through a trade association, in connection with your trade to Transnet Limited for losses incurred by it
in operating a line constructed in terms of a written agreement with it.
This deduction will be taxable if it is recovered or recouped (see 10.7).
10.24 Debtors – allowance for instalment sales
ss 3(4), 24
When you sell goods on an instalment sale you are treated as having derived the full selling price on the
date that you conclude the sale.
You are required to make a distinction between the actual selling price and the finance charges you will
have levied. While the selling price, exclusive of the finance charges, is treated in the manner described,
the finance charges must be dealt with on the basis that they will be earned under an income instrument
(see 7.6), that is, on a day-by-day basis.
You may deduct from your income a percentage of your instalment debts outstanding on the last day of
the tax year as reduced by the amount of any allowance for bad or doubtful debts. This percentage is
your gross-profit percentage on your instalment trading, that is: Gross profit on instalment sales
× 100
Instalment sales
In effect, you pay tax only on that portion of your gross profit that you receive in cash.
Any deduction made in one year must be added back to your income in the following year, when a fresh
allowance may be claimed.

This allowance is available only when at least 25% of the outstanding selling price of the goods that you
are to receive from your customer becomes due and payable to you after a period of at least twelve
months from the date of the sale.
18.6).
10.25 Debtors – bad debts
s 11( i)
You may deduct the amount of any of the debts owing to you that have become bad during the tax year,
provided that the amount of the debt was at some stage included in your income.
You would not, for example, be entitled to a deduction if a debt for a loan proved to be bad, since the
amount involved would not previously have been included in your income. Usually, only a money-lender
may claim such a deduction. But loans to your employees that prove to be irrecoverable are deductible
under the so-called general deduction formula (see 10.14). Non-deductible bad debts might nevertheless
be relevant to your liability for the capital gains tax (see 21.8).
10.26 Debtors – doubtful debts allowance
ss 3(4), 11( j), ( j A)
Doubtful debts allowance (s 11)( j))
This is an allowance on a qualifying debt due to you, if that debt would have been allowed as a deduction
had it become bad. The amount of the allowance depends upon whether you apply IFRS 9 to the debt for
financial reporting purposes.
IFRS 9 is applied to the debt for financial reporting purposes
The amount of the allowance is the sum of:
• 40% of the aggregate of –
– the loss allowance for impairment measured at an amount equal to the lifetime expected credit loss, as
contemplated in IFRS 9, on a debt (but not ‘lease receivables’ as defined in IFRS 9); and
– the amounts of debts included in your income (see 1.1) in the current or any previous tax year
disclosed as bad debts written off for financial reporting purposes but that have not been allowed as a
deduction under the general deduction formula (see 10.14) or the bad debts allowance (see 10.25) for
the current or any previous tax year; and
• 25% of the loss allowance relating to impairment, as contemplated in IFRS 9, on any other debt (but
not ‘lease receivables’ as defined in IFRS 9).
IFRS 9 is not applied to the debt for financial reporting purposes The amount of the allowance is the sum of:
• 40% of so much of a debt (excluding a IFRS 9 debt), if that debt is 120 days or more in arrears; and
• 25% of so much of a debt (excluding a IFRS 9 debt and a 40% debt), due to you, if that debt is 60 days
or more in arrears.
An allowance you claim in one tax year is included in your income of the following tax year.
You may apply to the Commissioner for SARS to issue a directive, increasing the 40% rate, whether or
not under IFRS 9, to a percentage not exceeding 85%. The Commissioner must take into account the
history of a debt owed to you, including the number of repayments not met, and its duration; the steps
taken to enforce repayment; the likelihood of recovery; any security available; the criteria you applied in
classifying debt as bad; and any other relevant considerations.
Impairment allowance (s 11( jA))
From 1 January 2018: A further allowance is available equal to 25% of the loss allowance relating to
impairment, as contemplated in IFRS 9, other than for ‘lease receivables’ as defined in IFRS 9, if the
person is a covered person (see 10.76), excluding a ‘controlling company’ as defined in the Banks Act 94
of 1990), that is a ‘bank’, ‘branch’ or a ‘branch of a bank’ or a qualifying company or trust forming part of
a ‘banking group’, all as defined in s 1 of the Banks Act.
The allowance must, however, be increased to:
• 85% of so much of that loss allowance relating to impairment as is equal to the amount that is in
default, as determined by applying to any credit exposure, including any retail exposure, certain criteria
in the definition of ‘default’ in the regulations issued under s 90 of the Banks Act; and
• 40% of so much of that loss allowance relating to impairment as is equal to the difference between:
– the amount of the loss allowance relating to impairment that is measured at an amount equal to the
lifetime expected credit losses; and
– the amount that is in default as determined under the first bulleted item above.
The allowance must be included in the taxpayer’s income in the following tax year.
10.27 Depreciation (wear-and-tear) allowance
ss 1, 3(4), 11( e), 23D
You may deduct a depreciation allowance on the cost of vehicles, machinery, plant, implements, utensils
and articles owned by you or acquired by you as purchaser in terms of an ‘instalment credit agreement’
as defined in the Value-Added Tax Act 89 of 1991 and used for the purposes of your trade. The
allowance may not be deducted for assets whose ownership is retained by you as a seller in terms of
such an ‘instalment credit agreement’.
Finance charges must be excluded from the cost of an asset acquired under an instalment or a
suspensive sale for the purposes of the calculation of the depreciation on the asset. These are deductible
under another provision (see 10.38).
The ‘cost’ of an asset for the purposes of the depreciation allowance is the cost that you would have
incurred on acquiring the asset, including the direct cost of installation or erection, had you acquired it
under a cash transaction concluded at arm’s length on the date on which the transaction was in fact
concluded.
When you incur expenditure in moving an asset from one place to another the cost of the removal is not
deductible since it is of a capital nature (see 10.14) but may be added to the tax value or cost of the asset
for the purposes of the calculation of the depreciation allowance.
When you buy an asset in a foreign currency depreciation is thought to be based on an amount equal to
the equivalent in rands of the amount owing for the asset in the foreign currency at the date of its
acquisition. No adjustment is made for subsequent fluctuations in the rate of exchange, which are
subject to special provisions (see 10.74 and 10.75).
When you acquire an asset for no consideration, for example, by donation or as a bequest, depreciation
is allowed on the retail market value of the asset at the date of its acquisition.
Buildings and other permanent structures do not qualify for the depreciation allowance, although
industrial buildings may qualify for the building annual allowance (see 10.18). Nevertheless, the moving
parts of a lift, air-conditioning equipment, certain demountable partitions inside a building and
qualifying foundations or supporting structures for machinery, plant, implements, utensils or articles
may be depreciated.
You also may not claim this allowance on certain assets used for security purposes (see 10.59).
A special rule applies to an asset that you used in a previous tax year or in previous tax years for the
purposes of a trade carried on by you that did not generate receipts or accruals required to be
included in your income during those years. For example, you might have used it in carrying on a trade
conducted abroad, before the introduction of world-wide taxation. All the allowances you would have
been entitled to had the trade been a taxable one are then treated as having been granted upon the cost
of the asset, with the result that you are limited in claiming future allowances.
In other words, this rule has the effect of bringing an asset into account at its tax value as if it had been
depreciated during the period that it was excluded from the tax system; only its remaining depreciable
life is of significance for tax purposes.
Depreciation is usually allowed as a fixed percentage of the tax value of the asset – the so-called
reducing-balance basis. For example, if the cost of an asset on 1 March is R10 000 and depreciation is
allowed at 10% a year, under the reducing-balance basis the depreciation would be R1 000
(10% of R10 000) in the first year, while the tax value of the asset would be R9 000 (that is, R10 000
less R1 000) at the end of that year. Depreciation of R900 (10% of R9 000) would then be allowed in the
second year, and the tax value would be reduced to R8 100 (R9 000 less R1 900) at the end of that year.
If you wish to do so, you may choose to claim depreciation as a fixed percentage of the cost of an asset
each year – the so-called straight-line basis – instead of applying the reducing-balance basis. In the
example above, if you had applied the straight-line basis and the asset had an anticipated useful life of
ten years, your depreciation each year would have been R1 000 (10% of R10 000), and the asset would
have had a tax value of R9 000 (R10 000 less R1 000) at the end of the first year and R8 000 (R9 000 less
R1 000) at the end of the second year.
If you choose the straight-line basis, you must maintain adequate records and apply the same basis to all
assets of the same class.
If you have in the past claimed depreciation on the reducing-balance basis, you may change to the
straight-line basis, in which event you will be allowed to write off the remaining tax value of the asset on
the date of the changeover in equal instalments on the straight-line basis over its remaining life. If you
do decide to change, you must notify SARS of your decision when submitting your tax return for the
relevant tax year.
If you have chosen the straight-line basis, you are allowed an immediate write-off for small items costing
less than R7 000 per item (a special rule applies to groups of low-priced items). You may also apply for a
higher rate of depreciation or a shorter write-off period for assets used for more than one shift.
If you are an artisan or technician and have to provide your own tools for use in carrying on your trade
you are entitled to a tool allowance of R75.
If an asset was used only for part of a tax year, the depreciation allowance in that year must be reduced
proportionately; depreciation is based on the period for which it has been used.
Once the tax value of an asset has been written down to nil no further depreciation allowance may be
claimed, and you should bring it to account at a residual value of R1 for record purposes.
Apart from the 20% or 33,33% straight-line depreciation and special provisions applying to, for
example, commercial buildings (see 10.19), factory buildings (see 10.18), ‘residential units’
(see 10.21), hotel buildings (see 16.11), storage buildings used by co-operatives (see 16.7), buildings in
urban development zones (see 10.22), airport and port assets (see 10.15), certain assets of small
business corporations (see 16.33), rolling stock (see 10.57), ships (see 16.31) and aircraft (see 16.1), no
fixed rates of depreciation or write-off periods have been laid down, and rates are subject to agreement
with SARS. Nevertheless, the authorities have published a list of acceptable
‘straight-line’ rates (see 10.28). A list of the usual rates and write-off periods allowed for the more
commonly used assets is given in 10.28.
The ordinary depreciation allowance is unavailable on machinery, plant, implements, utensils and
articles qualifying for 50/30/20 depreciation, the 20% or 33,33% straight-line depreciation, the
allowance for rolling stock, the 100% allowance for small business corporations, the additional
deduction
for roads and fences involved in the production of renewable energy and the deductions for
environmental expenditure.
18.6).
For some lessors of machinery or plant, a special rule limits the amount of this allowance (see 8.4).
There is also a special rule for depreciable assets (see 10.7) that you let or license to a lessee or licensee,
that were held within a period of two years preceding the commencement of the lease or licence by your
lessee or licensee, or by a sub-lessee or sub-licensee or by their connected person.
Your allowance on the asset must then be calculated on an amount not exceeding the amount
determined under the rules set out in 8.5.
The depreciation allowance – but not an allowance you are treated as having been granted – is subject to
tax if recovered or recouped (see 10.7) and is taken into account in the calculation of any scrapping
(termination) allowance (see 10.58). An artificial recoupment will arise if you donate or distribute as a
dividend or dispose of to your connected person an asset that has qualified for the depreciation
allowance (see 10.7).
Connected persons
A ‘connected person’ is:
• In relation to a natural person, his or her relatives (see item 17 in 12.4) and any trust other than a
collective investment scheme (unit trust) of which he or she is or any of them are ‘beneficiaries’.
• In relation to a trust other than a unit trust, its beneficiaries and their connected persons.
• In relation to a connected person in relation to a trust other than a unit trust, any other person who is a
connected person in relation to that trust.
• In relation to the members of a partnership, the other members and their connected persons.
• In relation to a company (see 14.1), any other company that would be part of the same group of
companies as that company if the holdings required by the definition of a ‘group of companies’
(see 22.1) were ‘more than 50 per cent’ instead of ‘more than 70 per cent’ – but not companies dealt
with in the Companies Act 71 of 2008 – who alone or jointly with their connected persons hold, directly
or indirectly, at least 20% of the equity shares (see 14.7) in the company or the voting rights in the
company; any other company holding at least 20% of the equity shares (see 14.7) in the target company
in circumstances in which no shareholder holds the majority voting rights in the target company; any
other company that is managed or controlled by that company’s connected person or any other person
who is a connected person of that connected person; and, if the company is a close corporation, its
members, their relatives, trusts that are their connected persons and any other close corporations or
companies that are connected persons of those members, relatives or trusts.
• In relation to someone who is a connected person of any other person, that other person.
10.28 Depreciation – usual rates
Asset
Proposed write-off period
(in years)
Adding machines ...............................................................................................
Air conditioners:
Window type .......................................................................................................
6
Mobile .................................................................................................................
Room unit ...........................................................................................................
10
continued
Asset
(in years)
Air conditioning assets ( excluding pipes, ducting and vents):
Air handling units ...............................................................................................
20
Cooling towers ...................................................................................................
15
Condensing sets ................................................................................................
15
Chillers:
Absorption type ..................................................................................................
25
Centrifugal ..........................................................................................................
20
Aircraft: Light passenger or commercial helicopters ........................................
Arc welding equipment ......................................................................................
Artefacts .............................................................................................................
25
Balers .................................................................................................................
Battery chargers .................................................................................................
Bicycles ..............................................................................................................
Boilers ................................................................................................................
Bulldozers ..........................................................................................................
Bumping flaking .................................................................................................
Carports .............................................................................................................
Cash registers ....................................................................................................
Cell phone antennae ..........................................................................................
Cell phone masts ...............................................................................................
10
Cellular telephones ............................................................................................
Cheque writing machines ..................................................................................
Cinema equipment .............................................................................................
Cold drink dispensers ........................................................................................
Communication systems ....................................................................................
5
Compressors ......................................................................................................
Computers:
Main frame/servers ..............................................................................................
Personal .............................................................................................................
Computer software (main frames):
Purchased ..........................................................................................................
Self-developed ...................................................................................................
Computer software (personal computers) .........................................................
Concrete mixers (portable) ................................................................................
Concrete transit mixers ......................................................................................
Containers (large metal type used for transporting freight) ..............................
10
Crop sprayers ....................................................................................................
Curtains ..............................................................................................................
Debarking equipment ........................................................................................
Delivery vehicles ................................................................................................
Demountable partitions ......................................................................................
6
Dental and doctors equipment ..........................................................................
Dictaphones .......................................................................................................
Drilling equipment (water) ..................................................................................
Drills ...................................................................................................................
Electric saws ......................................................................................................
continued
Asset
(in years)
Electrostatic copiers ..........................................................................................
Engraving equipment .........................................................................................
Escalators ...........................................................................................................
20
Excavators ..........................................................................................................
Fax machines .....................................................................................................
Fertiliser spreaders ............................................................................................
Firearms .............................................................................................................
6
Fire extinguishers (loose units) ..........................................................................
Fire detection systems .......................................................................................
Fishing vessels ...................................................................................................
12
Fitted carpets .....................................................................................................
Food bins ...........................................................................................................
Food-conveying systems ...................................................................................
Fork-lift trucks .....................................................................................................
Front-end loaders ...............................................................................................
Furniture and fittings ..........................................................................................
Gantry cranes .....................................................................................................
Garden irrigation equipment (movable) .............................................................
Gas cutting equipment ......................................................................................
Gas heaters and cookers ...................................................................................
Gearboxes ..........................................................................................................
Gear shapers .....................................................................................................

6
Generators (portable) ........................................................................................
Generators (standby) .........................................................................................
15
Graders ..............................................................................................................
Grinding machines .............................................................................................
Guillotines ...........................................................................................................
Gymnasium equipment:
Cardiovascular equipment .................................................................................
Health testing equipment ...................................................................................
Weights and strength equipment .......................................................................
Spinning equipment ...........................................................................................
Other ..................................................................................................................
10
Hairdressers’ equipment ....................................................................................
Harvesters ..........................................................................................................
Heat dryers .........................................................................................................
Heating equipment .............................................................................................
6
Hot water systems ...............................................................................................
Incubators ...........................................................................................................
Ironing and pressing equipment ........................................................................
Kitchen equipment .............................................................................................
Knitting machines ...............................................................................................
Laboratory research equipment ........................................................................
Lathes .................................................................................................................
Laundromat equipment ......................................................................................
Law reports: Sets (Legal practitioners) ..............................................................
continued
Asset
(in years)
Lift installations (goods/passengers) .................................................................
12
Medical theatre equipment ................................................................................
6
Milling machines ................................................................................................
Mobile caravans .................................................................................................
Mobile cranes .....................................................................................................
Mobile refrigeration units ...................................................................................
Motors ................................................................................................................
Motorcycles ........................................................................................................
Motorised chainsaws .........................................................................................
Motorised concrete mixers ................................................................................
Motor mowers .....................................................................................................
Musical instruments ...........................................................................................
Navigation systems ............................................................................................
10
Neon signs and advertising boards ...................................................................
10
Office equipment – electronic ............................................................................
Office equipment – mechanical .........................................................................
Oxygen concentrators .......................................................................................
3
Ovens and heating devices ...............................................................................
Ovens for heating food ......................................................................................
Packaging and related equipment ....................................................................
Paintings (valuable) ............................................................................................
25
Pallets .................................................................................................................
Passenger cars ..................................................................................................
Patterns, tooling and dies ..................................................................................
Pellet mills ..........................................................................................................
Perforating equipment .......................................................................................
Photocopying equipment ...................................................................................
Photographic equipment ...................................................................................
Planers ...............................................................................................................
Pleasure craft, etc. .............................................................................................
12
Ploughs ..............................................................................................................
Portable safes ....................................................................................................
25
Power tools (hand-operated) .............................................................................
Power supply ......................................................................................................
Public address systems .....................................................................................
Pumps ................................................................................................................
Race horses .......................................................................................................
Radar systems ...................................................................................................
Radio communication equipment ......................................................................
Refrigerated milk-tankers ...................................................................................
Refrigeration equipment ....................................................................................
Refrigerators .......................................................................................................
Runway lights .....................................................................................................
Sanders ..............................................................................................................
Scales .................................................................................................................
Security systems (removable) ............................................................................
continued
Asset
(in years)
Seed separators .................................................................................................
Sewing machines ...............................................................................................
Shakers ..............................................................................................................
Shop fittings .......................................................................................................
Solar energy units ..............................................................................................
Special patterns and tooling ..............................................................................
Spin dryers .........................................................................................................
Spot welding equipment ....................................................................................
Staff training equipment .....................................................................................
Surge bins ..........................................................................................................
Surveyors:
Instruments .........................................................................................................
10
Field equipment .................................................................................................
5
Tape-recorders ..................................................................................................
Telephone equipment ........................................................................................
Television and advertising films .........................................................................
Television sets, video machines and decoders ................................................
Textbooks ...........................................................................................................
Tractors ..............................................................................................................
Trailers ................................................................................................................
Traxcavators .......................................................................................................
Trolleys ...............................................................................................................
Trucks (heavy duty) ............................................................................................
Trucks (other) .....................................................................................................
Truck-mounted cranes .......................................................................................
Typewriters .........................................................................................................
Vending machines (including video game machines) ......................................
Video cassettes ..................................................................................................
2
Warehouse racking ............................................................................................
10
Washing machines .............................................................................................
Water distillation and purification plant ..............................................................
12
Water tankers .....................................................................................................
Water tanks ........................................................................................................
Weighbridges (movable parts) ..........................................................................
10
Wire line rods .....................................................................................................
Workshop equipment .........................................................................................
X-ray equipment .................................................................................................
10.29 Donations to qualifying institutions See
19.1
10.30 Entertainment
expenses
ss 3(4), 11( a)
You may deduct the entertainment expenditure you incur during the tax year in order to produce your
income if you are self-employed or a company. This deduction will be taxable if it is recovered or
recouped (see 10.7).
10.31 Environmental
matters
ss 12L, 12U, 37B, 37C, 37D
Certain deductions, allowances and exemptions are available for environmental expenditure, energy
efficient savings and certified emission reductions.
Environmental expenditure (s 37B)
First, there is an allowance for a new and unused environmental treatment and recycling asset owned by
you or acquired by you as purchaser in terms of an ‘instalment credit agreement’ as defined in the Value-
Added Tax Act 89 of 1991. The allowance is 40% of the cost of acquiring the asset in the tax year in
which the asset is brought into use by you for the first time and 20% in each succeeding tax year.
Secondly, there is an allowance for a new and unused environmental waste disposal asset owned by you
or acquired by you as purchaser in terms of an ‘instalment credit agreement’ as defined in the Value-
Added Tax Act 89 of 1991. This allowance is 5% of the cost to you of acquiring the asset in the tax year in
which it is brought into use by you for the first time and 5% in each succeeding tax year.
For the purposes of these allowances, the cost to you of an asset is deemed to be the lesser of the actual
cost to you of the asset and the cost that you would have incurred on the direct cost of acquiring it if you
had acquired it under a cash transaction concluded at arm’s length on the date on which the transaction
for the acquisition was in fact concluded.
A special rule applies when an asset qualifying for these allowances was during a previous tax year
brought into use for the first time by you for the purposes of a trade carried on by you, the receipts and
accruals of which were not included in your income during that year. Any deduction that could have
been allowed under this provision during that year or any subsequent year in which the asset was used
by you is deemed to have been allowed during the relevant years as if the receipts and accruals of your
trade had been included in your income.
The deduction is not allowed for any asset that has been disposed of by you during any previous tax
year.
The deductions that may be allowed for assets in terms of this provision may not in the aggregate exceed
the cost of the asset.
Thirdly, a deduction is allowed for any expenditure or loss in respect of decommissioning, remediation
or restoration arising from a trade previously carried on by you, to the extent that the expenditure or
loss is incurred for purposes of complying with any law of South Africa that provides for the protection
of the environment upon the cessation of trade, would otherwise have been allowed as a deduction
under the Income Tax Act had you still been carrying on that trade and is not otherwise allowed as a
deduction. Any assessed loss that is attributable to any such expenditure or loss may be set off against
income derived by you during a tax year even if you are not carrying on any trade during that year.
Definitions
An ‘environmental treatment and recycling asset’ is any air, water and solid waste treatment and
recycling plant or pollution control and monitoring equipment (and any improvement to the plant or
equipment) if the plant or equipment is used in the course of a your trade in a process that is ancillary to
any process of manufacture or another process that, in the Commissioner’s opinion, is of a similar nature
and is required by any law of South Africa for purposes of compliance with measures that protect the
environment.
An ‘environmental waste disposal asset’ is any air, water, and solid waste disposal site, dam, dump,
reservoir, or other structure of a similar nature, or any improvement to them, if the structure is of a
permanent nature, is used in the course of your trade in a process that is ancillary to a process
of manufacture or another process that in the Commissioner’s opinion is of a similar nature and is
required by any law of South Africa for purposes of compliance with measures that protect the
environment.
Environmental conservation and maintenance (s 37C)
Certain deductions are available for expenditure incurred on conservation and maintenance.
First, expenditure that you incur to conserve or maintain land is deemed to be expenditure incurred in
the production of income and for purposes of a trade carried on by you if the conservation or
maintenance is carried out in terms of a biodiversity management agreement with a duration of at least
five years entered into by you in terms of s 44 of the National Environmental Management Biodiversity
Act 10 of 2004 and land used by you for the production of income and for the purposes of trade consists
of, includes or is in the immediate proximity of the land that is the subject of the relevant agreement.
This deduction is ring-fenced in that it may not be allowed to the extent that the relevant expenditure
exceeds your income derived from trade carried on by you on land used as contemplated above in any
tax year. The amount by which the deduction exceeds the relevant income is deemed to be expenditure
incurred by you in the following tax year.
Secondly, an amount equal to the expenditure incurred by you to conserve or maintain land owned by
you is for the purposes of the deduction for donations (see 19.1) deemed to be a donation paid or
transferred by you during the year to the Government for which a receipt has been issued in terms of a
declaration that has a duration of at least thirty years in terms of the relevant provisions of the National
Environmental Management: Protected Areas Act 57 of 2003.
If during the current or a previous tax year either of the abovementioned deductions is or was allowed
to you for expenditure incurred to conserve or maintain land under an agreement or qualifying
declaration and you are subsequently in breach of the agreement or violate the declaration, you must
include in your income for the current tax year an amount equal to the deductions allowed for
expenditure incurred within the period of five years preceding the breach or violation.
Land conservation of nature reserves or national parks (s 37D)
A deduction is allowed in the tax year during which land becomes declared land and in each subsequent
tax year.
The deduction is of an amount equal to 4% of the expenditure incurred on the acquisition of the
declared land and improvements effected to the declared land (other than borrowing or finance costs), if
that expenditure is no less than the lower of the market value or municipal value of the declared land or
an amount determined in accordance with the formula:
A = B + (C x D)
In this formula:
‘A’ represents the amount to be determined;

‘B’ represents the cost of acquisition of the declared land and of any improvements to that land;
‘C’ represents the amount of a capital gain (if any), that would have been determined for capital gains tax
had the declared land been disposed of for an amount equal to the lower of the market value or
municipal value of the land on the date of the agreement; and
‘D’ represents 60% for a natural person or special trust and 20% in any other instance, if the lower of
the market value or municipal value of the declared land exceeds the expenditure mentioned above
(prior to the formula).
If a person retains a right of use of the declared land, the deduction must be limited to an amount that
bears to the amount determined above the same ratio as the market value of the declared land
subject to the right of use bears to the market value of the declared land had it not been subject to that
right of use.
The deductions that may be allowed under this provision for declared land must not in aggregate exceed
the expenditure mentioned above or the amount determined under the formula above.
If the agreement under which the land that becomes declared land is terminated by the person with
whom or which the agreement is entered into, an amount equal to the aggregate of the deductions
allowed under this provision in the five tax years preceding the termination must be included in the
income of that person in the tax year in which the agreement is terminated.
Definitions
‘Declared land’ means land owned by a person and that is declared a national park or nature reserve in
terms of an agreement entered into with that person under s 20 or s 23 of the National Environmental
Management: Protected Areas Act 57 of 2003 if an endorsement is effected to the title deed of the land
that reflects that the declaration has a duration of at least 99 years.
Allowance for energy efficient savings (s 12L)
You may deduct an allowance for energy efficient savings in determining your taxable income from
trade in tax years ending before 1 January 2023. The allowance is calculated at 95 cents per kilowatt
hour or kilowatt hour equivalent of energy efficient savings.
A person claiming this deduction during any tax year must obtain a certificate issued by an institution,
board or body prescribed by the regulations contemplated below for the energy efficiency savings for
which a deduction is claimed in that tax year containing the following information:
• the baseline at the beginning of the tax year;
• the reporting period energy use at the end of the tax year;
• the annual energy efficiency savings expressed in kilowatt hours or kilowatt hours equivalent for the
year of assessment including the full criteria and methodology used to calculate the energy efficiency
savings; and
• any other information prescribed by the regulations.

A deduction must not be allowed if the person claiming the allowance receives any concurrent benefit
for energy efficiency savings.
The Minister of Finance, in consultation with the Minister of Energy and the Minister of Trade and
Industry, must make regulations prescribing:
• the institution, board or body that must issue the required certificate;
• the powers and responsibilities of the institution, board or body;
• the information that must be contained in the certificate in addition to the information mentioned
above;
• those benefits that constitute concurrent benefits; and
• any limitation of energy sources for which the allowance may be claimed.
Additional deduction for roads and fences for production of renewable energy (s 12U) With effect
as from 1 April 2016 you may deduct any amount actually incurred during the tax year in which it is
incurred. The expenditure is that incurred on the construction of a road or the erection of a fence and a
foundation or supporting structure designed for the fence for the purpose of your trade of generation of
electricity exceeding 5 megawatts from wind power, solar energy, hydropow-er to produce electricity of
no more than 30 megawatts or biomass comprising organic wastes, landfill gas or plant material. Also
included is expenditure you incur on improvements (other than repairs) to the road or fence or to a
foundation or supporting structure designed for the fence. The
foundation or supporting structure for a fence must be constructed in such a manner that it is regarded
as being integrated with the fence and its useful life is or will be limited to the useful life of the fence.
Expenditure actually incurred by you prior to the commencement of and in preparation for the carrying
on of your trade that would have been allowed as a deduction had it been incurred after you commenced
carrying on the trade and was not allowed as a deduction in a previous tax year is allowed as a
deduction under this provision.
10.32 Future expenditure on contracts
ss 3(4), 24C
An amount of income may be derived by you in terms of a contract that you will use in whole or in part
to finance ‘future expenditure’ to be incurred by you in the performance of your obligations under the
contract. You may then deduct so much of that income as will be used to finance the future expenditure
in the year in which you derived the amount of income.
Any allowance that has been granted for future expenditure in one tax year must be included in taxable
income in the following year.
For the purposes of this allowance, ‘future expenditure’ is expenditure that will be incurred after the end
of a tax year:
• in such a manner that it will qualify for a deduction from income in a subsequent tax year; or
• to acquire an asset that qualifies for the depreciation, ‘50/30/20’ depreciation, the 20% or 33,33%
straight-line depreciation or any other allowance (see 10.26, 10.60 and 10.66).
10.33 Industrial policy projects and special economic zones
ss 12I, 12R, 12S
Industrial policy projects (s 12I)
Two special allowances are available to companies engaged in certain industrial policy projects:
Additional investment allowance
A company may, in addition to any other deductions allowable in terms of the Act, deduct an additional
investment allowance equal to 55% of the cost of any new and unused ‘manufacturing asset’ used in an
industrial policy project with preferred status, or 100% if it is located within a special economic zone
(prior to the coming into operation of the Special Economic Zones Act 16
of 2014, an industrial development zone), or 35% of the cost of any new and unused ‘manufacturing
asset’ used in any other industrial policy project, or 75% if it is located within a special economic zone
(prior to the coming into operation of the Special Economic Zones Act 16 of 2014, an industrial
development zone). This allowance is deductible the tax year during which the asset is first brought into
use by the company as its owner for the furtherance of the industrial policy project carried on by it, if the
asset was acquired and contracted for on or after the date of approval and was brought into use within
four years from the date of approval.
The cost to a taxpayer of a manufacturing asset is for this purpose deemed to be the lesser of the actual
cost to the taxpayer or the cost that a person would, if he had acquired the manufacturing asset under a
cash transaction concluded at arm’s length on the date on which the transaction for the acquisition was
in fact concluded, have incurred in respect of the direct cost of the acquisition of the manufacturing
asset.
The additional investment allowance may not exceed R900 million for a ‘greenfield project’ with
preferred status or R550 million for any other ‘greenfield project’ from the date of approval, R550
million for a ‘brownfield project’ with preferred status or R350 million for any other ‘brownfield project’
from the date of approval.
When a taxpayer is allowed this deduction in the current or any previous tax year, any balance of
assessed loss carried forward by it during a tax year must be increased by the amount by which the
balance of assessed loss exceeds an amount equal to any balance of assessed loss that would
have been carried forward during that year had that deduction not been allowed, multiplied by the
prescribed rate of interest payable to taxpayers as at the end of the tax year. This rule is inapplicable to a
balance of assessed loss incurred by the taxpayer during any tax year more than four years after the year
during which the industrial project is approved.
Additional training allowance
A company may also, in addition to any other deductions allowable in terms of the Act, deduct, no earlier
than in the tax year preceding that in which the asset is brought into use, an additional training
allowance equal to the cost of training provided to employees in the tax year during which the cost of
training is incurred for the furtherance of the industrial policy project carried on by the company. The
cost of training must be incurred by the end of the compliance period (see below) and the additional
allowance allowed to a company may not exceed R36 000 per employee. The additional training
allowance allowed to a company at the end of the compliance period may not exceed R30 million for an
industrial policy project with preferred status and R20 million for any other industrial policy project.
Improvements not owned
If a company completes an improvement that is not owned by it, for example, when it is effected to
someone else’s asset (see 10.14), the improvement will be deemed to be a new and unused
manufacturing asset and the expenditure incurred by the company to complete the improvement is
deemed to be the cost to it of the qualifying new and unused manufacturing asset. As from 1 January
2015, if the taxpayer completes an improvement on land not owned by it and the improvement consists
of machinery or plant that is used in a manufacturing or similar process (see 10.63), it will be deemed to
be the owner of the asset.
General
An industrial project of a company will constitutes an industrial policy project if the Minister of Trade
and Industry, after taking into account the recommendations of the ‘adjudication committee’, is satisfied
about the following matters:
• The cost of all manufacturing assets to be acquired by the company for the purposes of the project will
exceed, for greenfield projects, R50 million (prior to 1 January 2015 R200 million) and, for brownfield
projects, the higher of R30 million and the lesser of R50 million (prior to 1 January 2015 R200 million)
or 25% of the expenditure incurred to acquire assets previously used in the project.
• The project does not constitute an industrial participation project and does not receive any concurrent
industrial incentive provided by a national sphere of government.
• The project is not integrally related to another project of the company (or any other company that
forms part of the same group of companies as the company) that has been approved.
An additional requirement is that more than 50% of the manufacturing assets to be acquired by the
company for the purposes of the project must be brought into use by it within four years from the date
of approval.
The application for approval of the project by the company must be received by the Minister of Trade
and Industry in the prescribed form and with the prescribed information by no later than 31 March
2020.
The Minister must, after taking into account the recommendations of the adjudication committee, and
having regard to certain matters, approve an industrial project as an industrial policy project, either
with or without preferred status, when he is satisfied that the industrial policy project will significantly
contribute to the Industrial Policy Programme within the Republic. But he may not approve any
industrial project when the potential additional investment and training allowances for that project and
all other approved industrial projects (other than those projects for which approval has been
withdrawn), will in the aggregate exceed R20 billion. The company carrying on an industrial

policy project must, until the end of the compliance period, report to the adjudication committee in the
prescribed form and manner on the progress of the industrial policy project within twelve months after
the close of each tax year, starting with the year in which approval is granted.
If the company defaults in certain ways, the Minister may, after taking into account the
recommendations of the adjudication committee, withdraw the approval granted for the industrial
policy project with effect from a date specified by him. If he does so, he must inform the Commissioner
for SARS of the withdrawal and of the effective date. He may also downgrade the status of a non-
compliant company from preferred status to qualifying status and inform the Commissioner of this fact.
The Commissioner, too, may notify the Minister if he discovers information that may cause a withdrawal
of approval. He may also disallow all deductions starting with the date of approval if the company is
guilty of fraud or misrepresentation or non-disclosure of material facts with regard to any tax, duty or
levy administered by him. If he does so, he must notify the Minister. He may also inform the Minister
when a company has requested him to issue a certificate regarding its tax status (see above) and the
certificate was denied. And he may make an appropriate adjustment to the taxable income of a company
when its status is downgraded from preferred to qualifying. The Commissioner may, despite the usual
rules limiting his right to issue additional assessments (see 18.4), raise an additional assessment for any
tax year when an additional investment allowance that has been allowed in any previous year is
disallowed or when a company’s status is downgraded from preferred to qualifying.
When the approval of an industrial project has been withdrawn under these rules, the company
concerned is, in addition to normal tax, liable for an amount of additional tax not exceeding twice the
difference between the tax as calculated on the taxable income returned by it and the tax properly
chargeable on its taxable income as determined after the additional investment allowance is disallowed.
There are rules governing the constitution of the adjudication committee, its functioning and the
conduct of its members.
The Minister of Finance, in consultation with the Minister of Trade and Industry, must make certain
regulations regarding the application of these rules.
The secrecy provisions of the Tax Administration Act are suspended to allow the Commissioner for SARS
to disclose information about companies to the Minister and the adjudication committee.
Employees of the Department of Trade and Industry and members of the adjudication committee are
bound to keep secret matters that may come to their knowledge in the performance of their functions
under these rules.
Definitions
A ‘brownfield project’ is a project that represents an expansion or upgrade of an existing industrial

project.
The ‘compliance period’ means the period commencing at the beginning of the tax year following the
tax year in which assets are first brought into use and ending at the end of the tax year three years after
the tax year in which assets are first brought into use.
The ‘cost of training’ means:
• When the training is provided by the taxpayer, the cost of remuneration of its employees who are
employed exclusively to provide training to its employees and the cost of training materials.
• When the training is provided by the taxpayer’s connected person, so much of the cost charged by the
connected person as is incurred on the remuneration of employees who are employed to provide
training to the taxpayer’s employees and the cost of materials used by the connected person to provide
the training.
• When the training is provided by anyone else, the cost to the taxpayer of the training charged by the
person providing the training.
The ‘date of approval’ is the date of the approval by the Minister of Trade and Industry.
A ‘greenfield project’ is a project that represents a wholly new industrial project that does not utilise
any manufacturing assets other than wholly new and unused manufacturing assets.
An ‘industrial project’ means a trade solely or mainly for the manufacture of products, goods, articles
or other things within South Africa that:
• is classified under ‘Section C: Manufacturing’ in version 7 of the Standard Industrial Classification Code
(referred to as the ‘SIC Code’) issued by Statistics South Africa; or
• for products, goods, articles or things that are not yet classified, the adjudication committee is of the
view will be classified under the previous item.
It does not include:
• distilling, rectifying and blending of spirits (SIC Code 1101);
• manufacture of wines (SIC Code 1102);
• manufacture of malt liquors and malt (SIC Code 103);
• manufacture of tobacco products (SIC Code 12);
• manufacture of weapons and ammunition (SIC Code 252); and
• manufacture of bio-fuels if that manufacture negatively impacts on food security in South Africa.
A ‘manufacturing asset’ is any building, plant or machinery acquired, contracted for or brought into
use by a company, which will mainly be used by the company in South Africa for the purposes of
carrying on an industrial project of the company within South Africa and will qualify for the straight-line
deprecation allowance (see 10.60), the annual allowance for buildings (see 10.18) or the allowance for
buildings in urban development zones (see 10.21) and includes any improvements to such building,
plant or machinery.
Special economic zones (s 12R)
A special deduction applies to qualifying companies in these zones.
The Minister of Finance must approve a special economic zone for this purpose after taking into account
the financial implications for the State should a special economic zone be approved under this provision.
But the building allowance below does not apply to a qualifying company located in a special economic
zone that conducts any of the following activities classified under ‘Section C: Manufacturing’ in the SIC
Code:
• Distilling, rectifying and blending of spirits (SIC Code 1101);
• Manufacture of wines (SIC Code 1102);

• Manufacture of malt liquors and malt (SIC Code 103);
• Manufacture of tobacco products (SIC Code 12);
• Manufacture of weapons and ammunition (SIC Code 252);
• Manufacture of bio-fuels if that manufacture negatively impacts on food security in South Africa.
A company is not a qualifying company if more than 20% of its deductible expenditure is incurred or
more than 20% of its income is derived in transactions with its connected person (see 10.27) that is a
resident, or is not a resident and the transactions in question are attributable to a permanent
establishment that it has in South Africa.
The deduction for buildings does not apply to any qualifying company that conducts any activity
classified in the SIC Code that the Minister of Finance may designate by notice in the Gazette.
Definitions
A ‘qualifying company’ is a company incorporated by or under any law in force in South Africa or in
any part of the country or that has its place of effective management in South Africa. It must carry on a
trade (see 10.14) in a special economic zone designated by the Minister of Trade and Industry by notice
in the Gazette under the Special Economic Zones Act and approved by the Minister of
Finance after consultation with the Minister of Trade and Industry for the purposes of this concession.
The trade must be carried on from a fixed place of business situated within one or more special
economic zones. No less than 90% of the company’s income must be derived from the carrying on of a
trade within one or more special economic zones. In addition, it must have:
• been carrying on a trade before 1 January 2013 in a location that is subsequently approved as a special
economic zone; or
• commenced, on or after 1 January 2013, the carrying on, in a location that is approved or subsequently
approved as a special economic zone, of a trade not previously carried on by it or its connected person in
South Africa; or
• commenced, on or after 1 January 2013, the carrying on, in a location that is approved or subsequently
approved as a special economic zone, of a trade, as long as trade ( a) comprises of the production of
goods not previously produced by it or its connected person in South Africa; or ( b) uses new technology
in its production processes; or ( c) represents an increase in its production capacity in South Africa.
‘SIC Code’ means version 7 of the Standard Industrial Classification Code issued by Statistics South
Africa.
‘Special economic zone’ means a special economic zone as defined in the Special Economic Zones Act
that is approved for the purposes of this provision by the Minister of Finance.
‘Special Economic Zones Act’ means the Special Economic Zones Act 16 of 2014.
This provision ceases to apply in tax years commencing on or after 1 January 2024 or ten years after the
commencement of the carrying on of a trade in a special economic zone, whichever is later.
Deduction for buildings (s 12S)

A qualifying company (as defined; see above) may deduct from its income an allowance equal to 10% of
the cost to it of any new and unused building owned by it or any new and unused improvement to any
building owned by it, if the building or improvement is wholly or mainly used by it during the tax year
for purposes of producing income within a special economic zone (as defined above) in the course of its
trade, other than the provision of residential accommodation.
For this purpose if a qualifying company completes an improvement (see 10.14), the expenditure
incurred by it to do so is deemed to be the cost to it of any new and unused building or of any new and
unused improvement to a qualifying building.
For this purpose the cost to a qualifying company of a building or improvement is deemed to be the
lesser of the actual cost to it or the cost that a person would, if that person had acquired, erected or
improved the building under a cash transaction concluded at arm’s length on the date on which the
transaction for the acquisition, erection or improvement of the building was in fact concluded have
incurred on the direct cost of the acquisition, erection or improvement of the building.
No deduction may be allowed for any building that has been disposed of by the qualifying company
during any previous tax year.
No deduction may be allowed under any other section of the Income Tax Act for the cost of a building or
improvement if any of that cost has qualified or will qualify for deduction from the qualifying company’s
income as a deduction or an allowance under this provision.
The deductions that may be allowed or are deemed to have been allowed under this provision and any
other provision of the Act for the cost of any building or improvement may not in the aggregate exceed
the amount of such cost.
Despite the relevant provisions of the Tax Administration Act, the Commissioner may disallow all
deductions otherwise provided for under this provision if a qualifying company is guilty of fraud or
misrepresentation or non-disclosure of material facts with regard to any tax, duty or levy administered
by the Commissioner. He may also, despite the relevant provisions of the Tax Administration Act,
raise an additional assessment for any tax year when a deduction that has been allowed in any previous
year must be disallowed in terms of these provisions.
These provisions dealing with the rate of tax and the deduction for buildings come into operation on the
date that the Special Economic Zones Act comes into operation and apply in tax years commencing on or
after that date. And they will cease to apply in tax years commencing on or after 1 January 2024.
10.34 Insurance policy premiums
ss 3(4), 11( a), ( w), 23( p), ( r), 23B(5) You may deduct the annual premiums incurred before 1 January
2011 on insurance policies covering, for example, loss of trading stock, plant and machinery or buildings
owing to fire or theft.
Premiums on insurance against loss of profits are also deductible. Insurance premiums on policies
covering your private assets may not be deducted.
A taxpayer may deduct the amount of expenditure incurred by the taxpayer in respect of the premiums
payable under an insurance policy that relates to the death, disablement or illness of an employee or
director of the taxpayer when the amount of expenditure incurred on the premiums is included in the
taxable income of an employee or director of the taxpayer, for example, when the taxpayer pays the
premiums on a policy belonging to the employee and the payment constitutes a taxable fringe benefit for
the employee or director (see 5.4). This deduction is not available for a policy of insurance that relates
solely to the death, disablement or illness of an employee or director arising out of and in the course of
the employment of the employee or director.
A taxpayer may also deduct expenditure incurred on premiums payable under a long-term insurance
policy of which it is the policyholder when the following requirements are met:
• The taxpayer must be insured against any loss by reason of the death, disablement or illness of an
employee or director of the taxpayer.
• The policy must be a risk policy with no cash value or surrender value.
• The policy must not be the property of any person other than the taxpayer at the time of the payment
of the premium, except that, in tax years commencing before 1 March 2015, a premium paid will not be
disallowed as a deduction by reason of the policy’s being held by a creditor of the taxpayer as security
for a debt of the taxpayer.
• For a policy entered into on or after 1 March 2012, the policy agreement must state that the deduction
applies to premiums payable under the policy. And for a policy entered into before 1 March 2012, an
addendum to the policy agreement must state by no later than 31 August 2012
that the deduction applies to premiums payable under the policy.
Again, the deduction is not available for a policy of insurance that relates solely to the death,
disablement or illness of an employee or director arising out of and in the course of the employment of
the employee or director.
A taxpayer may not deduct the value of a policy ceded to an employee or former employee or a director
or former director of the taxpayer or their dependant or nominee or to a pension fund, pension
preservation fund, provident fund, provident preservation fund or retirement annuity for the benefit of
any of them.
No deduction is allowed under the general deduction formula (see 10.14) for premiums paid under a
policy that relates to the death, disablement or illness of an employee or director, or former employee or
director, of the policyholder, other than a policy that relates to death, disablement or severe illness
arising solely out of and in the course of the employment of the employee or director.
Nor is a deduction allowed under the general deduction formula (see 10.14) for premiums paid by you
under an insurance policy, to the extent that it covers you against death, disablement, illness or
unemployment.
General
You may not deduct insurance premiums for a policy on your own life.
18.6). Premiums that you pay on so-called income-continuation policies, which preserve some part of
your income while you are ill or disabled, are allowed as a deduction under the so-called general
deduction formula (see 10.14).
These deductions will be taxable if they are recovered or recouped (see 10.7).
10.35 Intellectual property – development and
ss 3(4), 11( g A), ( g C)
acquisition
Costs of acquisition
You may claim as a deduction against your income from carrying on a trade (10.14) the expenditure you
actually incurred to acquire any:
• ‘Invention’ or ‘patent’ as defined in the Patents Act 57 of 1978.
• ‘Design’ as defined in the Designs Act 195 of 1993.
• ‘Copyright’ as defined in the Copyright Act 98 of 1978.
• Other property of a similar nature, although not ‘trade marks’ as defined in the Trade Marks Act 194 of
1993.
• Knowledge essential to the use of any such patent, design, copyright or other property or the right to
have such knowledge imparted.
The deduction is allowed during the tax year in which you bring the invention, patent, design, copyright,
other property or knowledge into use for the first time for the purposes of your trade if it is used by you
in the production of your income.
The deduction is unavailable when you acquire such property by way of devising, developing or creating
it. That deduction fell away for expenditure incurred in tax years commencing on or after 1 January
2004.
It is deductible in full in a single tax year when the qualifying expenditure you incur does not exceed R5
000.
Otherwise it must be spread over a number of years:
• You incur expenditure during the tax year in excess of R5 000 on any invention, patent, copyright or
other property of a similar nature or any knowledge essential to the use of any such invention, patent,
copyright or other property or the right to have such knowledge imparted: your deduction for that year
may not exceed 5% of that expenditure.
• You incur expenditure during the tax year in excess of R5 000 on any design or other property of a
similar nature or any knowledge essential to the use of any such design or other property or the right to
have such knowledge imparted: your deduction for that year may not exceed 10% of that expenditure.
A special rule (see 10.27) applies to the determination of the deduction on an asset previously held by
your connected person (see 10.27). This deduction will be taxable if it is recovered or recouped (see
10.7).
10.36 Intellectual property – renewals
s 11( g B)
You may claim as a deduction against your income from carrying on a trade (10.14) expenditure you
actually incurred during the tax year in obtaining:
• The grant of a patent or the restoration of a patent.
• The extension of the term of a patent under the Patents Act 57 of 1978 or under similar laws of any
other country.
• The extension of the registration period of a design under the Designs Act 195 of 1993 or under similar
laws of any other country.
• The renewal of the registration of a trade mark under the Trade Marks Act 194 of 1993 or under
similar laws of any other country.
But the patent, design or trade mark must be used by you in the production of your income.
Excluded from this deduction is expenditure that has wholly or partly qualified for deduction under a
particular class of special deduction.
10.37 Intellectual property – prohibited deductions
s 23I
No deduction is allowed for expenditure incurred by you for the use, right of use or permission to use
‘tainted intellectual property’ or expenditure the incurral or amount of which is determined directly or
indirectly with reference to expenditure for the use or right of use or permission to use any tainted
intellectual property. The deduction is denied to the extent that the amount of expenditure does not
constitute an amount of income received by or accrued to another person or a proportional amount of
net income of a controlled foreign company CFC (see 15.2) that is taken into account in the
determination of an amount required to be included in the income of a resident under the rules dealing
with CFCs (see 15.2). There is an exception for the allowance available under the provision dealt with in
10.33.
What is said above is inapplicable in tax years commencing on or after 1 January 2018 when the
aggregate amount of taxes on income payable to all spheres of government of a country other than South
Africa by the CFC in its foreign tax year is at least 75% of the amount of normal tax that would have been
payable on its taxable income had it been a resident for that foreign tax year. But the aggregate amount
of tax payable by a CFC for a foreign tax year must be determined after taking into account any
applicable double taxation agreement and any credit, rebate or other right of recovery of tax from any
sphere of government of any country other than South Africa and after disregarding any loss for a year
other than the foreign tax year or from a company other than that CFC.
Nevertheless, you may deduct an amount equal to one-third of the expenditure if the amount is subject
to the post-1 July 2013 withholding tax on royalties dealt with in 15.16 payable at a rate of 10%. And
you may deduct an amount equal to one-half of the expenditure if the post-1 July 2013
withholding tax on royalties is payable on the amount at a rate of 15%.
Definitions
‘End user’ means a taxable person or a person with a permanent establishment within South Africa that
uses intellectual property or any corresponding invention during a tax year to derive income, other than
a person that derives income mainly by virtue of the grant of use or right of use or permission to use
intellectual property or any corresponding invention.
‘Intellectual property’ is any:
• ‘patent’ as defined in the Patents Act 57 of 1978;
• ‘design’ as defined in the Designs Act 195 of 1993;
• ‘trade mark’ as defined in the Trade Marks Act 194 of 1993;
• ‘copyright’ as defined in the Copyright Act 98 of 1978;
• ‘patent, design, trade mark or copyright’ as defined or described in any similar law of a country other
than South Africa;
• property or right of a similar nature; and
• knowledge connected to the use of the patent, design, trade mark, copyright, property or right.
‘Tainted intellectual property’ is intellectual property that was the property of the end user or of a
taxable person that is or was his or her connected person (see 10.26), or the property of a taxable
person, or a material part of it was used by a taxable person in carrying on a business while it was the
property of a taxable person and the end user of the property acquired the business or a material part of
it as a going concern or the property was discovered, devised, developed, created or produced by the
end user of the property or by a taxable person that is his or her connected person, if the end user,
together with his or her connected person, holds at least 20% of the participation rights in a person by
or to whom an amount is received or accrues by virtue of the grant of use, right of use or permission to
use the property, or when the receipt, accrual or amount is determined directly or indirectly with
reference to expenditure incurred for the use or right of use or permission to use the property.
‘Taxable person’ is a person other than:
• a person that is not a resident;
• the government of South Africa in the national, provincial or local sphere;
• an approved public benefit organisation (see 16.27);
• an approved recreational club (see 16.26);
• a closure rehabilitation company or trust (see 16.21);
• a pension fund, pension preservation fund, provident fund, provident preservation fund or benefit
fund; or
• certain tax-exempt bodies (see 16.9).
10.38 Interest
paid
ss 11( a), 23M, 24J

The general rule is that the cost of interest you pay will be deductible if the purpose of your borrowing is
to produce income (see 10.14) in the carrying out of a trade (see 10.14). In other words, the deduction is
governed by the so-called general deduction formula (see 10.14).
The deduction will be taxable if it is recovered or recouped (see 10.7).
If you claim interest payments made during the tax year on an amount borrowed for a purpose not
productive of income, for example, for your personal use, the interest will not be deductible.
Interest on overdue tax is not deductible.
In qualifying circumstances, an employee paying tax on the benefit arising from a low-interest or
interest-free loan granted by his or her employer that is used in the production of the employee’s
income is allowed a notional deduction for interest even though he or she has not incurred (see 10.14)
the interest (see 5.2).
On the deduction of interest incurred in the production of foreign dividends, see 9.3.
Special timing and valuation rules for interest (s 24J)
Complicated, special rules come into operation when you are the issuer of an instrument.
An ‘instrument’ is any interest-bearing arrangement or debt issued after 15 March 1995 or issued on or
before that date and transferred on or after 19 July 1995. Bonds, debentures, bills, promissory notes,
certificates, bank deposits, prior to 1 January 2013, and loans, advances, debts, interest swaps and
repurchase or resale agreements (essentially, interest-bearing arrangements given the form of asset-
disposals) are included. Excluded are all leases, although not a qualifying sale and leaseback
arrangement (see 8.5 and below), and long-term insurance policies. Most suspensive sales are excluded
as long as they are issued or transferred before 1 January 1998. As from that date they must be dealt
with on the same basis as any other instrument.
For its ‘holder’, an ‘instrument’ also includes such an arrangement issued on or before 15 March 1995
that was unredeemed on 14 March 1996.
The ‘issuer’ is, essentially, the person who has incurred or is liable to pay interest or has an obligation to
repay any amount in terms of an instrument.
The purpose of these special rules is to require you to report your interest expenditure under an
instrument on a day-by-day basis over the entire period of your borrowing, taking into account the
effect of fluctuations in the rate of interest, delays in the date for payment of interest, any discount or
premium you might have paid or enjoyed under the arrangement and any discount or premium that you
will pay or enjoy when you dispose of the borrowing or redeem it. Two alternative methods of
computation of the interest you incur are permitted. Very simply stated, these require you to:
• Use a method of calculation in accordance with IFRS and use it consistently for all financial reporting
purposes affecting a particular class of instrument. In addition, the method used must achieve a result as
far as the timing of the accrual and incurral of interest is concerned that is substantially the same result
as that that would be obtained were you to use the alternative method of computation.
• Alternatively, draw up a cash-flow diagram covering the full period of your borrowing, calculate the
internal rate of return at which you are borrowing over that period, and apply that rate to the balance of
your obligation at the commencement of each period for the calculation of interest.
‘Interest’ is very widely defined for this purpose and includes the gross interest carried by the
borrowing, similar finance charges, discounts, premiums, fixed and variable rates, variable sums and
lump sums. Amounts payable in cash and in kind are both taken into account in the calculation of
interest. In addition, two very special types of ‘interest’ are included:
• The amount or portion of the amount payable by a borrower to the lender in terms of a ‘lending
arrangement’ that represents compensation for an amount to which the lender would have been entitled
had there been no such lending arrangement.
• The absolute value of the difference between all amounts receivable and payable by a person under a
qualifying sale and leaseback arrangement to which that person is a party throughout the full term of the
arrangement. For the treatment of these sale-and-lease-backs as financial arrangements, see 8.5.
The calculated amount of interest you arrive at under these rules then takes the place of any actual
payment of interest you might make, which is ignored in the determination of your taxable income on
income account (see 2.3). But the general rules of taxation still apply, and the actual deductibility of the
calculated amount of interest will depend upon those rules, for example, the rules that usually forbid the
deduction of amounts that are not connected with your trade or not incurred in the production of
income (10.14).
Further, special rules come into operation when an instrument issued on or before 15 March 1995
is varied in certain ways; when you finally settle up on the redemption or transfer of an instrument;
when an instrument has more than one issuer; and when you both pay and receive interest. Companies
whose business it is to deal in instruments may apply for an entirely different reporting system to be
applied, one depending upon the valuation of their stock of instruments from time to time.
And special rules also apply to the holder of an instrument that was issued on or before 15 March 1995
and was unredeemed on 14 March 1996. Not only must calculated amounts of interest be accounted for
on a day-by-day basis but any previously unaccounted for interest of this nature, over and above any
interest that was reported for tax purposes, must be calculated and carried forward and accounted for at
the time the instrument is redeemed or transferred.
When an instrument is finally transferred or redeemed a final adjustment of the calculated interest is
made. This adjustment also allows for any differences between calculated amounts and actual receipts
or outlays to be brought to account.
In tax years commencing prior to 1 January 2014, companies dealing in or short-selling instruments are
given an optional method of computation of their interest expenditure, and interest rate agreements and
option contracts are dealt with in a special way (see 7.7).
This system for dealing with interest includes a protection against multiple deductions from or multiple
inclusions in income of the same amount of interest.
The Commissioner for SARS’s decision on certain matters affecting the calculation is subject to objection
and appeal (see 18.6).
A deduction enjoyed under this system may be recouped upon the transfer of a financial arrangement
(see 10.7).
Limitation of interest deduction (s 23M)
This provision applies when interest is incurred by a debtor during a tax year on a debt owed to certain
creditors.
It applies, first, when the creditor is in a controlling relationship with the debtor. And, secondly, it
applies when the creditor is not in a controlling relationship with the debtor, but the creditor obtained
the funding for the debt advanced to the debtor from a person that is in a controlling relationship with
the debtor. In addition, the interest incurred on the debt must not during that tax year be subject to tax
in the hands of the person to which the interest accrues or included in the net income of a controlled
foreign company (see 15.2) in its foreign tax year commencing or ending within that tax year and must
not be disallowed as a deduction under the provision limiting the deduction of interest on
reorganisation and acquisition transactions (see 10.80).
The amount of interest allowed to be deducted on all such debts owing by the debtor in a tax year must
not exceed the sum of the amount of interest received by or accrued to the debtor and an amount
determined by the multiplication of the debtor’s adjusted taxable income for the tax year by a
percentage determined under the formula below less so much of the interest incurred by the debtor on
debts other than those mentioned above as exceeds the amount disallowed as a deduction under the
provision limiting the deduction for interest on reorganisation and acquisition transactions (see 10.80).
Any interest incurred by the debtor in excess of the deductible amount determined above may be
carried forward to the immediately succeeding tax year and deemed to be incurred in that succeeding
tax year.
The percentage mentioned above must be determined in accordance with the formula: C
A=B×D
in which formula—
‘A’ represents the percentage to be applied;
‘B’ represents 40;
‘C’ represents the average repo rate plus 400 basis points; and
‘D’ represents 10.
But the percentage determined under the formula may not exceed 60% of the debtor’s adjusted taxable
income.
When an amount of interest is to be taken into account under both this provision and that dealing with
reorganisation and acquisition transactions, this provision must be applied only after that other
provision.
These provisions do not apply to so much of the interest as is incurred by a debtor on a debt owed to one
of the creditors mentioned above when the creditor funded the amount advanced to the debtor with
funding granted by a lending institution that is not in a controlling relationship with

the debtor and the interest is determined with reference to a rate of interest that does not exceed the
official rate of interest that applies to fringe benefits (see 5.4) plus 100 basis points.
Definitions
‘Adjusted taxable income’ means taxable income calculated before this interest deduction is applied
reduced by:
• interest received or accrued that forms part of taxable income;
• amounts included in the income of a person under the controlled foreign company rules (see 15.2);
• amounts recovered or recouped of an allowance for a capital asset as defined in the rules dealing with
the reduction of debts (see 10.7);
and with the addition of:
• any amount of interest incurred that has been allowed as a deduction from income;
• any amount allowed as a deduction in terms of the Income Tax Act for a capital asset as defined in the
rules dealing with the reduction of debts (see 10.7) for purposes other than the determination of a
capital gain or capital loss; and
• any assessed loss or balance of assessed loss allowed to be set off against income (see 10.71).
‘Average repo rate’ for a tax year means the average of all ruling repo rates determined by using the
daily repo rates during that tax year.
‘Controlling relationship’ means a relationship where a person directly or indirectly holds at least 50%
of the equity shares in a company or at least 50% of the voting rights in a company is exercisable by a
person.
‘Debtor’ means a debtor that is a resident or a person who is not a resident and has a permanent
establishment in South Africa in respect of a debt claim that is effectively connected with that permanent
establishment.
‘Interest’ means interest as defined above.
‘Lending institution’ means a foreign bank that is comparable to a bank contemplated in the Banks Act.
‘Repo rate’ means the interest rate at which the South African Reserve Bank enters into a repurchase
agreement contemplated in s 10(1)( j) of the South African Reserve Bank Act.
See also 10.77 and 10.80 and Chapter 7.
10.39 Investment
policies
s 23L
No deduction is allowed for a premium incurred by you on an ‘investment policy’. No deduction is

allowed for premiums incurred by you on a policy to the extent that they are not taken into account as
an expense for the purposes of financial reporting pursuant to IFRS in either the current or a future tax
year.
This rule applies when policy benefits are derived by you under a policy during a tax year. It provides for
the inclusion in your gross income of an amount equal to the aggregate amount of all policy benefits
derived by you during the tax year and previous tax years in respect of the investment policy, less the
aggregate amount of premiums incurred in terms of the investment policy that were not deductible
under the above provision and the aggregate amount of policy benefits in respect of the policy that were
included in your gross income during previous tax years.
Definitions
‘Investment policy’ means a policy that is not an insurance contract as defined in International
Financial Reporting Standard 4 of IFRS. This definition was deleted as from 1 April 2014.
‘Policy’ means a policy of insurance or reinsurance other than a long-term policy as defined in s 1 of the
Long-term Insurance Act 52 of 1998.
‘Policy benefits’ means any amount, in cash or otherwise, received or accrued under a policy.
‘Premium’ means the consideration given or to be given in return for an undertaking to provide policy
benefits.
10.40 Learnership agreements
s 12H
As an ‘employer’, you may deduct from the income you derive during a tax year a so-called learnership
allowance. The learnership deduction is allowed in addition to any other deduction allowable under the
Income Tax Act, for example, for the remuneration payable to the learner. This deduction overrides the
usual prohibition against double deductions (see 10.14).
In order to claim the deduction, you must, in that year, have entered into a ‘registered learnership
agreement’ with a ‘learner’ in the course of a trade (see 10.14) carried on by you. There are several
different learnership deductions:
First, a deduction is allowed when during a tax year a learner who, as from 1 October 2016, holds a
qualification to which an NQF level from 1 up to and including 6 has been allocated under Chapter 2 of
the National Qualifications Framework Act 67 of 2008 is a party to a registered learnership agreement
with you as employer and the agreement was entered into pursuant to a trade carried on by you. The
deduction made in that year from the income derived from the relevant trade is then an amount of R40
000. When a learner is a party to a registered learnership agreement for a period of less than twelve full
months during the tax year, the amount that is allowed to be deducted must be reduced proportionately.
The allowance is granted not just in the year of commencement of the learnership, but in each year in
which the learnership continues. If the learnership agreement is registered within twelve months after
the last day of the tax year it is deemed to have been registered on the date on which it was entered into.
Secondly, when during a tax year a learner is a party to a registered learnership agreement with you as
employer for a period of less than twenty-four full months, the agreement was entered into pursuant to
a trade carried on by you and the learner successfully completes the learnership during that tax year,
you may in that year deduct from the income derived by you from the relevant trade, an additional
amount of R40 000.
Thirdly, when during a tax year a learner is a party to a registered learnership agreement with you as
employer for a period that equals or exceeds twenty-four full months, the agreement was entered into
pursuant to a trade carried on by you and the learner successfully completes the learnership during that
tax year, the deduction allowed from the income derived by you from the relevant trade is an amount of
R40 000 multiplied by the number of consecutive twelve-month periods within the duration of the
agreement. The allowance on completion for longer learnerships is not just a fixed amount but is
multiplied by the number of completed years of the learnership.
Fourthly, a deduction is allowed when during a tax year a learner who, holds a qualification to which an
NQF level from 7 up to and including 10 has been allocated under Chapter 2 of the National
Qualifications Framework Act 67 of 2008 is a party to a registered learnership agreement with you as
employer, and the agreement was entered into pursuant to a trade carried on by you, the deduction is an
amount of R20 000. If the agreement is for a period of less than twelve full months during the tax year,
the deduction is reduced proportionately. If the agreement is registered within twelve months after the
end of the tax year, it is deemed to have been registered on the date on which the agreement was
entered into. If the agreement is for twelve months or longer and the learner successfully completes the
learnership during the tax year, you are allowed a deduction of R20 000 multiplied by the number of
consecutive twelve-month periods within the duration of the agreement.
Fifthly, a deduction is allowed when during a tax year a learner who holds a qualification to which an
NQF level from 7 up to and including 10 has been allocated under Chapter 2 of the National
Qualifications Framework Act 67 of 2008 is a party to a registered learnership agreement with you as
employer for a period of less than twenty-four months, the agreement was entered into pursuant to a
trade carried on by you and the learner successfully completes the learnership during the tax year. The
deduction made in that year from the income derived from the relevant trade is then an amount of R20
000. When a learner is a party to a registered learnership agreement for a period that equals less than
twelve full months during the tax year, the amount that is allowed to be deducted must be reduced
proportionately. The allowance is granted not just in the year of commencement of the learnership, but
in each year in which the learnership continues. If the learnership agreement is registered within twelve
months after the last day of the tax year it is deemed to have been registered on the date on which it was
entered into.
When a learner referred to in the first three items above is a person with a ‘disability’ (see 2.5) at the
time of entering into the learnership agreement, the above amounts must be increased by an amount of
R20 000. And if he or she is a learner referred to in the fourth and fifth items, the amounts must be
increased by R30 000.
The learnership deduction is made inapplicable to a registered learnership agreement when the learner
that is the party to the agreement previously failed to complete another registered learnership
agreement, to which the same employer or its associated institution was a party, and the registered
learnership agreement contains the same education and training component as the other registered
learnership agreement.
A SETA with which a learnership agreement has been registered must submit to the Minister of Finance
any information relating to the learnership agreement required by the Minister in the form and manner
and at the place and time that the Minister prescribes.
For each tax year during which you are eligible for the learnership deduction you must submit to the
SETA with which the learnership agreement is registered any information relating to that learnership
agreement required by the SETA in the form and manner and at the place and time indicated by the
SETA.
Definitions
An ‘associated institution’ is defined, in relation to any single employer, as: ( a) when the employer is a
company, any other company that is associated with the employer company by reason of the fact that
both companies are managed or controlled directly or indirectly by substantially the same persons;
( b) when the employer is not a company, any company that is managed or controlled directly or
indirectly by the employer or by any partnership of which the employer is a member; or ( c) any fund
established solely or mainly for providing benefits for employees or former employees of the employer
or for employees or former employees of the employer and any company that is in terms of paras ( a) or
( b) an associated institution in relation to the employer, but excluding any fund established by a trade
union or industrial council and any fund established for post-graduate research otherwise than out of
moneys provided by the employer or by any associated institution of the employer.
A ‘disability’ is defined for the purposes of the learnership deduction in the same way as it is for the
purposes of the deduction for medical, dental and disability expenses (see 2.5). It is defined there as a
moderate to severe limitation of a person’s ability to function or perform daily activities as a result of a
physical, sensory, communication, intellectual or mental impairment, if: ( a) the limitation has lasted or
has a prognosis of lasting more than a year; and ( b) is diagnosed by a duly registered medical
practitioner in accordance with criteria prescribed by the Commissioner.
An ‘employer’ means:
( a) when only one employer is party to a registered learnership agreement, that employer; or ( b) when
more than one employer is a party to a registered learnership agreement, the employer that is identified
in the agreement as the lead employer.
A ‘learner’ means a learner as defined in s 1 of the Skills Development Act 1998.
A ‘registered learnership agreement’ means:
( a) prior to 1 January 2013, a contract of apprenticeship entered into before 1 October 2016 and
registered in terms of s 18 of the Manpower Training Act 56 of 1981, if the minimum period of training
required in terms of the Conditions of Apprenticeship prescribed in terms of s 13(2)( b) of that Act
before the apprentice is permitted to undergo a trade test is more than 12 months; or ( b) a learnership
agreement that is:
(i) registered in accordance with the Skills Development Act 1998; and (ii) entered into between a
learner and an employer before 1 April 2022.
A ‘SETA’ is a sector education and training authority established under s 9(1) of the Skills Development
Act 1998 and defined as such in s 1 of that Act.
The ‘Skills Development Act, 1998’ means the Skills Development Act 97 of 1998.
10.41 Leased property – improvements
s 11( g)
You may deduct over a period your expenditure on making improvements to land or buildings that you
hire from someone else for the purposes of your trade or from which you derive income, provided that it
is a term of the lease agreement that you incur the expenditure.
To determine the portion that is deductible each year, divide the total amount that you are obliged to
spend on the improvements as stipulated in the lease by the number of years – to a maximum of twenty-
five – that you are entitled to the use or occupation of the property from the date of completion of the
improvements. If you are entitled to the use or occupation for an indefinite period or you or the person
by whom the right of use or occupation was granted holds a right or option to extend or renew the
original period of use or occupation, you will for the purposes of the allowance be deemed to be entitled
to the use or occupation for whatever period represents the probable duration of the use or occupation.
If the lease is terminated in a tax year before the end of the period over which you were entitled to the
right of use or occupation, you may deduct in that tax year any portion of your expenditure on the
improvements that you have not already deducted in that tax year or previous tax years.
You are not entitled to deduct your expenditure on the improvements called for by a lease unless the
value of the improvements or the amount that you spend constitutes income of the person to whom the
right to have the improvements effected accrues (see 8.2), unless, for leases entered into before 2
November 2010, the expenditure was incurred pursuant to an obligation to effect improvements in
terms of a Public Private Partnership (see 16.28) or a right of use or occupation of land or a building
owned by the Government, a provincial administration or a municipality or an entity whose receipts and
accruals are exempt from tax under certain provisions of the Income Tax Act when the right of use or
occupation has a duration of twenty years or more. In other words, if that person is an institution
exempt from tax (see, for example, 16.2, 16.23, 16.27 and 16.28), you may not claim the deduction,
unless one of the exceptions applies.
You may be able to claim the annual allowance on industrial buildings (see 10.18) or hotel buildings (see
16.11) and the initial and annual allowances on residential units (see 10.21) on the excess of the
expenditure you incur in effecting improvements over the amount stipulated in the lease. If you are
entitled to any other deductions or allowances for your improvements, you may claim the deduction for
improvements only on the portion of your cost that does not qualify for the other deductions or
allowances.
A special allowance is available in certain circumstances to a lessor who is required to include an

amount in its income for improvements effected by its lessee (see item 6 in 8.3).
10.42 Leased property – premiums paid
s 11( f)
You may deduct over a period the premium – that is, the lump sum paid in addition to rentals or
royalties – you paid for:
• the hire of land, buildings, plant or machinery that you use for the production of income or from which
you derive income; or
• the right of use of a film or advertising matter connected with it, sound recording, patent, design, trade
mark, copyright, or other similar property or for knowledge connected with these items used for the
production of income or from which you derive income; or
• the right of use of a pipeline, transmission line or cable or railway line constituting an ‘affected asset’
(excluding lines or cables used for the transmission of electronic communications that are or were
brought into use on or after 1 April 2019) (see 10.48); or
• the right of use of a line or cable used for the transmission of electronic communications that are
excluded from the definition of ‘affected asset’ (see 10.48) that are or were brought into use on or after 1
April 2019 (see 10.48).
To determine the portion that is deductible each year, divide the total premium paid by the number of
years for which you are entitled to the use of the asset or, if it works out to more than that amount, you
may deduct each year one twenty-fifth of the total premium paid for any of the items mentioned in the
first three bulleted items listed above or one tenth of the total premium paid for the item mentioned in
the last bulleted item above. SARS must determine the period for which you are entitled to use the asset
if you or your landlord has an option to extend or renew your original period of use or occupation.
You are not entitled to deduct a premium you pay under a lease unless the amount of the premium
constitutes income of the person to whom it is paid (see 8.2). In other words, if that person is an
institution that is exempt from tax (see, for example, 16.2, 16.23, 16.27 and 16.28), you may not claim
the deduction. An exception is made for a right of use of a line or cable used for the transmission of
electronic communications and substantially the whole of which is located outside the terri-torial waters
of the Republic, when the term of the right of use is, as from 1 April 2019, ten (previously fifteen) years
or more.
A special allowance is available in certain circumstances to a lessor who is required to include a lease
premium in its income (see item 5 in 8.3).
10.43 Leave
pay
s 23E
Law prior to 1 March 2013
You may deduct ‘leave pay’ that you have become liable to pay in consequence of your employee’s
having become entitled to leave during the tax year. But you may deduct it only once it is actually paid or
has become due and payable by you to your employee or the holder of an office. It is only at that stage
that you are treated as having incurred (see 10.14) the expenditure.
The leave pay that you are liable to pay in this way is treated as being derived by the employee or holder
of an office on the same date that you are treated as having incurred it.
For this purpose, ‘leave pay’ is an amount that you have become liable to pay during the tax year to the
employee or holder of an office for leave that has not yet been taken during that year.
Ordinarily, leave may not be accumulated, and leave pay will be paid over the period over which an
employee is actually on leave. This type of leave pay is deductible under the so-called general

deduction formula (see 10.14) rather than under this special rule, which is designed to prevent you from
anticipating the cost of leave pay.
10.44 Legal
expenses
s 11( a), ( c)
You may deduct any ‘legal expenses’ you incur during the tax year in order to produce your income that
are not of a capital nature, such as debt-collection fees paid to your attorney. You may also deduct legal
expenses on:
• a dispute or action at law arising from your ordinary trading operations; or
• a claim arising from your ordinary trading operations if:
( a)
the claim is made against you for an amount of damages or compensation and the damages or
compensation would be deductible for tax purposes if paid by you; or ( b) the claim is made by you for
an amount that would be taxable in your hands if you received it.
For the purposes of this deduction, ‘legal expenses’ are fees for the services of legal practitioners,
expenses incurred in procuring evidence or expert advice, court fees, witness fees and expenses, taxing
fees, the fees and expenses of sheriffs or messengers of court and other expenses of litiga-tion essentially
of a similar nature to any of such fees or expenses.
10.45 Licensed
activities
s 11( g D)
You may deduct expenditure incurred in terms of a licence that is required to carry on certain trades.
The trades in question are the provision of telecommunication services, the exploration, production or
distribution of petroleum and the provision of gambling facilities.
The expenditure that qualifies for the deduction is that incurred to acquire a licence from the
government of South Africa in the national, provincial or local sphere, or a qualifying institution or entity
contemplated in the Public Finance Management Act 1 of 1999. The expenditure must be incurred in
terms of the licence required to carry on the relevant trade. The deduction may not for any one year
exceed a portion of the expenditure equal to the amount of the expenditure divided by the number of
years for which you have the right to the licence after the date on which the expenditure is incurred, or
thirty years, whichever is less.
10.46 Medical, dental and disability expenses
ss 6A, 6B
You may claim a special medical scheme fees tax credit or rebate for medical-aid contributions as well as
an additional medical expenses tax credit or rebate for the qualifying medical expenses paid for yourself
and your spouse and your qualifying children and dependants.
For the rules governing these credits or rebates, see 2.5.
10.47 Medical lump-sum payments
s 12M
You may deduct from your taxable from carrying on a trade any amount paid by you by way of a lump
sum during the tax year to any of your former employees who has retired from your employ on grounds
of old age, ill-health or infirmity or to any dependant of that former employee. You may also deduct any
lump sum paid by you under a policy of insurance taken out with an insurer solely in respect of one or
more of such former employees or dependants.
The amount is, however, deductible only to the extent that the amount is paid for the purposes of
making a contribution in respect of the former employee or dependant to any qualifying medical scheme
or fund. But no deduction may be allowed if you or your connected person (see 10.27)
retains any further obligation, whether actual or contingent, relating to the mortality risk of the former
employee or dependant.
Definitions
A ‘dependant’ is defined, in relation to a former employee, as a spouse or a dependant (as defined in s 1

of the Medical Schemes Act 131 of 1998).
An ‘insurer’ is defined as an insurer as defined under the provisions dealing with the taxation of long-
term insurers (see 16.13).
10.48 Pipelines, transmission lines and railway lines
s 12D
A special allowance is available on what are called ‘affected assets’. Such an asset is a pipeline used for
the transportation of natural oil, a pipeline used for the transportation of water used by power stations
in the process of generating electricity, a line or cable used for the transmission of electricity, a line or
cable used for the transmission of electronic communications, and a railway line used for the
transportation of persons, goods or things. Included would be earthworks or supporting structures and
equipment forming part of or ancillary to a qualifying pipeline, transmission line or cable or railway line
and any improvement to such pipeline, transmission line or cable or railway line. In this context,
‘natural oil’ is a liquid or solid hydrocarbon or combustible gas existing in a natural condition in the
earth’s crust. It includes refined by-products of such a liquid, solid or gas.
Further requirements are that the affected asset must be new and unused and must be owned by the
taxpayer and brought into use by it for the first time. It must be used directly by the taxpayer for the
transportation of persons, goods, things or natural oil or the transmission of electricity or
telecommunication signals. That transportation or transmission must constitute the taxpayer’s sole or
principal business or be a main or necessary activity in the conduct of its sole or principal business.
The allowance is based on the cost actually incurred by the taxpayer on the acquisition of the asset,
although only to the extent that it is used in the production of the taxpayer’s income. The maximum
allowance for any particular tax year may not exceed:
• Oil pipeline: 10% of its cost.
• Water pipeline: 5%.
• Electrical line or cable: 5%.
• Telephone line or cable: 10% (6,67% for assets acquired on or after 1 April 2015 but before 1 April
2019).
• Railway line: 5%.
When an asset has been acquired to replace an asset that has been damaged or destroyed, its
‘cost’ is taken as its actual cost less any amount recovered or recouped on the damaged or destroyed
asset excluded from the taxpayer’s income (see 10.7), either in the current or in an earlier tax year.
If a taxpayer completes an improvement that is not owned by it, for example, when it is effected to
someone else’s asset (see 10.14), the expenditure incurred by it to complete the improvement will be
deemed to be the cost incurred by it on the acquisition of a qualifying new and unused affected asset.
The ‘cost’ of an asset for this purpose is the lesser of:
• the actual cost of the asset incurred by the taxpayer; and
• the cost that the taxpayer acquiring or improving it under a cash transaction concluded at arm’s length
on the date on which the actual transaction was concluded would have incurred on its direct cost of
acquisition or improvement, including the direct cost of its installation or erection.
A special rule applies to an affected asset used by the taxpayer in a previous tax year or in previous tax
years for the purposes of a trade carried on by it that did not generate receipts or accruals required to be
included in its income during those years. For example, it might have used the asset in carrying on a
trade conducted abroad, before the introduction of world-wide taxation. All the
allowances it would have been entitled to had the trade been a taxable one are then treated as having
been granted upon the cost of the asset, with the result that the taxpayer is limited in claiming future
allowances. In other words, this rule has the effect of bringing an affected asset into account at its tax
value as if it had been depreciated during the period that it was excluded from the tax system; only its
remaining depreciable life is of significance for tax purposes.
No deduction is available when the asset has been disposed of by the taxpayer during an earlier tax year.
And the total deduction available, whether under this or any other allowance, and whether actual or
treated as having been granted, may not in the aggregate exceed the cost of the asset.
The deduction is also unavailable for assets brought into use on or after 1 January 2008 should the
transportation or transmission be carried on by a taxpayer in the course of carrying on a banking,
financial services, insurance or rental business.
A scrapping allowance is available on these assets (see 10.58).

10.49 Private home used for business purposes
s 23( b)
A special rule caters for the possibility that you might work from home or even run a business from
home or let out part of it or that you might similarly use some other non-trading premises.
More specifically, it envisages that you occupy part of premises not otherwise occupied for purposes of
trade, a dwelling-house or domestic premises for purposes of trade (see 10.14). Then, although your
domestic or private expenses, the rent of or cost of repairs of or expenses in connection with such
premises are ordinarily prohibited as a deduction (see 10.14), you will be able to apportion such
expenses and claim a portion as a deduction.
The part used for purposes of trade must be specifically equipped for those purposes and must be
regularly and exclusively used for those purposes.
It is under this rule that, for example, you would claim part of your domestic expenses relating to a
cottage or storage space that you let, such as a portion of your interest on your mortgage loan and of
your cost of water, municipal services and power.
And it is also under this rule that, as a self-employed trader, you would claim that part of your domestic
expenses relating to the part of the premises you use for purposes of your trade. A doctor may claim this
deduction if he or she sets aside part of his or her home for a surgery, and other professional people who
work at home in a specially equipped study or library used regularly and exclusively for their work may
deduct the costs relating to the study or library.
But, in order to benefit under this rule, you must be self-employed – not employed by a company or
close corporation that actually carries on the trade.
The reason is that, when your trade constitutes employment or the holding of an office, in order to claim
a deduction, you must derive your income mainly from commission or other variable payments that are
based on your work-performance, and your duties must be mainly performed not in an office provided
to you by your employer. Alternatively, if your income is not of this nature, for example, you are a
salaried employee, your duties must be mainly performed in the part of your home you use for purposes
of your trade as an employee or office-holder. But even if you meet these requirements, you will be
disqualified from claiming certain expenditure, losses or allowances relating to your employment or
office, under the more general prohibition of employment-related deductions, but this disqualification is
relaxed for deductions allowable for rent of, the cost of repairs of or expenses in connection with a
dwelling house or domestic premises to the extent that their deduction is not prohibited under the rules
set out above (see 5.34).
This rule is meant to restrict your ability to claim part of your domestic expenses incurred on your
‘home office’, and surely cannot prevent you from claiming any other part that qualifies, such as a
cottage that you let, even if you are a non-qualifying employee or office-holder, since you then have two
trades; one as a landlord. And if you let your home office to your employer?
You are required to enclose with your tax return a statement containing the following information:
• The nature of your occupation and the reason why you need to maintain a study at your home.
• A copy of your service contract, service regulations or personnel code.
• Whether your employer places an office at your disposal at your workplace, and any restrictions on its
use imposed by your employer. You must include a letter of confirmation from your employer.
• Whether your work is of such a nature that you are expected to work at home after hours, including
full details of how frequently you use the study as well as a statement from your employer confirming
that usage.
• Whether you are required to use the study to interview or supply information to clients or employees
after hours.
• Whether the study is specifically equipped for purposes of your trade.
• Whether you use it regularly and exclusively for your work.
• The extent to which the study is indispensable to the proper carrying out of your tasks.
The portion that is deductible will usually depend upon the area used for your trade.
10.50 Professional
courses
s 11( a)
If you are a practising attorney or chartered accountant, the fees that you pay for attending courses in
South Africa as part of the continuing education programme of your profession are allowed as a
deduction, provided that the courses do not lead to any recognized educational qualification. Other
professionals will also be permitted to deduct the fees they pay for attending courses on application to
SARS, provided that they can show that the expenditure incurred is closely linked with the earning of
their income.
You may not deduct these fees if you are an employee unless you are obliged to bear them by your
contract of employment. If your employer bears the cost of the fees, it may deduct the expenditure.
10.51 Qualifying equity shares granted
s 11( l A)
You may deduct an amount equal to the market value of any qualifying equity share granted to your
employee (see 5.2), as determined on the ‘date of grant’ (see 5.2), This deduction applies in lieu of any
other deduction that may otherwise be allowed to you or any other person for the granting of the share:
This deduction may not during any year of assessment in aggregate exceed an amount of R10 000 for all
qualifying equity shares granted to a single employee. The excess over R10 000
may be carried forward to the immediately succeeding year of assessment when it is deemed to be the
market value of qualifying equity shares granted to the relevant employee during that immediately
succeeding year for the purposes of the deduction.
10.52 Repairs s
11( d)
You may deduct the expenditure you actually incur during the tax year on repairs of property occupied
for purposes of trade or from which income (see 2.3) is receivable, including expenditure incurred on
treatment against attack by beetles of timber forming part of the property.
You may not deduct the cost of improvements or alterations as distinct from repairs.
You may also deduct sums expended for the repair of machinery, implements, utensils and other articles
used for the purposes of your trade.
10.53 Research
and
development
s 11D
Law applicable as from 1 January 2014 and before 1 October 2022
In determining your taxable income for a tax year you may deduct from your income an amount equal to
the amount of expenditure actually incurred by you directly and solely on research and development
undertaken in South Africa if it is incurred in the production of income and in the carrying on of a trade.
‘Research and development’ is defined for this purpose as:
• systematic investigative or systematic experimental activities of which the result is uncertain for the
purpose of:
– the discovery of non-obvious scientific or technological knowledge; or
– creating or developing an invention as defined in s 2 of the Patents Act 57 of 1978, a functional design
as defined in s 1 of the Designs Act 195 of 1993 capable of qualifying for registration under s 14 of that
Act, and, if the expenditure is incurred on or after 1 January 2015 but before 1 October 2022, is
innovative in respect of the functional characteristics or intended uses of that functional design, a
computer program as defined in s 1 of the Copyright Act 98 of 1978
that is of an innovative nature or knowledge essential to the use of the invention, functional design or
computer program, other than creating or developing operating manuals or instruction manuals or
documents or documents of a similar nature intended to be utilised in respect of the invention,
functional design or computer program subsequent to the research and development being completed;
• making a significant and innovative improvement to any invention, functional design, computer
program or knowledge contemplated above for the purposes of new or improved function, improvement
of performance, improvement of reliability or improvement of quality of the invention, functional
design, computer program or knowledge;
• creating or developing a multisource pharmaceutical product, as defined in the World Health
Organisation Technical Report Series, No. 9937, 3006 Annex 7 Multisource (generic) pharmaceutical
products: guidelines on registration requirements to establish interchangeability issued by the World
Health Organisation, conforming to such requirements as must be prescribed by regulations made by
the Minister after consultation with the Minister for Science and Technology; or
• conducting a clinical trial as defined in Appendix F of the Guidelines for good practice in the conduct of
clinical trials with human participants in South Africa issued by the Department of Health (2006),
conforming to such requirements as must be prescribed by regulations made by the Minister after
consultation with the Minister for Science and Technology.
Research and development does not include activities for the purpose of:
– routine testing, analysis, collection of information or quality control in the normal course of business;
– development of internal business processes unless those internal business processes are mainly
intended for sale or for granting the use or right of use or permission to use them to persons who are not
connected persons (see 10.27) of the person carrying on that research and development;
– market research, market testing or sales promotion;
– social science research, including the arts and humanities;

– oil and gas or mineral exploration or prospecting, except research and development carried on to
develop technology used for that exploration or prospecting;
– the creation or development of financial instruments or financial products;
– the creation or enhancement of trademarks or goodwill; or
– expenditure on the development and acquisition of intellectual property (see 10.35) or the renewal of
such property (see 10.36).
A company may deduct 150% of the above expenditure if the research and development is approved by
the Minister of Science and Technology, it is incurred solely and directly in respect of the carrying on of
research and development in South Africa, and the expenditure is incurred on or after the date of receipt
of the application by the Department of Science and Technology for approval of the research and
development.
When an amount of expenditure is incurred by you to fund expenditure of another person carrying on
research and development on your behalf, you may also deduct the amount of 150% of the expenditure
on research and development, if it is incurred in the production of income and in the carrying on of a
trade:
• if the research and development is approved by the Minister of Science and Technology;
• the expenditure is incurred in respect of research and development carried on by you;
• to the extent that the other person carrying on the research and development is a qualifying exempt
institution or the Council for Scientific and Industrial Research or a company forming part of the same
group of companies (see 14.1) if the company that carries on the research and development does not
claim the 150% deduction mentioned above; and
• the expenditure is incurred on or after the date of receipt of the application by the Department of
Science and Technology for approval of the research and development.
When a company funds expenditure incurred by another company as contemplated above, any
additional deduction by the company that funds the expenditure must be limited to an amount equal to
150% of the actual expenditure incurred directly and solely in respect of that research and development
carried on by the other company that is being funded.
For the purposes of the additional deductions above, a person carries on research and development if
that person may determine or alter the methodology of the research. But certain categories of research
and development designated by the Minister by notice in the Gazette are deemed to constitute the
carrying on of research and development.
When you derive an amount from a government department, a qualifying public entity or a municipal
entity to fund expenditure on research and development, an amount equal to the amount that is funded
must not be taken into account for the purposes of the 150% deductions mentioned above.
The Minister of Science and Technology or a person appointed by the Minister must approve any
research and development being carried on or funded for the purposes of the 150% deduction having
regard to:
• whether the taxpayer has proved to the committee that the research and development for which the
approval is sought complies with the criteria mentioned in the definition of ‘research and development’
(see above); and
• any other criteria that the Minister of Science and Technology in consultation with the Minister of
Finance may prescribe by regulation.
If research and development is approved and:
• any material fact changes that would have had the effect that approval would not have been granted
had that fact been known to the Minister at the time of granting approval;
• the taxpayer carrying on the research and development fails to submit the required report to the
committee; or
• the taxpayer carrying on the research and development is guilty of fraud, misrepresentation or non-
disclosure of material facts that would have had the effect that approval would not have been granted.
The Minister may, after taking into account the committee’s recommendations, withdraw the approval
granted in respect of the research and development with effect from a date specified by the Minister.
The Commissioner is then empowered to raise additional assessments.
The Commissioner is also empowered to issue a reduced assessment to allow a deduction for
expenditure incurred on or after the date of receipt of an application for the approval of the research
and development but before the approval is given if the deduction was previously disallowed because
approval had not yet been given when the expenditure was incurred.
A committee must be appointed for the purposes of approving research and development. It must
consist of three persons employed by the Department of Science and Technology appointed by the
Minister of Science and Technology, one person employed by the National Treasury, appointed by the
Minister of Finance, and three persons from the South African Revenue Service, appointed by the
Minister of Finance. The Minister of Science and Technology or the Minister of Finance may appoint
alternative persons to the committee if a person appointed is not available to perform any function as a
member of the committee. A person appointed as another person’s alternative may perform that other
person’s functions as an appointee of the relevant body.
The committee must perform its functions impartially and without fear, favour or prejudice. It may
appoint its own chairperson and determine the procedures for its meetings. It may evaluate any
application and make recommendations to the Minister of Science and Technology for purposes of the
approval of research and development. It may investigate or cause to be investigated approved research
and development and may monitor all approved research and development to determine whether the
objectives of the law are being achieved and to advise the Minister of Finance and the Minister of Science
and Technology on any future proposed amendment or adjustment of the rules.
It may also, for a specific purpose and on the conditions and for the period that it may determine, obtain
the assistance of any person to advise it relating to any function assigned to it under these rules. And,
finally, it may require any taxpayer applying for approval of research and development to furnish any
information or documents necessary for the Minister of Science and Technology and the committee to
perform their functions in terms of these rules.
A taxpayer carrying on approved research and development must report to the committee annually
about the progress of that research and development and the extent to which it requires specialised
skills within twelve months after the close of each tax year, starting with the year following the year in
which approval is granted. The report must be in the form and in the manner that the Minister of Science
and Technology may prescribe.
Notwithstanding the secrecy rules in the Tax Administration Act, 2011 (see 18.11), the Commissioner
may disclose to the Minister of Science and Technology whatever information in relation to research and
development may be required by the Minister for the purposes of submitting a report to Parliament if
that information is material to the granting or withdrawal of approval.
The members of the committee and any person whose assistance has been obtained by the committee
may not act in any way that is inconsistent with these rules or expose themselves to any situation
involving the risk of a conflict between their responsibilities and private interests or use their position
or any information entrusted to them to enrich themselves or improperly benefit any other person.
The Minister of Science and Technology or his or her appointee must provide written reasons for any
decision to grant or deny an application for approval of any research and development or for any
withdrawal of approval, inform the Commissioner of the approval of any research and development,
setting out such particulars that are required by the Commissioner to determine the amount of the
deductions and inform the Commissioner of any withdrawal of approval and of the date on which that
withdrawal takes effect.
The Minister of Science and Technology must annually submit a report to Parliament advising
Parliament of the direct benefits of the research and development in terms of economic growth,
employment and other broader government objectives and the aggregate expenditure in respect of
these activities without disclosing the identity of any person.
Every employee of the Department of Science and Technology, every member of the committee and any
person whose assistance has been obtained by that committee must preserve and aid in preserving
secrecy with regard to all matters that may come to their knowledge in the performance
of their functions in terms of these rules and may not communicate any such matter to any person
whatsoever other than to the taxpayer concerned or its legal representative. Nor may they allow any
such person to have access to any records in the possession or custody of the Department of Science and
Technology or committee, except in terms of the law or an order of court.
Capital R&D costs
Certain deductions for buildings (see 10.18) and for machinery and plant (see 10.63) are available for
these assets when used for research and development.
10.54 Restraint
payments
s 11( c A)
You are entitled to claim a deduction for the amount you actually incur in the course of the carrying on
of your trade as compensation for a restraint of trade imposed upon another person who is a natural
person or is or was a labour broker without a PAYE exemption certificate (see 17.5), a personal service
provider (see 17.5). But you will enjoy a deduction only to the extent that the amount constitutes or will
constitute income (see 2.3) of the person to whom it is paid.
In any event, your maximum deduction in any one tax year may not exceed the lesser of:
• so much of the amount incurred as is equal to the amount divided by the number of years or part-years
during which the restraint will apply; and
• one-third of the amount incurred.
For the liability to tax of the recipient, see 5.9.
10.55 Retirement annuity fund contributions
s 11( n)
You could deduct the amount of the current contributions that you paid during the tax year up to a
certain amount. Arrear and unpaid contributions were not deductible. If you also contributed to a
pension fund during the year, your maximum deduction for retirement annuity fund contributions was
reduced.
For further details, especially of a further deduction for ‘reinstating’ contributions, see 6.3.
This deduction fell away on 1 March 2016, when the law governing contributions to retirement funds
was overhauled. See also Chapter 6.
10.56 Retirement funds – contributions by employers
ss 1, 11( l)
You may deduct the amount of your contributions during the tax year for the benefit of or on behalf of
your employees to approved pension funds, provident funds and benefit funds (see 6.7).
In this context, a ‘benefit fund’ would comprise a medical scheme registered under the Medical
Schemes Act 131 of 1998.
A claim for a deduction of more than 10% of the remuneration you pay to your employees may be partly
disallowed by SARS, which may disallow the portion exceeding 10% of the remuneration if it considers
that the aggregate of the contributions and the total remuneration paid to the employees is excessive or
unjustifiable in relation to the services rendered by the employees.
In practice, though, the actual limit adhered to is 20% of remuneration rather than 10%, and it is
difficult to envisage circumstances in which an actual disallowance would be encountered. More
commonly, you would merely be required to report contributions made in excess of the 20% limit.
If you contribute a lump sum, for example, the initial contribution by your firm to improve the benefits
available from the fund, you may deduct each year whatever portion of the lump sum SARS will allow
until the whole amount is deducted.
A partner in a partnership is for the purposes of the deduction deemed to be an employee of the
partnership.
Law as from 1 March 2016
As an employer you may deduct any amount contributed by you during the tax year for the benefit of
any of your employees or former employees or for the dependants or nominees of a deceased employee
or former employee to any pension fund, provident fund or retirement annuity fund under the rules of
the fund. For this purpose a partner in a partnership is deemed to be an employee of the partnership and
a partnership is deemed to be the employer of the partners in the partnership.
10.57 Rolling
stock
s 12DA
You may deduct an annual deduction of 20% of the cost of rolling stock from your income. The
deduction is based on the cost actually incurred by you on the acquisition or improvement of any rolling
stock owned by you, or acquired by you as purchaser in terms of an ‘instalment credit agreement’ as
defined in s 1 of the Value-Added Tax Act 89 of 1991, and used directly by you wholly or mainly for the
transportation of persons, goods or things. The deduction is available to the extent that the rolling stock
is used in the production of your income.
The ‘cost’ to you of any rolling stock for the purposes of the allowance is deemed to be the lesser of the
actual direct cost to you of the acquisition or improvement of the rolling stock and the cost that you
would, if you had acquired or improved the rolling stock under a cash transaction concluded at arm’s
length on the date on which the transaction for the acquisition or improvement of the rolling stock was
in fact concluded, have incurred as the direct cost of the acquisition or improvement of the rolling stock.
A special rule applies when the rolling stock qualifying for these allowances was during a previous tax
year used by you for the purposes of a trade carried on by you, the receipts and accruals of which were
not included in your income during that year. Any deduction that could have been allowed under this
provision during that year or any subsequent year in which the rolling stock was used by you is deemed
to have been allowed during the relevant years as if the receipts and accruals of your trade had been
included in your income.
The deduction is not allowed for any rolling stock that has been disposed of by you during any previous
tax year.
The deductions that may be allowed or deemed to be allowed for the cost of rolling stock in terms of this
provision and any other provision may not in the aggregate exceed the cost.
10.58 Scrapping (termination) allowance
ss 11( o), 20B
Elective deduction
You may elect to deduct from your income derived from trade (see 10.14) the amount by which the
‘cost’ to you any depreciable asset (see 10.7) exceeds the sum of:
• the amount derived from its alienation, loss or destruction; and
• the amount of the allowances or deductions described immediately below allowed on the asset, both in
the same tax year and in previous years, or allowances that are deemed to have been allowed for an
asset that you used in a previous financial year or in previous financial years for the purposes of a trade
carried on by you that did not generate receipts or accruals required to be included in your income
during those years.
A depreciable asset will be available for treatment under this election if it qualified for a capital
allowance or deduction under the depreciation allowance (see 10.27), ‘50/30/20’ depreciation (see
10.69), straight-line depreciation (see 10.63), the deduction for rolling stock (see 10.57), the small
business corporation deductions (see 16.33), or the deduction for environmental expenditure on certain
assets (see 10.31). Moreover, its expected useful life for tax purposes determined on the date of its
original acquisition must not have exceeded ten years.
The deduction is not available when the amount derived from the alienation, loss or destruction of the
asset was received or accrued from your connected person (see 10.27).
What is ‘cost’ for this purpose
The ‘cost’ of any plant, machinery, implement, utensil or article is deemed to be its: Actual cost
The amount by which its value has been increased by the qualifying costs of moving it (but only those
allowable under the depreciation allowance; see 10.27)
The actual cost of any plant, machinery, implement, utensil or article acquired by you is deemed to be its
cost that, in the opinion of the Commissioner for SARS, you would have incurred on the direct cost of its
acquisition, including the direct cost of its installation or erection, had you acquired it under a cash
transaction concluded at arm’s length on the date on which the transaction for its acquisition was in fact
concluded.
The cost of an aircraft on which a now-obsolete allowance was made to you is deemed to be its actual
cost less any amount by which its cost or ‘estimated cost price’ has, in the calculation of that allowance,
been reduced on account of a deferred recoupment, unless that amount has already been added back on
account of some default.
The cost of a ship on which a now-obsolete allowance has been made to you is deemed to be its actual
cost less any amount by which its cost or ‘estimated cost price’ has, in the calculation of that allowance,
been reduced under the concepts of ‘adjustable cost’ or ‘adjustable cost price’, unless that amount has
already been added back on account of some default.
Deferred accruals
In terms of a special rule, if the full consideration from the disposal of an asset does not accrue to you
during the tax year in which you dispose of the asset, you are precluded from claiming the deduction in
that year. You may then claim the deduction from your income in any subsequent tax year to the extent
that you derive any consideration in that tax year from the disposal of the asset. If during any tax year
you prove that no further consideration will accrue to you in that or subsequent tax years, the amount
that you have not yet deducted will be allowed as a deduction in that tax year.
10.59 Security expenditure at ‘Key Points’
ss 8(4)( a), 11( e)(iiiA), 24D
You may deduct any expenditure actually incurred by you:
• Directly in the performance of any act ordered, performed or executed under the provisions of the
National Key Points Act 102 of 1980 in respect of any ‘National Key Point’ or ‘Key Point’.
• Directly in providing efficient security against loss, damage, disruption or immobilization of any place
or area which, although not declared a ‘National Key Point’, has been evaluated and approved by the
Minister of Defence as a place or area where you ought to take measures for efficient security.
In order for your claim for a deduction of this expenditure to be allowed, the Minister of Defence or a
person or committee appointed by him must have confirmed in writing that it was deemed necessary or
expedient that you incur the expenditure.
Expenditure will qualify for this deduction only if it is not otherwise allowable as a deduction under
other provisions of the Act. You may not deduct depreciation on any asset for which you have claimed
this deduction (see 10.27).
Any recovery or recoupment of this deduction you enjoy will be taxed (see 10.7), except for certain
compensation for expenditure incurred prior to 1 July 1983.
10.60 Small business corporations allowances
See 16.33
10.61 Soil-erosion
works
s 17A
If you let land that is used by your lessee for farming purposes, you may deduct certain expenditure on
‘soil-erosion works’ (see 8.3).

10.62 Sporting
bodies’
expenditure
ss 1, 11E, 24E
A deduction is allowed for certain expenditure incurred by a ‘non-profit company’ as defined in the
Companies Act 71 of 2008 or an association of persons that has been incorporated, formed or
established in South Africa in the determination of its taxable income from carrying on any sporting
activities falling under a code of sport administered and controlled by a national federation as
contemplated in s 1 of the National Sport and Recreation Act 110 of 1998. What is deductible is
expenditure, not of a capital nature, incurred by the company or association on the development and
promotion, directly by it, or any payment made to another such company or association for expenditure
to be incurred on the development and promotion, of qualifying sporting activities falling under the
relevant code of sport, that is, sport or recreation in which the participants take part on a non-
professional basis as a pastime. The amount received by or accruing to the other company or association
is included in its gross income.
Allowance for future expenditure
If income is received by or accrued to a company or association mentioned above in respect of an event

that will not recur in the following tax year, the taxpayer may deduct so much of the income as will be
required to fund the abovementioned expenditure that will be incurred in a future tax year.
The amount allowed to be deducted under this provision in any tax year is then deemed to be income
received by or accrued to the taxpayer in the following tax year.
10.63 Straight-line depreciation allowance
ss 3(4), 12C
A ‘straight-line’ depreciation allowance is available on the cost of a qualifying asset in the tax year in
which it is brought into use and in succeeding tax years until its full cost is written off. Since the
allowance for each year is based on the original cost of the asset, the depreciation is effectively allowed
on the straight-line basis (see 10.28). The rate of the allowance depends upon the asset concerned and
the tax year involved.
Allowance of 20%, 20%, 20%, 20%, 20%
The first category of straight-line depreciation of this type amounts to a deduction equal to 20% of the
cost to you of acquiring the qualifying asset or improvement, which is allowed in the tax year during
which the asset or improvement is brought into use for a qualifying purpose and in each of the four
succeeding tax years. It applies to:
(1) Machinery or plant owned by you or acquired by you as purchaser in terms of an ‘instalment credit
agreement’ as defined in the Value-Added Tax Act 89 of 1991 that is brought into use for the first time by
you for the purposes of your trade (see 10.14) other than mining or farming and is used by you directly
in a process of manufacture or a similar process carried on by you.
Excluded from this category is machinery or plant on which an allowance has been granted under item
(2).
agreement’ as defined in the Value-Added Tax Act 89 of 1991 that is let by you and is brought into use
for the first time by your lessee for the purposes of its trade other than mining or farming and is used by
it directly in a process of manufacture or similar process carried on by it. Excluded from this category is
machinery or plant on which an allowance has been granted under item (1).
agreement’ as defined in the Value-Added Tax Act 89 of 1991 and made available by you to another
person and brought into use for the first time by that other person for the purposes of his or her trade
(see 10.14) other than mining or farming and used by that other person solely for his or her benefit for
the purposes of the performance of his or her contractual obligations in a process of manufacture under
the Automotive Production and Development Programme administered by the Department of Trade and
Industry or Automotive Incentive Scheme administered by that Department.
agreement’ as defined in the Value-Added Tax Act 89 of 1991 that is brought into use for the first time by
an agricultural co-operative (see 16.7) and is used by it directly for storing or packing farm products of
its members, including members of member co-operatives, or for subjecting such products to a ‘primary
process’. Excluded from this category is machinery or plant on which an allowance has been granted
under item (1).
(5) Any machinery, implement, utensil or article owned by you or acquired by you as purchaser in terms
of an ‘instalment credit agreement’ as defined in the Value-Added Tax Act 89 of 1991
that is brought into use by you for the first time for the purposes of your trade as hotelkeeper and is
used by you in a hotel. Excluded are vehicles and equipment for offices or managers’ or servants’ rooms.
Excluded from this category is an asset on which an allowance has been granted under the depreciation
allowance (see 10.27).
(6) Any machinery, implement, utensil or article owned by you or acquired by you as purchaser in terms
of an ‘instalment credit agreement’ as defined in the Value-Added Tax Act 89 of 1991
that is let by you and is brought into use for the first time by your lessee for the purposes of its trade as
hotelkeeper and is used by it in a hotel. Excluded are vehicles and equipment for offices or managers’ or
servants’ rooms.
(7) An aircraft owned by you or acquired by you as purchaser in terms of an ‘instalment credit
agreement’ as defined in the Value-Added Tax Act 89 of 1991 that is brought into use by you for the first
time for the purposes of your trade. Excluded from this category is an aircraft on which certain, now
obsolete allowances have been granted (see 16.1).
(8) A ship owned by you or acquired by you as purchaser in terms of an ‘instalment credit agreement’ as
defined in the Value-Added Tax Act 89 of 1991 that is brought into use by you for the first time for the
purposes of your trade. Excluded from this category is a ship on which certain, now obsolete allowances
have been granted (see 16.32) and, as from 1 April 2014, a South African ship (see 16.32).
(9) Any new or unused machinery or plant that is owned by you or acquired by you as purchaser in
terms of an ‘instalment credit agreement’ as defined in the Value-Added Tax Act 89 of 1991
that is brought into use by you for purposes of research and development (see 10.53).
(10) Improvements (other than repairs) to any machinery, plant, implements, utensils or articles
referred to in (1) to (5) and (8) above that is used in the prescribed manner.
Allowance of 40%, 20%, 20%, 20%
The second category of straight-line depreciation of this type amounts to a deduction equal to 40%
of the cost to you of the qualifying asset allowed in the tax year during which the asset is brought into
use for a qualifying purpose for the first time and 20% in each of the three succeeding tax years. The
machinery or plant must be brought into use for the first time, new or unused, and it must
have been acquired by you under an agreement formally and finally signed by every party to it on or
after 1 March 2002 and brought into use by you on or after that date in a process of manufacture or a
similar process carried on by you in the course of your business. But that business may not be any
banking, financial services, insurance or rental business.
Allowance of 50%, 30%, 20%
The third category of straight-line depreciation of this type amounts to a deduction equal to 50% of the
cost to you of the qualifying asset allowed in the tax year during which the asset is brought into use for a
qualifying purpose for the first time, 30% in the next year and 20% in the third tax year. It applies to the
new or unused machinery or plant that is brought into use by you for the purposes of research and
development (see 10.53) if it was acquired by you under an agreement formally and finally signed by
every party to the agreement on or after 1 January 2012 and brought into use by you on or after that
date for the purposes of research and development.
Foundations and supporting structures
When any machinery, plant, implement, utensil, article or improvement qualifying for the allowance is
mounted on or affixed to any concrete or other foundation or supporting structure and the foundation
or supporting structure is designed for the relevant asset, and constructed in such manner that it is or
should be regarded as being integrated with the asset and the useful life of the foundation or supporting
structure is or will be limited to the useful life of the asset mounted on it or affixed to it, the foundation
or supporting structure will be deemed to be a part of the asset in question.
What is ‘cost’?
The ‘cost’ to you of an asset for the purposes of the allowance is deemed to be the lesser of:
• the actual cost to you of acquiring the asset; and
• the cost that you would have incurred, if you had acquired it under a cash transaction concluded at
arm’s length on the date on which the transaction for its acquisition was in fact concluded, on the direct
cost of its acquisition, including the direct cost of its installation or erection.
For example, on the second alternative, finance charges on an instalment or suspensive sale are not
taken into account in the determination of the asset’s cost price. Instead, they are deductible in full
under another provision (see 10.38).
When allowance is denied
The allowance is altogether unavailable on the following assets:

• An asset that has been let by you under a lease, unless the lessee under the lease, in the carrying on of
its trade, derives amounts constituting income (see 14.3). This rule does not apply to assets let under an
operating lease (see 8.4), on which the allowance is available.
Someone not deriving income is exempt from tax, such as a municipality:
• An asset that has been disposed of by you during any previous tax year.
• An asset whose ownership is retained by you as a seller in terms of an ‘instalment credit agreement’ as
defined in the Value-Added Tax Act 89 of 1991.
Earlier use in untaxed environment
A further special rule applies to an asset that you used in a previous tax year or in previous tax years for
the purposes of a trade carried on by you that did not generate receipts or accruals required to be
included in your income during those years.
For example, you might have used it in carrying on a trade conducted abroad, before the introduction of
world-wide taxation.
All the allowances you would have been entitled to had the trade been a taxable one are then deemed to
have been granted upon the cost of the asset.
The result is that you are limited in claiming future allowances. In other words, this rule has the effect of
bringing an asset into account at its tax value as if it had been depreciated during the period that it was
excluded from the tax system; only its remaining depreciable life is of significance for tax purposes.
Maximum allowance
The total amount claimable by way of the straight-line depreciation allowance, including depreciation
you are deemed to have been granted, and the scrapping allowance (see 10.58) on any asset is limited to
its cost.
Cost of moving a qualifying asset
The expenditure you incur during the tax year on moving an asset qualifying either for the straight-line
depreciation allowance or the ‘50/30/20’ depreciation allowance from one location to another is
deductible in equal instalments over the period remaining for the write-off of its full cost. The cost of a
move during or after the last year of the ‘write-off’ period is deductible in that year. This rule does not
apply to any moving costs that are deductible under the general deduction formula (see 10.14).
For example, the cost of moving an asset that so far has been written off over only one year will be
written off over the remaining three years of the four-year, ‘straight-line’ period. But the cost of moving
an asset that has already been held for, say, five years will be written off in full in the year of the move.
General
18.6).
When you buy an asset in a foreign currency straight-line depreciation is thought to be based on an
amount equal to the equivalent in rands of the amount owing for the asset at the date of its acquisition.
No adjustment is made for subsequent fluctuations in the rate of exchange, which are subject to special
provisions (see 10.2, 10.74 and 10.75).
The straight-line depreciation allowance, excluding depreciation you are deemed to have been granted,
is subject to tax if it is recovered or recouped (see 10.7), and, including depreciation you are deemed to
have been granted, is taken into account in the calculation of any scrapping allowance.
An artificial recoupment will arise if you donate, distribute as a dividend or dispose of to a connected
person an asset that has qualified for the allowance (see 10.7).
There is a limit to the amount that you, as a lessor, may deduct in any tax year by way of straight-line
depreciation, ‘50/30/20’ depreciation, ordinary depreciation (see 10.27) and scrapping allowances on
‘affected assets’ (see 8.4).
10.64 Small business funding entities
See 16.3
10.65 Subscriptions
s 11( a)
Annual subscriptions paid during the tax year may be deducted by:
• Traders for subscriptions to trade associations formed to provide specific services for their members,
for example, a local chamber of commerce.
• Professionals for subscriptions to professional societies, provided that these are paid in the course of
carrying on a profession.
• Professionals who are employees for subscriptions to professional societies, provided that
membership of the society is compulsory before the employee may carry on his or her work.
Entrance fees to any society are not deductible.
Subscriptions to medical, dental, religious and other technical and professional journals are deductible if
the subscriber practises or is employed in any particular technical or professional field.
10.66 Trading
stock
ss 1, 3(4), 11( a), 15A, 22, 22A, 23F
Your expenditure during the tax year on purchases of goods for resale, known as your ‘trading stock’, is
deductible in full under the so-called general deduction formula (see 10.14). But adjustments are
required on account of your trading stock on hand at the end and at the beginning of each tax year.
End of tax year: In determining your taxable income (see 1.1) derived from a trade (see 10.14) other
than farming, you must take into account the value of your trading stock held and not disposed of at the
end of the tax year. This will be its cost price to you, less an amount allowed by the Commissioner for
SARS as being just and reasonable as representing the amount by which its value has been diminished
by reason of damage, deterioration, change of fashion, decrease in the market value or for any other
satisfactory reason. (This write-down is unavailable on trading stock consisting of a financial instrument
– see 7.5.) The amount of trading stock to be so taken into account must be included in your gross
income (see 1.1). And, in determining a write-down, you cannot take into account any excess of the value
of some items of trading stock over their cost price.
Beginning of tax year: In determining your taxable income derived from a trade other than farming,
you must take into account the value of your trading stock held and not disposed of at the beginning of
the tax year. This will be:
• Trading stock forming part of your trading stock at the end of the immediately preceding tax year: the
amount that was, in the determination of your taxable income for the preceding tax year, taken into
account as the value of your trading stock at the end of the preceding tax year;
• Other trading stock (acquired during the current tax year): its cost price to you.
Should your period of assessment be less than a year (see 2.2), the beginning or end of your tax year will
for this purpose be the beginning or end of your ‘broken’ period. A similar rule applies when your
accounts are accepted to a date agreed to by the Commissioner for SARS, when the beginning or end of
the period covered by your accounts will be the beginning or end of your tax year for this purpose.
18.6).
Your ‘trading stock’ will include:
• Anything you produce, manufacture, construct, assemble, buy or in any other manner acquire for the
purposes of manufacture, sale or exchange by you or on your behalf.
• Anything that you might dispose of if the proceeds will be included in your gross income (see 1.1).
Excluded are amounts included in your gross income as excess recoupment of miners (see 16.22) or the
proceeds of employer-owned long-term policies (see 10.6), amounts derived by a farmer on the disposal
of a plantation (see 12.11) and amounts included in your income, and ultimately your gross income, as a
recovery or recoupment of deductions or allowances (see 10.7).
• Your consumable stores and spare parts acquired by you to be used or consumed in your trade.
• Improvements made and materials delivered by you in the construction, building, engineering or
similar industries to fixed property owned by your client.
Your consumable stores will include unused stationery, cleaning materials, fuel and oil.
You must not include in your trading stock any foreign currency option contracts and forward exchange
contracts held by you (see 10.75).
On the inclusion in gross income arising upon the disposal of assets similar to trading stock (see 10.3).
Construction industry
Special rules apply in the construction, building, engineering and similar industries in which
improvements are made and materials delivered to fixed property owned by the client, with the result
that the improvements and materials become the property of the client and not the contractor or
supplier. As the contractor in such a situation, you will find that any such improvements or materials
will be regarded as your trading stock until the contract is completed. It will be completed for this
purpose only when you have carried out all your obligations and become entitled to claim payment of all
amounts due to you under it. The cost price of this trading stock is calculated in the following way: The
cost to you of materials used by you for the improvements ....................................................
R0 000
Further costs incurred by you that, in accordance with IFRS, are regarded as having been incurred
directly in connection with the contract ............................................................................
R0 000
The portion of any other costs incurred by you in connection with the contract and other contracts that,
in accordance with IFRS, are regarded as having been incurred in connection with the
contract ..............................................................................................................................
R0 000
R0
000
Less:
Any income derived by you from the contract ............................................................
R0 000
Amounts withheld as retentions (limited to 15% of total amount payable under the
contract) ......................................................................................................................
R0 000
Any of the above costs that are in excess of the portion of the con-tract price relating to the
improvements actually effected by you ...............................................
R0 000
R0 000
Cost price of trading stock ................................................................ R0
000
The amounts deducted above may not reduce the cost of this trading stock below zero. The further and
other costs referred to above may be determined in accordance with statement AC 109 issued by the
South African Institute of Chartered Accountants.
Short-selling of shares
A security or listed government bond will be deemed to be trading stock held and not disposed of by you
at the end of a tax year if it is included in your trading stock during that year, if, during that year, you
have lent it to a borrower under a securities lending arrangement, and if an ‘identical security’ or the
same bond has not been returned by the borrower to you at the end of that year.
Similarly, a security or bond will be deemed not to be trading stock held and not disposed of by the
borrower at the end of a tax year if it is included in the borrower’s trading stock during that year, if the
borrower has, during that year, borrowed it from a lender under a securities lending arrangement, and if
an ‘identical security’ or the same bond has not been returned by the borrower to the lender at the end
of that year.
Collateral arrangements
If your trading stock during a tax year includes any security or listed bond issued by the South African
government in the national or local sphere or, as from 1 January 2018, foreign government that you
have, during that tax year, transferred to a transferee under a ‘collateral arrangement’ (see 21.9); and an
‘identical share’ or the same bond has not been returned to you by the transferee at the end of that tax
year, the share or bond is deemed to be trading stock held and not disposed of by you and not the
transferee at the end of that tax year. Shares or bonds transferred by a transferor to a transferee under
such an arrangement are, for the purposes of the determination of the cost
price of the trading stock of the transferee, deemed not to have been acquired by the transferee, while
they are deemed not to have been acquired by the transferor when transferred back to him or her by the
transferee.
Cost price
In determining the cost price of your trading stock, you must take into account not only the cost of
acquiring it but any further costs incurred by you, in terms of IFRS for a company, in getting the stock
into its existing condition and location, excluding any exchange differences (see 10.75) relating to its
acquisition. The Commissioner for SARS’s decision on certain of these matters is subject to objection and
appeal (see 18.6).
If an asset that you have been hiring is acquired by you or by anyone else and a lease premium (see
10.42), the cost of improvements effected to the asset by you (see 10.41) or your payments of rent have
been allowed as deductions in the past, you or the person acquiring the asset will pay tax on any portion
of the deductions that has been set off against the purchase price of the asset, which will be treated as a
recoupment. Also, if the asset is acquired for an inadequate consideration or for no consideration, the
lesser of the fair market value of the asset as determined by the Commissioner for SARS less the amount,
if any, paid for the asset and the amounts allowed as deductions in the past, will constitute a recoupment
in the hands of the purchaser (see 10.8.) The cost price of trading stock includes any amount included in
the income of the person acquiring it that was applied in reduction or towards settlement of the
purchase price of the trading stock under these rules.
The cost of trading stock that you are treated as having acquired at its market value under the capital
gains tax system (see 21.8) is that same market value.
Special rules apply in the determination of the cost price of trading stock comprising a right in a
controlled foreign company (see 10.74).
Altogether prohibited is the ‘LIFO’ basis of valuation of his stock, that is, the basis under which the last
item of a particular class of trading stock purchased on any date is deemed to be the first item of trading
stock sold after that date.
Acquired at no cost
Trading stock – but not capitalization shares or rights to acquire shares – that you acquired at no cost,
for example, by donation or inheritance, or for a consideration not measurable in money, other than a
government grant in kind, must be brought into account at its market value at the date of acquisition,
which is regarded as its cost price and may in practice usually be deducted from any proceeds derived
from a subsequent sale of the stock.
This rule does not apply to trading stock acquired on the termination of a lease to which the special rule
for the determination of the cost price applies (see above).
This rule also does not apply to trading stock borrowed and returned under a short-sale of securities.
Instead, the following rules apply:
• A security lent by a lender to a borrower under a ‘securities lending arrangement’ will be deemed not
to have been acquired by the borrower.
• Another security that is an ‘identical security’ has been returned by the borrower to the lender will be
deemed not to have been acquired by the lender.
A ‘securities lending arrangement’ is a lending arrangement as defined in the Securities Transfer Tax
Act 25 of 2007. An ‘identical security’,
, for a listed security as defined in that Act that is the
subject of a securities lending arrangement, means a security of the same class in the same company as
that security, while an ‘identical share’ means, for a share, a share of the same class in the same
company as that share. The definitions also deal with the situation when the security or share is a
security or share in an amalgamated company (see 22.4).
Non-business usage of trading stock
Various forms of non-business usage of trading stock accounted for in the manner described here will
result in an artificial recovery or recoupment:
• You apply trading stock to your private or domestic use or consumption.
You will be deemed to have recovered or recouped the cost price – reduced, if necessary, in the
circumstances described above – of the trading stock so applied. But, if you cannot readily determine its
cost price, it is its market value that will be treated as having been recovered or recouped.
In either event, the amount involved will be included in your income for the tax year during which you
applied the trading stock in this way.
• You apply trading stock for the purpose of donating it to someone.
• Other than in the ordinary course of your trade (see 10.14), you dispose of it for less than its market
value.
• Other than in the ordinary course of your trade (see 10.14), it goes, to your surviving spouse on your
death (see 21.12) prior to 1 January 2016, for less than its market value.
• A company (see 14.1) or close corporation distributes trading stock in specie to a holder of shares in
the company (see 14.1) or a member.
• In any other circumstances, you apply trading stock for a purpose other than its disposal in the
ordinary course of your trade.
• You cease to hold your trading stock as trading stock.
You will be treated as having recovered or recouped the market value of the trading stock so applied,
disposed of, distributed or no longer held as trading stock, and the amount involved will be included in
your income for the tax year during which you applied, disposed of, distributed or so ceased to hold it.
But if you applied the trading stock for the purpose of making a deductible donation (see 19.1), you will
be treated as having recovered or recouped an amount equal to the amount that was taken into account
for that tax year for the value of that trading stock.
But not all of these applications of trading stock will represent its diversion to ‘non-business’
usage:
• Should you apply it in such a manner that you use or consume it in carrying on your trade, the amount
included in your income will in addition be deemed to be expenditure incurred by you on the acquisition
of that trading stock.
In other words, as long as you use it for a business purpose, for example, you are a paint-dealer and use
some of your stock to repaint your worn shop-counter, the inclusion in your income will be exactly
neutralized by a deemed expenditure that will be deductible, being devoted to allowable repairs (see
10.52).
• A further complication has to be introduced to allow for the possibility that when, other than in the
ordinary course of your trade, you dispose of trading stock for less than its market value, you derive
some consideration for the diverted trading stock. The inclusion in your income is then reduced by that
consideration.
The consideration itself will still form part of your income, but this artificial reduction will ensure that it
is not effectively included twice.
• For farmers with trading stock consisting of livestock or produce, special rules apply, although to
similar effect (see 12.2).
• And the rule ordinarily applying when, in any other circumstances, you apply trading stock for a
purpose other than its disposal in the ordinary course of your trade does not apply to trading stock
consisting of assets similar to trading stock whose disposal will give rise to an inclusion in your gross
income (see 10.3).
Undelivered stock (s 23F(1))
A special rule prevents you from claiming as a deduction the cost of trading stock you have acquired that
you neither hold at the end of the tax year nor have disposed of by then. The deduction is delayed until
you have disposed of the stock; until its value is required to be included in your income by virtue of its
inclusion in your closing stock at the end of the tax year; or until you show that it will never be held or
disposed of by you on account of its loss or destruction, the termination of the agreement for its
acquisition or some other reason, and then only to the extent that you have actually paid the expenditure
on which your deduction is based.
Delayed sales of trading stock (s 23F(2), (2A), (2B))
Another special rule comes into play when you have disposed of trading stock in the ordinary course of
your trade in such a way that the full amount of the consideration will not accrue to you during the same
tax year but the expenditure you incurred upon its acquisition was allowed as a deduction to you either
in that or some earlier year. Whatever amount would otherwise be deducted must be disregarded to the
extent that it exceeds any amount received or accrued from the disposal of the trading stock. The
disregarded amount may then be deducted from your income in any subsequent tax year to the extent to
which any amount that is received by or accrues to you from the disposal of the trading stock is included
in your income. If during any tax year you prove that no further amounts will accrue to you from the
disposal of the trading stock, you may deduct any amount previously disregarded that has not yet been
deducted.
Change of use of trading stock (s 23F(3))
Another artificial recovery or recoupment arises when, in the ordinary course of your trade, you dispose
of a right or interest in your trading stock that has the effect that the remaining right or interest in the
item of trading stock you hold and have not disposed of will not be included in your trading stock at the
end of the tax year in which you make the disposal. In addition, any expenditure you incurred on the
acquisition of that item must have been allowed as a deduction or otherwise have been taken into
account during that or any previous year. You will then be treated as having recovered or recouped so
much of the expenditure as relates to the remaining right or interest, and that amount will be included in
your income for that year.
Special taxpayers and situations
For the rules applying to a farmer’s livestock or produce, see 12.2. For some special rules applying to the
trading stock of share-dealers, see 16.31.
And for the special rules applying when you exchange shares constituting trading stock for new shares
in the course of an ‘unbundling transaction’, see 22.6.
Trading stock related to mining operations includes anything that is won or in any other manner
acquired during the course of mining operations by you for the purposes of extraction, processing,
separation, refining, beneficiation, manufacture, sale or exchange by you or on your behalf and is taken
into account as inventory in terms of South African Generally Accepted Accounting Practice.
This trading stock must not be valued at an amount less than the amount so taken into account.
10.67 Travelling
expenses
ss 11( a), 23( g)
As a self-employed business or professional person, you may deduct travelling expenses you incur
during the tax year in order to produce your income that are not of a capital nature. Travelling expenses
will be allowed only when it can be shown that they were incurred in the production of income and for
the purposes of trade and were not of a capital nature.
In other words, they must satisfy the requirements of the so-called general deduction formula (see
10.14). For example, the costs of your trip to meet a customer and conclude a sale will be deductible. But
if the trip is undertaken for a dual purpose, say, to both to conclude the sale and to
acquire new capital equipment, the travelling costs will be apportioned, and only that portion related to
the acquisition of the stock will be deductible.
Travelling expenses between your residence and your place of business or between two separate and
distinct businesses are not deductible, being prohibited private or domestic expenditure (see 10.79).
If you are a practising attorney, the costs of travelling and accommodation that you incur on attending
courses in South Africa as part of the continuing legal education programme of your profession are
allowed as a deduction provided that the courses do not lead to any recognized educational
qualification.
Similarly, if you are a practising chartered accountant, you are allowed to deduct the costs that you incur
in attending courses as part of the programme of continuing education of your profession and other
courses closely linked with the earning of your income.
SARS will also consider, on their merits, submissions by other professional and business people claiming
expenditure of this nature, provided that they can show that the expenditure is so closely linked with the
earning of their incomes as to warrant a deduction.
You may not deduct these expenses if you are an employee unless you are obliged to bear them by your
contract of employment. If your employer bears the expenses, it may deduct them.
For the special rules relating to holders of office, employees and directors, see 5.2.
10.68 Improvements to government-occupied property
s 12NA
You may deduct expenditure incurred by you to effect an improvement to land or to a building in terms
of an obligation to effect the improvements to the land or to the building in terms of a Public Private
Partnership if the government of South Africa in the national, provincial or local sphere holds the right of
use or occupation of that land or building.
The amount allowed to be deducted in any tax year is equal to the amount of expenditure incurred that
has not been allowed to be deducted in terms of this provision divided by the number of years (including
that tax year) for which you will derive income under the Public Private Partnership in terms of the
agreement or 25 years, whichever is the lesser.
Where an amount that is exempt from tax (see 16.28) is received by or accrues to you from the relevant
government body for the purpose of effecting an improvement to land or a building or to defray the cost
of any improvements in terms of the relevant Public Private Partnership, the expenditure to be deducted
under this provision must be reduced in an amount equal to the exempt amount.
This deduction does not apply to a person carrying on a banking, financial services or insurance
business.
10.69 ‘50/30/20’
depreciation
s 12B
A ‘50/30/20’ depreciation allowance is available for a qualifying asset or improvement brought into use
in the tax year in which it is first brought into use in the required manner and in each of the two
succeeding tax years. It is 50% of the cost of the asset in the year in which it is first brought into use,
30% in the second year and 20% in the third year, and is granted in full each year even if the asset is
used for less than twelve months in that year. There is, however, one exception, that is, when the asset is
used in the generation of electricity from photovoltaic solar energy not exceeding 1 megawatt. The rate
of depreciation of such an asset is 100% in the year in which it is first brought into use.
The assets qualifying for 50/30/20 depreciation comprise any machinery, implement, utensil or article –
but not livestock – owned by you or acquired by you as purchaser in terms of an ‘instalment credit
agreement’ as defined in the Value-Added Tax Act 89 of 1991 that is brought into use by you for the first
time and is used by you in the carrying on of your farming operations, but not any motor

vehicle whose sole or primary function is the conveyance of persons, caravan, aircraft – although an
aircraft used solely or mainly for the purpose of crop-spraying will qualify – or office furniture or
equipment.
It is also available for machinery, implements, utensils or articles owned by you or acquired by you as
purchaser in terms of an ‘instalment credit agreement’ as defined in the Value-added Tax Act 89 of 1991
and brought into use by you for the first time for the purposes of your trade and used by you for the
production of bio-diesel or bio-ethanol.
And it is also available for machinery, plant, implements, utensils or articles owned by you or acquired
by you as purchaser in terms of an ‘instalment credit agreement’ as defined in the Value-added Tax Act
89 of 1991 that was or is brought into use for the first time by you for the purpose of your trade and
used by you in the generation of electricity from wind power, photovoltaic solar energy of more than 1
megawatt, not exceeding 1 megawatt or concentrated solar energy, hydropower to produce electricity of
not more than thirty megawatts and biomass comprising organic wastes, landfill gas or plant material.
It is also available for improvements (other than repairs) to any of the abovementioned assets that are
used in the prescribed manner and qualifying foundations or supporting structures.
It is unavailable on an asset that you have disposed of during any previous tax year.
And it is unavailable on an asset whose ownership is retained by you as a seller in terms of an
‘instalment credit agreement’ as defined in the Value-Added Tax Act 89 of 1991.
The cost to you of an asset acquired by you for the purposes of 50/30/20 depreciation is the lesser of
the actual cost to you or the cost that you would have incurred, if you had acquired it under a cash
transaction concluded at arm’s length on the date on which the transaction for its acquisition was in fact
concluded, on the direct cost of its acquisition, including the direct cost of its installation or erection.
For example, finance charges on an instalment or suspensive sale are not taken into account in the
determination of the cost price of the asset. Instead, they are deductible in full under another provision
(see 10.38).
A further special rule applies to an asset that you used in a previous financial year or in previous
financial years for the purposes of a trade carried on by you that did not generate receipts or accruals
required to be included in your income during those years. For example, you might have used it in
carrying on a trade conducted abroad, before the introduction of world-wide taxation. All the allowances
you would have been entitled to had the trade been a taxable one are then treated as having been
granted upon the cost of the asset, with the result that you are limited in claiming future allowances. In
other words, this rule has the effect of bringing an asset into account at its tax value as if it had been
depreciated during the period that it was excluded from the tax system; only its remaining depreciable
life is of significance for tax purposes.
The total amount claimable by way of 50/30/20 depreciation on any asset, including depreciation you
are treated as having been granted, is limited to its cost.
When you buy an asset in a foreign currency 50/30/20 depreciation is thought to be based on an
amount equal to the equivalent in rands of the amount owing for the asset at the date of its acquisition.
No adjustment is made for subsequent fluctuations in the rate of exchange, which are subject to special
provisions (see 10.2, 10.74 and 10.75).
The 50/30/20 depreciation allowance, excluding depreciation you are treated as having been granted, is
subject to tax if recovered or recouped (see 10.7), and, including depreciation you are treated as having
been granted, is taken into account in the calculation of any scrapping allowance (see 10.58).
An artificial recoupment will also arise if you donate, distribute as a dividend or dispose to a connected
person an asset that has qualified for the allowance (see 10.7).
There is a limit to the amount that you, as a lessor, may deduct in any tax year by way of straight-line
depreciation (see 10.63), 50/30/20 depreciation, ordinary depreciation (see 10.27) and scrapping
allowances (see 10.58) on affected assets (see 8.4).
And the allowance is unavailable for an asset let by you under a lease other than an ‘operating lease’ (see
8.4) unless the lessee under the lease derives amounts constituting income (see 14.3) in the carrying on
of his or her trade and the asset is let for a period of at least five years or a shorter period shown by you
to be the useful life of the asset. Someone not deriving income is exempt from tax, such as a municipality.
When, as lessor, you dispose of the whole or a portion of your interest in the lease or your right to
receive rent under the lease within the relevant period, you are required to include in your income for
the year of assessment during which the disposal is made a sum equal to the aggregate of any deductions
allowed to you under this provision less proportionate amount for the expired portion of the lease or
any portion of the interest or right that has not been disposed of by you.
The allowance is also unavailable for an asset acquired by one company from another when both
companies are managed, controlled or owned by substantially the same persons and the company from
which the asset is acquired has claimed the allowance.
Foundations and supporting structures
When any machinery, plant, implement, utensil, article or improvement qualifying for the allowance is
mounted on or affixed to any concrete or other foundation or supporting structure and the foundation
or supporting structure is designed for the relevant asset, and constructed in such manner that it is or
should be regarded as being integrated with the asset and the useful life of the foundation or supporting
structure is or will be limited to the useful life of the asset mounted on it or affixed to it, and the
foundation or supporting structure was brought into use on or after 1 January 2013, the foundation or
supporting structure will be deemed to be a part of the asset in question.
10.70 Venture capital companies
ss 3(4), 12J
The deduction of qualifying expenditure (s 12J(2))
A deduction is allowed from your income for a particular tax year for expenditure actually incurred by
you during that year in acquiring venture capital shares. The deduction is subject to a number of
restrictions:
1. Risk cap (s 12J(3))
When, during a tax year, a loan or credit has been used by you for the payment or financing of the whole
or a portion of qualifying expenditure and a portion of the loan or credit is owed by you on the last day
of the tax year, the amount that may be taken into account as expenditure allowed as a deduction is
limited to the amount for which you are deemed to be at risk on the last day of the tax year. You are
deemed to be at risk for this purpose to the extent that the incurral of the expenditure or the repayment
of the loan or credit used by you for the payment or financing of the expenditure would (having regard
to any transaction, agreement, arrangement, understanding or scheme entered into before or after the
expenditure is incurred) result in an economic loss to you were no income to be derived by you in future
years from the disposal of a venture capital share issued to you as a result of your incurral.
You are not deemed to be at risk to the extent that the loan or credit is not repayable within a period of
five years from the date on which it was advanced to you and a loan or credit used by you for the
payment or financing of the whole or a portion of the expenditure is (regard being had to any
transaction, agreement, arrangement, understanding or scheme entered into before or after the
expenditure is incurred) granted directly or indirectly to you by the venture capital company by which
the qualifying shares are issued as a result of your incurral.
2. Connected person claw-back (s 12J(3A))
This rule applies if, at the critical date, you are a connected person (see 10.7) of the venture capital
company. It applies if, at the end of a tax year after the expiry of a period of 36 months commencing on
the first date of the issue of venture capital shares, you have incurred qualifying expenditure, and the
venture capital company has failed to take corrective steps acceptable to the Commissioner for SARS. In
that year, no deduction is available to you for expenditure incurred by you in acquiring a venture capital
share issued to you by the venture capital company. After giving due notice to the venture capital
company, the Commissioner must withdraw his approval of the company as a venture capital company,
with effect as from the date of its original approval. And an amount equal to 125% of the expenditure
incurred by you in acquiring shares issued by the company will be included in its income in the tax year
in which the approval is withdrawn.
3. Major shareholder claw-back (s 12J(3B))
This rule applies if, at the end of a tax year after the expiry of a period of 36 months commencing on the
first date of the issue by a venture capital company of a class of venture capital shares, you hold more
than 20% of that class. In that year, no deduction is available to you for expenditure incurred by you in
acquiring a venture capital share of that class issued to you by the venture capital company. After giving
due notice to the venture capital company, the Commissioner for SARS must withdraw his approval of
the company as a venture capital company, with effect as from the commencement of the tax year. And
an amount equal to 125% of the expenditure incurred by you in acquiring shares issued by the company
will be included in its income in the tax year in which the approval is withdrawn.
4. Annual cap (s 12J(3C))
The maximum deduction available for qualifying expenditure incurred by a taxpayer during a tax year is
R5 million if the taxpayer is a company and R2,5 million if the taxpayer is a person other than a
company.
Supporting certificate (s 12J(4))
A claim for a deduction must be supported by a certificate issued by the venture capital company stating
the amounts invested in it and the fact that the Commissioner has approved the company as a venture
capital company.
Approval as a venture capital company and withdrawal (s 12J(5), (6), (6A), (7), (8)) The
Commissioner must approve a venture capital company if it has applied for approval and he is satisfied
about the following matters:
• The company is a resident (see 1.1).

• The sole object of the company is the management of investments in qualifying companies.
• The tax affairs of the company are in order and it has complied with all the relevant provisions of the
laws administered by the Commissioner.
• The company is licensed under s 8(5) of the Financial Advisory and Intermediary Services Act 37
of 2002.
If the Commissioner is satisfied that an approved venture capital company has during a tax year failed to
comply with the conditions for approval, he must after due notice to the company withdraw the
approval from the commencement of that tax year if corrective steps acceptable to him are not taken by
it within a period stated in the notice.
The Commissioner may withdraw the approval of a company as a venture capital company in targeted
circumstances. The Commissioner may do so if, at the end of a tax year, after the expiry of a period of 48
months, commencing on the first date of the issue of venture capital shares:
• less than 80% of the expenditure incurred by the company to acquire assets held by it was incurred to
acquire qualifying shares issued to it by qualifying companies, each of which, immediately after the
issue, held assets with a book value not exceeding R500 million when the qualifying
company was a junior mining company, or R50 million when the company was a company other than a
junior mining company; or
• more than 20% of any amounts received in respect of the issue of shares in the company was used to
acquire qualifying shares issued to it by any one qualifying company.
The Commissioner must then after due notice to the company withdraw the approval with effect from
the commencement of the tax year during which the period ends for taking acceptable corrective steps
are not taken by the company within the period stated in the notice.
The company may then apply for approval again for the tax year following that in which approval was
withdrawn if the non-compliance that resulted in the withdrawal has been rectified to the
Commissioner’s satisfaction. If the Commissioner withdraws the approval of a company, an amount
equal to 125% of the expenditure incurred by any person on the issue of shares held in the company
must be included in its income in the tax year of withdrawal.
General (s 12J(9), (10), (11)
Despite the normal recoupment provisions, no amount will be recovered or recouped on the disposal of
a venture capital share or on a return of capital, as long as you have held the shares for a period longer
than five years.
A venture capital company must submit a report to the Minister of Finance providing the information
prescribed by the Minister.
The deduction is not allowed for shares acquired after 30 June 2021.
Certain of the decisions made by the Commissioner are subject to objection and appeal (see 18.6).
Definitions
The following definitions apply to the exchange of assets for venture capital company shares.
An ‘impermissible trade’ means:
• a trade carried on in respect of immovable property, other than a trade carried on as a hotel keeper;
• a trade carried on by a bank as defined in the Banks Act 94 of 1990, a long-term insurer as defined in
the Long-term Insurance Act 52 of 1998, a short-term insurer as defined in the Short-term Insurance Act
53 of 1998 and any trade carried on in respect of money-lending or hire-purchase financing;
• a trade carried on in respect of financial or advisory services, including a trade of legal services, tax
advisory services, stock broking services, management consulting services and auditing or accounting
services;
• a trade carried on of gambling;
• a trade carried on in respect of liquor, tobacco, arms or ammunition; or
• a trade carried on mainly outside South Africa.
A ‘junior mining company’ means a company that is solely carrying on a trade of mining exploration or
production that is either an unlisted company (see 22.1) or listed on the alternative exchange division of
the JSE Limited.
A ‘qualifying company’ means a company if:
• it is a resident;
• it is not a controlled group company in relation to a group of companies of which a venture capital
company to which the company has issued any shares forms part;
• the tax affairs of the company are in order and it has complied with all the relevant provisions of the
laws administered by the Commissioner;
• the company is an unlisted company (see 22.1) or a junior mining company;
• the company is not carrying on an impermissible trade;
• with effect in this form as from 4 October 2018, the sum of the qualifying investment income (see
16.33) derived by it during a tax year ending more than 36 months after the first date on which the
company issued any shares to a venture capital company does not exceed an amount equal to 20% of the
gross income of the company for the year. And no more than 50% of the aggregate amount received by
or accrued to the company from the carrying on of any trade was derived, directly or indirectly, from a
person who holds a share in the venture capital company or that person’s connected person (see 10.28);
• with effect as from 1 January 2019 and for participation rights (see 15.2) acquired on or after that date,
no person who holds a share in a venture capital company to which that company has issued shares
holds, directly or indirectly, either alone or together with their connected persons (see 10.27), more
than 50% of the participation rights or the voting rights in that company; and
• with effect as from 1 January 2019 and for a trade commenced on or after that date, the company does
not carry on any trade relating to a venture, business or undertaking or part thereof that was acquired
by that company, directly or indirectly, from a person who holds a share in a venture capital company to
which that company has issued any share or that person’s connected person (see 10.27).
A ‘qualifying share’
qualifying share’
qualifying share’ means an equity share held by a venture capital company that is issued to it by a
qualifying company, and does not include a share that would have constituted a hybrid equity
instrument (see 7.5) but for the three-year period requirement or constitutes a third-party backed share
(see 9.1).
A ‘venture capital company’ means a company that has been approved by the Commissioner as such
and for which the approval has not been withdrawn.
From 1 January 2012 until 30 September 2012, a ‘venture capital share’ means an equity share held by
you in a venture capital company that was issued to you by a venture capital company and does not
include a share that you have an option to dispose of, or the venture capital company has an obligation
to redeem, for an amount other than the market value of the share at the time of the disposal or
redemption or would have constituted a hybrid equity instrument (see 7.5) but for the three-year period
requirement. And from 1 October 2012, it means an equity share held by you in a venture capital
company that is issued to you by a venture capital company and does not include a share that would
have constituted a hybrid equity instrument (see 7.5) but for the three-year period requirement or
constitutes a third-party backed share (see 9.1). And, as from 24 October 2018, it also means an equity
share that was issued to you solely for services rendered or to be rendered by you in respect of the
incorporation, marketing, management or administration of the venture capital company or any
qualifying company in which it holds or acquires any share.
10.71 Assessed
losses
ss 1, 20
When your deductions in a tax year exceed the income (see 2.3) that you derive from your trade (see
10.14) anywhere in the world for that year the resulting loss may be set off against any other income
that you derive. If your business loss exceeds your other income, the excess is known as an assessed loss.
But in the circumstances described in 10.72, certain individuals will be prohibited from enjoying such a
set-off.
More formally, an ‘assessed loss’ is the amount by which the deductions admissible under certain
provisions of the Income Tax Act exceed the income against which they are admissible.
A loss from one business may be set off against income from another. And your losses from various
businesses may be added together to establish your overall assessed loss for the year. Your share of a
loss of a partnership in which you are a partner will form part of your assessed loss. But, if you trade
through a company (see 14.1) or close corporation that has an assessed loss, you may not deduct the
loss from your personal income even if you own all of its shares or are the sole

member. Only the company or close corporation may deduct its own loss. Similarly, if you conduct
businesses through two or more companies or close corporations, the loss incurred in one may not be
set off against the income of the other.
In a tax year in which you have incurred an assessed loss you will pay no tax, and the assessed loss will
be carried forward to the next year, constituting a so-called balance of assessed loss. If in the next year
the income that you derive from your business exceeds your deductions and also the balance of assessed
loss brought forward, the assessed loss will be extinguished and you will pay tax on the income
remaining after the set-off of the assessed loss. If the income exceeding your deductions in the second
year is insufficient to extinguish the balance of assessed loss brought forward from the first year, the
reduced balance of the assessed loss is carried forward to the following year. On the other hand, should
your deductions in the second year exceed the income derived in that year, the excess is added to the
balance of assessed loss brought forward from the first year and the enlarged balance of assessed loss is
carried forward to the third year.
If you incur or have accumulated an assessed loss in a particular year, do not trade at all in the next year,
and recommence trading only in a later year, you may still set off against any income that you derive the
assessed loss brought forward. The rule is far more strict for your company or close corporation, in
which a complete tax year of non-trading will extinguish the assessed loss incurred prior to the year in
which no trade was carried on.
If, prior to 1 January 2013, you entered into an agreement or compromise with a creditor in terms of
which he or she agreed to reduce or extinguish a liability owed by you to him or her, your assessed loss
must be reduced. It must be reduced to the extent that the amount advanced by the creditor was used
directly or indirectly to fund expenditure or an asset and you were allowed a deduction for the
expenditure or asset under certain provisions. For other consequences of the remission of your
liabilities, see 10.7 (income tax) and 21.4 (capital gains tax).
There are two amounts you cannot set off against an assessed loss or balance of assessed loss:
• An assessed loss or balance of assessed loss you suffer in or carry forward from a foreign trade cannot
be set off against amounts you derive from a source in South Africa.
The result is that you will pay tax on your world-wide taxable income undiminished by the foreign
assessed loss. Essentially, you are required to draw up two ‘trading’ accounts for tax purposes, one for
all your South African trades and the other for all your foreign trades. If both trading accounts show
taxable incomes, you end up with a combined, global taxable income from trade, which you add to your
taxable income from other, non-trading taxable income. If your South African trading account shows an
assessed loss, the outcome is unchanged. But if it is the foreign trading income that shows the assessed
loss, you end up with two assessments, one showing a South African taxable income and the other a
foreign assessed loss. Non-trading taxable income, whether local or foreign, cannot be set off against
your foreign assessed loss but must be either set-off against your South African assessed loss or added
to your South African taxable income. This rule presumably applies also to the capital gains tax within
the context of trade, even though that tax has its own rules about capital losses (see 21.3):
• A retirement fund lump-sum benefit, retirement fund lump-sum withdrawal benefit or severance
benefit (see 6.8, 6.9 and 6.10) included in your taxable income cannot be set off against your balance of
assessed loss or current assessed loss determined before the retirement fund lump-sum benefit or
retirement fund lump-sum withdrawal benefit is taken into account.
On the death of a taxpayer any assessed loss he or she might have falls away completely.
And a person whose estate has been voluntarily or compulsorily sequestrated cannot carry forward an
assessed loss incurred prior to the date of sequestration, unless the order of sequestration has been set
aside. In that event the amount to be so carried forward must be reduced by any amount that was
allowed to be set off against the trade income of the insolvent estate. It is possible but not certain that
one of the ring-fencing rules described in 10.72 is relevant to the treatment of assessed losses in general
(see ‘What is income derived from a trade’ in 10.72).
10.72 Ring-fenced assessed losses
s 20A
In certain circumstances your ‘assessed loss’ incurred as an individual during a tax year in carrying on a
trade (see 10.14) may not be set-off against your income (see 14.3) derived during that year otherwise
than from carrying on that particular trade, despite the assessed-loss rule ordinarily allowing the set-off
against your income from one trade of a loss suffered in another trade (see 10.71).
When ring-fencing will apply
In order for this outcome to ensue, your taxable income for a tax year must equal or exceed the amount
at which the maximum marginal rate of tax chargeable on the taxable income of individuals becomes
applicable. You calculate your taxable income for this purpose before the set-off of any assessed losses
incurred during that year, and before the set-off of any balance of assessed loss carried forward from the
preceding year.
In addition, you must satisfy one or other of the following two criteria: Fail the five-year test
• During the five-year period ending on the last day of that tax year you must have incurred an assessed
loss in at least three tax years in carrying on the targeted trade. You must calculate your assessed loss
for this purpose before taking into account any balance of assessed loss carried forward.
But an assessed loss incurred in a tax year of assessment ending on or before 29 February 2004 is not
taken into account for this purpose.
Targeted trades
• The targeted trade in which the assessed loss was incurred constitutes a sport practised by you or your
‘relative’; a dealing in collectibles by you or your relative; the letting of residential accommodation
(unless at least 80% is used by persons who are not your relatives for at least half of the tax year); the
letting of vehicles, aircraft or boats (see 21.10) (unless at least 80% of the vehicles, aircraft or boats are
used by persons who are not your relatives for at least half of the tax year); the showing of animals by
you or your relative; farming or animal-breeding (unless you carry on farming, animal-breeding or
activities of a similar nature on a full-time basis); any form of performing or creative arts practised by
you or your relative; any form of gambling or betting practised by you or your relative or the acquisition
or disposal of any crypto-currency.
When ring-fencing will not apply
You will escape the ring-fencing of your assessed loss from a particular trade if it is incurred by you
during a tax year from carrying on a trade in which you fail the five-year test or a targeted trade as
described above if that trade constitutes a business in which there is a reasonable prospect of deriving a
taxable income (other than a taxable capital gain; see 21.3) within a reasonable period.
In judging this issue, you are required to have special regard to:
• The proportion of the gross income (see 1.1) derived from the trade in the tax year in relation to the
amount of the allowable deductions incurred in carrying it on during that year.
• The level of activities carried on by you or the amount of expenses incurred by you on advertising,
promoting or selling in carrying on the trade.
• The question whether the trade is carried on in a commercial manner, taking into account the number
of full-time employees appointed for purposes of the trade (excluding persons partly or wholly
employed to provide services of a domestic or private nature); the commercial setting of the premises
where it is carried on; the extent of the equipment used exclusively for purposes of carrying it on; and
the time that you spend at the premises conducting the business.
• The number of tax years during which assessed losses were incurred in carrying on the trade over the
period from the date when you commenced carrying it on, taking into account any un-expected events
giving rise to any of those assessed losses, and the nature of the business involved.
• Your business plans, as well as any changes made to them, designed to ensure that taxable income will
be derived in future from carrying on the trade.
• The extent to which any asset attributable to the trade is used or is available for use by you or your
relative for recreational purposes or personal consumption.
Unless you fail the ten-year test
But none of this will help you to escape the ring-fencing of an assessed loss arising from one of the
targeted trades listed above, although not farming, carried on by you during a tax year if, during the ten
year period ending on the last day of that year, you have incurred an assessed loss in at least six tax
years in carrying on that trade. For this purpose you must calculate your assessed losses before taking
into account any balance of assessed loss carried forward.
But an assessed loss incurred in a tax year of assessment ending on or before 29 February 2004
is not taken into account for this purpose.
Balance of assessed loss brought forward must be apportioned
Despite the assessed-loss rule ordinarily allowing the set-off against your income from trade of your
balance of assessed loss brought forward from the preceding tax year (see 10.71), a balance of assessed
loss carried forward from the preceding tax year attributable to an assessed loss that was ring-fenced in
that year or any earlier tax year may not be set off against any income derived by you otherwise than
from carrying on a trade in which you fail the five-year test or a targeted trade as described above.
What is income derived from a trade
For the purposes both of this ring-fencing rule and the assessed-loss rules in general (see 10.71), the
income derived from a trade referred to in the first paragraph of this section and in the immediately
preceding paragraph includes any amount that is included in your income as a recoupment (see 10.7) of
an amount deducted in any tax year in carrying on that particular trade. It also includes any amount
derived from the disposal after the cessation of that particular trade of any assets used in carrying it on.
Consolidation of farming activities

For ring-fencing purposes, all farming activities carried on by you are deemed to constitute a single
trade carried on by you.
Ring-fencing and your return
Should ring-fencing apply during a particular tax year to a trade carried on by you, you must indicate the
nature of the business in your annual return of income (see 18.2) for that tax year.
Definitions
An ‘assessed loss’ is an assessed loss as defined in 10.71.
Your ‘relative’ is your spouse, parent, child, stepchild, brother, sister, grandchild or grandparent.
10.73 Communications licence conversions
s 40D
When your existing licences referred to in Chapter 15 of the Electronic Communications Act 36 of 2005
are converted to new licences under s 93 of that Act, you must not recover, recoup or include in your
income for the tax year in which the conversion takes place any allowance allowed to you for the
existing licence or licences.
When an existing licence is converted to a new licence you are deemed to have acquired the new licence
at a cost equal to the amount taken into account by you for the existing licence. When two or more
existing licences are converted to a new licence, you are deemed to have acquired the new licence at a
cost equal to the aggregate of the amounts taken into account by you for each of the existing licences.
When an existing licence is converted to two or more new licences, you are deemed to have acquired the
new licences at a cost equal to an amount that bears to the amount taken into account by you for the
existing licence the same ratio as the value of that new licence bears to the aggregate value of the new
licences. This cost must be treated as expenditure actually incurred by you for the new licence or
licences for the purposes of capital allowances and the trading stock provisions (see 10.66).
You are for this purpose deemed to have acquired the new licence or licences on the day immediately
after the conversion.
10.74 Currency-conversion
rules
ss 1, 6 quat(4), (5), 9D(6), 25D
‘Average exchange rate’, ‘spot rate’, ‘permanent establishment’ for conversion rules The ‘average
exchange rate’ for a particular tax year must be consistently applied within that year.
It is the average you determine by using the closing spot rates at the end of daily or monthly intervals
during the tax year.
The ‘spot rate’, in turn, is the appropriate quoted exchange rate at a specific time by an authorised
dealer in foreign exchange for the delivery of currency.
A ‘permanent establishment’ is a permanent establishment as defined from time to time in art 5
of the Model Tax Convention on Income and on Capital of the Organization for Economic Co-operation
and Development.
Conversion rule: rebate or deduction for foreign taxes on income (s 6 quat(4)) A special
conversion rule applies to the rebate or deduction for foreign income tax paid by you as a resident (see
1.1), which is dealt with in 15.4. This requires you, as a resident, to convert foreign tax proved to be
payable on an amount qualifying for the rebate or deduction included in your taxable income (see 1.1) in
a tax year to rands on the last day of that year by applying the ‘average exchange rate’ for that year. The
rules governing the rebate or deduction also provide for the situation in which a reduced or additional
assessment is issued to you should it emerge that the amount of foreign tax taken into account in the
determination of the rebate or deduction in a previous tax year was incorrect. The Commissioner for
SARS is then required, within a six-year period, to translate the amount of tax actually payable in the
other currency to rands at the average exchange rate applicable for that previous tax year, and the
rebate is then allowed against your income tax or the deduction is allowed.
Conversion rule: controlled foreign company’s income (s 9D(6))
The net income (see 15.2) of a controlled foreign company (CFC) for a foreign tax year must be
determined in the functional currency (see 15.2) of the CFC and, in the determination of the amount to
be included in your income as a resident during a particular tax year, must be translated to rands by the
application of the ‘average exchange rate’ for that foreign tax year. Any exchange item denominated in a
currency other than the functional currency of that CFC is deemed not to be attributable to a permanent
establishment of the CFC if the functional currency is the currency of a country that has an official rate of
inflation of 100% or more for that foreign tax year.
Conversion rule: taxable income in foreign currency (s 25D)
This is the general conversion rule applying when no special conversion rule is relevant.
The general rule is that you are required to translate any amount received by or accrued to, or
expenditure or loss incurred by, you during any year of assessment in any foreign currency into
rands by applying the spot rate on the date on which the amount was received or accrued or the
expenditure or loss was incurred. But a natural person or a trust (other than a trust that carries on a
trade) may elect that all amounts received by or accrued to, or expenditure or losses incurred by, him or
her or it in any foreign currency be translated to rands by the application of the average exchange rate
for the relevant year of assessment.
But you must determine amounts derived by you and expenditure incurred by you in a foreign currency
attributable to your ‘permanent establishment’ outside South Africa in the functional currency of the
permanent establishment (other than the currency of a country in the common monetary area). You are
required then to translate the amount you have determined in the foreign currency to rands by applying
the ‘average exchange rate’ for that tax year. This conversion rule is overridden by the conversion rule
for your taxable income arising from the disposal of foreign equity instruments dealt with above. It is
also inapplicable to the extent that the other currency contemplated in it is not the functional currency
of that permanent establishment and the functional currency is the currency of a country that has an
official rate of inflation of 100% or more throughout the relevant tax year.
When during a tax year an amount is received by or accrues to a headquarter company (16.37) or an
amount of expenditure is incurred by a headquarter company in a currency other than the functional
currency of the headquarter company and that currency is a currency other than the currency of South
Africa, the amount must be determined in the functional currency of the headquarter company and must
be translated to the currency of South Africa by the application of the average exchange rate for that
year.
When, during a tax year, an amount is received by or accrues to, or expenditure is incurred by, a
domestic treasury management company in any currency other than the functional currency of the
domestic treasury management company and the functional currency of that domestic treasury
management company is a currency other than rands, the amount must be determined in the functional
currency of the domestic treasury management company and must be translated to rands by the
application of the average exchange rate for that tax year.
When, during a tax year, an amount is received by or accrues to, or expenditure is incurred by, an
international shipping company in a currency other than the functional currency of the company, which
is a currency other than rands, the amount must be determined in the functional currency of the
international shipping company and translated to rands by the application of the average exchange rate
for that tax year.
When, during a tax year, an amount is received by or accrues to, or expenditure is incurred by, a
headquarter company (see 16.37), a domestic treasury management company or an international
shipping company in a functional currency that is a currency other than rands, the amount must be
translated to rands by the application of the average exchange rate for that tax year.
Conversion rules: capital gains tax
For the special conversion rules applying to the capital gains tax, see 21.32.
10.75 Foreign exchange gains and losses on
ss 1, 3(4), 22(3), 24I
exchange items
The rules described here apply to ‘exchange items’, ‘foreign currency option contracts’ and ‘forward
exchange contracts’.
Exchange item
A person’s ‘exchange item’ is an amount in a ‘foreign currency’:
• constituting a unit of currency acquired and not disposed of by it;
• owing by it on a debt incurred by it;
• owing to it on a debt payable to it;
• owed by it under a forward exchange contract;
• owed to it under a forward exchange contract;

• when it has the right or contingent obligation to buy the amount under a foreign currency option
contract;
• when it has the right or contingent obligation to sell the amount under a foreign currency option
contract.
Associated with an exchange item is an ‘exchange difference’, which is a foreign exchange gain or a
foreign exchange loss arising from an exchange item during the tax year. In order to calculate the gain or
loss, you multiply the exchange item by the difference between two rates:
• If you realize it during the year, the ‘ruling exchange rate’ on the ‘transaction date’ and the ruling
exchange rate at which it is ‘realized’.
• If you still hold it at the year-end, the ruling exchange rate on the transaction date and the ruling
exchange rate at which it is ‘translated’ at the year-end.
• If you held it at the end of last year and you realize it during this year, the ruling exchange rate at which
it was translated at the end of last year and the ruling exchange rate at which it is realized.
• If you held it at the end of last year and still hold it at the end of this year, the ruling exchange rate at
which it was translated at the end of last year and the ruling exchange rate at which it is translated at the
end of this year.
Foreign currency option contract
A ‘foreign currency option contract’ is an agreement under which one person acquires or grants the
right to buy from or to sell to another a certain amount of a nominated foreign currency on or before a
future expiry date at a specified exchange rate.
Forward exchange contract
A ‘forward exchange contract’ is an agreement under which one person agrees with another to
exchange an amount of currency for another currency at some future date at a specified exchange rate.
Ruling exchange rate – debt
The ‘ruling exchange rate’ for an exchange item that is a debt in a foreign currency is the spot rate on
the transaction date, the date it is translated and the date it is realized.
But if the spot rate is used on the transaction date or the date it is realized and the consideration paid or
incurred or received or accrued upon the acquisition or disposal of the debt is determined by the
application of a rate other than the spot rate on the relevant date, the spot rate is deemed to be the
‘acquisition rate’ or the ‘disposal rate’, as appropriate.
Ruling exchange rate – foreign currency option contract
The ‘ruling exchange rate’ for an exchange item that is a foreign currency option contract is nil on the
transaction date. On the date it is translated, if the contract is not an ‘affected contract’, it is its market
value on that date divided by the foreign currency amount it specifies. If the contract is an affected
contract, it is the premium or like consideration received or paid under the contract or the consideration
paid to acquire it divided by the foreign currency amount it specifies. On the date it is realized, it is its
market value on that date divided by the foreign currency amount it specifies. And if it is realized by way
of disposal, it is the amount derived as a result of the disposal divided by the foreign currency amount it
specifies.
Ruling exchange rate – forward exchange contract

The ‘ruling exchange rate’ for an exchange item that is a forward exchange contract is the forward rate
under the contract on the transaction date, the market-related forward rate available for the
remaining period of the contract or, for an affected contract, the forward rate in terms of the forward
exchange contract on the date it is translated, and the spot rate on the date it is realized.
Ruling exchange rate – unit of currency
The ‘ruling exchange rate’ for an exchange item that is a unit of currency is the spot rate on the
transaction date, the date it is translated and the date it is realized.
Ruling exchange rate – alternative rates
The Commissioner for SARS may in particular circumstances authorize the use of alternative rates for
the determination of the ruling exchange rate when these are used for the purposes of financial
reporting pursuant to IFRS.
Inclusion or deduction rule
In determining the taxable income (see 1.1) of a qualifying person, you are required to include in or
deduct from its income:
• An exchange difference arising from its exchange item.
But, unless the deferral rules described below apply, no amount will in terms of these rules be included
in or deducted from the income of a person if at the end of the tax year that person and the other party
to the contract form part of the same group of companies (see 22.1) or are connected persons (see
10.27) and no forward exchange contract or foreign currency option contract has been entered into to
hedge the exchange item. In addition neither the exchange item or any portion of it must represent a
current asset or current liability of the person for the purposes of financial reporting pursuant to IFRS
and nor must the exchange item or portion of it be directly or indirectly funded by a debt owed to a
person that does not form part of the same group of companies as, or is not a connected person of, any of
the parties to the contract. Any exchange difference on such a forward exchange contract or foreign
currency option contract is deemed to arise when the relevant exchange item is realized. Should an
exchange item be realized during a particular tax year, you are required to determine the exchange
difference arising from it by multiplying it by the difference between the ruling exchange rate on the
date on which it is realized and the ruling exchange rate on the transaction date, after taking into
account any exchange difference included in or deducted from that person’s income under these rules
arising from that exchange item.
• A premium or similar consideration received or paid by it under a foreign currency option contract
entered into by it.
• A consideration paid by it for a foreign currency option contract acquired by it.
Bad debts
As from 1 January 2017, if a debt owing to you in respect of a forward exchange contract becomes bad,
or, as from 1 January 2019, the realization of the debt resulted in a foreign currency loss due to a decline
in the market value of the debt, the amount of any foreign exchange gain relating to the debt that is or
was included in your income in the current or a previous tax year must be deducted from your income
while any foreign exchange loss relating to the debt that is or was deducted from your income in the
current or previous tax year must be included in your income.
To whom these rules apply
The rules described here apply only to:
•A
company.
• A trust (see 11.4) carrying on a trade (see 10.14).
• An individual who holds as trading stock (see 10.66) an amount in a foreign currency constituting a
unit of currency acquired and not disposed of by him or her.
• An individual who holds as trading stock (see 10.66) an amount in a foreign currency owing by or to
him or her under any loan or advance or a debt incurred by or payable to him or her. (It is odd that
amounts owing by such an individual are included here.)
• An individual in relation to an amount in a foreign currency owed by or to him or her under a forward
exchange contract.
• A trust in relation to an amount in a foreign currency owed by or to it under a forward exchange

contract.
• An individual in relation to an amount in a foreign currency representing his or her right or contingent
obligation to buy or sell that amount under a foreign currency option contract.
• A trust in relation to an amount in a foreign currency representing its right or contingent obligation to
buy or sell that amount under a foreign currency option contract.
But it does not apply to an exchange item of a non-resident (other than a CFC), unless it is attributable to
the resident’s permanent establishment in South Africa.
Precedence of these rules
An inclusion in or a deduction from income under these rules takes place in lieu of any deduction or
inclusion that might otherwise be allowed or included under any other provision.
Carry-forward rule
A special, ‘carry-forward rule’ comes into play when:
• an exchange difference arises from a debt used by a qualifying person in the acquisition, installation,
erection or construction of any machinery, plant, implement, utensil, building or improvements to a
building;
• an exchange difference arises from a debt used by it in devising, developing or the creation,
production, acquisition or restoration of any invention, patent, design, trade mark, copyright or other
similar property or knowledge of the type described in 10.35;
• an exchange difference arises from a forward exchange contract or foreign currency option contract
entered into by it, although only to the extent to which the contract is entered into to serve as a hedge in
respect of a debt obtained or to be obtained or a debt incurred or to be incurred for use in the manner
described here; and
• a premium or some other consideration is paid or payable for or under a foreign currency option
contract entered into or acquired by it, although only to the extent to which the contract is entered into
or obtained in order to serve as a hedge against a loan or an advance obtained or to be obtained or a
debt incurred or to be incurred for use in the manner described here.
In addition, the exchange difference must have arisen or the premium or other consideration must have
been paid or become payable in a tax year before that in which the asset or item was brought into use
for the purposes of the qualifying person’s trade.
The exchange difference, premium or other consideration is then carried forward and taken into account
in the determination of its taxable income in the tax year during which the asset or item is brought into
use for the purposes of its trade.
The carry-forward will come to a halt, and the exchange difference, premium or other consideration will
be taken into account in the determination of its taxable income in a subsequent tax year if, during that
subsequent tax year, the debt to be obtained or incurred will no longer be obtained or incurred in the
required circumstances, the debt has not been used in the required manner, or the asset or item will no
longer be brought into use for the purpose of the qualifying person’s trade.
This carry-forward rule does not apply to the deductible capital expenditure of mining operators (see
16.18).
Anti-avoidance rule
A foreign exchange loss sustained under a transaction entered into or a premium or other consideration
paid for or under a foreign currency option contract entered into or acquired by a person will not be
allowed as a deduction from its income if the transaction was entered into or the foreign currency
option contract was entered into or acquired solely or mainly to enjoy a reduction in tax by way of a
deduction from income.
Prohibited-transactions rule
No exchange difference arising during a tax year on an exchange item comprising an amount in foreign
currency owing by a person on a debt incurred by or payable to that person must be included in or
deducted from the income of a person if, at the end of that tax year:
• that person and the other party to the contractual provisions of that exchange item form part of the
same group of companies, or are connected persons of each other;
• that exchange item does not represent for that person a current asset or a current liability for the
purposes of financial reporting pursuant to IFRS (see below), or is not directly or indirectly funded by
any debt owed to any person that does not form part of the same group of companies as, or is not a
connected person of, that person or the other party to the contractual provisions of the exchange item;
and
• no forward exchange contract and no foreign currency option contract has been entered into by that
person to serve as a hedge in respect of the exchange item.
A special rule comes into play when this provision has applied during any tax year to an exchange
difference on an exchange item and that exchange difference was not included in nor deducted from the
income of any person in that tax year and during any subsequent tax year that provision no longer
applies to that exchange difference or that exchange item is realized. An amount must then be included
in or deducted from the income of the person for the exchange item in that subsequent tax year or in the
tax year during which it is realized. The amount must be determined by multiplying the exchange item
by the difference between the ruling exchange rate on the last day of the tax year immediately preceding
that subsequent tax year and the ruling exchange rate on transaction date, less any amount of the
exchange differences included in or deducted from the income of the person for that exchange item for
all tax years preceding that subsequent tax year during which the person was a party to the contractual
provisions of the exchange item.
When these rules first apply or cease to apply
Should you be holding an exchange item at any time during a particular tax year when these rules
become applicable to you, your exchange item will be deemed to have been acquired at that time for the
purposes of the rules.
Similarly, should you be holding an exchange item at any time during a particular tax year when these
rules cease to apply to you, your exchange item will be deemed to have been realized at that time for the
purposes of the rules.
Definitions
The ‘acquisition rate’ is the amount of expenditure incurred in the acquisition of an exchange item
divided by its foreign currency amount.
An ‘affected contract’ is a foreign currency option contract or forward exchange contract entered into
by a person to serve as a hedge against a debt that, during the tax year, has not yet been incurred by it,
or the amount payable under a debt that, during the tax year, has not yet accrued to it. In addition, the
debt must be intended to be used by that person to acquire an asset or to finance an expense or be such
that it will arise from the sale of an asset or the supply of services in the ordinary course of its trade
under an agreement entered into by it before the end of the current tax year.
The ‘disposal rate’ is the amount derived upon the disposal of an exchange item divided by its foreign
currency amount.
‘Foreign currency’ in relation to a person’s exchange item is any currency that is not local currency.
The ‘forward rate’ is the exchange rate specified in a forward exchange contract.
The ‘intrinsic value’ of a foreign currency option contract is its value for its holder or writer, which is
the difference between the spot rate on the translation date or the date it is realized and the
‘option strike rate’ applied to the foreign currency amount specified in the contract. But its value will be
nil for its holder or writer if the holder would have sustained a loss had it exercised its right under the
contract on the translation date or the date it is realized, owing to an unfavourable difference between
the option strike rate and spot rate on that date.
In relation to an exchange item attributable to a person’s permanent establishment (see 10.74) outside
South Africa, ‘local currency’ is the functional currency of that permanent establishment.
For this purpose an exchange item will be deemed not to be attributable to a permanent establishment if
the functional currency of that permanent establishment is the currency of a country that has an official
rate of inflation of 100% or more throughout the relevant tax year. In relation to a resident, other than a
headquarter company (see 16.37), a domestic treasury management company (see 10.74) and an
international shipping company (see 16.32), with an exchange item that is not attributable to such a
foreign permanent establishment, it is rands. In relation to a non-resident with an exchange item
attributable to a permanent establishment in South Africa, it is also rands. And in relation to a
headquarter company (see 16.37) in respect of an exchange item that is attributable to a permanent
establishment outside South Africa, it is the functional currency of the headquarter company. For an
exchange item of a domestic treasury management company that is not attributable to a permanent
establishment outside South Africa, it is the functional currency of the company.
For an international shipping company in respect of amounts not attributable to a permanent

establishment outside South Africa, it is the functional currency of the shipping company.
Under a separate rule, in relation to an exchange item of a CFC that is not attributable to its permanent
establishment, ‘local currency’ is the functional currency of the CFC.
If, for accounting purposes, a person uses a market-related valuation method under a practice
consistently applied by it to determine the value of all its foreign currency option contracts, ‘market
value’ is that market-related value. Under any other circumstances, it is the intrinsic value of a foreign
currency option contract.
The ‘option strike rate’ is the exchange rate specified in a foreign currency option contract.
An exchange item that is a debt in a foreign currency is ‘realized’ when and to the extent that payment is
received or made under the debt, or when and to the extent that the debt is settled or disposed of in any
other manner. A forward currency option contract is ‘realized’ when payment is received or made for
the exercise of the right under the contract, when it expires without the exercise of the right or when it is
disposed of. A forward exchange contract is ‘realized’ when payment is received or made under the
contract. A unit of currency is ‘realized’ when it is disposed of.
The ‘spot rate’ is the appropriate quoted exchange rate at a specific time by an authorised dealer in
foreign exchange for the delivery of currency.
In relation to a debt owing by a person, the ‘transaction date’ is the date on which the debt was actually
incurred. In relation to a debt owing to a person, it is the date on which the amount payable under the
debt accrued to that person or the date on which the debt was acquired by it in any other manner. In
relation to a forward exchange contract, it is the date on which the contract was entered into. In relation
to a foreign currency option contract, it is the date on which the contract was entered into or acquired.
And, in relation to an amount constituting a unit of currency, it is the date on which the amount was
acquired.
To ‘translate’ is to restate an exchange item in the local currency at the end of a particular tax year by
the application to it of the ruling exchange rate.
And ‘IFRS’ means the International Financial Reporting Standards issued by the International
Accounting Standards Board.

General
The Commissioner’s decision on certain of these matters is subject to objection and appeal (see 18.6).
Trading stock
Foreign currency option contracts and forward exchange contracts are excluded from trading stock (see
10.66).
The result is that, even when you are a dealer in such contracts, they must be dealt with for tax purposes
solely under the rules governing foreign exchange gains or losses on exchange items.
The cost price at any date of trading stock is the cost incurred by you in acquiring it, whether in the
current or a previous tax year, plus any further costs (see 10.66) incurred by you up to and including
that date in getting it into its then existing condition and location. An exchange difference relating to its
acquisition is specifically excluded.
The result is that an exchange difference arising on a debt incurred on the acquisition of trading stock
must be brought to account in the determination of your taxable income only under the rules governing
foreign exchange gains or losses on exchange items and must not be factored into the cost of the trading
stock for tax purposes.
10.76 Taxation of financial assets and liabilities of certain
s 24JB
persons
Provision is made for the inclusion in or deduction from the taxable income, whichever is appropriate, of
a covered person for a tax year of all amounts in respect of financial assets and financial liabilities of the
‘covered person’ (see below) that are recognised through profit or loss in the statement of
comprehensive income in respect of financial assets and financial liabilities of the covered person that
are measured at fair value in profit or loss in terms of IFRS 9 or, for commodities, at fair value less cost
to sell in profit or loss in terms of IFRS for the tax year. Excluded is any amount in respect of:
•a
share;
• an endowment policy;
• an interest held in a portfolio of a collective investment scheme (unit trust);
• an interest in a trust; or
• an interest in a partnership,
if the financial asset does not constitute trading stock. Also excluded is a dividend or foreign dividend
received by or accrued to a covered person.
A covered person must include in or deduct from income for a tax year, a realised gain or realised loss
that is recognised in a statement of other comprehensive income as contemplated in IFRS
if that realised gain or realised loss is attributable to a change in the credit risk of the financial liability as
contemplated in IFRS 9 and the instrument was issued in a tax year commencing on or after 1 January
2018. When a covered person has, during any tax year preceding the one commencing on or after 1
January 2018, included in or deducted from income an amount attributable to a change in the credit risk
of a financial liability issued by that covered person measured at fair value through profit or loss under
the provision dealt with in the above paragraph, that covered person must include in or deduct from
income, as the case may be, any amount for a change in credit risk of the financial liability recognised in
other comprehensive income during any tax year commencing on or after 1 January 2018.
An amount to be taken into account in the determination of the taxable income or assessed capital loss
of a covered person in respect of a financial asset or a financial liability contemplated above must only
be taken into account under this provision.
The above provision does not apply to an amount in respect of a financial asset or a financial liability of a
covered person when:
• the covered person and another person that is not a covered person are parties to an agreement in
respect of a financial asset or financial liability; and
• the agreement was entered into solely or mainly for the purpose of a reduction, postponement or
avoidance of liability for tax, which, but for that agreement, would have been or would become payable
by the covered person.
In addition to any amount included in or deducted from the taxable income of a person under the above
provision, there must be included in or deducted from the taxable income, whichever is appropriate, of a
person, for the post-realization years of the person an amount determined below.
If the financial reporting values of all financial assets described above held by the person as at the end of
the realisation year of that person exceed the tax base amount attributed to those financial assets as at
the end of the realisation year of that person or the tax base amount attributed to all financial liabilities
described above held by the person as at the end of the realisation year of that person exceeds the
financial reporting values of those financial liabilities as at the end of the realisation year of that person,
the amount to be included in the person’s income is one-third of the excess.
But if the tax base amount attributed to all financial assets described above held by the person as at the
end of the realisation year of the person exceeds the financial reporting values of those financial assets
as at the end of the realisation year of the person or the financial reporting values of all financial
liabilities described above held by the person as at the end of the realisation year of the person exceed
the tax base amount attributed to those financial liabilities as at the end of the realisation year of the
person, the amount to be deducted from the person’s income is one-third of the excess.
If a person ceases to be a covered person before the expiry of the post-realisation years of the person,
the amounts determined above that have not been included in or deducted from, whichever is
appropriate, the income of the person, must be included in or deducted from the income of the person in
the tax year that it ceases to be a covered person.
When a person ceases to be a covered person, the person is deemed to have disposed of its financial
assets and redeemed its financial liabilities that were subject to tax under the above provision and
immediately reacquired the financial assets and incurred the financial liabilities, at an amount equal to
the market value of the financial assets on the last day of the tax year of the person before the person
ceased to be a covered person.
When a financial asset held by or financial liability owed by a covered person at the end of the tax year
immediately preceding the tax year commencing on or after 1 January 2018 would have ceased to be
subject to tax or would have become subject to tax under the first paragraph of 10.76
had IFRS 9 applied on the last day of that immediately preceding tax year, that covered person is
deemed, first, to have disposed of that financial asset or redeemed that financial liability, and, secondly,
to have immediately reacquired that financial asset or incurred that financial liability, for an amount
equal to the market value of the financial asset or financial liability on that day.
Definitions
‘Covered person’ means:
• any authorised user as defined in s 1 of the Financial Markets Act that is a company, but as from 1
January 2017 excludes a company whose principal trading activities constitute the activities of a
treasury operation;
• the South African Reserve Bank;
• any bank, branch, branch of a bank or controlling company, as defined in s 1 of the Banks Act;
• any company or trust that forms part of a banking group as defined in s 1 of the Banks Act, excluding a
company that is a long-term insurer as defined in s 1 of the Long-term Insurance Act, or, from tax years
commencing on or after 1 January 2018, a subsidiary of such a company, a
company that is a short-term insurer as defined in s 1 of the Short-term Insurance Act, or, from tax years
commencing on or after 1 January 2018, a subsidiary of such a company, a company of which more than
50% of the shares are directly or indirectly held by a company contemplated above if that company does
not form part of the same group of companies as a bank.
‘Derivative’ means a derivative as defined in and within the scope of IFRS 9.
‘Financial asset’ means—
( a) a financial asset defined in and within the scope of International Accounting Standard 32 of IFRS or
any other International Accounting Standard that replaces International Accounting Standard 32; and
( b) a commodity taken into account in terms of IFRS at fair value less cost to sell in profit or loss in the
statement of comprehensive income.
‘Financial liability’ means a financial liability defined in and within the scope of International
Accounting Standard 32 of IFRS or any International Accounting Standard that replaces International
Accounting Standard 32.
‘Financial reporting value’, in relation to a financial asset or a financial liability, means the value, as
determined for the purposes of financial reporting pursuant to IFRS, of that financial asset or financial
liability.
‘Post-realisation year’, in relation to a covered person, means—

( a) the tax year immediately succeeding the realisation year; ( b) the tax year immediately succeeding
the tax year contemplated in the item above; and ( c) the tax year immediately succeeding the tax year
contemplated in the item immediately above.
‘Realisation year’, in relation to a person, means—
( a) when the person is a covered person, the tax year of the person immediately preceding the tax year
ending on or after 1 January 2014; or
( b) when the person becomes a covered person during any tax year ending after 1 January 2014, the tax
year of the person that precedes the first tax year of the person in which the person becomes a covered
person.
‘Tax base’ means tax base as defined in International Accounting Standard 12 of IFRS or any
International Accounting Standard replacing International Accounting Standard 12.
10.77 Interest deemed incurred in production of income
s 24O
A special rule applies during a tax year when a debt is issued, assumed or used by a company:
• for the purpose of financing the acquisition by the company of an equity share under an ‘acquisition
transaction’; or
• in substitution for a debt issued, assumed or used for that purpose.
Any interest incurred by the company on the debt must then, to the extent to which the interest relates
to a period during which the company held that equity share (see 22.1) and the equity share constituted
a qualifying interest in an ‘operating company’, be deemed to have been incurred in the production of
the income of the company and laid out or expended by the company for the purposes of trade. Whether
the equity share constituted a qualifying interest in an operating company must be determined for an
equity share held by the company at the end of the tax year, at the date at which that tax year ends and, if
the equity sharer was disposed of by the company during the tax year, at the date of the disposal.
An equity share in a targeted company constitutes a qualifying interest in an operating company if

the equity share is an equity share on the relevant date in a targeted company qualifying as an operating
company in its latest tax year that ended before or on the relevant date, or any other targeted company,
to the extent that the value of the equity share is derived from an equity share or equity shares held by
the targeted company in a qualifying company or qualifying companies in
relation to which the targeted company is a controlling group company (see 22.1) forming part, with the
targeted company, of a group of companies (see 22.1). For this purpose, if at least 90% of the value of
the equity share is so derived, the equity share will be treated as an equity share in an operating
company.
A special rule applies when a company acquires equity shares in a controlling group company in relation
to an operating company as described in the alternative meaning of ‘acquisition transaction’
given below. It applies when the company acquires the equity shares held by the controlling group
company in the operating company under an unbundling transaction (see 22.6) to which the relevant
corporate restructuring relief was applied or a liquidation distribution (see 22.8) to which the relevant
corporate restructuring relief was applied. For the purposes of this deemed-incurral rule, the equity
shares are treated as having been acquired by the company under the first meaning of
‘acquisition transaction’ given below, and as constituting a qualifying interest in an operating company
to the extent to which the value of the equity shares in the controlling group company from which the
equity shares in the operating company were acquired was derived from the value of the equity shares
in the operating company so acquired.
Definitions
‘Acquisition transaction’ is, in the first place, a transaction under which a company acquires an equity
share in another company from a person not forming part of the same group of companies as the
acquiring company, if the other company is an ‘operating company’ on the date of the acquisition. In
addition, at the end of the day of the transaction, as a result of the acquisition, the acquiring company
must be a controlling group company in relation to the other company, and the acquiring company and
the other company must form part of the same group of companies (see 22.1).
Alternatively, it is a transaction under which a company acquires an equity share in another company
from a person not forming part of the same group of companies as the acquiring company, if the other
company is a controlling group company in relation to a company that is an operating company on the
date of acquisition of the share forming part of the same group of companies as the controlling group
company. In addition, at the end of the day of the transaction, as a result of the acquisition, the acquiring
company is a controlling group company in relation to the other controlling group company and the
acquiring company and the other controlling group company form part of the same group of companies.
‘Operating company’ means a company of which at least 80% of its aggregate receipts or accruals
during a tax year constitute income in its hands and that income is derived from a business carried on
continuously by the company, and in the course or furtherance of which goods or services are provided
or rendered by it for consideration.
10.78 Hobbies
You may have a hobby that earns you income. For example, you may occasionally sell your work as an
artist or photographer. This type of fortuitous income would not be taxable. But if you earn income in
this way with any sort of regularity or consistency, as opposed to earning income on rare or fortuitous
occasions, you will pay tax. If you keep a large number of dogs for breeding purposes and regularly sell
puppies, the income you derive will be taxable. On the other hand, if the dogs you keep as pets happen to
have puppies and you sell those that you do not want to keep, the proceeds will not be taxable.
The occasional punter or gambler is not liable to tax on his or her profits but anyone who system-atically
carries on betting and gambling activities will pay tax. For example, racehorse owners and trainers who
bet regularly pay tax on their profits.
Whenever your income from a hobby is taxable you will be entitled to a deduction for the expenses you
incurred in deriving that income, for example, the cost of materials, but you may not deduct the value of
your own or your family’s labour.
10.79 Prohibited
deductions
ss 10(1) (z L), 23, 23B
Although an expense might be deductible under the deductions and allowances dealt with here, there is
an express prohibition against the deduction of the following expenditure:
• The cost of maintaining yourself, your family or establishment. (But medical expenses and expenses
occasioned by a physical disability are nonetheless deductible; see 2.5.)
• Your domestic or private expenses, including all expenses in connection with your residence or any
property not occupied for the purposes of trade except to the extent to which you use your property for
trade. (On the special rules applying to this issue; see 10.49.)
• Expenses or losses that you are able to recover under a contract of insurance, guarantee, security or
indemnity. (For example, if someone has guaranteed payment to you of one of your book debts and the
book debt becomes bad, you may not claim the deduction as a bad debt, since you can recover it under
the guarantee. See also 10.25.)
• Any tax imposed under the Income Tax Act and any interest or penalty payable under any Act
administered by the Commissioner for SARS, for example, the Value-Added Tax Act, the Tax
Administration Act 28 of 2011, the Skills Development Levies Act 9 of 1999 and the Unemployment
Insurance Contributions Act 4 of 2002.
• Income carried to a reserve. (For example, a reserve designed to meet future expenditure or losses
would be prohibited.)
• Expenses relating to income that is not subject to tax. (For example, expenses incurred in order to earn
tax-free income are not deductible.)
• Expenses claimed as a deduction from income from trade to the extent that they are not wholly or
exclusively laid out or expended for the purposes of trade (see 10.14).
• An expense, loss or allowance to the extent that it is claimed as a deduction from a retirement fund
lump sum benefit or a retirement fund lump-sum withdrawal benefit (see 6.10).
• Expenses incurred by a labour broker (see 17.5) not holding a current PAYE exemption-certificate or a
personal service provider, other than an expense constituting an amount paid or payable to its
employees for services rendered that is or will be taken into account in the employee’s taxable income.
Also excluded from this prohibition for a personal service provider are qualifying legal expenses (see
10.44), bad debts (see 10.25), qualifying contributions made to a pension, provident or benefit fund for
its employees (see 10.56) and expenses in respect of premises, finance charges, insurance, repairs and
fuel and maintenance in respect of assets, if the premises or assets are used wholly and exclusively for
purposes of trade.
• Expenses incurred on the payment of a restraint of trade that do not qualify for deduction (see 10.54).
• Any deduction or allowance on an asset or for expenditure to the extent that an amount is granted or
paid to you that is exempt from tax (see 16.1) and is granted for purposes of the acquisition of that asset
or the funding of that expenditure.
• Any expenditure, loss or allowance relating to any employment or office that you hold from which you
derive remuneration (see 17.3) for PAYE purposes.
This last prohibition does not apply to:
• Your deductible contributions to a pension, provident or retirement annuity fund (see 6.1 to 6.3).
• Allowances or expenses that may be deducted from your income for legal expenses (see 10.44),
depreciation (see 10.27), bad debts (see 10.25) or doubtful debts (see 10.26).
• A deduction for a premium paid by you under an insurance policy that covers you against illness,
injury, disability, unemployment or death (see 14.3).
• The deductions allowable under the general deduction formula or the special deduction for repairs
(see 10.52) for rent of, cost of repairs of or expenses in connection with any dwelling house or domestic
premises, to the extent that the deduction is not prohibited under the prohibition in the second bulletted
item above.
• Certain special deductions not ordinarily associated with employment or the holding of an office.
• Amounts that you derive for services rendered that have been included in your taxable income that are
refunded by you.
• Amounts derived by you as restraint of trade payments that are refunded by you.
Moreover, you will be free of this prohibition in its entirety should you be an agent or representative
whose remuneration is normally derived mainly in the form of commissions based on your sales or on
the turnover attributable to you. The prohibition applies ‘subject to’ the prohibition applying to labour
brokers and personal service providers dealt with above (the outcome is unclear).
• Any deduction or allowance for an asset to the extent that an amount is granted to you by the
Government and that amount is exempt from tax and is granted for purposes of the acquisition of that
asset.
• Any expenditure incurred when the payment of that expenditure or the agreement or offer to make the
payment constitutes an activity contemplated in Chapter 2 of the Prevention and Com-bating of Corrupt
Activities Act 12 of 2004 or the expenditure constitutes a fine charged or penalty imposed as a result of
an unlawful activity carried out in South Africa or in any other country, if that activity would have been
unlawful had it been carried out in South Africa or with effect as from 1 April 2019, the expenditure
incurred constitutes fruitless and wasteful expenditure as defined in s 1 of the Public Finance
Management Act determined in accordance with that Act. If this amount is recovered or recouped, it is
exempt from tax.
• Any amount paid or payable to your employee or a director of your company or their connected person
(see 10.27), estate or a person who was wholly or partly dependent upon them for maintenance if the
amount is funded directly or indirectly from any amount recoverable under a policy for which the
premiums were deductible, other than as a fringe benefit (see 10.34), or an amount equivalent to or in
lieu of that amount.
• The value of a policy ceded to any of the above persons that is exempt from tax in their hands (see
10.6).
• The value of a policy ceded by a taxpayer to any employee or former employee, or director or former
director or their dependant or nominee or a pension fund, pension preservation fund, provident fund,
provident preservation fund or retirement annuity fund for their benefit.
• Expenditure incurred in the production of income in the form of foreign dividends.

• A deduction that is otherwise allowable for any premium paid by a person in terms of an insurance
policy to the extent that the policy covers him or her against death, disablement, severe illness or
unemployment.
As a general rule, you are not entitled to deduct the same amount more than once in determining your
taxable income, even if it qualifies for more than one deduction. But there are exceptions to this rule (see
10.14).
10.80 Limitation of deductions for re-organisation
and acquisition transactions
ss 23K, 23N
No deduction is allowed for interest incurred by an acquiring company in terms of a debt issued or used
directly or indirectly for the purpose of procuring, enabling, facilitating or funding the acquisition by the
acquiring company of any asset in terms of a re-organisation transaction or in substitution for the
original debt. Nor is a deduction allowed for interest incurred by an acquiring company in terms of a
debt issued, assumed or used for the purpose of financing the acquisition of an equity share in
a company in terms of an acquisition transaction or in substitution for any other debt issued, assumed or
used for that purpose.
This prohibition on the deduction does not apply to any amount of interest incurred by an acquiring
company in terms of a debt issued, assumed or used directly or indirectly for the purpose of procuring,
enabling, facilitating or funding the acquisition by the acquiring company of an asset in terms of a
reorganisation transaction or for the purpose of redeeming, refinancing, substituting or settling a debt
issued, assumed or used directly or indirectly for the purpose of procuring, enabling, facilitating or
funding the acquisition by the acquiring company of an asset in terms of a reorganisation transaction
entered into on or after 3 June 2011 and on or before 31 March 2014. The prohibition on the deduction
also does not apply to any amount of interest incurred by an acquiring company in terms of a debt
issued, assumed or used in terms of an acquisition transaction or issued, assumed or used directly or
indirectly for the purpose of redeeming, refinancing, substituting or settling a debt that was issued,
assumed or used in terms of an acquisition transaction entered into on or after 1 January 2013 and on or
before 31 March 2014. Finally, the prohibition on the deduction does not apply if a directive
contemplated below has been issued by the Commissioner about that amount of interest.
The Commissioner may, on application by an acquiring company, issue a directive that the above
prohibition does not apply to an amount of interest incurred as contemplated in the prohibition. In
considering an application for a directive, the Commissioner must take into account the amount of
interest incurred by an acquiring company in terms of the debt and all amounts of interest incurred,
received or accrued in respect of all debts issued, assumed or used directly or indirectly to fund a debt in
respect of which any amount of interest is incurred by an acquiring company. He may only issue a
directive if and to the extent that he is, having regard to the criteria prescribed by the relevant
regulations, satisfied that the issuing of the directive will not lead nor be likely to lead to a significant
reduction of the aggregate taxable income of all parties who incur, receive or accrue interest in respect
of, and for all periods during which any amounts are outstanding in terms of, any of the debts
contemplated above. In determining whether a reduction of taxable income is significant, the
Commissioner must have regard to the criteria prescribed by the regulations.
A directive issued by the Commissioner may be made subject to such conditions and limitations as may
be determined by the Commissioner.
A directive issued by the Commissioner in respect of an amount of interest incurred in terms of a debt
must be effective from the date on which the debt was issued or assumed if the application for the
directive was made on or before 31 December 2011, when the debt was issued or assumed before 25
October 2011, or within 60 days of the date of issue or assumption of that debt, when it was issued or
assumed on or after 25 October 2011. Or it must be effective from the date on which the application for
the directive was made if the debt was issued before 25 October 2011 and the application was made
after 31 December 2011 or the debt was issued or assumed on or after 25 October 2011 and the
application was made later than 60 days after the date of issue or assumption of the debt instrument.
The Minister of Finance must make regulations that prescribe criteria that the Commissioner must have
regard to in considering an application for a directive by an acquiring company in respect of any amount
of interest incurred by the acquiring company in terms of a debt. These criteria must relate to:
• amounts of debt in relation to total equity of the acquiring company;
• total amounts of interest to be incurred by the acquiring company in relation to the total income of the
acquiring company;
• the terms of the debt, including its economic effect, regard being had to any debt or equity features of
the debt;
• the direct or indirect holding of shares in the acquiring company by any holder (or any company that
forms part of the same group of companies as the holder) of the debt; and
• any other factor prescribed by the Minister.
If, subsequent to the date on which a directive is issued by the Commissioner pursuant to an application
for a directive made by an acquiring company there is a material change in any fact or circumstance that
influenced any decision of the Commissioner relating to the issuing of the directive and that change
would, had it been anticipated by the Commissioner at the time of issuing the directive, have resulted in
the Commissioner not issuing the directive or issuing the directive on terms that are less favourable to
the acquiring company, the directive will cease to apply with effect from the date on which the change
takes effect. When any decision relating to the issuing of a directive by the Commissioner was made by
the Commissioner as a direct or indirect result of fraud, misrepresentation or non-disclosure of material
facts, the directive will cease to apply with effect from the date that the directive took effect.
The Minister may make regulations prescribing circumstances in which the prohibition of the deduction
of interest incurred by an acquiring company does not apply.
Definitions
‘Acquiring company’ means a transferee company contemplated in the definition of ‘intra-group

transaction’ in the corporate restructuring rules (see 22.5), a holding company contemplated in the
definition of ‘liquidation distribution’ in those rules (see 22.7) or, as from 1 January 2013, a company
that acquires an equity share in another company in terms of an acquisition transaction.
An ‘acquisition transaction’ means an acquisition transaction as contemplated in the provision

deeming interest incurred on certain debts to be incurred in the production of income (see 10.77).
A ‘debt instrument’ means, prior to 1 January 2013, a loan, advance, debt, bond, debenture, bill,
promissory note, banker’s acceptance, negotiable certificate of deposit or similar instrument.
‘Interest’ means interest as defined in the special rule dealing with interest in 10.38.
And a ‘reorganisation transaction’ means an intra-group transaction as defined in the corporate

restructuring rules (see 22.5) or a liquidation distribution as defined in those rules (see 22.7).
Another limitation on the deduction of interest in respect of reorganisation and acquisition transactions
applies when interest is incurred by an acquiring company in terms of a debt directly or indirectly
assumed or applied for the purpose of procuring, enabling, facilitating or funding the acquisition by it of
any asset in terms of a reorganisation transaction; or a debt used directly or indirectly for the purpose of
redeeming, refinancing or settling the debt mentioned above, or a debt issued, assumed or used in terms
of an acquisition transaction, or a debt used directly or indirectly for the purpose of redeeming,
refinancing or settling the debt connected with the acquisition transaction.
The amount of interest allowed to be deducted must not exceed the amount determined below.
The amount allowed to be deducted for the interest owed on all the debts mentioned above for any tax
year in which the acquisition transaction or reorganisation transaction is entered into and in the five tax
years immediately following that tax year must not exceed the sum of:
• the amount of interest received by or accrued to the acquiring company; and
• the highest of the amounts determined by multiplying the percentage determined under the formula
below by the adjusted taxable income of the acquiring company for each of the tax years in which the
acquisition transaction or reorganisation transaction is entered into; or immediately prior to the tax
year in which the amount of interest is incurred by the acquiring company; or the tax year immediately
prior to that first-mentioned tax year, whichever is the highest. This amount must be reduced by any
amount of interest incurred by the acquiring company on other debts.
The percentage to be used must be determined in accordance with the formula—
A=B×D
in which formula—
‘A’ represents the percentage to be applied;
‘B’ represents 40;
‘C’ represents the average repo rate plus 400 basis points; and
‘D’ represents 10.
The percentage may not exceed 60% of the adjusted taxable income of the acquiring company.
These limitations do not apply to interest incurred by an acquiring company on any debt mentioned
above when the interest is incurred in respect of a linked unit in the acquiring company and that interest
accrues to a long-term insurer as defined in the Long-term Insurance Act, a pension fund, a provident
fund, a REIT or a short-term insurer as defined in the Short-term Insurance Act, if:
• the long-term insurer, pension fund, provident fund, REIT or short-term insurer holds at least 20%
of the linked units in the acquiring company;
• the long-term insurer, pension fund, provident fund, REIT or short-term insurer acquired those linked
units before 1 January 2013; and
• at the end of the previous tax year 80% or more of the value of the assets of the acquiring company,
reflected in the annual financial statements prepared in accordance with the Companies Act for the
previous tax year, is directly or indirectly attributable to immovable property.
Definitions
‘Acquired company’ means a transferor company or a liquidating company that disposes of assets
pursuant to a reorganisation transaction or a company in which equity shares are acquired by another
company in terms of an acquisition transaction.
‘Acquiring company’ means a transferee company contemplated in the definition of ‘intra-group

transaction’ in the corporate restructuring rules (see 22.5), a holding company contemplated in the
definition of ‘liquidation distribution’ in those rules (see 22.7) or a company that acquires an equity
share in another company in terms of an acquisition transaction.
‘Acquisition transaction’ means a transaction in terms of which an acquiring company acquires an

equity share in an acquired company that is a company as defined in the definition of ‘acquisition
transaction’ in 10.77 and as a result of which the acquiring company, as at the end of the day of that
transaction, becomes a controlling group company in relation to the acquired company.
‘Adjusted taxable income’ means taxable income calculated before applying this provision reduced by
any amount of interest received or accrued that forms part of taxable income, any amount included in
the income of a person under the controlled foreign company rules (see 15.2), any amount recovered or
recouped in respect of an allowance for a capital asset as defined in 10.7 and with the addition of any
amount of interest incurred that has been allowed as a deduction from income, any amount allowed as a
deduction for a capital asset as defined in 10.7 for purposes other than the determination of any capital
gain or capital loss, 75% of the receipts or accruals derived from the letting of immovable property and,
in tax years commencing on or after 1 January 2015, any assessed loss or balance of assessed loss
allowed to be set off against income (see 10.71).
‘Average repo rate’ in relation to a tax year means the average of all ruling repo rates determined by
using the daily repo rates during that tax year.
‘Interest’ means interest as defined in 7.6.
‘Issue’ in relation to a debt, means the creation of a liability to pay or of a right to receive an amount in
terms of that debt.
‘Reorganisation transaction’ means an intra-group transaction as defined in the corporate

restructuring rules (see 22.5) or a liquidation distribution as defined in those rules (see 22.7).
‘Repo rate’ means the interest rate at which the South African Reserve Bank enters into a repurchase
agreement contemplated in s 10(1)( j) of the South African Reserve Bank Act.
10.81 Example – adjustment of business net profits to determine
taxable income
Mr A, a married man aged under 65, prepared the following financial statements with his tax return for
the 2020 tax year:
Mr A – Trading account for the year ended 29 February 2020
Stock 1 March 2019
R105 000 Sales
..................................................
R724 100
Purchases
..........................................
499 000
R604 000
Less: Stock 29 February 2020

121 000
Cost of sales ......................................
R483 000
Gross profit transferred to profit and
loss account ...................................
241 100
R724 100
R724
100
Bad debts ..........................................
R4 000
Gross profit transferred from
Depreciation of office furniture ..........
800
trading account ..............................
R241 100
Donations
........................................... 1
000
Cash discount received.....................
4 900
General
expenses .............................
2 500
Profit on sale of office machines ........
3 000
Interest
paid
.......................................
3 000
Dividends received (local) ..................
21 000
Legal
expenses
.................................
500
Loss on sale of office furniture ..........
1 200
Office
rental
.......................................
12 000
Postages
and
telephones ..................
4 500
Printing and stationery .......................
4 000
Rental of office machines ..................
2 750
Salaries and wages ...........................
100 250
Teas and entertainment .....................
1 500
Travelling
expenses...........................
7 000
Net profit transferred to capital
account ..........................................
125 000
R270 000
R270 000
He also disclosed the following facts:
• Among the bad debts written off was a sum of R1 200 lent to a friend who absconded.
• Of the general expenses, only an amount of R300, which was paid for a traffic fine, was not allowable
for tax purposes.
• The interest paid was interest on a loan raised to buy the shares that produced the dividends of R21
000.
• The legal expenses of R500 were the costs of drawing up a new lease for offices hired.
• The loss on the sale of office furniture arose on the sale of redundant office furniture which had cost
R10 000 (and had been depreciated in the books and for tax purposes by R6 000) for R2 800. The tax
and book value of R4 000 (R10 000 less R6 000) exceeded the sale price by R1 200 (R4 000 less R2 800).
This loss is deductible for tax purposes as a scrapping allowance.
• Of the salaries and wages, R60 000 was drawn by Mr A.
• Mr A took goods that had cost R300 for private consumption.
• Included in travelling expenses is an amount of R4 200 incurred on the motor car which Mr A used
privately as well as for business purposes. One third of the 24 000 kilometres covered during the year in
the motor car was attributable to his private use.
• Mr A received interest of R25 500 and net rentals of R20 000 during the year, neither of which is
shown in the above account.
continued
• The profit on the sale of office machines arose out of the disposal at the beginning of the year of all the
office machines previously owned and their replacement by hired machines. The final position on the
sale of the machines was as follows:
Book value
Tax value
Cost
..................................................................................................
R45
000
R45 000
Depreciation
allowed ........................................................................
30 000
26 000
Net
value
...........................................................................................
R15 000 R19
000
Sold
for
.............................................................................................
18 000
18 000
Book
profit
.......................................................
R3
000
(Tax loss)
R1 000
For accounting purposes, since depreciation of R30 000 had been written off, a net profit of R3 000 was
derived; but for tax purposes, because depreciation amounting to only R26 000 had been allowed, a loss
of R1 000 was incurred which qualifies for the scrapping allowance (see 10.58).
Mr A’s taxable income may therefore be determined as follows:
Net profit according to the income statement ...............................................
R125 000
Added to net profit:
Bad debt – loan to friend ...............................................................................
R1 200
Donations
........................................................................................................
1 000
Traffic
fine .......................................................................................................
300
Interest paid to earn dividend income ...........................................................
3 000
Legal expenses – drawing up a lease (capital expenditure) .........................
500
Salary – Mr A ..................................................................................................
60 000
Goods taken for private use ........................................................................... 300
8 000
Private use of motor car
× R4 200
..................................
1 400
24 000
67
700
R192 700
Deducted from net profit:
Profit on sale of office machines per accounts ......................... R3
000
Scrapping allowance on sale of office machines .....................
1 000
Dividends
.................................................................................... 21
000
25 000
Taxable
income
from business .....................................................................
R167 700
Add: Interest
25
500
Rentals
20 000
R213 200
Less: Basic interest exemption (see 7.2)

23 800
Total taxable income
R189
400
Income from estates and trusts
11.1 Estates of deceased persons
ss 1, 9HA, 25
It is the duty of the ‘executor’ of an estate to give effect to the terms of a deceased person’s will or, if
there is no will, to distribute the deceased’s assets in accordance with the laws of intestacy. The executor
is also the ‘representative taxpayer’ of the estate. In that role, the executor will take over and settle the
deceased’s tax affairs up to the date of death, and will deal with and settle the tax affairs of the estate
itself.
Although the tax law treats a deceased estate as a ‘person’, that is a mere fiction, not even a very
convenient one, since the true economic actor is the executor.
An inheritance in the form of an asset or cash that the executor delivers to you is not taxable for income
tax purposes, since it is a capital receipt (see 1.5). For the capital gains tax consequences, see 21.15. But
an annuity you derive as an inheritance will be included in your gross income (see 1.1).
For the capital gains tax implications of the death of a person, as well as other tax implications of the
disposal or transfer of assets of the deceased on death, see 21.15, and for some of the estate duty issues,
see Chapter 20.
The deceased’s tax liability in the tax year of death (s 9HA(1))
The deceased person is treated as having disposed of his or her assets at the date of death for an amount
derived equal to their market value for capital gains tax (CGT) purposes (see 21.8) as at that date. The
result will be a liability for tax, both income tax and the CGT, in the period ending with death exactly the
same as if the assets concerned – including trading stock, livestock, produce, depreciable assets and
assets subject to the CGT – were actually disposed of. Excluded from this dispensation are:
• Assets disposed of for the benefit of his or her surviving spouse (see 3.1) in the manner described
immediately below.
• A long-term insurance policy of the deceased that would have been free of CGT had it been disposed of
in the deceased’s lifetime (see 21.12).
• An interest of the deceased in a pension, pension preservation, provident, provident preservation or

retirement annuity fund in South Africa that would have been free of CGT had it been disposed of in the
deceased’s lifetime (see 21.12).
• An interest of the deceased in a fund, arrangement or instrument situated outside South Africa
providing benefits similar to a pension, pension preservation, provident, provident preservation or
retirement annuity fund that would have been free of CGT had it been disposed of in the deceased’s
lifetime (see 21.12).
Tax-free deemed dispositions to a spouse on death (s 9HA(2))
The following tax-free deemed dispositions to a spouse upon a taxpayer’s death apply only if the
surviving spouse is a resident (see 1.1). Should he or she be a non-resident, the assets concerned will be
deemed to have been disposed of upon death in the manner and with the consequences described
immediately above.
The deceased is treated as having disposed of an asset for the benefit of his or her surviving spouse if the
asset is acquired by the surviving spouse:
220
INCOME FROM ESTATES AND TRUSTS 221
• By intestate or testamentary succession.
• As a result of a redistribution agreement between the deceased’s heirs and legatees in the course of
liquidation or distribution of the deceased estate.
• In settlement of a claim arising under the Matrimonial Property Act 88 of 1984 (under the so-called
accrual marital regime).
Such deemed disposals will be deemed in addition to have been disposed of for deemed amounts
derived:
• Trading stock, or farming livestock or produce (see Chapter 12): the amount allowed as a deduction for
that asset for purposes of determining the deceased’s taxable income (see 1.1), before the inclusion of a
taxable capital gain (see 21.3), for the tax year ending on death.
• Any other asset: its base cost for CGT purposes (see 21.5), as at the date of death.
Assets not in estate, passing directly to beneficiaries (s 9HA(3))
An asset arising after death and thus not included as estate property deemed to have been disposed of
upon death and transferred directly to an heir or a legatee will be treated as having been acquired asset
for an amount of expenditure incurred equal to its market value for CGT purposes (see 21.8) as at the
date of death.
How the estate is taxed (s 25(1))
Income (see 1.1) derived by person in his or her capacity as the executor of the estate of a deceased
person is treated as income of the deceased estate. An example would be current rent collected by the
executor on immovable property in the estate. Also so treated is an amount derived by the executor that
would have been income in the hands of the deceased had the amount been derived by him or her
during his or her lifetime. An example would be a damages claim of an income nature in the deceased’s
favour pursued and realized by the executor.
The estate’s deemed acquisition of assets from the deceased (s 25(2)) As shown above, the
deceased is treated as having disposed of all his or her assets upon death.
Unsurprisingly, the deceased estate (actually, the executor) is regarded as acquiring those assets from
the deceased, even if such an acquisition is a legal nonsense.
The general rule is that assets are deemed to be acquired by the deceased estate for an amount of
expenditure incurred equal to the amount regarded as the amount for which the deceased disposed of
them, as shown above. Similarly, the deemed dispositions by the deceased to his or her spouse on death
are deemed to be acquired by the deceased estate for an amount of expenditure incurred equal to the
amount regarded as the amount for which the deceased disposed of them, as separately shown above.
The estate’s deemed disposal of assets to the heirs and legatees (s 25(3)) Another legal nonsense is
that a deceased estate disposes of assets to the heir and legatees.
The deceased estate is treated as having disposed of an asset for an amount derived equal to the amount
of expenditure deemed to have been incurred by the deceased estate on the asset.
Correspondingly, the heir or legatee is treated as having acquired the asset for an amount of expenditure
incurred equal to the expenditure incurred by the deceased estate on the asset.
Deemed acquisition of assets by surviving spouse (s 25(4))
Special rules apply to an asset acquired by a surviving spouse of a deceased person by way of the tax-
free deemed dispositions to a spouse on death described above, affecting an allowance or a deduction to
which he or she may be entitled or that is to be recovered or recouped by or included in the spouse’s
income (see 1.1) on account of such an asset, as well as the amount of a capital gain or capital loss (see
21.3) arising upon the disposal of the asset by the surviving spouse.
222 INCOME FROM ESTATES AND TRUSTS
The surviving spouse is treated as one and the same person as the deceased and the deceased estate in
relation to the date of acquisition of the asset by the deceased; a CGT valuation of the asset effected by
the deceased on 1 October 2001 (see 21.6); the amount of expenditure and the date on which and the
currency in which the expenditure was incurred on the asset by the deceased for purposes of the tax-
free deemed disposition to a spouse on death dealt with above and by the deceased estate, other than
the expenditure dealt with for purposes of the tax-free deemed disposition to a spouse on death; the
manner in which the asset had been used by the deceased and the deceased estate; and any allowance or
deduction allowable on the asset to the deceased and the deceased estate.
Deceased estate treated as a natural person (s 25(5))
Other than for the purposes of the normal tax rebates (see 2.8), the medical scheme fees tax credit and
the additional medical expenses tax credit (see 2.5), a deceased estate is treated as if it were a natural
person. If the deceased was a resident (1.1) at the time of death, the deceased estate is treated as if it
were a resident. One consequence is that it pays normal tax at the same rate as does an individual (see
11.2).
Onerous CGT liability (s 25(6), (7))
The deemed disposal by a deceased described above of assets subject the CGT might give rise to a
taxable capital gain (see 21.3) deemed to have been derived by the deceased and thus a liability on the
part of the deceased to the CGT. Should the CGT exceed 50% of the net value of the estate under the
Estate Duty Act 45 of 1955, before taking into account the CGT itself, and should the executor be
required to dispose of any estate asset for purposes of paying the CGT, an election arises. This is afforded
to an heir or a legatee who would have been entitled to the asset concerned, had there been no liability
for the CGT, who may elect that that asset be distributed to him or her, on the basis that the amount of
the CGT exceeding 50% of the net value of the estate will be paid by the heir or legatee concerned within
a period of three years after the date that the estate has become distributable under the Administration
of Estates Act 66 of 1965.
An amount of tax payable in this way by an heir or a legatee becomes a debt due to the state and is
treated as an amount of tax chargeable under the Income Tax Act that is due by the heir or legatee.
Definitions
An ‘executor’ is a person to whom letters of administration have been granted by a Master or an

Assistant Master of the High Court appointed under the Administration of Estates Act 66 of 1965 in
relation to the estate of a deceased person under any law relating to the administration of estates,
including a person acting or authorized to act under letters of administration granted outside South
Africa but signed and sealed by such a Master or Assistant Master for use within South Africa and,
whenever an estate is not required to be administered under the supervision of such a Master or
Assistant Master, the person administering the estate.
A ‘person’ includes an insolvent estate (see 11.3), the estate of a deceased person, a trust (see 11.4), and
a portfolio of a collective investment scheme (see 16.7), but does not include a foreign partnership (see
13.5).
A ‘representative taxpayer’ is a natural person who resides in South Africa (not the same thing as
being a resident; see 1.1) and plays one of the following roles:
• In relation to the income (see 1.1) of a company (see 14.1), its public officer, or in the event of such
company being placed under business rescue under the Companies Act 71 of 2008, the business rescue
practitioner.
• In relation to the income under his or her management, disposition or control, the agent of any person.
• In relation to income that is the subject of a trust (see 11.4) or in relation to the income of a minor or
mentally disordered or defective person or any other person under legal disability, the trustee, guardian,
curator or other person entitled to the receipt, management, disposal or control of such income or
remitting or paying to or receiving moneys on behalf of such a person under disability.
• In relation to income paid under the decree or order of any court or judge to a receiver or other
person, that receiver or person, whoever may be entitled to the benefit of such income, and whether or
not it accrues to a person on a contingency or an uncertain event.
• In relation to the income derived by a deceased person during his or her lifetime and the income
derived by the estate of deceased person, the executor or administrator of the estate of the deceased
person.
• In relation to the income received by or accrued to an insolvent estate (see 11.3), the trustee or
administrator of such insolvent estate.
For the purposes of the definition, ‘income’ includes any amount derived or deemed to have been
derived in consequence of the disposal of an asset for capital gains tax purposes (see 21.2).
11.2 How a deceased estate is taxed
ss 6A(3), 6B(4)
An estate of a deceased person is treated as a ‘‘person
person’ (see 11.1) for tax purposes. The same
table of normal tax applying to individuals (see 2.7) applies also to an estate but, as noted in 11.1, it is
not entitled to the normal tax rebates (see 2.8), the medical scheme fees tax credit, or the additional
medical expenses tax credit (see 2.5). An estate may have a period of assessment of less than a year (see
2.2), for example, when the deceased died during the tax year, but this shorter tax period will not affect
its liability for tax, since it is not entitled to the normal tax rebates (see 2.12).
Amounts qualifying for the medical scheme fees tax credit or the additional medical expenses tax credit
for qualifying medical expenses and expenses incurred in consequence of a physical disability paid by an
estate are regarded as having been paid by the deceased on the day before his or her death.
11.3 Insolvent
estates
ss 1, 20(1), 25C
An ‘insolvent estate’ is treated as a person (see 11.1) for tax purposes. The same table of normal tax
applying to individuals (see 2.7) applies also to an insolvent estate but it is not entitled to the normal tax
rebates (see 2.8), the medical scheme fees tax credit, or the additional medical expenses tax credit (see
2.5). The ‘trustee’ or administrator of the estate is its representative taxpayer (see 11.1) and must deal
with the tax affairs of the insolvent estate.
Income of insolvent estates (s 25C)
Your estate before your sequestration and your insolvent estate are treated as being one and the same
person for purposes of the determination of any allowance, deduction or set off to which the insolvent
estate may be entitled, any amount that is recovered or recouped by or is otherwise required to be
included in the income of the insolvent estate, and any taxable capital gain or assessed capital loss (see
21.3) of the insolvent estate. Necessary adjustments are allowed so as to facilitate the operation of this
rule.
Insolvent estates and assessed losses (s 20(1)( a))
Ordinarily, you are allowed as a deduction from your income (see 1.1) a balance of assessed loss
incurred by you in an preceding tax year that has been carried forward to the current tax year (see
10.71). But a person whose estate has been voluntarily or compulsorily sequestrated is prohibited from
carrying forward an assessed loss incurred before the date of sequestration, unless the order of
sequestration has been set aside, in which event the amount to be so carried forward is reduced by any
amount allowed to be set off against the income of the persons’ insolvent estate from the carrying on of a
trade (see 10.14).
How the insolvent and an insolvent estate are taxed
If you become insolvent during a tax year, you will pay tax on your taxable income from the beginning of
the tax year until the date of your insolvency. From that date you are regarded as a new taxpayer and
will pay tax on any taxable income earned in your own right, for example, a salary.
You may therefore have two periods of assessment, each of less than a full year (see 2.2), in the year in
which you become insolvent, and the normal tax rebates to which you are entitled will be
proportionately reduced in each of these periods (see 2.12).
Even if, in your own right, you earn a taxable income during the period of your sequestration, you may
not make any use of an assessed loss incurred before your sequestration. Instead, the assessed loss
passes to your insolvent estate. Should the sequestration order be set aside, any balance remaining of
your assessed loss unused by the estate in carrying on a trade reverts to you.
Also because your estate before the sequestration and your insolvent estate are treated as being one and
the same person, any special tax provisions applying to your trading stock, tax allowances or any other
matter that required some form of qualification stemming from your personal circumstances are carried
through, without discontinuity, to your insolvent estate.
Definitions
An ‘insolvent estate’ is an insolvent estate as defined in the Insolvency Act 24 of 1936.
A ‘trustee’, in addition to every person appointed or constituted as such by act of parties, by will, by
order or declaration of court or by operation of law, includes an executor or administrator, tutor or
curator, and any person having the administration or control of property subject to a trust, usufruct,
fideicommissum or other limited interest or acting in any fiduciary capacity or having, either in a private
or in an official capacity, the possession, direction, control or management of property of a person under
legal disability.
11.4 Trusts s
A so-called living trust or trust inter vivos is brought into existence when a person – the donor or
founder – makes a contract – a trust deed – under which he or she donates assets to trustees in their
fiduciary capacity, to be administered by them for the benefit of third parties – the beneficiaries.
Alternatively, the donation might be to the beneficiaries directly, of property placed under the fiduciary
control of the trustees. A trust may also be created under a will, a so-called testamentary trust, when a
person – the testator – sets aside the whole or a portion of his or her estate as a bequest to be
administered in trust – again, by trustees – for the benefit of his or her heirs or other beneficiaries. The
founding bequest might be to the trustees, in their fiduciary capacity, or directly to the beneficiaries,
subject to the control of the trustees. A trust may also be formed by order of a competent court.
A ‘trust’ is, for normal tax purposes, a trust fund consisting of cash or other assets administered and
controlled by someone acting in a fiduciary capacity appointed under a deed of trust, by agreement, or
under the will of a deceased person. This is not necessarily the same arrangement as would be
recognized as a trust under the common law or as defined in the Trust Property Control Act 57 of 1988.
A ‘beneficiary’ is defined, in relation to a trust, as a person who has a vested or contingent interest in all
or a portion of the receipts or accruals or the assets of the trust.
11.5 Trusts – income of trust and beneficiaries s
25B
A trust (see 11.4) is treated as a person (see 11.1) for tax purposes, subject to special rates of tax (see
11.9). This is a mere fiction, not even a very convenient one, since the true economic actors
are the trustees (see 11.3). A trust is not entitled to the normal tax rebates (see 2.8), the medical scheme
fees tax credit, or the additional medical expenses tax credit (see 2.5). The trustee is its representative
taxpayer (see 11.1), and must deal with the tax affairs of the trust.
Diversion-of-income rules take precedence (s 25B(1))
The diversion-of-income rules described in 11.7 take precedence over the rules described here. In other
words, what is said here applies only to the extent that any amount or any income remains after the
application of the diversion-of-income rules.
Basic rule: amounts in favour of vested beneficiaries (s 25B(1))
An amount derived by a person during a tax year his or her capacity as the trustee (see 11.3) of a trust
(see 11.4) is, to the extent to which it has been derived for the immediate or future benefit of an
ascertained beneficiary (see 11.4) who has a vested right to the amount during the tax year concerned,
deemed to be an amount that has accrued to the beneficiary, and, to the extent to which it is not so
derived, is deemed to be an amount that accrued to the trust.
Such a beneficiary is known as a vested beneficiary, signifying that an income-stream passing under
the fiduciary control of the trustees actually belongs to the beneficiary – no deeming is required. It
follows that the beneficiary must account for his or her normal tax liability on that income-stream. What
is significant about this rule is that all other amounts derived by the trustees in their fiduciary capacity,
and thus belonging to them, albeit in that capacity, are deemed to be derived by the trust, in its capacity
as a person (see 11.1). This is the way that a trust, rather than the trustees or beneficiaries, picks up a
liability for normal tax, although only for purposes of the Income Tax Act.
The vested right of the beneficiary must exist or come into being during the same tax year during which
the amount is derived. In other words, the fiscal fate of all current amounts derived by the trustees will
be decided in that very same year: either it will be taxed in the hands of the beneficiaries or the trust will
be the taxpayer.
Amounts in favour of discretionary beneficiaries (s 25B(2))
A beneficiary (other than a vested beneficiary) might acquire a vested right to amount derived by a
person during a tax year his or her capacity as the trustee of a trust in consequence of the exercise by the
trustee of a discretion vested in him or her under the relevant deed of trust, agreement or will of a
deceased person. In such an event, the amount is, for the purposes of the basic rule described above,
deemed to have been derived for the benefit of the beneficiary.
Such a beneficiary is known as a discretionary beneficiary, signifying that the trustees, although not
being bound to do so, exercise a truly discretionary power in selecting from amongst a list of designated
beneficiaries one or more beneficiaries to whom they distribute amounts determined by them at their
discretion.
Again, the vested right of the beneficiary must come into being during the same tax year during which
the amount is derived, which is to say that the trustees must exercise their discretionary power before
the end of the relevant tax year. In other words, again, the fiscal fate of all current amounts derived by
the trustees will be decided in that very same year: either it will be taxed in the hands of the
beneficiaries or the trust will be the taxpayer.
Deductions and allowances (s 25B(3), (4), (5), (6), (7))
Deductions or allowances that may be made in the determination of the taxable income (see 1.1) derived
by way of an amount dealt with in the basic rule above is, to the extent to which it is deemed to have
accrued to a beneficiary, deemed to be a deduction or allowance that may be made in the determination
of the beneficiary’s taxable income derived by that beneficiary, and, to
the extent to which it is deemed to have accrued to the trust, deemed to be a deduction or allowance that
may be made in the determination of the trust’s taxable income.
Nevertheless, such a deduction or an allowance deemed to be made in the determination of the taxable
income of a beneficiary during a particular tax year is limited to so much of the amount deemed to have
been derived by the beneficiary as is included in the beneficiary’s income (1.1) during the tax year. In
other words, a beneficiary’s deductions and allowances are ring-fenced by his or her income, and may
not create an assessed loss (see 10.71).
The amount by which the sum of the deductions and allowances exceeds the amount included in the
beneficiary’s income during a tax year is deemed to be a deduction or allowance that may be made in the
determination of the taxable income of the trust during the year. Again, however, the sum of the
deductions and allowances is limited to the trust’s taxable income during the tax year, as calculated
before these deemed deductions and allowances are taken into account.
But, if the trust is not subject to tax in South Africa, the amount by which the sum of the deductions and
allowances during a tax year exceeds the amount included in the beneficiary’s income during a tax year
is carried forward and deemed to be a deduction or allowance that may be made in the determination of
the taxable income derived by that beneficiary by way of amounts dealt with in the basic rule above
during the immediately succeeding year of assessment.
The amount by which the sum of the deductions and allowances exceeds the amount included in the
beneficiary’s income during a tax year as well as the trust’s taxable income of the trust is deemed to be a
deduction or allowance for purposes of this rule that may be made in the determination of the
beneficiary’s taxable income derived by way of amounts dealt with in the basic rule above during the
immediately succeeding year of assessment.
These ring-fencing and carry-forward rules do not apply to an amount deemed to have accrued to a
beneficiary under the basic rule above when the beneficiary is not subject to tax in South Africa on the
amount.
11.6 Trusts – capital distributions by non-resident
trusts
s 25B(2A), (2B)
A special rule comes into play when, during the current tax year a resident (see 1.1) acquires a vested
right to an amount representing capital of a non-resident trust. That capital amount is included in the
resident’s income (see 1.1) in the year if the capital consists of or is derived, directly or indirectly, from
receipts and accruals of the trust that would have constituted income had the trust been a resident in
any previous tax year during which the resident had a contingent right to the amount, as long as it has
not been subject to in South Africa under the Income Tax Act. (Under the common law this rule is
rubbish. A discretionary beneficiary – see 11.5 – enjoys no rights whatsoever to any particular amount).
In determining, for this purpose, whether an amount derived by a non-resident trust would have
constituted income had the trust been a resident, you must disregard the exemption from normal tax of
a foreign dividend (see 9.4, second definition) applying when a person (whether alone or together with
any other company forming part of the same group of companies as that person) holds at least 10% of
the total equity shares and voting rights in the company declaring the foreign dividend (see 9.4) in
relation to an amount derived (presumably, by the trust) consisting of or derived, directly or indirectly,
from a foreign dividend (see 9.4, first definition):
• paid or payable by a company (see 14.1) if, first, more than 50% of the total participation rights (see
15.2) or of the voting rights in the company are directly or indirectly held or are exercisable by the trust,
whether alone or together with any one or more of the trust’s connected persons (see 16.31), and,
secondly, the resident or the resident’s connected person is a connected person in relation to the trust,
• but only to the extent to which the foreign dividend is not derived from an amount that must be
included in the income of or that must be attributed as a capital gain (see 21.3) to the resident who
acquired the vested right to the capital amount or another resident who is the first resident’s connected
person.
11.7 Trusts – diversion of income
ss 7(3)–(11), 91(4)
These diversion-of-income rules take precedence over the rules described in 11.5 and 11.6. They seek to
frustrate someone conveniently referred to as the donor who, by means of arrangements conveniently
described as an act of liberality (donation, settlement or other disposition), attempts to use a trust (see
11.4) or some similar arrangement in order to divert income (see 1.1) from his or her own hands to a
beneficiary or a trust. These rules apply only while the donor is still alive.
Income diverted in this way will be treated as having been derived by the donor, who will have to pay
normal tax in the following circumstances:
Diversion to minor children (s 7(3))

(1) The beneficiaries are his or her minor children who derive the income, or the income is expended for
their maintenance, education or benefit or is accumulated for their benefit.
Income is deemed to have been received by the parent (the donor) of a minor child or stepchild if by
reason of a donation, settlement or other disposition made by the parent it has been derived by the child
or has been expended for the child’s maintenance, education or benefit of that child, or has been
accumulated for the benefit of the child.
Under this rule and several of the following rules the beneficiaries will actually receive the income yet
the donor will pay the tax.
Reciprocal diversion to minor children (s 7(4))
(2) The donor or his or her spouse made someone else or his or her family the beneficiaries in return for
income derived by his or her minor child as a result of a donation made by that person or his or her
family.
Income derived by a minor child or stepchild of a person by reason of a donation, settlement or other
disposition made by any other person (the donor) is deemed to be the income of the child’s parent if the
parent or his or her spouse has made a donation, settlement or other disposition or given some other
consideration in favour directly or indirectly of the donor or his or her family.
Diversion to accumulator (trust) (s 7(5))
(3) The beneficiaries are prevented by a condition under which the donation was made from receiving
any income until the happening of some event, for example, their reaching a certain age or the exercise
by the trustees of a discretion whether to pay them any income.
If a person (the donor) has made a donation, settlement or other disposition that is subject to a
stipulation or condition, whether made or imposed by the donor or anybody else, to the effect that the
beneficiaries or some of them will not receive the income or some portion of it generated by it until the
happening of some event, whether fixed or contingent, so much of the income as would, but for the
stipulation or condition, in consequence of the donation, settlement or other disposition be derived by
the beneficiaries, will, until the happening of the event or the death of the donor, whichever first takes
place, be deemed to be the income of the donor.
Power of revocation (s 7(6))
(4) The donor retains in the trust deed the power to cancel the right of the beneficiaries to receive the
trust income or to confer it upon others.
If a deed of donation, settlement or other disposition contains a stipulation that the right to receive
income generated by it conferred may, under powers retained by the person by whom that right is
conferred (the donor), be revoked or conferred upon another, so much of the income as in consequence
of the donation, settlement or other disposition is derived by the person on whom that right is conferred
is deemed to be the income of the donor, for so long as he or she retains those powers.
Cession subject to resolutive conditions – transfer subject to clog (s 7(7)( a)) (5) This rule aims at
an amount receivable or payable consisting of rent, a dividend, a foreign dividend (see 9.3), interest,
royalty or similar income earned from movable or immovable property, such as a lease, company share
(see 7.5), marketable security, deposit, loan, copyright, design or trade mark, or for the use of or the
granting of permission to use all such property. It is triggered when such an amount is ceded or made
over to another person or a third party for that person’s benefit, subject to a clog. The clog must be one
of two types: ( a) The donor remains the owner of or retains an interest in the property. ( b) The donor
does not remain the owner but enjoys the right, at a fixed or determinable, to regain ownership of or the
interest in the property.
If by reason of a donation, settlement or other disposition made by a person (the donor) the donor’s
right to receive or have paid to him or her or for his or her benefit an amount by way of rent, dividend,
interest, royalty or similar income on movable or immovable property (including, without limiting what
has gone before, a lease, company share, marketable security, deposit, loan, copyright, design or trade
mark) or for the use of or the granting of permission to use such property, is ceded or otherwise made
over to any other person or to a third party for that other person’s benefit in such a manner that the
donor remains the owner of or retains an interest in the property or if the property or interest is
transferred, delivered or made over to the other person or to a third party for the other person’s benefit,
in such a manner that the donor is or will at a fixed or determinable time be entitled to regain ownership
of or the interest in the property, the rent, dividend, interest, royalty or income (including any amount
which, but for this rule, would have been exempt from tax in the hands of the other person) as is derived
by the other person and which would otherwise, but for the donation, settlement or other disposition,
have been derived by the donor, will be deemed to have been derived by the donor.
Cession subject to resolutive conditions – transfer subject to claw-back (s 7(7)( b)) (6) This rule
aims at income receivable or payable by a person acting in a fiduciary capacity, such as the trustee of a
trust. The right to the receipt or payment must be ceded or made over to another person or to a third
party for that person’s benefit in such a manner that the donor retains the power or right to regain the
right to the receipt or payment.
If by reason of a donation, settlement or other disposition made by a person (the donor) the donor’s
right to receive or have paid to him or her or for his or her benefit income that is or may become due to
him or her by any other person acting in a fiduciary capacity is ceded or otherwise made over to another
person or to a third party for that other person’s benefit in such a manner that the donor is or will at a
determinable time be entitled to regain the right, the rent, dividend, interest, royalty or income
(including any amount which, but for this rule, would have been exempt from tax in the hands of the
other person) as is derived by the other person and which would otherwise, but for the donation,
settlement or other disposition, have been derived by the donor, will be deemed to have been derived by
the donor.
Resident to non-resident donation (s 7(8)( a), ( aA), ( b)) (7) As a result of a donation made by a
resident (see 1.1), an amount is derived by a non-resident that would have been income had the non-
resident been a resident.
If by reason of or in consequence of a donation, settlement or other disposition made by a resident an

amount is derived by a non-resident (excluding a resident’s controlled foreign company –
see 15.2), which would have constituted income (see 1.1) had the non-resident been a resident, so much
of the amount as is attributable to the donation, settlement or other disposition is included in the
resident’s income. This rule does not apply to a donation, settlement or other disposition to a non-
resident entity similar to a public benefit organization (see 16.27).
In determining, for this purpose, whether an amount derived by a non-resident would have constituted
income had the non-resident been a resident, you must disregard the exemption from normal tax of a
foreign dividend (see 9.4, second definition) applying when a person (whether alone or together with
any other company forming part of the same group of companies as that person) holds at least 10% of
the total equity shares and voting rights in the company declaring the foreign dividend (see 9.4) in
relation to a receipt or an accrual consisting of or derived, directly or indirectly, from a foreign dividend
(see 9.4, first definition):
• paid or payable by a company (see 14.1) if, first, more than 50% of the total participation rights (see
15.2) or of the voting rights in the company are directly or indirectly held or are exercisable by the non-
resident, whether alone or together with any one or more on the non-resident’s connected persons (see
16.31), and, secondly, the resident or the non-resident’s connected person is a connected person in
relation to the non-resident,
• but only to the extent to which that foreign dividend is not derived from an amount that must be
included in the income of or that must be attributed as a capital gain (see 21.3) to the resident who made
the donation, settlement or other disposition or another resident who is the first resident’s connected
person.
So much of the expenditure, an allowance or a loss incurred by the non-resident as does not exceed the
amount included in the resident’s income under this rule that would be allowable as a deduction in the
determination of the taxable income (see 1.1) derived from the amount had the non-resident been a
resident is deemed to be an expenditure, an allowance or a loss incurred by the resident for purposes of
the determination of the resident’s taxable income generated by the amount.
Cheap dispositions are donations (s 7(9))
For the purposes of these rules, an asset disposed of for a consideration less than its market value is
deemed to be a donation, to the extent that its market value exceeds the consideration.
Reporting by residents (s 7(10))
A resident who at any time during a tax year makes a donation, settlement or other disposition must
disclose it to the Commissioner for SARS in writing when submitting his or her return of income for the
year, and at the same time furnish whatever information the Commissioner might require for the
purposes of these rules.
Special retirement fund rule on divorce (s 7(11))
An amount derived by a person by way of deduction from the minimum individual reserve of another
person under s 37D(1)( d)(iA) of the Pension Funds Act 24 of 1956 or, to the extent that the deduction is
a result of that deduction, s 37D(1)( e), is deemed for purposes of the Income Tax Act to be income
accrued to the other person on the date of the deduction.
Recovery of tax by donor (s 91(4))
So much of any tax payable by a person as is due to the inclusion in his or her income (see 1.1) of income
deemed to have been derived by him or her or to be his or her income under these rules may be
recovered from the assets by which the income so included was produced. This is known as a statutory
right, and is exercisable against the beneficiaries or the trustees who actually derived the income
concerned.

11.8 Trusts – special trusts s
There are two types of ‘special trust’:
• In the first instance, a special trust is a trust created solely for the benefit of one or more persons with
a qualifying disability (see 2.5), which incapacitates him or her from earning sufficient income for his or
her maintenance or from managing his or her own financial affairs. All persons for whose benefit the
trust is created must be relatives (see 5.4) of each other. The trust will be deemed not to be a special
trust in tax years ending on or after the date on which all such persons are deceased.
• The second type is a trust created under your will solely for the benefit of beneficiaries who are your
relatives and are alive on the date of your death, including beneficiaries conceived but not yet born on
that date, as long as the youngest of these beneficiaries is under the age of 18 years on the last day of the
trust’s tax year.
Special trusts are generally treated under the Income Tax Act in the same way as natural persons; for
example, on the rates of tax payable (see 11.9), and some of the capital gains tax rules (see Chapter 21).
But a special trust is not entitled to the normal tax rebates (see 2.8), the medical scheme fees tax credit
or the additional medical expenses tax credit (see 2.5).
11.9 Trusts – how a trust is taxed
Schedule 1 paras 1, 2, 4( b) Act 32 of 2019
A trust (see 11.4) is treated as a ‘person’ (see 11.1) for tax purposes. The rate of normal tax payable
depends upon the type of trust concerned, but no trust is entitled to the normal tax rebates (see 2.8), the
medical scheme fees tax credit or the additional medical expenses tax credit (see 2.5):
• A special trust (see 11.8) pays normal tax at the rates prescribed for individuals (see 2.7).
• An approved public benefit organization (see 16.27) that is a trust pays normal tax at the rate of 28%
in tax years commencing on or after 1 March 2019.
• A small business funding entity (see 16.3) that is a trust pays normal tax at the rate of 28% in tax years
commencing on or after 1 March 2019.
• Any other trust pays normal tax at the rate of 45% in tax years commencing on or after 1 March 2019.
A trust may have a period of assessment of less than a year (see 2.2), for example, when it is created or
terminates during the tax year, but this shorter tax period will not affect its liability for tax, since it is not
entitled to the normal tax rebates (see 2.12).
The trustee is its representative taxpayer (see 11.1), and must deal with the tax affairs of the trust.
For a special rule empowering the Commissioner to counter trafficking in assessed losses of trusts to
avoid tax, see 18.8.
A special tax return is prescribed for reporting the income of trusts.
11.10 Income from an estate or a trust
s 10(2)( b)
You will be liable to tax on any income from an estate or trust that is included in your taxable income as
a beneficiary as if you had derived the income directly rather than from the executor or trustee. In other
words, the income of the estate or trust retains its nature in the hands of a beneficiary.
For example, if you are entitled to the income of a trust consisting of interest from a South African bank
and net rentals from a domestic property, you will pay tax as if you derived the interest and the net
rentals yourself. As a result:
• the interest will qualify for the basic interest exemption (see 7.2) like any other interest that you
derive (see 9.1); and
• the net rentals will be taxable.
No exemption is available when interest or a dividend (see 9.3) is paid to you in the form of an annuity.
An annuity from an estate or trust is taxed in full, even if paid out of capital, and must be shown
separately in your return. You are also required to furnish the name of the estate or trust that paid the
annuity.
11.11 Trusts – loans by connected persons
s 7C
Under this rule a cheap loan, advance or credit (referred to here as a tainted loan) made to a trust (see
11.4) by its connected person (see 16.31) is seen as giving rise to a donation subject to donations tax
(see Chapter 19).
When the rule applies (s 7C(1))
The rule applies to a tainted loan that a natural person or, at the instance of the person (the instancing
person), a company (see 14.1) in relation to which the natural person is a connected person under the
20%-of-equity-shares rule of connectedness (see 16.31) directly or indirectly provides to:
• a trust that is the connected person of the natural person or company or of the natural person’s
connected person or of the company’s connected person; or
• a company, if at least 20% of its equity shares (see 14.7) are held, directly or indirectly, or the voting
rights in that company can be exercised by, such a trust or by a beneficiary (see 11.4) of the trust,
whether alone or together with any person who is a beneficiary of the trust or the spouse (see 3.1) of a
beneficiary of the trust or any person related to the beneficiary or the spouse within the second degree
of consanguinity (see 5.4).
Acquiring a claim to an amount owing by a trust (s 7C(1A))
A person, the acquirer, acquiring a claim to an amount owing by a trust or a company on a tainted loan is
for purposes of this rule treated as having provided a tainted loan to the trust or company equal to the
amount of the claim so acquired. The deemed provision of the tainted loan takes place on the date on
which the acquirer acquired the claim, or, if the acquirer was on that date not a connected person of the
trust or the person, the actual provider, who provided the tainted loan to the trust or company, on the
date on which the acquirer became the trust’s or the actual provider’s connected person.
Prohibition of deductions (s 7C(2))
You may not claim a deduction, loss, allowance or capital loss (see 21.3) resulting from a disposal
(including by way of a reduction or waiver) or the failure, wholly or partly, of a claim for the payment of
an amount owing under a tainted loan.
The deemed donation (s 7C(3))
If a trust or company incurs no interest on a tainted loan or an acquired tainted loan or incurs interest at
a rate lower than the official rate of interest (see 16.24), an amount equal to the difference between the
amount incurred during a tax year as interest on the loan and the amount that would have been incurred
at the official rate of interest must, for purposes of the donations tax (see Chapter 19), be treated as a
donation made to the trust by the natural person, company or acquiring person on the last day of the tax
year of the trust.
Multiple instancing persons (s 7C(4))
It might happen that a tainted loan was provided by a company to a trust or another company at the
instance of more than one connected person (see 16.31) of the providing company. Each of those
persons must be treated as having donated to the trust or company the part of the amount
bearing to that amount the same ratio as the equity shares (see 14.7) or voting rights in the company
held by the instancing person during the tax year bears to the equity shares or voting rights in the
providing company held in aggregate by those persons during the tax year.
Exemptions (s 7C(5))
None of the above applies to an amount owing by a trust or company during a tax year of assessment on
a tainted loan if:
• The trust or company is an approved public benefit organization (see 16.27) or an approved small
business funding entity (see 16.3).
• The tainted loan was provided to the trust by a person by reason of or in return for a vested interest
held by that person in the receipts and accruals and assets of the trust, and the beneficiaries (see 11.4) of
the trust hold, in aggregate, a vested interest in all the receipts and accruals and assets of the trust, no
beneficiary can, under the trust deed, hold or acquire an interest in the trust other than a vested interest
in the receipts and accruals and assets of the trust, the vested interest of each beneficiary is determined
solely with reference and in proportion to the assets, services or funding contributed by the beneficiary
to the trust, and none of the vested interests held by the beneficiaries is subject to a discretionary power
conferred on any person in terms of which that interest can be varied or revoked. (It would be
interesting to know which country’s common law s being referenced here. It is not South Africa’s.)
• The trust is the first type of special trust described in 11.8, that is, a qualifying trust created solely for
the benefit of one or more persons with a qualifying disability (see 2.5), which incapacitates him or her
from earning sufficient income for his or her maintenance or from managing his or her own financial
affairs.
• The trust or company used the tainted loan wholly or partly for purposes of funding the acquisition of
an asset and the natural person or company or the natural person’s spouse used the asset as a primary
residence (21.13) throughout the period during the tax year during which the trust or company held the
asset, and the amount owed relates to the part of the tainted loan that funded the acquisition of the
asset.
• The tainted loan constitutes an affected transaction subject to the transfer-pricing provisions (see
18.9).
• The tainted loan was provided to the trust or company under an arrangement that would have
qualified as a sharia compliant financing arrangement (see 7.10) had the trust or company been a bank
for purposes of such arrangements (see 7.10).
• The tainted loan gives rise to a deemed dividend for dividends tax purposes (see 9.5).
• The trust was created solely for purposes of giving effect to an employee share incentive scheme under
which (1), the tainted loan was provided by a company to the trust or for purposes of funding the
acquisition by the trust of shares (see 7.5) in the company or in any other company forming part of the
same group of companies (see 14.1), referred to here as the scheme company: (2) equity instruments
(see 5.3) relating to or deriving their value from shares in a scheme company may be offered by the trust
to a person solely by virtue of that person’s being in employment on a full-time basis with or holding the
office of director of a scheme company; and (3) a person that is a connected person of a scheme
company under the 20%-of-equity-shares rule of connectedness (see 16.31) is not entitled to participate
in the scheme.
Income from farming
12.1 Income from farming
s 26, 1st Sch
Special provisions apply to the taxation of the income that you derive from carrying on farming
operations. For this reason it is necessary to calculate your taxable income (see 1.3) from farming
operations separately from the taxable income that you derive from other sources. Your liability for tax
is nevertheless ultimately based on your total taxable income from all sources, and the general rules for
the determination of your taxable income that are dealt with elsewhere in this book must be followed in
conjunction with the special rules affecting farming income.
Your taxable income from farming operations will comprise the net amount remaining after the
deduction of all permissible deductions (see 12.3 and 12.4) from your income from farming (see 12.2).
12.2 Items included in farming income
ss 1, 8(4)( a), 22, 1st Sch paras 2,
3, 11, 12(1B), (1C), (3A), (3B)
Your income from farming for the tax year includes the following items: (1) The value of your livestock
and produce on-hand on the last day of the tax year (see 12.6).
(2) The value of your livestock that is the subject of a ‘sheep lease’ or similar agreement and the value of
your produce that is the subject of a similar agreement.
(3) Amounts you derived from selling or bartering livestock and produce during the year (see item 3 in
12.3).
(4) The cost price of livestock or produce you have applied to your private or domestic use or
consumption during the year or, if you cannot readily determine its cost price, its market value.
(5) The market value of livestock or produce you have removed from South Africa for purposes other
than your production of income from South African sources.
(6) The market value of livestock or produce you have donated (see 12.6).
(7) The market value of livestock you have disposed of other than in the ordinary course of your farming
operations for less than its market value. Should you derive some consideration for this disposal, the
amount to be included in your income will be reduced by the consideration.
Although the consideration itself will still form part of your income, this artificial reduction will ensure
that it is not effectively included twice.
(8) The market value of livestock or produce you have applied, in any other circumstances, for a purpose
other than its disposal in the ordinary course of your farming operations. Should you apply it in such a
manner that you use or consume it in the ordinary course of your farming operations, the amount
included in your income will in addition be treated as expenditure incurred by you on the acquisition of
that livestock or produce.
If you sent the livestock and produce outside South Africa in order to sell it and the amount you derived
on the sale is included in your income, this rule will not apply. And, if you use it for a farming purpose,
for example, you slaughter livestock for rations, the inclusion in your income will be exactly neutralized
by an artificial expenditure that will be deductible (see 12.3).
233
234 INCOME FROM FARMING
Also included in a similar way is the cost price or market value of farming consumable stores and spare
parts (which represent trading stock; see 10.66) you put to certain non-business usages (see 10.66).
(9) The market value of livestock or produce distributed by a farming company (see 14.1) or close
corporation in specie to its shareholder (see 14.1) or member.
(10) Your gross income (see 1.1) in the form of subsidies derived during the year.
Subsidies for soil-erosion works (see 10.61) or for the expenditure that you incur on dams, fences and
other items detailed in 12.4 must be included.
(11) Any recovery or recoupment of expenditure or allowances that you claimed in previous years.
Nevertheless, expenditure on qualifying farming developments and improvements (see 12.4) that you
recover or recoup is generally not included in your income from farming. Only if your expenditure on
qualifying farming developments and improvements is spent on a movable asset (see the next two items
below) and you recover or recoup it will the recovery or recoupment be included in your income from
farming, and then only in the situation described immediately below.
(12) The proceeds from the disposal of a movable asset for which you have been allowed a deduction as
part of your qualifying farming developments and improvements. The maximum amount that is included
is the lesser of the amount you originally claimed as a deduction under items 12 to 20 in 12.4 and the
proceeds on disposal of the asset. The proceeds will not be included if you have a sufficiently large
qualifying balance of expenditure on farming developments and improvements, since, instead of being
included, they will be set-off against the qualifying balance. Only if the proceeds exceed the qualifying
balance will the excess of the proceeds be included. A qualifying balance is simply the amount of your
past expenditure on qualifying farming developments and improvements brought forward for deduction
in the current tax year.
(13) The fair value of any movable asset for which you have been allowed a deduction as part of your
qualifying farming developments and improvements that you dispose of by donation, for an inadequate
consideration not in the ordinary course of your farming operations or, when the farmer is a company,
as a distribution in specie to the holder of a share in the company, or if it is applied by you for non-
farming purposes. The maximum amount that is included is the cost to you of the asset.
(14) Any other items of farming income, for example, the normal bonus you receive from an agricultural
co-operative (see 12.5). Non-farming income, such as the rent that you derive from letting equipment or
land, must be included with your other income and not your farming income. Grazing fees are treated as
farming income.
(15) Your qualifying balance of expenditure on qualifying farming developments and improvements that
must be added back to your farming income (see 12.4).
12.3 Deductions from farming income
ss 11( a), ( d), ( e), 12B,
1st Sch paras 2, 3, 4, 8
You may deduct the following amounts from your income from farming (see 12.2) in the determination
of your taxable income (see 1.3) from farming operations:
(1) The value of your livestock and produce on-hand on the first day of the tax year, that is, the value
taken into account for your previous year’s closing stocks (see 12.6).
(2) The value of your livestock that is the subject of a ‘sheep lease’ or similar agreement and the value of
your produce that is the subject of a similar agreement.
INCOME FROM FARMING 235
(3) The cost to you of livestock and produce acquired during the tax year. Your deduction for the cost of
livestock is limited to an amount that, together with the value of your livestock on-hand on the first day
of the tax year, does not exceed your farming income for the year, including the value of your livestock
on-hand on the last day of the year (see 12.6). The excess that is not deductible in the current tax year
must be carried forward and treated as expenditure incurred by you on the acquisition of livestock in
the next tax year.
Say that the value of your livestock on-hand on the first day of the tax year is R200 000; you incurred
R100 000 on the acquisition of livestock during the year; and your farming income for the year,
including the value of livestock on-hand on the last day of the year, amounts to R240 000. Your
deduction for the acquisition of livestock will be limited to R40 000, since this sum, together with the
value of your livestock on-hand on the first day of the year (R200 000), amounts to R240 000. The
excess of your expenditure, that is, R60 000, will be carried forward and treated as having been incurred
by you on the acquisition of livestock during the following tax year.
This limitation on your deduction does not apply if you can show that the livestock whose cost you are
seeking to deduct is no longer on-hand at the end of the tax year. It also does not apply to so much of
your disallowed expenditure on the acquisition of livestock, including expenditure that has been
disallowed in a previous year and is therefore treated as having been incurred in the current year, as,
together with the value of your livestock on-hand on the first day of the current year, exceeds the market
value of all your livestock on-hand on the last day of the current year.
Say, in the example already given, that the market value of all your livestock on-hand on the last day of
the year amounted to R220 000. Your disallowed expenditure to be carried forward of R60 000 would
have been reduced by R40 000, since this is the amount by which your otherwise disallowable
expenditure on the acquisition of livestock during the year (R60 000), together with the value of your
livestock on-hand on the first day of the year (R200 000), would have exceeded the market value of all
your livestock on-hand on the last day of the year (R220 000). You would therefore have been entitled to
deduct an amount of R80 000 (R40 000 as calculated under the first example plus this R40 000
reduction) during the tax year on account of your acquisition of livestock, and would have carried
forward an amount of R20 000.
(4) The cost to you of livestock and produce received in a barter transaction. The cost of goods received
in a barter transaction must be taken as the value of the goods you gave in exchange. Livestock acquired
in this way will be subject to the special rule outlined in item 3.
The value of the goods received and given must be the same, and both parties to the transaction must
reflect the same value for the goods bartered (see 12.2).
(5) The cost of rent, interest and property rates.
(6) The cost of seed, fertilizer and cash wages of farm employees. You may not deduct the wages of
domestic servants. The wages of employees engaged on qualifying development and improvement work
listed as items 12 to 20 in 12.4 must be included with other expenditure on such work and not deducted
separately.
(7) The cost of rations for farm employees may be deducted unless they are drawn from the farm
produce produced by you or from the livestock bred or purchased by you, which will already have been
taken into account (see item 8 in 12.2).
(8) Depreciation on any machinery, implement, utensil or article – but not livestock – that is brought
into use for the first time and used by you in the carrying on of your farming operations. This is
‘50/30/20’ depreciation: in the year the item is first brought into use you claim 50% of its cost; in the
second year 30% and in the third year 20% (see 10.69). The ‘50/30/20’
depreciation allowance does not apply to a motor vehicle whose sole or primary function is the
conveyance of persons, a caravan, an aircraft not used solely or mainly for the purpose of crop-spraying
or office furniture or equipment.
(9) Your expenses in connection with farm vehicles, machinery and implements, such as the cost of
repairs, fuel and oil. You may also deduct depreciation, if you so choose, on the straight-line basis (see
10.27) on motor vehicles the sole or primary function of which is the conveyance of persons (usually
over five years), caravans (over five years), aircraft not used solely or mainly for the purpose of crop-
spraying (over four years) and office furniture and equipment (over six years). The proportion of the
total expenses and depreciation relating to your private use of a passenger vehicle used for both private
and farming purposes may not be deducted.
(10) The cost of repairs to farm buildings and equipment, such as windmills and pumping plants.
The cost of repairs to houses used by you or by those who are not your employees may not be deducted.
(11) Any other farming expenses.
12.4 Expenditure on development and
improvements
s 1, 1st Sch para 12
In addition to the expenditure detailed in items 1 to 11 in 12.3, the following expenditure on

development and improvements may be deducted in full in the determination of your taxable income
(see 1.3) from farming operations:
(12) Expenditure on the eradication of noxious plants and alien invasive vegetation.
(13) Expenditure on the prevention of soil erosion.
All your expenditure on items 1 to 11 in 12.3 and items 12 and 13 above is deductible in full in the usual
way. Your expenditure on the following items 14 to 20 is also deductible but your current qualifying
balance of expenditure on development and improvements will be added back to your farming income
on the basis described below:
(14) Dipping tanks.
(15) Dams, irrigation schemes, boreholes and pumping plants.
(16) Fences.
Expenditure incurred by you on items 12, 13, 15 and 16 to conserve and maintain land owned by you is
deemed to be expenditure incurred in the carrying on of pastoral, agricultural or other farming
operations if conservation and maintenance is carried out under a biodiversity management agreement
with a duration of at least five years, the agreement is entered into by you in terms of s 44 of the
National Environmental Management: Biodiversity Act 10 of 2004 and the land used by you for
purposes of carrying on the pastoral, agricultural or other farming operations consists of or includes or
is in the immediate proximity of the land that is the subject of the relevant agreement.
If deductions have been allowed to you in any tax year under this provision for capital expenditure to
conserve or maintain land under the relevant agreement and you are in breach of the agreement or
violate the declaration in any tax year, you must include in your income for that tax year an amount
equal to the relevant deductions allowed you for the expenditure incurred by you within the five-year
period preceding the breach or violation.
(17) The erection of or extensions, additions or improvements – but not repairs – to buildings used in
connection with farming operations, excluding such expenditure that you incur on buildings used for
domestic purposes.
(18) The planting of trees, shrubs or perennial plants for the production of grapes or other fruit, nuts,
tea, coffee, hops, sugar, vegetable oils or fibres, and the establishment of any area used for the planting
of such trees, shrubs or plants.
Plantation costs are not included here but are dealt with in the manner described in 12.11.
(19) The building of roads and bridges used in connection with farming operations.
(20) The carrying of electric power from the main transmission lines to the farm apparatus or under an
agreement concluded with Eskom in terms of which the farmer has undertaken to bear a portion of the
cost incurred by Eskom in connection with the supply of electric power consumed by the farmer wholly
or mainly for farming purposes.
(21) Any qualifying balance of expenditure on items 14 to 20 that was added back to your farming
income or loss in the previous tax year.
It may happen that you acquire a movable asset from another farmer – who has claimed its cost as a
deduction under items 12 to 20 above, by donation, for an inadequate consideration or for a
consideration incapable of valuation. You will then be treated as having paid him or her the same
amount that will be included in his or her income (see item 15 in 12.2), and your artificial expenditure of
this amount may qualify for deduction from your farming income under items 12 to 20.
You are not entitled to claim the allowance for capital expenditure incurred on research (see 10.53) for
any capital expenditure that you have deducted under items 12 to 20.
If you cease to carry on farming operations but still have an undeducted balance of capital development
expenditure, you may choose to treat the undeducted balance as expenditure incurred and paid in
respect of the immovable property on which your farming operations were carried on for capital gains
tax purposes if you subsequently dispose of that property (see 21.5).
Qualifying balance of expenditure on farming developments and improvements In order to arrive

at your final taxable income from farming, you must add back your qualifying balance of expenditure on
items 14 to 20:
Start with your current income from farming (items 1 to 17 in 12.2) .....................................
R0 000
Deduct all the deductions described in items 1 to 11 in 12.3 and items 12 and 13
above .............................................................................................................................................
0 000
R0
000 (A)
Deduct all the deductions described in items 14 to 21 above ..............................................
0 000 (B)
R0
000 (C)
• If A is a negative amount (a loss), B is your qualifying balance of expenditure and must be added back
to C. The final result is that your loss from farming is equal to A.
• If A is a positive amount (not a loss) and is sufficiently large to absorb the deduction of B, you have no
qualifying balance of expenditure, and your taxable income from farming is C.
• If A is a positive amount but is less than B, the difference is your qualifying balance of expenditure and
must be added back to C. The final result is that your taxable income from farming is zero.
Your qualifying balance of expenditure on items 14 to 20 for the year will then be carried forward to the
next tax year, when it will be treated as if it were expenditure on items 14 to 20 in that year. You
therefore do not lose the deduction but carry it forward until it can be absorbed by A. But the amount
carried forward must be reduced by any amount of the capital development expenditure that you have
chosen to add to the base cost of your immovable farming property for capital gains tax purposes on the
disposal of the property following your ceasing to carry on farming operations (see 21.5).
12.5 Amounts paid to or received from
ss 1, 3(4), 11( a), 27
co-operatives
Levies that you pay to an agricultural co-operative company or society are allowed as a deduction from
your farming income if they are incurred in the production of your income and are not of a capital
nature. In other words, they are deducted under the so-called general deduction formula (see 10.14).
A dividend (see 9.2) you derive on shares in a co-operative is treated in the same way as any other
dividend (see Chapter 9) and is not included in your income from farming. It will in any event usually be
tax-free.

A bonus you derive from an agricultural co-operative is taxable if it has been deducted by the
cooperative (see 16.7), and is included in your income from farming. A bonus distributed by the KWV
out of a price-stabilization fund is taxable in the same way.
A distribution by an agricultural co-operative or a co-operative trading society may be regarded as a

‘dividend’, in which event it will not be included in your income from farming. The distribution will not
be regarded as a dividend if it is a bonus and the co-operative may claim the bonus as a deduction or it is
distributed by the KWV out of a price-stabilization fund.
If a bonus from a co-operative trading society is not a dividend, its taxability will depend upon the
circumstances.
The Commissioner for SARS’ decision on certain of these matters is subject to objection and appeal (see
18.6).
12.6 Valuation of livestock and produce
s 3(4), 1st Sch paras 4, 5, 6, 7, 9, 9HB(3)
Since the value of your livestock and produce on-hand at the end of the tax year is included in your
farming income, while the value of your livestock and produce on-hand at the beginning of the year is
allowed as a deduction, you in effect pay tax on the natural increase in your stocks each year.
Losses owing to theft, death or slaughter to provide rations for workers are automatically allowed as
deductions.
As someone who was carrying on farming operations in the tax year just past, the value of the livestock
or produce held and not disposed of by you at the beginning of the current tax year will be same value of
the livestock or produce held and not disposed of by you at the end of the immediately preceding year.
Should you have held livestock or produce for some purpose other than farming operations and, during
the current tax year, you commence to hold it for purposes of your farming operations, your livestock or
produce on-hand at the beginning of that year is treated as including the market value of this previously
‘non-farming’ livestock or produce.
If you discontinue your farming operations but retain any livestock or produce, you must still include
the value of your livestock and produce on-hand at the end of each year in your income until you dispose
of it. In each year you then continue to deduct the value of your livestock and produce on-hand on the
first day of each year, that is, the amount regarded as the value of your closing stock at the end of the
previous year, while the value of your livestock and produce on-hand at the end of each year will be
included in your farming income.
If you commence or recommence farming operations during the year, your livestock or produce on-hand
at the beginning of that year is treated as including the value of your livestock or produce held by you
immediately before you commenced or recommenced farming operations. Should you have held
livestock or produce for some purpose other than farming operations and, during the current tax year,
you commence to hold it for purposes of your farming operations, your livestock or produce on-hand at
the beginning of that year is treated as including the market value of this previously ‘non-farming’
livestock or produce.
Produce
Produce is valued at its cost of production to you or its market value, whichever is the lower value.
Standing or growing crops are not included as your produce. Only produce that has been gath-ered and
is marketable on the last day of the tax year must be taken into account. Therefore growing crops and
wool on a sheep’s back need not be taken into account.
The Commissioner’s decision on certain of these matters is subject to objection and appeal (see 18.6).
Livestock
Livestock, whether purchased for breeding or otherwise, may be valued at:
• The standard values laid down by regulation for various classes of livestock. The following standard
values and classes of livestock have been laid down by regulation: Standard
Standard
Classification
values
Classification
values
Cattle:
Colts
and
fillies, three years ................ 10
Bulls
.....................................................
50
Colts and fillies, two years ................... 8
Oxen
....................................................
40
Colts and fillies, one year .................... 6
Cows
...................................................
40
Foals,
under one year.......................... 2
Tollies
and
Heifers:
Donkeys:
Two to three years ...............................
30
Jacks, over three years ....................... 4
One to two years .................................
14
Jacks,
under three years ..................... 2
Calves
.................................................
Jennies, over three years .................... 4
Sheep:
Jennies,
under three years .................. 2
Wethers
...............................................
Mules:
Rams
...................................................
Four years and over............................. 30
Ewes
....................................................
Three
years
..........................................
20
Weaned
lambs ....................................
Two years ............................................. 14
Goats:
One year .............................................. 6
Fully
grown ..........................................
Ostriches, full grown ................................ 6
Weaned
kids
.......................................
Pigs:
Horses:
Over six months ................................... 12
Stallions,
over
four years .....................
40
Under six months (weaned) ................ 6
Mares,
over
four years ........................
30
Poultry, over nine months ........................ 1
Geldings,
over
three years ..................
30
Chinchillas, all ages ................................ 1

• Standard values chosen by you. These must usually not be more than 20% higher or lower than the
standard values laid down and must be reflected in your return of income under the heading ‘Own
Value’. If you chose your values prior to 1 July 1958, you are not subject to the 20% restriction.
• Standard values chosen by you together with your own classification of livestock if your classification
of animals differs from that laid down. You must reflect these details in a separate signed statement
accompanying your return. The values so chosen are subject to the approval of the Commissioner for
SARS.
You are required to use your chosen basis of valuation every year and may change it only subject to the
approval and the conditions laid down by the Commissioner.
The Commissioner’s decision on certain of these matters is also subject to objection and appeal.
Livestock and produce acquired other than by purchase
Livestock and produce that you acquire otherwise than by purchase, barter or natural increase, for
example, by donation or by inheritance, and use in your farming operations must be added to the value
of your stocks at the beginning of the tax year. The value to be used here is the market value of the
livestock and produce at the date you acquired them. The market value of livestock or produce that you
acquired by donation is taken to be its value at the date of the donation, while the market value of
livestock or produce that you inherit is taken to be its value at the date of confirmation of the liquidation
account in the estate of the person from whom you inherited it. If these stocks are still on hand at the
end of the year, they are treated in the same way as other stocks.
Transfer of trading stock, livestock or produce between spouses (s 9HB(3)) If you dispose of
trading stock, livestock or produce to your spouse, you are treated as having disposed of the asset for an
amount that you were allowed as a deduction for the asset.
12.7 Averaging of taxable income from farming
ss 3(4), 5(10),
1st Sch para 19
Because their incomes may fluctuate greatly from year to year, farmers are permitted to average out
their taxable income from farming for the purposes of the calculation of the rate of tax payable on this
taxable income. This system is sometimes referred to as the ‘equalization of normal tax rates’.
As a farmer, you may therefore elect to pay tax at the rate of tax applicable to your average taxable
income from farming over a certain period rather than that applicable to your actual taxable income
from farming. Once you make this election it will be binding on you for all future years. The election
must be made by you in a separate statement, which must be included with your income tax return.
It must be made by you personally. If farming operations are carried on by the estate of a deceased or
insolvent person after his or her death or insolvency, the executor or trustee must make the election.
This concession is not available to companies (see 14.1) or close corporations.
You arrive at your average taxable income from farming by calculating your average farming income
over the past five tax years, including the current year. Excess farming profits (see 12.12) are ignored for
this purpose. When you have commenced farming for the first time in the current year, your average
taxable income from farming in relation to the current year is taken to be two-thirds of your taxable
income from farming in the current year.
To calculate your liability for tax if you have made this election you must follow these five steps: Step 1:
Calculate your taxable income in the normal way, that is, include your actual taxable income (or loss)
from farming and all other taxable income you derived.
Step 2: Calculate your taxable income substituting your average taxable income from farming for your
actual taxable income from farming but still including all other taxable income (but for certain
exceptional amounts; see, for example 5.5 and 12.11) (the result must not be less than R1).
Step 3:
Calculate the tax payable (see 2.7) on the taxable income arrived at in Step 2 but do not deduct the
rebates to which you are entitled (see 2.8).
Step 1
Step 4:
The tax payable is then:
× Step 3.
Step
Step 5:
From the amount arrived at in Step 4, deduct the rebates to which you are entitled.
Should the amount arrived at in Step 2 be less than R1 or a negative amount, the tax chargeable on this
amount under Step 3 will be R 0,18.
The actual calculation called for is complicated by three further steps: One of these prevents the
concessionary rate of tax to be applied to the excess of your actual taxable income from farming over
your average taxable income from farming from being reduced by deductible contributions made to a
retirement annuity fund (see 6.3) that would not be deductible if the excess were not included in
income.
Another of the additional steps involves the carrying out of a similar procedure for the immediately
preceding year and the selection of the higher of the two concessionary rates calculated for the two
years.
And the third additional step is carried out when the excess actually exceeds the taxable income when,
effectively, a cap will be set on the rate of tax payable on the full taxable income. That rate will be the
higher of the concessionary rate calculated as being applicable to the current year and a similarly
calculated rate for the immediately preceding year.
Allowance is also made for taxable capital gains (see 21.3).
See the example in 12.15.
18.6).
12.8 Game
farming
Interpretation Note 69 (issue 2) of 2017
The proceeds of your sales of live game, game meat, carcasses and skins whether fortuitous or organized
on business principles, will constitute income from farming. Also forming part of such income is income
you derive from hunting fees and for supplying guides and trackers used in hunting expeditions.
In determining whether a game-viewing fee (for example, a fee paid to partake in a game drive)
constitutes income from game farming, it is necessary in the first instance to determine whether you are
conducting a farming operation. This determination will depend on the facts and circumstances of the
particular case and will take into account whether you have a genuine intention to make a profit from
the raising of livestock and whether the objective review of all the facts supports that contention. For
example, game viewing conducted in conjunction with other activities such as hunting and sale of game
may be a part of a valid farming operation. By contrast, income from game viewing incidental to
activities not comprising farming activities will not constitute income from farming operations. For
example, certain eco-tourism operations may derive their primary source of income from tourism and
accommodation while game viewing may serve as an attraction and be an incidental revenue generator.
While you are required to account for your opening and closing stocks of game livestock on-hand at the
beginning and end of each tax year, no standard values have been prescribed for livestock and the
Commissioner accepts that game livestock may be allocated a standard value of nil.
Acquisitions of game livestock are treated in the same way as acquisitions of ordinary livestock.
Accepted as expenditure qualifying for ‘50/30/20’ depreciation (see 10.66) is the cost of vehicles, fire-
arms, meat saws and two-way radios. Accepted as qualifying expenditure on development and
improvements (see 12.4) is the cost of slaughter rooms, meat rooms, cooling rooms, biltong rooms, skin
rooms and trophy rooms. And accepted as ordinary expenditure deductible under the so-called general
deduction formula (see 10.14) is the cost of the services of butchers, trackers and professional hunters,
advertising and promotion and local and overseas travelling costs.
Not accepted as qualifying expenditure on development or improvements is the cost of facilities used to
accommodate visitors and hunters.
12.9 Drought, disease, damage to grazing
s 3(4), 1st Sch paras 13, 13A
and stock-reductions
The cost of livestock that you purchase to replace livestock sold on account of drought, stock disease,
damage to grazing by fire or plague, or participation in a government livestock-reduction scheme may
be deducted either:
( a) during the year of purchase; or
( b) during the year in which the livestock was sold on account of the drought, disease, damage to
grazing or livestock-reduction scheme.
If you choose ( b), you are re-assessed for the relevant year and a refund is made of any tax overpaid.
These choices are unavailable to you if you participate in a livestock-reduction scheme but have elected
to average your taxable income from farming in the manner described in 12.7.
The purchase of livestock must take place within four years in the event of drought, stock disease or
damage to grazing or nine years in the event of a livestock-reduction scheme after the tax year in which
the stock was sold.
Alternatively, you may choose not to pay tax on all or part of the proceeds of your livestock disposed of
on account of drought.
Whatever portion of the proceeds you deposit, as soon as possible but in any event within three months
of receiving them, in an account in your name with the Land and Agricultural Bank of South
Africa will not be taxable, provided you make an application for this concession in the prescribed form
and within the prescribed period.
If you withdraw the proceeds from the Land Bank within six months after the end of the tax year in
which you disposed of the livestock, you will be treated as having received the amount on the date of the
disposal of the livestock. If you withdraw the proceeds later but within six years after the last day of the
tax year in which you disposed of the livestock, you will pay tax on the proceeds on the date of the
withdrawal. But if you do not make a withdrawal within the six-year period, you will pay tax on the
proceeds on the last day of that period. In the event of your death or insolvency within the six-year
period, you will pay tax on the proceeds on the day before your death or insolvency.
18.6).
12.10 Sugar-cane fields damaged by fire
1st Sch para 17

If your sugar-cane fields are damaged by fire and as a result you dispose of more sugar cane than you
would normally dispose of, the additional amount of income that you derive as a result of the fire,
including any insurance compensation, is ignored in the calculation of your rate of tax.
In the calculation of your liability for tax, you must follow the five steps set out in 5.7, except that you
must substitute ‘Additional income as a result of the fire’ for ‘Resignation or retirement benefit or
redundancy payment’.
This concession is unavailable to you if you have elected to average your taxable income from farming in
the manner described in 12.7. The concession is also unavailable to companies (see 14.1) or close
corporations.
12.11 Averaging of plantation income ss 3(4), 5(10), 1st Sch paras 14, 15, 16
In any year in which your income from the disposal of plantations and forest produce exceeds your
average taxable income from plantation farming over the previous three years – that is, excluding the
current year – the excess is ignored for the purposes of the calculation of your rate of tax. If you have
derived any excess plantation farming profits (see 12.12) in the current year or in any of the previous
three years, these are excluded from your taxable income and from your average taxable income for the
purposes of the calculation of your rate of tax. These excess plantation farming profits will instead be
subject to a special, reduced rate of tax (see 12.12).
In the calculation of your liability for tax, you must follow the five steps set out in 6.10, except that you
must substitute ‘Average taxable income from plantations’ for ‘Lump-sum benefit’.
This concession is unavailable to you if you have elected to average your taxable income from farming in
the manner described in 12.7. The concession is also unavailable to companies (see 14.1) or close
corporations.
The calculation of your taxable income from plantation farming is substantially the same as the
calculation made for ordinary farming, although the following points are worth noting:
• The proceeds of the sale of plantations and forest produce must be included in your plantation income.
• If a plantation is sold together with the land upon which it stands, the separate price set on the
plantation or, if there is no such price, that portion of the consideration that the local receiver of revenue
considers is attributable to the plantation will be included in your income.
• The cost of establishing and maintaining plantations will be allowed as a deduction.
• If a plantation is acquired by purchase, the purchase price may be deducted from the gross income (see
1.1) of that particular plantation each year until the whole price is deducted.
‘Forest produce’ means certain trees and anything derived from these trees, including timber, wood,
bark, leaves, seeds, gum, resin and sap.
12.12 Sale of land to the state and other bodies
s 3(4), 1st Sch para 20
If your land is acquired by:
( a) the
state;
( b) the South African Transport Services;
( c) a provincial administration; or
( d) a local authority,
or is expropriated by:
( e) a
university;
( f)
a university college;
( g) certain
colleges;
( h) a
technikon;
( i)
a governing body defined in the Educational Services Act 41 of 1967;
( j)
the Atomic Energy Board;
( k) the National Monuments Council; or
( l)
certain other public juristic persons,
and as a result you discontinue your farming operations, you may apply to your local receiver of revenue
to pay tax on a special basis on the abnormal profits you derive in the year of the acquisition of your
farm or in the two tax years succeeding the year of acquisition. When the bodies referred to in items ( e)
to ( l) have not acquired your land by expropriation but you have agreed to dispose of it, in order for the
special basis of taxation to apply, the Minister concerned (the Minister of Agriculture or certain other
Ministers in certain circumstances) must give a certificate to the effect that, if you had not agreed to sell
your land, steps would have been taken for its expropriation.
Special rules apply if your land is acquired within twelve months after you accept an offer of purchase.
Your application to the receiver to pay tax on the special basis must be accompanied by a certificate by
the head of the department of state or the administration concerned (items ( a) to ( c)) or the chief
executive officer of the local authority or other body concerned (items ( d) to ( k)), to the effect that it
has acquired your land. If your land is acquired by one of the bodies referred to in items ( e) to ( l), the
Minister concerned must certify either that your land was expropriated or, if it was not expropriated,
that steps would have been taken for its expropriation if you had not agreed to dispose of it.
This concession is unavailable to companies (see 14.1) or close corporations.

If you apply for the concession, you will pay tax, before the deduction of any rebate, at the rate fixed for
the tax year concerned on the first rand of your taxable income. This rate is currently 18%.
You will pay tax on the normal basis on the balance of your taxable income (see 1.3). The rebates to
which you are entitled (see 2.9 and 2.10) are deducted from the total of the tax payable on your
‘excess farming profits’ and the tax payable on the balance of your taxable income.
Your ‘excess farming profits’ may consist of ‘excess livestock profits’ or ‘excess plantation farming
profits’.
Your ‘excess livestock profits’, on which you will pay the special rate of tax, will be the amount you
derived during the current year from the disposal of livestock in the course of the winding-up of your
farming operations but limited to the amount of your ‘abnormal livestock profits’ for the year.
To calculate your ‘abnormal livestock profits’ you should follow these steps: Step 1:
Calculate your livestock profit for the current year. This will consist of your sales during the year plus
the value of your livestock on-hand at the end of the tax year (see 12.2) less your purchases during the
year and the value of your livestock on-hand at the beginning of the tax year (see 12.3). If, in certain
circumstances, the local receiver of revenue is of the opinion that your livestock profit or loss cannot be
satisfactorily determined in this way, he or she may determine the profit or loss by some other
appropriate method.
Step 2: Calculate your average livestock profits for the preceding years during which you have been
farming – but not exceeding five years – on the same basis as in Step 1, taking into account any livestock
losses incurred during these years. If, in certain circumstances, the receiver is of the opinion that your
average livestock profits cannot be satisfactorily determined in this way, he or she may determine your
average livestock profit by some other appropriate method.
Step 3: The amount by which your current livestock profit in Step 1 exceeds your average livestock
profit in Step 2 is your abnormal livestock profit.
To calculate your ‘excess plantation farming profits’ you should follow these steps: Step 1:
Calculate your abnormal receipts or accruals from plantation farming for the current year. These will
consist of any amounts you derived from the disposal of any plantation together with your land disposed
of to the stipulated bodies or from the disposal in the course of the winding-up of your farming
operations of any plantation on the land or any forest produce from the plantation.
Step 2: Calculate your total taxable income from plantation farming for the year in the usual way.
Step 3: Calculate your annual average taxable income from plantation farming for the three years prior
to the current year.
Your excess plantation farming profits will be the amount you derived in Step 1, but limited to your
taxable income in Step 2 less your annual average taxable income in Step 3. You will pay the special rate
of tax on your excess plantation farming profits.
Your ‘excess farming profits’ for the year will therefore be the sum of your excess livestock profits and
your excess plantation farming profits.
The balance of your taxable income will be your full taxable income less your excess farming profits.
18.6).
12.13 Donations to children s
56(1)( m)
There is a special exemption from donations tax (see 19.6) for the grant by a farmer to his or her child of
the right to the use or occupation of property used for farming purposes either rent free or for an
inadequate rental. This exemption does not apply to a fiduciary, usufructuary or similar interest.
Despite what is said in 3.6, you will not usually pay tax on the income earned by your children from
reasonable quantities of livestock that you donate to them, even if the children are minors.
12.14 Donations of farming property
ss 55(1), (2), 62(1A)
If you donate property used for the purpose of carrying on a genuine farming undertaking in South
Africa, for donations tax purposes (see 19.7) you may choose to value the property at either: ( a) its fair
market value; or
( b) the amount determined by reducing the price that could be obtained upon a sale of the property
between a willing buyer and a willing seller dealing at arm’s length in an open market by 30%.
The availability of this choice represents a concession to the farmer. It is not essential that you farm on
the property yourself, and the concession will be available even if you let it.
For donations tax purposes a company (see 14.1) or a close corporation is also entitled to this choice of
values should it make a donation of farming property.
And, also for donations tax purposes, the shares in an unlisted company owning fixed property on which
genuine farming operations are carried out in South Africa may be valued on the basis that its fixed
property has a value determined under this concession.
A similar concession is available for estate duty purposes, and the executor of the estate of a deceased
person may choose to value any farming property in the estate on either of these two bases. The
executor of the estate of a deceased person who held shares in a company owning farming property may
also choose to take the lower value of the property into account in valuing the shares.
12.15 Example – calculation of taxable income from farming
Mr A rendered the following return for tax purposes for the year ended 29 February 2020 in respect of
farming operations:
Livestock held and not disposed of:

1 March 2019
Bulls
Standard
value R50 each....................................................................................
R100
40
Cows Standard
value R40 each....................................................................................
1 600
Oxen
Standard
value R40 each....................................................................................
320
R2
020
29 February 2020
Bulls
Standard
value R50 each....................................................................................
R150
45
Cows Standard
value R40 each....................................................................................
1 800
Oxen
Standard
value R40 each....................................................................................
240
10
Calves Standard value R4 each ......................................................................................
40
R2
230
Twenty-two cows were purchased during the year for R8 800 (R400 each), one worth R500 at the time
was donated to a charity, one was slaughtered for rations, and fifteen were sold for a total of R9 000. A
bull was inherited from Mr A’s uncle on 1 November 2018, at which date it was worth R1 200. Two oxen
died during the year. The calves were all born during the year.
Produce
Sales of farm produce .......................................................................................................... R122
390
(There was no harvested produce on-hand either at 1 March 2019 or 29 February 2020.) Produce taken
for domestic use ..........................................................................................
R4 400
Expenses
Farm
salaries and wages .....................................................................................................
R41
500
Labourers’ rations (excluding cow slaughtered) .................................................................
18 000
Seeds
and
fertilizers
.............................................................................................................
22
500
Sundries – transport and other expenses ............................................................................
20 000
R102
000
A dam had been erected during the year ended 28 February 2019 at a cost of R60 000; taxable income
from farming in that year was only R58 500 before any deduction for the cost of this dam, and R1 500 of
the cost has been brought forward to this year. Cost of boreholes during the current year was R11 000.
Taxable income from farming during the past four years has been R16 500, R15 000, R13 500 and nil.
continued
In addition to income from farming Mr A derived taxable income from renting a property during the
year of R70 000.
Calculate his tax payable for the year ended 28 February 2019. He elected to be taxed on the basis of his
average taxable income from farming.
Livestock
On-hand 29 February 2020 (standard value) ...................................................................... R2
230
Donated (market value) ........................................................................................................
500
Sold
......................................................................................................................................
9 000
R11
730
Less: On-hand 1 March 2019 (standard value) ..............................................
R2 020
Inherited
(market
value) .........................................................................
1 200
Purchased (cost) (see note) ..................................................................
8 800
12
020
–R290
Produce
Sold
................................................................................................................... R122
390
Taken for own use (at cost of production) ........................................................
4 400
126
790
R126 500
Produce
Less: Expenses
...................................................................................................................... 102
000
R24 500
Less: New boreholes (expenditure during current year) ............................... R11
000
Capital expenditure brought forward from the previous year:
Balance of cost of dam (allowed up to the limit of taxable income
from farming) .........................................................................................
1 500
12
500
Taxable
income
from farming ..................................................................................................... R12
000
Other
(rentals) ............................................................................................................................. 70
000
Taxable income .................................................................................................
R82 000
Step 1 (see 12.7)
Taxable
income .......................................................................................................................
R82 000
Step
Average taxable income from farming:
1 (R9 500 + 15 000 + 13 500 + Nil + 12 000) ........................................................................
R10 000
Other
(rentals) ......................................................................................................................... 70
000
R80
000
Step
Tax payable on R80 000 (before the deduction of rebates) (see 2.7) ...................................
14
400
Step
Tax payable on R82 000 is
82 000 (Step 1) × R14 400 (Step 3), or .............................
R14 760
80 000 (Step 2)
continued
Step
5
Less: Primary rebate ............................................................................................................... 14
220
Tax
payable
.........................................................................................................................
R540
Note:
The deduction during the tax year for the cost of the purchased livestock is limited to an amount (the
cost of R8 800), which, together with the value of the livestock on-hand on the first day of the year (R2
020), does not exceed the income derived from farming during the year (R126 500) and the value of
livestock on-hand on the last day of the year (R2 230). On this basis, the cost of the livestock is
deductible in full in the current tax year (See 12.3). Medical expenses have been ignored.
Partnerships
13.1 How partners are taxed
ss 1, 11F, 11( m), 24H(5)
As a partner in a partnership, you will pay tax on your share of the equivalent of the partnership’s
taxable income (see 1.3). The partnership itself does not actually have a taxable income or pay any tax.
Once determined, your share as a partner is added to any other income you derive, and the total is your
taxable income. If a loss is made by the firm, each partner may deduct his or her share of the loss from
any other income he or she derives.
In order to arrive at your share of the partnership’s taxable income or loss, you first adjust the profits of
the partnership as shown in its financial statements for the tax year as if the partnership were an
individual. Your share of the income or loss for tax purposes is the same percentage of that income or
loss as the percentage of profits to which you are entitled in terms of the partnership agreement.
If partners are entitled to ‘salaries’ or ‘interest’ on their capital, these amounts are deducted in the
calculation of the partnership’s taxable income but all the partners must include in their own taxable
incomes the amounts of salary or interest to which they are entitled in addition to a share of the income
or loss.
A partner who was an employee of the partnership and a member of its ‘pension fund’ before becoming
a partner is entitled to remain a member of the fund and to continue to deduct his or her current
contributions to the fund – as long as he or she retains his or her membership of the fund –
on the same basis as if he or she had not ceased to be an employee of the partnership. His or her
contributions must be based on his or her pensionable emoluments during the twelve months ended on
the day on which he or she ceased to be an employee, and his or her benefits from the fund must be
calculated accordingly.
Contributions made by the partnership to the fund for the benefit of the partner concerned must be
deducted in the determination of the partnership’s taxable income as if the partner were an employee of
the partnership whose remuneration was an amount equal to his or her pensionable emoluments during
the twelve months ended on the day on which he or she ceased to be an employee and became a partner
(see 10.53). The partner concerned should not include such contributions in his or her income.
Amounts paid by way of an annuity to a retired partner or to the dependants of a retired or deceased
former partner are in certain circumstances deductible in the calculation of the partnership’s taxable
income (see 10.16).
The premiums payable on a policy taken out on the joint lives of the partners is not deductible, while the
proceeds payable upon the death of a partner are capital (see 1.5) and are not included in the partner’s
taxable income on income account (see 1.2), and usually will not be subject to the capital gains tax (see
21.12).
Special rules apply fixing the date that income accrues to the individual members of a partnership and
the date that their deductions or allowances are incurred. According to these rules, when income has
been derived by the members of a partnership or a foreign partnership (see 13.5) in common, a portion
of that income corresponding to his or her share of the partnership profits or losses will be treated as
having been derived by each partner individually on the date upon which it was derived by the partners
in common.
248
PARTNERSHIPS 249
In other words, when income is actually derived by the partnership or foreign partnership (see 13.5) it
will at the same time be treated as having been derived by the individual partners in their agreed profit-
sharing ratios.
In the same way, a portion of any deduction or allowance appropriate to the allocated income will be
allocated to each partner. In addition, each partner of a partnership carrying on a trade or business will
himself or herself be deemed to be carrying on that trade or business.
A ‘qualifying investor’ is defined as a member of a partnership or foreign partnership or a beneficiary

of a trust if the liability of the member or beneficiary to any creditor of the partnership, trust or foreign
partnership is limited to the amount that the member or beneficiary has contributed or undertaken to
contribute to the partnership, trust or foreign partnership, unless the member or beneficiary
participates in the effective management of the trade or business of the partnership, trust or foreign
partnership, has the authority to act on behalf of the partnership or foreign partnership, the members of
the partnership or foreign partnership or the trust or the member or beneficiary renders any services to
or on behalf of the partnership, trust or foreign partnership.
Special rules apply to limited partners (see 13.2) and foreign partnerships (see 13.5).
13.2 Limited
partners s
24H
In addition to the rules described in 13.1, there are special rules applying to ‘limited partners’. A
‘limited partner’ is a member of a partnership en commandite, an anonymous partnership or any

similar partnership or a foreign partnership (see 13.1) whose liability towards a creditor of the
partnership is limited to the amount that he has contributed or undertaken to contribute to the
partnership or is limited in any other way.
Like any other partner, a limited partner of a partnership carrying on a trade or business will be treated
as carrying on that trade or business himself or herself. But if his or her share of the allowances or
deductions that may be granted for a trade or business carried on by the partnership exceeds his or her
share of the income from that trade or business, his or her deduction for the excess will be limited to the
amount for which he or she may be held liable to the partnership’s creditors. The undeducted amount
will then have to be carried forward for deduction on the same basis in the following tax year.
For example, a limited partner’s share of the deductions applicable to a trade carried on by the
partnership might be R300 000, his or her share of the income from that trade might be R180 000, and
his or her liability to the partnership’s creditors might be limited to his or contribution to the
partnership of R100 000. He or she will be able to deduct in that tax year an amount of R280 000
(the sum of the income from the trade of R180 000 plus the contribution to the partnership of R100
000). The balance of R20 000 must be carried forward for deduction in future years.
250 PARTNERSHIPS
13.3 Example – calculation of partner’s taxable income
Mr A has a 50% interest in the A & B partnership, Mr B being his partner. The income statement of the A
& B partnership is shown below. Mr A also derived interest of R1 000 and net rentals of R6 000 from
other sources during the year. What is Mr A’s taxable income?
A & B Partnership
Income Statement for the past year

Net profit from trading .................................................................................................................
R141 000
Capital gain on disposal of investments ..................................................................................... 24
000
R165
000
Less: Salaries – Mr A .............................................................................................
R55 000
Salaries – Mr B .............................................................................................
50 000
Interest
on
capital – Mr A ............................................................................. 1
200
Interest
on
capital – Mr B .............................................................................
400
Premium on partnership policy on joint lives of
Mr A and Mr B ..........................................................................................
700
Donations to charities ................................................................................... 100
107
400
Profit
for year ...................................................................................................................
R57 600
Note:
Depreciation of certain vehicles amounting to R1 000 was written off in the calculation of the net profit
from trading. The receiver of revenue will allow a depreciation allowance of R1 500
on these vehicles.
(1) Start with partnership profits as shown in statement ...........................................................

R57 600
(2) Add items deducted from profits that are not allowable as deductions for tax purposes:
• Premiums on joint life policy (capital expenditure; see 10.14) .......................................
700
• Donations to charities (not expenditure to produce income;
see 10.14) .......................................................................................................................
100
R58
400
(3) Deduct items included in profits that are not taxable:
Capital
gain (see 1.5) ..........................................................................................................
24 000
R34
400
(4) Deduct allowances for tax purposes that have not been deducted from profits: Depreciation
allowance ....................................................................................
R1 500
Less: Amount deducted from profits ........................................................... 1
000
500
Partnership ‘taxable income’ .............................................................................
R33 900
Taxable income of Mr A
50% share of partnership ‘taxable income’, that is, 50% of R33 900 ......................................... R16
950
Salary from partnership ...............................................................................................................
55 000
Interest (R1 200 from partnership and R1 000 from private sources less basic interest exemption of R23
800; (see 7.2)). ...........................................................................................
0
Rent
.............................................................................................................................................
6 000
Taxable income .................................................................................................
R77 950
Note: Mr A’s share of the capital gain does not give rise to a taxable capital gain for him since it is
exceeded by the annual exclusion to which he is entitled (see 21.3).
PARTNERSHIPS 251
13.4 Dissolution of a partnership
Upon the dissolution of a partnership each partner will pay tax on his or her share of the profit earned
up to the date of dissolution. Even if the remaining partners pay the retired partner a consideration for
his or her share of the profit, the retired partner remains liable to pay tax on that share.
But when the partners have agreed prior to the dissolution that the retired partner is to be paid a lump-
sum in lieu of his or her share of profits in order to avoid the necessity for drawing up a balance sheet
before the end of the financial year, the lump-sum represents the retired partner’s share of the profit,
and he or she will pay tax on the lump-sum and not on the actual amount of profit earned up to the date
of dissolution.
13.5 Foreign
partnerships
s1
A ‘foreign partnership’ is defined, for a tax year, as a partnership, association, body of persons or entity
formed or established under the laws of a country other than South Africa if for the purposes of the laws
relating to tax on income of the country in which the partnership, association, body of persons or entity
is formed or established each member of the partnership, association, body of persons or entity is
required to take into account the member’s interest in any amount received by or accrued to the
partnership, association, body of persons or entity when that amount is received by or accrued to the
partnership, association, body of persons or entity and the partnership, association, body of persons or
entity is not liable for or subject to any tax on income, other than a tax levied by a municipality, local
authority or a comparable authority, in that country. When the country in which the partnership,
association, body of persons or entity is formed or established does not have any applicable laws
relating to tax on income, it will be a foreign partnership if any amount that is received by or accrued to,
or expenditure that is incurred by, it is allocated concurrently with the receipt, accrual or incurral to its
members in terms of an agreement between the members and no amount distributed to a member may
exceed the relevant allocation after any prior distributions by it taken into account.
The definition of a ‘company’ excludes a foreign partnership, as does the definition of a ‘person’.
Qualifying investor
A ‘qualifying investor’ is defined as a member of a partnership or foreign partnership or a beneficiary

of a trust if the liability of the member or beneficiary to any creditor of the partnership, trust or foreign
partnership is limited to the amount that the member or beneficiary has contributed or undertaken to
contribute to the partnership, trust or foreign partnership, unless the member or beneficiary
participates in the effective management of the trade or business of the partnership, trust or foreign
partnership, has the authority to act on behalf of the partnership or foreign partnership, the members of
the partnership or foreign partnership or the trust or the member or beneficiary renders any services to
or on behalf of the partnership, trust or foreign partnership.
Permanent establishment
The definition of a ‘permanent establishment’ provides that in the determination whether a qualifying
investor in relation to a partnership, trust or foreign partnership has a permanent establishment in
South Africa, any act of the partnership, trust or foreign partnership in respect of any financial
instrument (see 21.8) must not be ascribed to the qualifying investor.
Companies
14.1 The taxation of companies
s1
The method of taxation of most ‘companies’ is described in this chapter. Special rules of taxation apply to
certain types of companies, such as mining companies and insurance companies, as well as small
business corporations and micro businesses. These are described in Chapter 16.
A close corporation is regarded as a company for tax purposes and is taxed in the same way as any other
company, except that it is subject to certain special rules (see 14.10). What is said in the rest of this
chapter about the taxation of companies applies equally to the taxation of close corporations, except
where otherwise stated.
Companies pay income tax on their taxable income on income account (see 1.3) and in certain
circumstances are responsible for withholding the dividends tax on certain dividends distributed by
them (see 9.4). They are also liable to pay the capital gains tax (see Chapter 21).
A ‘company’ is:
• Any association, corporation or company incorporated or body corporate formed or established under
South African law.
• Any such entity incorporated, formed or established under foreign law.
• Any
co-operative.
• An association formed in South Africa to serve a specified purpose, beneficial to the public or a section
of the public.
• Any portfolio comprised in an investment scheme carried on outside South Africa that is comparable to
a portfolio of a collective investment scheme in participation bonds or a portfolio of a collective
investment scheme in securities under which members of the public (as defined in s 1
of the Collective Investment Scheme Control Act 45 of 2002) are invited or permitted to contribute to
and hold participatory interests in the portfolio through shares, units or any other form of participatory
interest.
• Any portfolio of a collective investment scheme in property (‘property unit trust’) that qualifies as a
REIT (see 16.30).
• A close corporation.
Expressly excluded is a foreign partnership (see 13.5).
The Tax Administration Act, 2011 provides that a ‘shareholder’ is a person who holds a beneficial
interest in a company as defined in the Income Tax Act.
A ‘group of companies’ is defined as two or more companies in which one company (referred to as the
‘controlling group company’) directly or indirectly holds shares in at least one other company (referred
to as the ‘controlled group company’), to the extent that at least 70% of the equity shares of each
controlled group company are directly held by the controlling group company, one or more other
controlled group companies or any combination thereof and the controlling group company directly
holds at least 70% of the equity shares in at least one controlled group company.
The public officer of a company is its representative taxpayer, while, for a company that is placed under
business rescue in terms of Chapter 6 of the Companies Act, the representative taxpayer is the business
rescue practitioner.
252
COMPANIES 253
14.2 Period
of
assessment
s1
The ‘year of assessment’ of a company (see 14.1) and a collective investment scheme in securities
coincides with its financial year. Thus, if it draws its financial statements to 30 June each year, its year of
assessment – or tax year – will run from 1 July to 30 June.
In the year in which a company is formed its tax year will run from the date of its incorporation to the
last day of the following February, unless permission has been granted for its financial statements to be
drawn to a different date.
On corporate tax returns, see also 18.2.
14.3 Taxable income of a company s
1
In general, the taxable income (see 1.1) of a company (see 14.1) is arrived at in the same way as that of
an individual, that is, its gross income (see 1.1) less its exempt income (see 1.6) is its ‘income’, and the
balance remaining after the deduction from its income of all the deductions and allowances to which it is
entitled (see Chapter 10) is its taxable income, which includes any taxable capital gains.
Like an individual, and subject to the same exceptions, a company does not pay income tax on capital
profits (see 1.5) – although it might pay the CGT on those profits – or on most local dividends (see 9.1).
And, as a resident (see 1.1), it will pay tax on its foreign income (see 1.1), including taxable foreign
dividends (see 9.3) and the proportional amount attributable to it from a controlled foreign company
(see 15.2).
Most of the deductions from business income listed in Chapter 10 are also available to companies.
Certain deductions obviously apply only to individuals, for example, the deduction for medical and
dental expenses and expenses incurred in consequence of a physical disability (see 2.5).
A company may also claim a deduction for qualifying donations (see 19.1).
If a company recovers or recoups in any way an amount that was previously allowed as a deduction, the
amount recovered will be added to its income. In fact, all the actual and artificial recoupments on which
an individual would pay tax are also taxable for a company (see 10.7).
14.4 Assessed
losses s
20
In a tax year in which its deductions and allowances exceed its income (see 1.3) a company (see 14.1)
will have an assessed loss (see 10.71) in the same way as an individual. But if a company stops trading
for a full tax year, its balance of assessed loss brought forward from the previous year will be forgone.
14.5 Corporate rates of tax
Schedule 1 para 3 Act 32 of 2019
The latest rates of tax payable by a company are payable on its taxable income (see 1.3) for any year of
assessment ending on or after 1 April 2019.
A company – but not a gold-mining company (see 16.15), a small business corporation (see 16.33) or a
long-term insurance company (see 16.12) – pays tax at the rate of twenty-eight cents in every rand of its
taxable income (see 1.2) for any year of assessment ending on or after 1 April 2019. Also payable, in
certain circumstances, is the 20% (15% on dividends paid before 22 January 2017) dividends tax (see
9.4). Small business corporations pay lower rates of tax on a portion of their taxable income than other
companies do (see 16.33).
Special rules apply to gold-mining companies and long-term insurance companies.
254 COMPANIES
14.6 Example – calculation of taxes payable by a company

The ABC Company Limited returned the following information for the year ending 31 March 2019: South
African income:
Sales
(manufactured goods) .................................................................................................
140 000
Expenditure and allowances (all allowable) ..........................................................................
65 000
Donation
to charity ................................................................................................................. 500
Dividends
received ................................................................................................................ 10
000
Expenditure to earn dividends (interest paid) ....................................................................... 2
000
No dividends were declared during the year.
Machinery used in a process of manufacture:
Cost of new machinery bought ..............................................................................................
5 200
Proceeds of sale of machine (income tax value R5 000, original cost R18 000) ..................
10 000
What taxes will the company pay?
Taxable
income:
Sales
.......................................................................................................................................
R140 000
Recoupment of allowances on machine sold (R10 000 less R5 000) ................................... 5
000
Dividends
not taxable ............................................................................................................
R145
000
Less: Allowable
expenditure .......................................................................... R65
000
Donation not allowable (not in production of income)..........................
65
000
Taxable income ............................................................................................... R80
000
Income tax payable on taxable income
At twenty-eight cents in the rand on R80 000 ............................................................................
R22 400
14.7 Public and private companies
ss 1, 3(4), 38
The distinction between public and private companies is not the same for tax purposes as it is under
company law. A company that is public under company law, for example, ‘A Limited’, may be either
public or private for tax purposes. But a company that is private under company law, for example, ‘B
(Proprietary) Limited’, is always private for tax purposes. A close corporation is also always private for
tax purposes.
One consequence of the distinction for tax purposes is that a ‘public company’ for tax purposes is exempt
from donations tax (see 19.6), while a ‘private company’ is not. In very broad terms, a
‘public company’ for tax purposes is a company:
• that is not a private or ‘proprietary’ company under company law; and
• all classes of the ‘equity shares’ of which are quoted on a stock exchange on the last day of its tax year
and in which the ‘general public’ held more than 40% of the ‘equity shares’ – that is, shares or similar
interests in the company, excluding shares or similar interests that do not carry a right to participate
beyond a specified amount in a distribution – throughout its tax year; or
• that is not quoted on a stock exchange on the last day of its tax year and in which the general public
held more than 50% of its equity shares throughout its tax year.
The ‘general public’ excludes directors (see 5.2) of the company and their spouses, minor children and,
except in certain circumstances, other relatives (see item 17 in 12.4) and also any family units consisting
of a man, his wife and their minor children if between them they hold more than 15% of the company’s
equity shares. But it is deemed to include any benefit fund, pension fund, pension preservation fund,
provident fund, provident preservation fund or retirement annuity fund or any
COMPANIES 255
trust or institution that is of a public character, as well as any person acting in a fiduciary capacity, or as
a nominee, for the benefit of a person who is a member of the general public under these rules.
In order to determine who holds the shares of a company for this purpose when any of its shares are
held by private companies, it is necessary to analyse the shareholdings in the private companies to
arrive at the effective interest of individuals or public companies, whether direct or indirect, in the
company whose status is being determined. Nominee shareholders are also ignored in favour of effective
shareholders.
Certain types of company are automatically regarded as being public for tax purposes, irrespec-tive of
their shareholders or other particulars, for example, gold-mining companies, diamond-mining
companies, insurance companies, co-operatives, approved public benefit organizations, certain public
utility companies and foreign charterers of ships or aircraft (see 16.1, 16.8, 16.13, 16.16, 16.17 and
16.28).
14.8 Dividends
s1
Dividends distributed by a company (see 14.1) are not deductible in the determination of its taxable
income (see 1.1). As local dividends, they will usually also not be subject to income tax when they are
derived by shareholders (see 14.1), including a company that is a shareholder. For the few exceptions to
this rule, see 9.1.
Dividends declared and paid by a company are subject to a 15% withholding tax on dividends, which is
dealt with in 9.4.
The word ‘dividends’ referred to here means ‘dividends for tax purposes’ (see 9.2).
Taxable foreign dividends (see 9.3) derived by a company are subject to income tax. For the taxation of
these dividends and the foreign dividends that are exempt, see 9.3.
14.9 Companies in liquidation
A company (see 14.1) in liquidation is liable to tax in the same way as is any other company on the
income that its derives in the course of liquidation, and it may set-off any allowable deductions and any
assessed loss (see 14.4) against that income.
Special rules apply to amounts distributed by a company in liquidation (see 14.11). In certain
circumstances a company in liquidation must communicate with the Commissioner (see 9.5).
14.10 Close
corporations
ss 1, 38(2)( b), 40A, 40B, 4th Sch para 1
A ‘close corporation’ is regarded as a private company (see 14.7), and its members are regarded as
shareholders (see 14.1) for tax purposes. A ‘close corporation’ is a close corporation within the
meaning of the Close Corporations Act 69 of 1984.
A close corporation is taxed in essentially the same way and pays income tax and the capital gains tax at
the same rate as any other company (see 14.5). It is also liable for the withholding tax on dividends (see
9.4).
An ordinary company may be converted to a close corporation, and a close corporation may be
converted to an ordinary company. In either event, the ordinary company and the close corporation are
regarded for tax purposes as one and the same taxpayer, with the result that any assessed losses (see
10.71) incurred before the conversion will be unaffected and may be carried forward after the
conversion, and the depreciation and other allowances on assets will continue to be claimed after the
conversion as if the conversion had not taken place. Other circumstances important to the tax treatment
of the successor entity will also be carried over from the predecessor entity.
256 COMPANIES
14.11 Secondary tax on companies
ss 64B, 64C
Companies (see 14.1), including close corporations (see 14.10) but excluding headquarter companies
(see 16.37), that are residents (see 1.1) were liable for the secondary tax on companies (STC) at the rate
of 10% on the ‘net amount’ of certain dividends (see 9.2) ‘declared’ or treated as having been declared.
This tax was, however, as from 1 April 2012, replaced by a withholding tax on dividends (see 9.4). The
part of the Income Tax Act dealing with the STC was repealed with effect from 1 April 2017.
Deemed effective date
A dividend declared by a company before the effective date of the new dividends tax, that is, 1 April
2012 (see 14.12), that accrued or will accrue to shareholders in the company’s share register on a date
only after the effective date is deemed to have accrued to the shareholders on the day immediately
before the effective date and is therefore subject to STC and not the dividends tax.
International taxation issues
15.1 Direct foreign income of residents
s 9A
As a resident (see 1.1), your gross income (see 1.1) includes the total amount, in cash or kind, you derive
during the tax year, with only amounts of a capital nature excepted (see 1.5), unless specially included
(see 1.5).
This rule applies to individuals, companies, trusts and all other taxable entities, and means that all the
amounts of a revenue nature you derive and all the amounts of a capital nature specially included in
your gross income from anywhere in the world comprise your gross income, from which, after the
exemptions, deductions and allowances to which you are entitled, your taxable income on income
account (see 1.3) will be determined.
It is in this very simple fashion that worldwide taxation is imposed upon South African residents with a
direct interest in foreign income. Indirect income earned in a controlled foreign company (CFC; see
15.2), which is required to be included in your income (see 1.3), represents a further component of the
worldwide tax on income.
Blocked-funds deferral (s 9A)
A deferral of tax is possible when an amount or part of an amount derived by you during the tax year
that is required to be included in your income (see 1.1) in that tax year may not be remitted to South
Africa during that year as a result of currency or other restrictions or limitations imposed under the
laws of the country where it arose. You will be allowed to deduct from your income for the relevant tax
year the amount or part of an amount that you cannot remit. The amount that may not be remitted will
then be deemed to be an amount derived by you during the following tax year.
A deferral of tax is also possible when an amount or part of an amount of the net income (see 15.2) of a
CFC for the CFC’s foreign tax year (see 15.2) may not be remitted to South Africa during a tax year as a
result of currency or other restrictions or limitations imposed under the laws of the country where it
arose. This amount or part of an amount may be deducted from the net income of the CFC for the
relevant tax year. The amount deducted will then be deemed to be an amount derived by the CFC during
its following foreign tax year.
Exempt foreign income – individuals
A lump sum, pension or annuity derived by you from a source outside South Africa as consideration for
past employment outside South Africa is exempt from income tax (see 5.6).
For the exemptions pertaining to services in the public service rendered outside South Africa, see 5.11,
and for other services rendered outside South Africa, see 5.12.
As a resident, you will be exempt from tax on an amount you derive under a foreign social security
system (see 5.13).
15.2 Indirect foreign income of residents
ss 1, 9D, 72A
The concept of the ‘controlled foreign company’ (CFC) is the mechanism by which residents (see 1.1)
are subjected to tax on their indirect foreign income, that is, their income (see 1.1) accumulated in the
name of a qualifying legal entity, the CFC. In appropriate circumstances, a CFC’s income will be allocated,
or apportioned, to residents, even though there is no movement of cash at all.
257
258 INTERNATIONAL TAXATION ISSUES
Definitions
Foreign company (s 1)
For general purposes of the Income Tax Act, a ‘foreign company’ is a company (see 14.1) that is not a
resident.
Foreign company (s 9D(1))
A ‘foreign company’ for purposes of the CFC rules is, in the main, simply a company that is not a
resident (see 1.1). Also included are targeted ‘protected cell companies’, ‘cells’ and ‘segregated accounts’,
not dealt with here.
Foreign tax year (s 1)
A foreign company’s ‘foreign tax year’ is a year or period of reporting for foreign income tax purposes
by that company or, if it is not subject to foreign income tax, its annual period of financial reporting.
Participation rights (s 9D(1))
‘Participation rights’ in relation to a foreign company come in two varieties:
• The right to participate in all or part of the benefits of the rights (excluding voting rights) attaching to a
share (see 7.5) or any interest of a similar nature in a foreign company.
• If no one has any such right or no such rights can be determined for any person, the right to exercise
voting rights in the foreign company.
Controlled foreign company (CFC) (s 1)
For general purposes of the Income Tax Act, a ‘controlled foreign company’ is a ‘controlled foreign
company’ for CFC purposes but including a ‘controlled foreign entity’, which is what CFCs used to be
called, so as to cater for much earlier versions of the tax law.
Controlled foreign company (CFC) (s 9D(1))
A ‘controlled foreign company’ for CFC purposes is a foreign company in which more than 50% of the
total participation rights are directly or indirectly held or more than 50% of the voting rights are
directly or indirectly exercisable by one or more residents, excluding headquarter companies (see
16.37).
Voting rights: Leave out voting rights in a listed foreign company and voting rights in a foreign
company that are exercisable indirectly through a listed company (see 7.10).
Voting rights deemed to be directly exercisable by a resident: Voting rights in a foreign company
that can be exercised directly by any other CFC in which the resident, and the resident’s connected
persons (see 16.31), can directly or indirectly exercise more than 50% of the voting rights are deemed
for the purposes of this definition to be exercisable directly by the resident. (See also the holding-
company rule below.)
Deemed non-residents: In determining whether residents directly or indirectly hold more than 50% of
the participation rights or the voting rights in a foreign company, leave out:
• A person holding less than 5% of the participation rights of a listed company.
• A person holding less than 5% of the participation rights of a listed company through which the person
indirectly holds participation rights in a foreign company.
• A person holding less than 5% of the participation rights of a foreign collective investment scheme and
unable to exercise at least 5% of the voting rights in a foreign collective investment scheme, unless more
than 50% of the participation rights or voting rights of the foreign collective investment scheme are held
by persons who are connected persons in relation to each other.
INTERNATIONAL TAXATION ISSUES 259
• A person holding less than 5% of the participation rights of a foreign collective investment scheme
through which that person indirectly exercises participation rights or voting rights of a foreign company
and unable to exercise at least 5% of the voting rights in a foreign collective investment scheme, unless
more than 50% of the participation rights or voting rights of the foreign company are held by persons
who are connected persons in relation to each other.
A ‘controlled foreign company’ is also a foreign company whose financial results are reflected in the
consolidated financial statements, as provided for in IFRS 10, of a resident company (but not a
headquarter company; see 16.37).
When you hold participation rights in a CFC on the last day of the foreign tax year (s 9D(2)( a)) As
a resident (but not a headquarter company) directly or indirectly holding ‘participation rights’ in a CFC
on the last day of its foreign tax year ending during your tax year, you will suffer an inclusion in your
income (see 1.3) for that tax year of an amount depending upon whether the foreign company was a CFC
for the entire foreign tax year or if it became a CFC at any stage during its foreign tax year.
If the foreign company was a CFC for the entire foreign tax year, the amount to be included will be the
proportional amount of the CFC’s net income (see below) determined for the foreign tax year,
calculated in the following way:
CFC’s net income for entire foreign tax year
Percentage of your participation rights in CFC on last day of CFC’s foreign tax year
Total participation rights in CFC on last day of CFC’s foreign tax year If it became a CFC at any stage
during the foreign tax year, you still have to calculate the proportional amount of its net income in the
same way as just described but you may then choose the amount to be included in your income as being:
Proportional amount of CFC’s net income
Number of days during the foreign tax year that the foreign company was a CFC
Total number of days in the foreign tax year
Alternatively, you may then choose the amount to be included in your income as being: CFC’s net income
for entire foreign tax year determined as if the day the foreign company commenced to be a CFC was the
first day of its foreign tax year for the period commencing on the day that it commenced to be a CFC and
ending on the last day of its foreign tax year
Total participation rights in CFC on last day of CFC’s foreign tax year When you hold participation
rights in a CFC at the time it ceases to be a CFC (s 9D(2)( b)) As a resident holding participation
rights in a CFC immediately before the foreign company ceased to be a CFC at any stage during your tax
year and before the last day of the CFC’s foreign tax year, you may choose the amount to be included in
your income as being either: Proportional amount of CFC’s net income
Number of days during the foreign tax year that the foreign company was a CFC
Total number of days in the foreign tax year

Alternatively, you may then choose the amount to be included in your income as being: CFC’s net income
for entire foreign tax year determined as if the day the foreign company commenced to be a CFC was the
first day of its foreign tax year for the period commencing on the day that it commenced to be a CFC and
ending on the day before it ceased to be a CFC
Total participation rights in CFC on last day of CFC’s foreign tax year When these rules do not apply (s
9D(2))
You will escape this inclusion when, as a resident, you, together with your connected persons, at the end
of the last day of the CFC’s foreign tax year in aggregate hold less than 10% of its participation rights and
may not exercise at least 10% of the voting rights in the CFC. For a foreign company ceasing to be a CFC
during the foreign tax year, you will escape it if you, together with your connected persons, immediately
before it ceased to be a CFC in aggregate hold less than 10% of the CFC’s participation rights and may
not exercise at least 10% of the voting rights in the CFC.
And there will be no inclusion to the extent that the participation rights are held by you indirectly
through a resident company (but not a headquarter company; see 16.37).
There will also be no inclusion to the extent that the participation rights are held by an insurer (see
16.13) in a qualifying policyholder fund (see 16.13) and are directly attributable to a linked policy under
the Long-term Insurance Act 52 of 1998 or any other policy of which the amount of the policy benefits is
not guaranteed by the insurer and is determined wholly by reference to the value of particular assets or
categories of assets, and the holding of the participation rights by the insurer does not form part of a
transaction, operation or scheme entered into or effected solely or mainly for purposes of using this
exclusion to avoid the inclusion of an amount in the resident’s income.
Nor will there be an inclusion, to the extent that the participation rights are held by a resident portfolio
of a collective investment scheme in securities or a resident portfolio of a collective investment scheme
in participation bonds (see 16.7) directly or indirectly in a foreign collective investment scheme (see
16.7).
Special rule for holding companies (s 9D(2))
This special rule applies only to a foreign company that is a ‘controlled foreign company’ purely because
its voting rights can be exercised directly by any other CFC in which the resident, and the resident’s
connected persons (see 10.27), can directly or indirectly exercise more than 50% of the voting rights,
and so are deemed for the purposes of the definition of ‘controlled foreign company’
to be exercisable directly by the resident (see above). The percentage of the participation rights of a
resident in relation to the CFC is made equal to the net percentage of the financial results of the foreign
company that are included in the consolidated financial statements, as provided for in IFRS 10, for the
tax year of a resident ‘holding company’ as defined in the Companies Act 71 of 2008.
A CFC’s net income (ss 1, 9D(2A))
A CFC’s ‘net income’ in a foreign tax year is an amount equal to its taxable income (see 1.1) determined
as if it had been a taxpayer and, for purposes of targeted provisions, as if it had been a resident.
But deductions or allowances that may be allowed or amounts that may be set off against the CFC’s
income are limited to its income (see 1.1). Any excess is carried forward to the immediately succeeding
foreign tax year and is deemed to be a balance of assessed loss (see 10.67) that may be set off against its
income in that succeeding year.
Altogether disallowable are:
• Interest, royalties, rentals, insurance premiums or income of a similar nature paid or payable or
deemed to be paid or payable by the CFC to any other CFC of yours forming part of the same group of
companies (see 14.1), as well as any similar amount adjusted under the transfer-pricing rules (see 18.9).
• Exchange differences on exchange items (see 10.75) to which your CFC and any other foreign company
forming part of the same group of companies are parties.
• Exchange differences on forward exchange contracts or foreign currency option contracts entered into
to hedge such exchange items.
• The reduction or discharge by the company of a debt owed to it by another CFC for no consideration or
for a consideration less than the amount by which the face value of the debt has been reduced or
discharged.
But you will prevent the application of this disallowance if the interest, rental, royalty, insurance
premium, other income, adjusted amount, exchange difference, reduction or discharge is taken into
account in the determination of the other CFC’s net income.
Should a foreign company become a CFC, its valuation date (see 21.6) for capital gains tax (CGT)
purposes is the day before it became a CFC.
When the resident is a natural person, special trust (see 11.8) or an insurer’s individual policyholder
fund (see 16.13) the CFC’s taxable capital gain (see 21.3) is 40% of its net capital gain (see 21.3) for the
foreign tax year.
For the purpose of the taxation of gains or losses on foreign exchange transactions and for CGT
purposes, when an asset is disposed of or acquired in a foreign currency (see 21.31) by a CFC, the CFC’s
‘local currency’, otherwise than in relation to its permanent establishment (see 10.74), is its
‘functional currency’.
‘Functional currency’ is defined in relation to a person as the currency of the primary economic
environment in which that person’s business operations are conducted. For a person’s permanent
establishment, it is the currency of the primary economic environment in which the business operations
of the permanent establishment are conducted.
A special rule applies when the functional currency used by a CFC for the purposes of financial reporting
was the currency of a country that abandoned its currency and had an official rate of inflation of 100%
or more for the foreign tax year preceding the abandonment of the currency, and the CFC adopted a new
functional currency as a consequence of the abandonment of currency. The CFC is then, for the purposes
of determining the cost of its assets, deemed to have acquired them in the country’s new currency on the
first day of the foreign tax year of the CFC in which the new currency was adopted, and for an amount
equal to the market value of the assets on the date on which the new currency was adopted by the CFC.
The net income of a CFC in a foreign tax year is deemed to be nil when the aggregate amount of taxes on
income payable to all spheres of government of a country other than South Africa by the CFC in its
foreign tax year is at least 75% (67,5% as from 1 January 2020) of the amount of normal tax (see 1.2)
that would have been payable on any of its taxable income had it been a resident for the foreign tax year,
or when all its receipts and accruals are attributable to a qualifying ‘foreign business establishment’
and are not required to be taken into account under the provision described under the heading
‘Amounts from foreign business establishment taken into net income of CFC (s 9D(9A))’ below.
For this purpose, you determine the normal tax that would have been payable under the circumstances
just described before taking into account an amount that would, had the CFC been a resident for the
foreign tax year, have been included in the CFC’s income under the CFC rules for the foreign tax year.
You must determine the aggregate amount of tax payable after taking into account any applicable double
taxation agreement (see 18.10) and any credit, rebate or other right of recovery of tax from any sphere
of government of a foreign country, and after disregarding any loss arising in foreign tax years ending
after the date when the foreign company became a CFC.
Conversion of CFC’s net income (s 9D(6))
A CFC’s net income for a foreign tax year must be determined in its functional currency, and, in the
determination of the amount to be included in your income as a resident during a particular tax year,
must be translated to rand by the application of the average exchange rate (see 10.74) for the foreign tax
year.
An exchange item (see 10.75) denominated in a currency other than the functional currency of the CFC is
deemed not to be attributable to a permanent establishment (see 10.74) of the CFC if the functional
currency is the currency of a country that has an official rate of inflation of 100% or more for the foreign
tax year.
Exclusions from net income (s 9D(9))
(1) Leave out an amount attributable to the CFC’s foreign business establishment, whether or not as a
result of the disposal or deemed disposal of any assets forming part of the foreign business
establishment.
In the determination of the amount and whether it is attributable to a foreign business establishment:
• the foreign business establishment is treated as if it were a distinct and separate enterprise engaged in
the same or similar activities under the same or similar conditions and dealing wholly independently
with the CFC of which it is a foreign business establishment; and
• the determination must be made as if the amount arose in the context of a transaction, operation,
scheme, agreement or understanding entered into on the terms and conditions that would have existed
had the parties to it been independent persons dealing at arm’s length.
(2) Leave out an amount attributable to a policyholder that is not a resident, or a policy issued by a
company licensed to issue a ‘long-term policy’ as defined in the Long-term Insurance Act 53
of 1998 in its ‘country of residence’.
(3) Leave out an amount subject to the withholding tax on interest (see 15.17) or the withholding tax on
royalties (see 15.14), after taking into account any applicable double taxation agreement (see 18.10).
(4) Leave out an amount included in the taxable income (see 1.1) of a company.
(5) Leave out an amount attributable to a foreign dividend (see 9.4) declared to the CFC by any other
CFC of yours, to the extent that the foreign dividend does not exceed the aggregate of all amounts that
have been or will be included in your income under the CFC rules in any tax year that relate to the net
income of the company declaring the dividend, or to the net income of any other company that has been
included in your income by virtue of your participation rights in the other company held indirectly
through the company declaring the dividend. The amount of this exclusion must be reduced by the
amount of foreign tax payable on the amounts so included in your income. It must also be reduced by so
much of all foreign dividends derived by the CFC as was previously exempt, either under this same
exclusion or under qualifying aspects of the exemption of foreign dividends (see 9.4) and dividends paid
or declared by a headquarter company (see 16.37). And it must also be reduced by so much of all foreign
dividends derived by the CFC as was previously not included in your income on account of having
previously been included in your income under these CFC rules for the taxation of indirect income.
(6) Leave out an amount attributable to interest, royalties, rental, insurance premium or income of a
similar nature that is paid or payable or deemed to be paid or payable to the CFC by any
other CFC, including any similar amount adjusted under the rules governing transfer pricing (see 18.9),
or an exchange difference (see 10.75) arising from an exchange item (see 10.75) to which the CFC and
the other CFC are parties, or an exchange difference on a forward exchange contract or foreign currency
option contract entered into to hedge that exchange item, or the reduction or discharge by another CFC
of a debt owed by the CFC to that other CFC for no consideration or for a consideration less than the
amount by which the face value of the debt has been reduced or discharged. This exclusion applies as
long as the CFC and the other CFC concerned in each instance form part of the same group of companies
(see 14.1).
(7) Leave out an amount that is attributable to the CFC’s disposal of an asset (see 21.2) but not a
financial instrument (see 21.8) or an intangible asset (see 21.12) if that asset was attributable to the
foreign business establishment of any other CFC forming part of the same group of companies as the
CFC.
Amounts from foreign business establishment taken into net income of CFC (s 9D(9A)) Despite the
general, effective exemption of a CFC’s net income attributable to its foreign business establishment,
under this rule, which is several pages long, transactions regarded as being of an avoidance nature are
rendered ineffectual through the taking into account in the determination of a CFC’s net income of the
amounts to which they give rise. The rule is so impossibly complex that no purpose could possibly be
served by any attempt intelligibly to include it here.
What is a ‘foreign business establishment’? (s 9D(1))
A ‘foreign business establishment’, in relation to a CFC, is any of the following:
• A fixed place of business located in a country other than South Africa that is used or will continue to be
used for the carrying on of the business of the CFC for a period of no less than one year, when the
business is conducted through one or more offices, shops, factories, warehouses or other structures; the
fixed place of business is suitably staffed with on-site managerial and oper-ational employees of the CFC
who conduct the primary operations of the business; it is suitably equipped for conducting the primary
operations of the business; it has suitable facilities for conducting the primary operations of the
business; and is located outside South Africa and solely for purposes other than the postponement or
reduction of any tax imposed by any sphere of government in South Africa. For the purposes of
determining whether there is a fixed place of business, a CFC may take into account the use of structures,
employees, equipment and facilities of any other company if the other company is subject to tax in the
country in which the fixed place of business of the CFC is located by virtue of residence, place of effective
management or other criteria of a similar nature, if that other company forms part of the same group of
companies (see 14.1) as the CFC, and to the extent that the structures, employees, equipment and
facilities are located in the same country as the fixed place of business of the CFC.
• A place outside South Africa where prospecting or exploration operations for natural resources are
carried on, or a place outside South Africa where mining or production operations of natural resources
are carried on, where the CFC carries on those prospecting, exploration, mining or production
operations.
• A site outside South Africa for the construction or installation of buildings, bridges, roads, pipelines,
heavy machinery or other projects of a comparable magnitude lasting for a period of no fewer than six
months, where the CFC carries on those construction or installation activities.
• Agricultural land in a country other than South Africa used for bona fide farming activities directly
carried on by the CFC.
• Any vessel, vehicle, aircraft or rolling stock used for the purposes of transportation or fishing, or
prospecting or exploration for natural resources, or mining or production of natural resources, if the
vessel, vehicle, rolling stock or aircraft is used solely outside South Africa for these purposes and is
operated directly by the CFC or any other company that has the same country of residence as the CFC
and forms part of the same group of companies as the CFC.
Reporting requirements (s 72A)
As a resident, you are required to submit to the Commissioner for SARS a special return for the tax year.
This must be submitted together with your annual return of income. You must do so if, on the last day of
the foreign tax year of a CFC or immediately before a foreign company ceases to be a CFC, you, together
with your connected persons, directly or indirectly hold at least 10% of the participation rights in a CFC.
But you may ignore indirect holdings through a resident company.
You are also required to have available for submission to the Commissioner of SARS, when so requested,
a copy of the CFC’s financial statements for its relevant foreign tax year. Should you fail to do so, and no
reasonable grounds exist either for your failure, which is outside your control (there is no telling what is
intended), or for you to believe that you are not subject to this requirement, your proportional amount
will be determined upon a punitive basis, and you will be denied a foreign tax rebate (see 15.4) relating
to the amount included in your income under these CFC rules.
15.3 Diverted foreign income of residents
The ordinary rules governing the diversion of income to a spouse (see 3.3), minor children, a trust or a
non-resident (see 11.7) operate on a worldwide basis. And so do the rules countering transfer-pricing
(see 18.9) and tax avoidance (see 18.8).
15.4 Rebate or deduction for foreign income taxes paid
s 6 quat
by residents
As a resident (see 1.1) paying foreign taxes, you might be entitled either to a special rebate or a special
deduction.
The rebate (s 6 quat(1))
As a resident whose taxable income (see 1.1) during a tax year includes any of the amounts described
immediately below, you are entitled to the deduction of a rebate from the normal tax payable on your
taxable income.
Qualifying inclusions in your taxable income (s 6 quat(1))
• Income (see 1.1) derived by you from a source outside South Africa that does not have a statutory
source within South Africa (see 15.7).
• The proportional amount apportioned to you from your controlled foreign company (CFC) (see 15.2).
• A foreign dividend (see 9.4).
• A taxable capital gain (see 21.3) from a source outside South Africa that does not have a statutory
source within South Africa.
• An amount of income from a source outside South Africa, the proportional amount apportioned from a
CFC and a foreign dividend that is derived by some other person but is deemed to have been derived by
you under the diversion-of-income rules described in 11.7.
• The amount of someone else’s capital gain (see 21.3) from a source outside South Africa that does not
have a statutory source within South Africa attributed to you under the diversion-of-gains rules
described in 21.20.
• An amount of income from a source outside South Africa (see 15.7), the proportional amount
apportioned from a CFC (see 15.2), a foreign dividend, and a taxable capital gain from a source outside
South Africa representing capital of a trust (see 11.6) that is included in your income or is taken into
account in the determination of your aggregate capital gain or aggregate capital loss (see 21.3) under the
rules described in 11.6 and 21.14 (capital of a trust in which you acquire a vested right).
Qualifying payments of foreign taxes (s 6 quat(1A))
The rebate available for consideration is the amount equal to the sum of all taxes on income proved to be
payable to any sphere of government of a foreign country. These taxes must be payable without any
right of recovery by anyone, although a right of recovery comprising an entitlement to
‘carry back’ losses arising during one tax year to an earlier year is acceptable. And these taxes must be
payable by:
• You, on income (see 1.1) derived by you from a source outside South Africa that does not have a
statutory source within South Africa (see 15.7) and included in your taxable income (see 1.1).
• You, on a taxable capital gain from a source outside South Africa that does not have a statutory source
within South Africa (see 15.7) included in your taxable income.
• Your CFC, on the proportional amount apportioned to you from the CFC and included in your taxable
income, adjusted, in the event that you fail to have available the financial statements as described in
15.2, in the manner described there.
• The other person who derived an amount treated as having been derived by you under the diversion-
of-income rules and included in your taxable income.
• The other person whose capital gain is attributed to you under the diversion-of-gains rule and included
in your taxable income.
• The trust in whose capital you acquire a vested right that is included in your taxable income.
Apportionment for partnerships and trusts (s 6 quat(1A)) A special rule applies when you are a
member of a partnership or a beneficiary of a trust that is liable for tax as a separate entity in the foreign
country. A proportional amount of the tax payable by the partnership or trust that is attributable to your
interest in the partnership or trust is deemed to have been payable by you.
Maximum rebate (s 6 quat(1B))
The total rebate available to you is not necessarily the rebate to which you will actually be entitled, since
the total amount qualifying might be limited.
The rebate or rebates of tax proved to be payable in the circumstances and by the parties already
described may not in the aggregate exceed an amount bearing to the total income tax payable the same
ratio as the total taxable income attributable to the income, proportional amount, foreign dividend,
taxable capital gain or amount included in your taxable income bears to your total taxable income. In
other words:
Maximum rebate = Total income tax payable × Foreign taxable amounts
÷ Total taxable income
The result is that, in a particular tax year, you are limited to claiming no more than your average rate of
South African tax on your total foreign income.
Apportionment of deductions
In determining the amount of the taxable income attributable to the income, proportional amount,
taxable capital gain or amount, you are deemed to have incurred any allowable deductions for
retirement annuity fund contributions (see 6.2) and qualifying donations (see 19.1) proportionately as
between your taxable income derived from sources within and outside South Africa. You must allocate
the deduction for retirement annuity fund contributions as between your taxable income from sources
within and outside the Republic before taking into account that deduction itself, the optional deduction
of foreign taxes (see below), and the deduction for qualifying donations. And you must allocate the
deduction for qualifying donations as between your taxable income from sources within and outside
South Africa before taking into account that deduction itself and the optional deduction of foreign taxes.
Maximum tax attributable to CFC

Under an unintelligible rule, part of the taxes paid by your CFC, on the proportional amount apportioned
to you from the CFC and included in your taxable income, adjusted, in the event that you fail to have
available the financial statements as described in 15.2, in the manner described there will in aggregate
be limited to the amount of your normal tax that is attributable to the proportional amount.
Maximum tax attributable to taxable capital gain
As shown above, among the taxes qualifying for the rebate is the foreign tax payable by you on a taxable
capital gain from a source outside South Africa that does not have a statutory source within South
African. Foreign tax of this nature attributable to a taxable capital gain on an asset that is not
attributable to your permanent establishment outside South Africa will in aggregate be limited to the
amount of normal tax that is attributable to the taxable capital gain.
Treatment of excess amount
The excess of the sum of the taxes proved to be payable (excluding the tax described above under the
headings ‘Maximum tax attributable to CFC’ and ‘Maximum tax attributable to taxable capital gain’) over
the rebate determined in the manner described here is known as the ‘excess amount’.
• The excess amount may be carried forward to the immediately succeeding tax year, and will be
deemed to be a tax on income paid to the government of a foreign country in that year.
• In that succeeding tax year, any tax payable to the government of a foreign country on qualifying
amounts included in your taxable income during that year must first be deducted, under the rules
already described, from the amount of the income tax payable on the amounts included.
• The excess amount may then be set off against the income tax payable by you during that succeeding
tax year on qualifying amounts derived from a foreign country included in your taxable income during
that year.
• The excess amount is not allowed to be carried forward for more than seven years from the tax year in
which that particular excess amount was carried forward for the first time.
Deduction allowed (s 6 quat(1C), (1D))
As a resident (see 1.1), in determining your taxable income (see 1.1) from carrying on a trade (see
10.14), you must deduct from your income (see 1.1) from trade an amount equal to the sum of all
‘taxes on income’ that do not qualify for the above rebate that are proved to be payable to any sphere of
government of a foreign country. These taxes must be payable without any right of recovery by anyone,
other than a right of recovery comprising an entitlement to carry back losses arising during one tax year
to an earlier year.
This deduction may not in aggregate exceed the total taxable income (before the deduction itself is taken
into account) attributable to income that is subject to the taxes qualifying for the rebate.
In the determination of the amount of the taxable income that is attributable to the relevant income,
allowable deductions for retirement annuity fund contributions (see 6.2) and qualifying donations (see
19.1) are deemed to have been incurred proportionately as between attributable and non-attributable
taxable income. You must allocate the deduction for retirement annuity fund contributions as between
your attributable and non-attributable taxable income before taking into account that deduction itself,
the optional deduction of foreign taxes, and the deduction for qualifying donations.
And you must allocate the deduction for qualifying donations as between your attributable and non-
attributable taxable income before taking into account that deduction itself and the optional deduction
of foreign taxes.
Rebate or deduction under the double taxation agreements (s 6 quat(2)) The rebate and the
deduction are not granted in addition to any relief to which you are entitled under a double taxation
agreement between South Africa and the foreign country concerned (see 18.10). But it may be granted in
substitution for that relief.
Conversion of foreign taxes to rand (s 6 quat(4), (4A)) Foreign tax paid or proved to be payable in
the manner described on an amount included in your taxable income in any particular tax year must be
converted to rand on the last day of that year, and you make the conversion by applying the average
exchange rate (see 10.75) for that year to the foreign tax. Amounts so translated must be rounded off to
the nearest rand.
Foreign taxes more or less than allowed for (s 6 quat(5)) It may happen that a rebate or deduction
for tax that was proved to be payable to the government of a foreign country was allowed to you as a
rebate against the income tax payable by you or as a deduction against your income in a previous tax
year but you are then able to prove that the tax actually payable to that government exceeds the tax on
which the rebate or deduction was in fact allowed. Alternatively, it may be the Commissioner for SARS
who is satisfied that the tax actually payable to that government is less than the tax for which the rebate
or deduction was in fact allowed.
The Commissioner may then, despite the normal rules described in 18.4 or 18.6 but still honour-ing the
rules governing the maximum rebate or deduction, issue a reduced or additional assessment reflecting
the rebate or deduction for the amount of tax actually payable in a foreign currency translated to rand at
the average exchange rate (see 10.75) applicable to a previous tax year. That rebate or deduction will
then be allowed as a rebate or deduction. But he is debarred from doing so after the expiry of six years
from the date of the assessment under which the rebate or deduction of the tax proved to be payable
was originally allowed, unless he is satisfied that the incorrect reflec-tion of the tax proved to be payable
to the foreign government was due to fraud or misrepresentation or non-disclosure of material facts.
Despite the statute of limitations applying to additional assessments (see 18.4) and the rules governing
the finality of assessments (see 18.4), an additional or reduced assessment for a particular tax year to
give effect to the rebate may be made within six years from the date of the original assessment for that
year.
Definition (s 6 quat(3))
‘Taxes on income’ do not include compulsory payments to the government of a foreign country
constituting a consideration for the right to extract a mineral or natural oil.
15.5 Rebate for foreign income taxes paid on income
s 6 quin
from South African source
This rebate is no longer available.
Deemed normal tax payment (s 6 quin(5))
When, during a tax year, the rebate has been deducted from the normal tax (see 1.2) payable by you, as a
resident (see 1.1), as a result of an amount of tax having been levied and withheld or imposed, and in a
subsequent tax year you receive a refund of the tax so levied and withheld or you are discharged from
any liability for the tax so imposed, so much of the amount received or discharged as does not exceed the
rebate is deemed to be an amount of normal tax payable by you in the subsequent tax year.
15.6 Non-residents – South African income
The general rule governing non-residents, that is, those who are not residents (see 1.1), is that their
‘gross income’ is the total amount, in cash or kind, derived by them from a source or having a statutory
source within South Africa, excluding receipts or accruals of a capital nature (see 1.5), unless these are
specifically included in gross income.
The question whether income is derived from a source in South Africa depends not only on the
particular facts but on special provisions in the tax law, since targeted amounts are deemed to be
derived from a source within South Africa.
Actual sources identified by the particular facts as mediated by the case law are replaced in their
entirety by deemed sources (see 15.7).
Apart from types of income dealt with on a special basis, as a non-resident, your liability for tax will be
calculated in the same way as it is for a resident.
Double taxation agreements with other countries may also affect your liability for tax in South Africa
(see 18.10).
15.7 Source of income
s9
The statutory source rules (s 9(2))
An amount is derived by a person from a source within South Africa if it:
• Constitutes a dividend (see 9.3) derived by the person.
• Constitutes interest under the day-by-day interest rule (see 7.8) when that interest is ( a) attributable
to an amount incurred by a resident (see 1.1), unless the interest is attributable to a permanent
establishment (see 10.74) situated outside South Africa, or ( b) is derived from the use or application in
South Africa by a person of funds or credit obtained under any form of interest-bearing arrangement.
• Constitutes a royalty attributable to an amount incurred by a resident, unless the royalty is

• Constitutes a royalty derived for the use or right of use of or permission to use intellectual property
(see 10.10) in South Africa.
• Is attributable to an amount incurred by a resident and is derived for the imparting of or the
undertaking to impart scientific, technical, industrial or commercial knowledge or information or the
rendering of or the undertaking to render assistance or service in connection with the application or
utilization of such knowledge or information, unless the amount so derived is attributable to a
permanent establishment situated outside South Africa.
• Is derived for the imparting of or the undertaking to impart scientific, technical, industrial or
commercial knowledge or information for use in South Africa or the rendering of or the undertaking to
render assistance or service in connection with the application or utilization of such knowledge or
information.
• Is derived from the holding of a public office to which the person has been appointed or is deemed to
have been appointed under an Act of Parliament.
• Is derived for services rendered to or work or labour performed for or on behalf of an employer in the
national, provincial or local sphere of the South African government, that is a constitutional institution
listed in Schedule 1 to the Public Finance Management Act 1 of 1999, that is a public entity listed in
Schedule 2 or 3 to that Act, or that is a ‘municipal entity’ as defined in s 1 of the Local Government:
Municipal Systems Act 32 of 2000.
• Constitutes a lump sum, pension or an annuity payable by a pension fund, pension preservation fund,
provident fund or provident preservation fund, as long as the services for which the amount is so
derived were rendered within South Africa. Should the amount be derived for services that were
rendered partly within and partly outside South Africa, only so much of the amount as bears to the total
of the amount the same ratio as the period during which the services were rendered in South Africa
bears to the total period during which the services were rendered is regarded as having been derived by
the person from a source within South Africa.
• Constitutes an amount derived upon the disposal of an asset constituting immovable property held by
the person or an interest or a right of whatever nature of the person to or in immovable
property identified in 21.2 as being liable to the capital gains tax even when held by non-residents, as
long as the property is situated in South Africa.
• Constitutes an amount derived upon the disposal of an asset other than an asset just described
immediately above, as long as ( a) the person is a resident and the asset is not effectively connected with
the person’s permanent establishment situated outside South Africa, and the proceeds from the disposal
of the asset are not subject to any taxes on income payable to a sphere of government of some other
country, or ( b) the person is not a resident, and the asset is attributable to the person’s permanent
establishment situated in South Africa.
• Is attributable to an exchange difference (see 10.75) determined on an exchange item (see 10.75) to
which that person is a party, as long as the person is a resident and the exchange item is not attributable
to the person’s permanent establishment situated outside South Africa, and the amount is not subject to
any taxes on income payable to a sphere of government of some other country, or the person is not a
resident and the exchange item is attributable to the person’s permanent establishment situated in
South Africa.
The statutory foreign-source rules (s 9(4))
The following amounts are derived by a person from a source outside South Africa:
• An amount constituting a foreign dividend derived by the person.
• An amount constituting interest under the day-by-day interest rule (see 7.8) derived by the person
that is not from a source within South Africa under the relevant source-of-income rules.
• An amount constituting a royalty derived by the person that is not from a source within South Africa
under the relevant source-of-income rules.
• An amount constituting an amount derived by the person upon the disposal of an asset that is not
from a source within South Africa under the relevant source-of-income rules.
• An amount that is attributable to an exchange difference (see 10.75) on an exchange item (see 10.75)
to which that person is a party and is not from a source within South Africa under the relevant source-
of-income rule.
Definition (s 9(1))
For the purposes of these source rules, a ‘royalty’ is an amount that is derived from the use, right of use
or permission to use intellectual property (see 10.10).
The common-law rule
When these statutory rules do not apply, the case law indicates that the source of an amount depends,
first, upon the determination of its originating cause (for example, the rendering of services) and, then,
the location of that originating cause in some particular country (for example, the place where those
services are rendered).
15.8 Change of residence or becoming a
s 9H
headquarter
company
Ceasing to be a resident or CFC; becoming a headquarter company (s 9H(2), (3), (7)) Persons
other companies
When a person (but not a company; see 14.1) ceases to be a resident (see 1.1) during a tax year the
person is treated as having disposed of each of the person’s assets to a resident on the date immediately
before the day on which the person so ceases to be a resident, for an amount derived equal to the asset’s
market value on that date, and as having reacquired each of the assets immediately after the time of
their disposal, at an expenditure equal to the market value so determined.
The tax year is deemed to have ended and the succeeding tax year is deemed to have commenced on that
date.
Company ceases to be a resident or becomes a headquarter company
When a company ceases to be a resident or a company that is a resident becomes a headquarter

company (see 16.37) during a tax year the company is treated as having disposed of each of its assets on
the date immediately before the day on which it so ceases to be a resident, became a headquarter
company, or ceased to be a controlled foreign company (CFC) (see 15.2) for an amount equal to the
asset’s market value on that date, and reacquired each of the assets on the day of the relevant event, for
an amount equal to the market value so determined.
The tax year is deemed to have ended on the date before it ceased to be a resident or became a
headquarter company, and the next succeeding tax year is deemed to have commenced on the date of
the change.
Even more significantly, the company is deemed, on the earlier of the two dates, to have declared and
paid a dividend in specie for purposes of dividends tax (see 9.5).
If a company ceasing to be a resident has disregarded a capital gain (see 21.3) that it made on the
disposal of equity shares (see 14.7) in foreign companies (see 21.12) within three years immediately
preceding the date on which it ceases to be a resident, it is deemed to have made a net capital gain (see
21.3) in the year of its ceasing to be a resident equal to the amount previously disregarded.
Also, if in that three-year period the company enjoyed an exemption from tax on a foreign dividend (see
9.4) from a company in which it held at least 10% of the equity shares and voting rights (see 9.3), it will
be deemed to have received a foreign dividend of the same amount as a non-exempt foreign dividend in
the tax year in which it ceased to be a resident.
Company ceases to be controlled foreign company
When a company ceases to be a CFC, other than by way of becoming a resident, during its foreign tax
year (see 15.2), the company is treated as having disposed of each of its assets on the date immediately
before the day on which it so ceased to be a CFC for an amount equal to the asset’s market value on that
date, and reacquired each of the assets on the day of the relevant event, for an amount equal to the
market value so determined.
The foreign tax year is deemed to have ended on the date before it ceased to be a CFC, and the next
succeeding tax year is deemed to have commenced on the date of the change.
Currency conversions
The market value of an asset must be determined in the currency of expenditure incurred to acquire the
asset.
Exclusions (s 9H(4))
These rules do not apply when the person’s asset constitutes any one of the following:
• Immovable property situated in South Africa held by the person.
• An asset that, after the person ceases to be a resident or becomes a headquarter company, will be
attributable to the person’s permanent establishment (see 10.74) in South Africa.
• A qualifying equity share (see 5.2) that was granted as an employment award to the person fewer than
five years before the date on which the person ceases to be a resident.
• An equity instrument (see 5.3) granted as an employment award that had not yet vested at the time
that the person ceases to be a resident.
• The persons’ right to acquire a marketable security (see 5.10) granted as an employment award.
Exceptions (s 9H(5), (6))

If a person disposes of an equity share in a foreign company that is a CFC and the capital gain or capital
loss on the disposal is disregarded (see 21.12) and the disposal results, directly or indirectly, in the
foreign company’s ceasing to be a CFC, the above rules for companies will be inapplicable.
And all of the above rules do not apply to a company that ceases to be a CFC as a result of an
amalgamation transaction (see 22.4) or a liquidation distribution (see 22.8).
Definitions (s 9H(1))
An ‘asset’ is an asset as defined for CGT purposes (see 21.2).
The ‘market value’ of an asset is the price that could be obtained upon its sale between a willing buyer
and a willing seller dealing at arm’s length in an open market.
15.9 Headquarter
companies
For the law governing the taxation of headquarter companies, see 16.37.
15.10 Non-residents – banks operating in South Africa
s 10(1)( j)
A bank that is not resident in South Africa and is entrusted by the government of a foreign country with
the custody of that country’s principal foreign exchange reserves will be free from income tax.
15.11 Non-residents – branches of foreign companies
s 10(1)( h)
Interest derived by a company carrying on business through a permanent establishment (see 10.74) in
South Africa does not qualify for the general interest exemption usually enjoyed by non-residents (see
15.10).
15.12 Non-residents – foreign officials employed
s 10(1)( c)
in South Africa
The salary and emoluments paid to the following persons are free of income tax:
• A person holding office in South Africa as an official of a foreign government, if he or she is stationed in
South Africa for that purpose and is not ordinarily resident in South Africa.
• A domestic or private servant of such a person if the servant is not a South African citizen and is not
ordinarily resident in South Africa.
• A subject of a foreign state who is temporarily employed in South Africa if the exemption of his or her
salary and emoluments is authorized by an agreement entered into by his or her government and the
South African government.
• A non-resident subject of a foreign state to the extent that the salary or emoluments are paid by a
qualifying institution or body established by a foreign government and appointed by it to administer its
responsibilities and functions under an official development assistance agreement or by a qualifying
multinational organization providing foreign donor funding under a binding official development
assistance agreement for services in relation to a qualifying project.
15.13 Non-residents – governmental salaries and pensions s 10(1)( p)
An amount you derive as a non-resident for services rendered outside South Africa for or on behalf of an
employer in the national or provincial sphere of South African government, a South African municipality
or a national or provincial public entity not less than 80% of whose expenditure is directly or indirectly
defrayed from funds voted by the South African Parliament will be free of tax if it is chargeable with
income tax in the country in which you are ordinarily resident and you bear the cost of the tax yourself
and it is not paid on your behalf by your South African employer.
Your liability for tax on this type of income may be affected by a double taxation agreement (see 18.10).
15.14 Non-residents – tax-free interest
s 10(1)( h)
You are entitled to derive interest tax-free if you are not a resident (see 1.1). But, as a natural person,
you will be disqualified from claiming the exemption if you are physically present in South Africa for a
period exceeding 183 days in aggregate during the twelve-month period preceding the date on which
you derived the interest. The interest itself will be disqualified from exemption if it is derived from a
debt effectively connected to the non-resident’s permanent establishment (see 10.74) in South Africa.
For the withholding tax on such interest, see 15.19.
15.15 Non-residents – temporary work in
4th Sch para 1
South Africa
Generally speaking, you will pay income tax in the usual way on your earnings (gross income; see 1.1) if
you come to South Africa to work for a short while, even though you do not settle here.
An individual who is not a resident cannot be an independent contractor for PAYE purposes (see 17.4)
and so must suffer the deduction of PAYE from his or her remuneration.
A number of double taxation agreements ensure that non-resident employees will not pay tax in South
Africa if they come here for short periods to do work, usually not exceeding 183 days in any year.
Liability for tax may still arise in the taxpayer’s home country. For a full list of countries with which
South Africa has concluded such agreements, see 18.10.
15.16 Non-residents – withholding tax on
ss 10(1)( l), 49A–49H
royalties and similar payments
Levy of withholding tax on royalties (s 49B)

The withholding tax on royalties, calculated at the rate of 15% of the amount of a royalty paid by a
person to or for the benefit of a foreign person is levied, to the extent that the amount is regarded as
having been derived by the foreign person from a source within South Africa under the following
deemed-source provisions (see 15.7):
• Royalties attributable to an amount incurred by a resident, unless they are attributable to a permanent
establishment (see 10.74) situated outside South Africa.
• Royalties derived for the use or right of use of or permission to use in South Africa intellectual
property (see 10.37) that is, qualifying patents, designs, trade marks, copyrights, property or rights of a
similar nature and connected know how.
• Amounts attributable to amounts incurred by a resident and derived for the imparting of or the
undertaking to impart any scientific, technical, industrial or commercial knowledge or information, or
the rendering of or the undertaking to render, any assistance or service in connection with the
application or use of such knowledge or information, unless the amount received or accrued is
• Amounts derived from the imparting of or the undertaking to impart any scientific, technical, industrial
or commercial knowledge or information for use in South Africa, or the rendering of or the undertaking
to render, any assistance or service in connection with the application or use of such knowledge or
information.
For the purposes of the withholding tax a royalty is deemed to be paid on the earlier of the date on
which the royalty is paid or becomes due and payable. And it is a final tax. Such a royalty is otherwise
free of normal tax (see below).
When a person making payment of a royalty to or for the benefit of a foreign person has withheld an
amount as required the person is for the purposes of the withholding tax deemed to have paid the
amount withheld to the foreign person.
The rate of this tax may be changed by the Minister of Finance in his national annual budget, with effect
from the date fixed by him. The rate so fixed then applies for a twelve-month period, unless Parliament
provides otherwise.
Liability for tax (s 49C)
A foreign person to which a royalty is paid is liable for the withholding tax on royalties, to the extent that
the royalty is regarded as having been derived by the foreign person from a source within South Africa
under the rules described above.
An amount of withholding tax on royalties that is withheld and paid as required is a payment made on
behalf of the foreign person to which the royalty is paid, on account of the foreign person’s liability for
the withholding tax.
Exemption from withholding tax on royalties (s 49D)
A foreign person is exempt from the withholding tax on royalties if:
• the foreign person is a natural person who was physically present in South Africa for a period
exceeding 183 days in aggregate during the twelve-month period preceding the date on which the
royalty is paid;
• the property for which the royalty is paid is effectively connected with a permanent establishment (see
10.74) of the foreign person in South Africa if the foreign person is registered as a taxpayer in South
Africa; or
• the royalty is paid by a headquarter company (see 16.37) for the granting of the use, right of use or
permission to use intellectual property (see 10.37) to which the transfer-pricing rules (see 18.9) do not
apply as a result of specific exclusions.
Withholding of withholding tax on royalties by payers of royalties (s 49E) A person paying a

royalty to or for the benefit of a foreign person must withhold an amount of withholding tax on royalties
from the payment.
But a person must not withhold any amount from a payment:
• to the extent that the royalty is exempt from the withholding tax on royalties when they are paid by a
headquarter company (see 16.37); or
• if the foreign person to or for the benefit of which the payment is to be made has, before the royalty is
paid, submitted to the person making the payment a declaration in the prescribed form, to the effect that
the foreign person is exempt from the withholding tax on royalties on the payment under the first two of
the three exemptions listed above. Also required is a written undertaking in the prescribed form,
promising forthwith to inform the person making the payment, in writing, should the circumstances
affecting the exemption change or should the payment of the royalty no longer be for the foreign
person’s benefit.
The rate of the withholding tax on royalties must be reduced if the foreign person to or for the benefit of
which the payment is to be made has, before the royalty is paid, submitted to the person making the
payment a declaration in the prescribed form to the effect that the royalty is subject to the reduced rate
of tax as a result of the application of a double taxation agreement. Also required is a written
undertaking in the prescribed form, promising forthwith to inform the person making the payment, in
writing, should the circumstances affecting the application of the agreement change or should the
payment of the royalty no longer be for the foreign person’s benefit.
From 1 July 2020: The validity of such declarations and written undertakings expires after a period of
five years from the date of the declaration.
Payment and recovery of tax (s 49F)
If a foreign person is liable for an amount of withholding tax on a royalty that is paid to or for the benefit
of the foreign person, the foreign person must pay the amount of withholding tax by the last day of the
month following the month during which the royalty is paid, unless the tax has been paid by some other
person.
A person withholding withholding tax on royalties must submit a return and pay the tax to the
Commissioner for SARS by the last day of the month following the month during which the royalty is
paid.
Refund of withholding tax on royalties (s 49G)

Despite the rules in the Tax Administration Act 28 of 2011 dealing with tax refunds by SARS, if an
amount is withheld from a payment of a royalty, a prescribed declaration about an exemption or a
reduced rate under a double taxation agreement (see 18.10) is not submitted to the person paying the
royalty by the date of the payment of the royalty, and the declaration is then submitted to the
Commissioner for SARS within three years after the payment of the royalty on which the declaration is
made, so much of the amount as would not have been withheld had the declaration been submitted by
the required date is refundable by the Commissioner for SARS to the person to which the royalty was
paid.
Currency of payments made to Commissioner (s 49H)
If an amount withheld by a person is denominated in a currency other than rand, the amount withheld
must, for the purposes of determining the amount to be paid to the Commissioner for SARS, be
translated to SA rand at the spot rate (see 10.74) on the date on which the amount was withheld.
Definitions (s 49A)
The following definitions apply for the purposes of the withholding tax on royalties: A ‘foreign person’
is a person that is not a resident.
A ‘royalty’ is an amount that is derived on the use or right of use of or permission to use intellectual
property (see 10.37), or the imparting of or the undertaking to impart scientific, technical, industrial or
commercial knowledge or information, or the rendering of or the undertaking to render any assistance
or service in connection with the application or use of such knowledge or information.
Normal tax exemption (s 10(1)( l))
Royalties, as just defined, derived by a person that is not a resident are exempt, unless the person is a
natural person who was physically present in South Africa for a period exceeding 183 days in aggregate
during the twelve-month period preceding the date on which the amount is derived by the person or the
intellectual property or the knowledge or information for which the royalty is paid is effectively
connected with that person’s permanent establishment in South Africa.
Sundry
Your liability for tax on these amounts may be affected by a double tax agreement (see 18.10).
On royalties, see also 16.25.
15.17 Non-residents – withholding tax on payments
s 35A
for immovable property
A person (referred to as ‘the purchaser’) who pays an amount to a non-resident (referred to as ‘the
seller’) or to any other person for or on behalf of the seller on account of the disposal by the seller of
immovable property in South Africa must withhold tax from the amount that must be paid to the non-
resident. The amount withheld is treated as an advance against the seller’s liability for normal tax
(see 1.2) for the tax year during which the property is disposed of. If the seller does not submit a tax
return for the tax year within twelve months after its end, the payment of the tax withheld is regarded as
sufficient cause for the making of an estimated assessment by SARS under the Tax Administration Act 28
of 2011.
The amount to be withheld is:
• 7,5% of the amount payable when the seller is a natural person.
• 10% of the amount payable when the seller is a company (see 14.1).
• 15% of the amount payable when the seller is a trust (see 11.7).
• A percentage announced by the Minister of Finance in his national annual budget, with effect from the
date fixed by him. The rate so fixed then applies for a twelve-month period, unless Parliament provides
otherwise.
The seller may apply for a directive that no amount or a reduced amount be withheld by the purchaser.
In deciding the matter, the Commissioner for SARS must have regard solely to the security furnished for
the payment of the tax due on the disposal of the immovable property, the extent of the seller’s assets in
South Africa, the question whether the seller is subject to tax on the disposal, and the question whether
the actual liability for tax on the disposal is less than the amount to be withheld.
The amount withheld by a purchaser must be paid to the Commissioner for SARS within fourteen days
after it was withheld when the purchaser is a resident and within twenty-eight days after it was
withheld when the purchaser is not a resident.
An amount withheld from an amount payable in a foreign currency must be translated into SA rand at
the spot rate (see 10.74) on the date that the amount is paid to the Commissioner for SARS.
Together with the required payment, a purchaser must submit a return to the Commissioner for SARS.
A purchaser who knows or should reasonably have known that the seller is not a resident who fails to
withhold an amount will be personally liable for the payment of the amount not withheld and must pay
this amount to the Commissioner for SARS by no later than the date on which payment should have been
made if the amount had in fact been withheld.
An estate agent or a conveyancer entitled to remuneration or some other payment for services rendered
in connection with the disposal of the immovable property or the registration of transfer must, before
any payment is made to the seller, notify the purchaser in writing of the fact that the seller is not a
resident and that the withholding tax is payable. The purchaser will not be personally liable for
withholding tax not withheld if the estate agent or conveyancer assisting in the disposal of the property
fails to notify the purchaser as required.
Until a date to be fixed by the Minister of Finance, a purchaser failing to pay the withholding tax to the
Commissioner for SARS within the required period is liable for interest and a 10% penalty in addition to
any other penalties or charges under the Income Tax Act.
An estate agent or a conveyancer who knows or should reasonably have known that the seller is not a
resident and fails to comply with his or her obligation to inform the purchaser will be jointly and
severally liable for the payment of the amount that the purchaser is required to withhold and pay to the
Commissioner for SARS. But his or her liability will be limited to the amount of his or her remuneration
or other payment for the services rendered by him or her in connection with the disposal of the
immovable property or the registration of transfer. He or she will be deemed to be a withholding agent
under the Tax Administration Act 28 of 2011.
The withholding tax does not apply if the amounts payable by the purchaser to the seller and to any
other person for or on behalf of the seller for the acquisition of the immovable property do not in
aggregate exceed R2 million. The withholding tax is also inapplicable to a deposit paid by a purchaser for
the purposes of securing the disposal of the immovable property by the seller until the
agreement for the disposal has become unconditional. In that event, an amount that would otherwise
have been withheld from the deposit must be withheld from the first following payments made by the
purchaser on account of the disposal.
For purposes of the withholding tax, ‘immovable property’ is the immovable property identified in
21.2 as being liable to the capital gains tax even when held by non-residents.
15.18 Foreign entertainers and sportspersons
ss 10(1)( l A), 47A–47K
Imposition of the tax (s 47B)
A non-resident ‘entertainer or sportsperson’, identified as the taxpayer, is liable to a final tax at the
rate of 15% on amounts derived by him or her or any other non-resident from a ‘specified activity’
exercised or to be exercised by the taxpayer or the other person. These amounts are otherwise tax free
(see below).
This special basis of taxation does not apply to an employee of an employer who is a resident (see 1.1), if
the employee is physically present in South Africa for a period or periods exceeding 183 full days in
aggregate during any twelve-month period commencing or ending during the tax year in which the
specified activity is exercised.
provides otherwise.
Obligation to withhold tax (s 47D)
As a resident liable to pay such an amount, you must deduct or withhold the tax for which the taxpayer
is liable. The amount that you deduct or withhold is nevertheless deemed to have been derived by the
person to whom you make the reduced payment.
Payment of amounts deducted or withheld (ss 47E, 47F, 47G)
You must pay the amount deducted or withheld to the Commissioner for SARS together with a return
before the end of the month following that during which it was deducted or withheld. The payment is a
payment made on behalf of the taxpayer, on account of his or her liability for the tax (see below).
Should you fail to deduct or withhold tax or deduct or withhold tax but fail to pay it over to the
Commissioner for SARS, you will be personally liable for payment of the relevant amount of tax, which
may be recovered from you as if it were a tax due by you personally. Your personal liability for failing to
deduct or withhold the tax will fall away when the taxpayer concerned has paid to the Commissioner the
tax that you failed to deduct or withhold.
Currency of payment (s 47J)

If an amount deducted or withheld by a resident is denominated in a currency other than the SA rand,
the amount deducted or withheld and paid to the Commissioner for SARS must be translated to SA rand
at the spot rate (see 10.74) on the date on which the amount was deducted or withheld.
Obligation of foreign entertainer or sportsperson (ss 47C, 47F)
The foreign entertainer or sportsperson must pay the tax to the Commissioner for SARS, together with a
return, within thirty days (or a longer period approved by the Commissioner for SARS) after an amount
is derived by him or her, unless the resident from whom the amount was derived has deducted or
withheld the full amount due or the tax has been recovered from the resident in his or her personal
capacity.
Reporting obligation (s 47K)
A resident who is primarily responsible for founding, organizing or facilitating a specified activity in
South Africa and will be rewarded directly or indirectly for that function of founding, organizing or
facilitating must, in the prescribed manner and form, notify the Commissioner for SARS of the specified
activity within fourteen days after the agreement relating to the founding, organizing or facilitating of
that specified activity has been concluded and provide the Commissioner with any other details required
by him.
Definitions (s 47A)
An ‘entertainer or sportsperson’ is a person who for reward performs an activity as a theatre, motion
picture, radio or television artiste or a musician, takes part in any type of sport, or takes part in any
other activity that is usually regarded as of an entertainment character.
A ‘specified activity’ is a personal activity exercised in South Africa or to be exercised by a person as an

entertainer or sportsperson, whether alone or with any other person or persons.
Normal tax exemption (s 10(1)( lA))
An amount derived by a non-resident is exempt from normal tax if the amount is subject to the
withholding tax on foreign entertainers and sportspersons.
15.19 Non-residents – withholding tax on interest
ss 50A–50H
Levy of withholding tax on interest (s 50B)
What is levied is the withholding tax on interest, calculated at the rate of 15% of the amount of interest
paid by a person to or for the benefit of a ‘foreign person’ to the extent that the amount has a statutory
source within South Africa (see 15.7):
• interest under the day-by-day interest rule (see 7.8) attributable to an amount incurred by a resident,
unless the interest is attributable to a permanent establishment (see 10.74) situated outside South
Africa, or is derived from the use or application in South Africa by a person of funds or credit obtained
under any form of interest-bearing arrangement.
Such interest is otherwise tax free (see 15.14).

provides otherwise.
For the purposes of the withholding tax, interest is deemed to be paid on the earlier of the date on which
the interest is paid and the date it becomes due and payable. And it is a final tax.
When a person making payment of any amount of interest to or for the benefit of a foreign person has
withheld tax, the person is for the purposes of the withholding tax deemed to have paid the amount
withheld to the foreign person.
Liability for tax (s 50C)
A foreign person to which an amount of interest is paid is liable for the withholding tax on interest, to
the extent that the interest is regarded as having been derived by the foreign person from a source
within South Africa under the deemed-source rule described above.
When an amount of withholding tax on interest is withheld and paid, the amount withheld is regarded as
an amount that is paid on account of the foreign person’s liability for the tax.
Exemptions from withholding tax on interest (s 50D)
An amount of interest is exempt from the withholding tax on interest if it is paid to a foreign person by:
• A bank, the South African Reserve Bank, the Development Bank of Southern Africa or the Industrial
Development Corporation.
• A headquarter company (see 16.36) for the granting of financial assistance for purposes of the
transfer-pricing rules (see 16.37) to which the transfer-pricing rules do not apply as a result of a
specified exclusion.
Also exempt is an amount of interest paid to a foreign person on a listed debt.
Also exempt is interest payable under the Financial Markets Act 19 of 2012 to a foreign person that is a
‘client’ for purposes of that Act.
Exempt as well is interest paid to a foreign person on a debt owed by another foreign person, unless the
other foreign person is a natural person who was physically present in South Africa for a period
interest is paid, or the debt claim on which the interest is paid is effectively connected with a permanent
establishment of that other foreign person in South Africa and that other foreign person is registered as
a taxpayer.
Also exempt is interest paid to:
• The African Development Bank, established on 10 September 1964.
• The World Bank, established on 27 December 1945, including the International Bank for
Reconstruction and Development and International Development Association.
And also exempt is interest included in the income (see 1.1) of a resident (see 1.1) as is attributable to a
donation, settlement or other disposition made by a resident resulting in an amount being derived by a
non-resident that would have been income had the non-resident been a resident (see 11.7).
• The International Monetary Fund, established on 27 December 1945.
• The African Import and Export Bank, established on 8 May 1993.
• The European Investment Bank, established on 1 January 1958 under the Treaty of Rome.
• The New Development Bank, established on 15 July 2014.
Interest paid to a foreign person on an amount advanced by the foreign person to a bank will not be
exempt from the withholding tax on interest if it is advanced in the course of an arrangement, a
transaction, an operation or a scheme to which the foreign person and another person are parties and
under which the bank advances an amount to the other person on the strength of the amount advanced
by the foreign person to the bank.
A foreign person will be exempt from the withholding tax on interest if:
• the foreign person is a natural person who was physically present in South Africa for a period
interest is paid; or
• the debt claim on which the interest is paid is effectively connected with a permanent establishment
(see 10.74) of the foreign person in South Africa, and the foreign person is registered as a taxpayer in
South Africa.
This type of interest is excluded from the interest exemption available to non-residents (see 15.14).
Withholding of withholding tax on interest by payers of interest (s 50E) A person paying an amount
of interest to or for the benefit of a foreign person must withhold the withholding tax from the payment.
But no withholding is required from such a payment:
• to the extent that the interest is exempt from the withholding tax on interest; or
• if the foreign person to or for the benefit of which the payment is to be made has, before the interest is
paid, submitted to the person making the payment a declaration in the prescribed form, to the effect that
the foreign person is exempt from the withholding tax on interest on the payment under one of the
exemptions listed above or under a double taxation agreement (see 18.10). Also required is a written
undertaking in the prescribed form, promising forthwith to inform
the person making the payment, in writing, should the circumstances affecting the exemption change or
should the payment of the interest no longer be for the foreign person’s benefit.
The rate of the withholding tax must be reduced if the foreign person to or for the benefit of which the
payment of interest is to be made has, before the interest is paid, by the date of the payment, submitted
to the person making the payment a declaration in the prescribed form that the interest is subject to the
reduced rate of tax as a result of the application of a double taxation agreement. Also required is a
written undertaking in the prescribed form, promising forthwith to inform the person making the
payment, in writing, should the circumstances affecting the exemption change or should the payment of
the interest no longer be for the foreign person’s benefit.
From 1 July 2020: The validity of such declarations and written undertakings expire after a period of
five years from the date of the declaration. An exception to this invalidity rule applies if the person
making the payment is subject to the provisions of the Financial Intelligence Centre Act 38
of 2001, the Agreement Between the Government of the Republic of South Africa and the Government of
the United States of America to improve International Tax Compliance and to Implement the US Foreign
Account Tax Compliance Act, or the regulations for purposes of para ( a) of the definition of
‘international tax standard’ in s 1 of the Tax Administration Act 28 of 2011, with regard to the foreign
person for whose benefit the payment is to be made and takes account of these provisions in monitoring
the continued validity of the declaration.
Payment and recovery of tax (s 50F)
A foreign person liable for an amount of withholding tax on an amount of interest paid to or for the
benefit of the foreign person must pay the amount of withholding tax and submit a return by the last day
of the month following the month during which the interest is paid, unless the tax has been paid by some
other person.
A person withholding withholding tax on interest must submit a return and pay the tax to the
Commissioner for SARS by the last day of the month following the month during which the interest is
paid.
A person paying withholding tax on interest due and payable but not actually paid, must submit a return
by the last day of the month following the month during which the interest became due and payable.
Refund of withholding tax on interest (s 50G)
Despite the provisions of the Tax Administration Act 28 of 2011 dealing with refunds by SARS, if:
• an amount is withheld from a payment of an amount of interest,
• the required declaration on an exemption or a reduced rate under a double taxation agreement (see
18.10) relevant to the interest is not submitted to the person paying the interest by the date of its
payment, and
• the required declaration is then submitted to the Commissioner for SARS within three years after the
payment of the interest on which the declaration is made,
so much of the amount as would not have been withheld had the declaration been submitted by the
required date is refundable by the Commissioner for SARS to the person to which the interest was paid.
A refund must also be made when the withholding tax on interest is paid on interest that is due and
payable but subsequently becomes irrecoverable.
Currency of payments made to Commissioner (s 50H)
If an amount withheld by a person is denominated in a currency other than SA rand, the amount
withheld must, for the purposes of the determination of the amount to be paid to the Commissioner for
SARS, be translated to South African currency at the spot rate (see 10.74) on the date on which the
amount was withheld.

Definitions (s 50A)
‘Bank’ is a ‘bank’ or ‘branch’ as defined in s 1 of the Banks Act 94 of 1990, a ‘mutual bank’ as defined in s
1 of the Mutual Banks Act 124 of 1993, or a ‘co-operative bank’ as defined in s 1 of the Co-operative
Banks Act 40 of 2007.
‘Development Bank of Southern Africa’ is the Development Bank of Southern Africa Limited,
incorporated under the Development Bank of Southern Africa Act 13 of 1997.
‘Foreign person’ is a person that is not a resident.
‘Goods’ are any corporeal movable thing.
‘Industrial Development Corporation’ is the Industrial Development Corporation of South Africa

Limited, registered under the Industrial Development Corporation Act 22 of 1940.
‘Interest’ is interest as contemplated in targeted aspects of the special timing and valuation rules for
interest (see 7.8).
‘Listed debt’ is a debt listed on a recognized exchange for capital gains tax purposes (see Chapter 21).
15.20 Non-residents – withholding tax on dividends
see 9.5
15.21 Immigrants to South Africa
On becoming a resident (see 1.1), you will find that your tax position may change in a number of ways.
The more important aspects of your resulting liability for South African tax are that:
• Your worldwide income will become subject to tax here, subject to the same exemptions and reliefs
available to any other resident (see 1.1).
• Your foreign dividends will become taxable, unless you qualify for an exemption (see 9.4).
• You will pay tax on your proportionate amount of the profits of your controlled foreign companies
(CFCs), unless you qualify for an exemption (see 15.2).
• Your qualifying interest from domestic sources will no longer be tax-free (see 15.14), and you will no
longer be subject to the withholding tax on interest (see 15.19)
• Your net royalty income and payments for know-how from South Africa will be taxed in full, that is,
after the deduction of relevant expenses; you will no longer pay tax at the stipulated rate of the gross
amounts; and tax will no longer be deducted by the payer (see 15.16).
• Your income derived as a seller of immovable property in South Africa will not be subjected to the
withholding tax (see 15.17). In addition, you will be subject to the capital gains tax on a much wider
basis than when you were a non-resident (see 21.2).
But you need not immigrate in order to change your tax status. All that is required is that you become a
resident.
Special rules also apply to companies that ‘immigrate’ here.
15.22 Emigrants from South Africa

Emigrants from South Africa are required to obtain a tax clearance from their local SARS office before
they may finalize arrangements for their departure. Such a clearance ensures that they have met all of
their outstanding liability for tax or have provided adequately to meet that liability.
These are the more important ways in which your liability for South African tax will change once you
cease to be a resident:
• Only your income from a South African source will be taxable here, subject to the same exemptions and
reliefs available to any other non-resident (see earlier in this Chapter 15).
• Your foreign dividends will be tax-free (see 9.4).
• Your proportionate amount of the profits of your controlled foreign companies (CFCs) will no longer
be taxable (see 15.2).
• Your interest from qualifying investments will be tax-free (see 15.14), but you will be subject to the
withholding tax on interest (see 15.19).
• Your royalty income and payments for know-how from South Africa will be subjected to the stipulated
rate of withholding tax, and you will lose the benefit of all expenses or allowances (see 15.16).
• Your income derived as a seller of immovable property in South Africa will be subjected to the
withholding tax (see 15.17). In addition, you will be subject to the capital gains tax on a much narrower
basis than when you were a resident (see 21.2).
• Unless you are exempt, your dividends from South Africa will be subject to the withholding tax on
dividends (see 9.4).
But you need not emigrate in order to change your tax status. All that is required is that you cease to be a
resident (see 1.1).
Special rules also apply to companies that ‘emigrate’ from South Africa.
Special classes of taxpayers
16.1 Aircraft
owners
ss 10(1)( c G), 11( e), 12C, 23D, 33, 38
Straight-line depreciation (s 12C)
Aircraft owners are entitled to the 20% straight-line depreciation allowance (see 10.63). In order to
qualify, the aircraft must be owned by you or acquired by you as a purchaser under a qualifying
instalment credit agreement (see 5.4), and it must be brought into use for the first time by you for the
purposes of your trade (see 10.14).
Ordinary depreciation (ss 11( e), 23D)

Aircraft not qualifying for 20% straight-line depreciation might be subject to ordinary depreciation (see
10.14). As a depreciable asset (see 10.7), an aircraft is vulnerable to the limitation of allowances (see
8.5) applicable when such an asset is let or licensed by a taxpayer to a lessee or licensee and was held
within a period of two years preceding the commencement of the lease or licence by the lessee or
licensee or by a sub-lessee or sub-licensee or by a person that at any time during that period was the
lessee’s, licensee’s, sub-lessee’s or sub-licensee’s connected person (see 10.27).
Non-resident owners or charterers (ss 10(1)( cG), 33, 38) Owners or charterers of aircraft that are
not residents (see 1.1) are exempt from tax on their receipts and accruals derived from carrying on
business as owners or charterers of aircraft if a similar exemption or equivalent relief is granted by their
country of residence to South African residents for any tax imposed by that country on income derived
from the carrying on of such a business.
Non-resident owners or charterers of aircraft are usually treated as having derived a taxable income
(see 2.3) from this source – apart from taxable income from other sources – equal to 10% of freight
received from the embarking of passengers or loading of livestock, mails and goods in South Africa. They
are alternatively free to render accounts satisfactorily disclosing their taxable income from this source.
This type of tax is colloquially referred to as a ‘liftings tax’. Special provisions apply when such an owner
or charterer is not adequately represented in South Africa. A company paying tax on this basis is
recognized as a public company for tax purposes (see 14.7).
Any other income (see 1.3) from South African sources is taxed in the normal way.
South Africa has entered into agreements with several countries in order to avoid double taxation on
profits from the operation of aircraft (see 18.10).
16.2 Approved institutions, boards and bodies and
s 10(1)( c A)
associations, corporations and companies
An approved institution, board or body is exempt from tax on all its receipts and accruals.
In order to qualify for approval, the institution, board or body must be established by or under a law. In
addition, in the furtherance of its sole or principal object it must conduct scientific, technical or
industrial research, provide necessary or useful commodities, amenities or services to the State, a
provincial administration or members of the general public, or carry on activities – including the
rendering of financial assistance by way of loans or otherwise – designed to promote commerce,
industry or agriculture or any branch of commerce, industry or agriculture.
282
SPECIAL CLASSES OF TAXPAYERS 283
Excluded is a company (see 14.1) registered or treated as being registered under the Companies Act 61
of 1973 or the Companies Act 71 of 2008, a co-operative (see 14.1), a close corporation (see 14.10), and
a trust (see 11.7) or ‘water services provider’.
Also exempt from tax on all its receipts and accruals is an approved association, a corporation (not a
close corporation) or a company with operations that are ancillary or complementary to the object of an
exempt institution, board or body described immediately above. But a company will qualify only if it is a
company identified in the first category of a ‘company’ in 14.1 that is wholly owned by such an exempt
institution, board or body.
A qualifying institution, board or body under the first exemption or association, corporation or company
under the second must be approved by the Commissioner for SARS. In approving it, he may set
conditions he considers necessary to ensure that its activities are wholly or mainly directed to the
furtherance of its sole or principal object. Further requirements govern the distribution of its profits or
gains, the use of its funds, the consequences of its dissolution, and a failure to comply with these
requirements.
16.3 Business
entities
ss 1, 10(1)( c Q), (z K), 23O, 30C,
4th Sch para 1, 8th Sch para 63B
Small Business Funding Entities and Small, Medium and Micro-Sized Entities Definitions (s 1)
A ‘small business funding entity’ (SBFE) is an entity, approved by the Commissioner for SARS
under the rules described below.
A ‘small, medium or micro-sized enterprise’ (SMME) is a person qualifying as a micro business (see
16.15) or a ‘small business corporation’ (see 16.33).
Exemption (s 10(1)( cQ), ( zK))
An SBFE is exempt from normal tax (see 1.2) to the extent that its receipts and accruals are derived
otherwise than from a business undertaking or trading activity. But an exception allows receipts and
accruals from a business undertaking or trading activity that is integral and directly related to its sole or
principal object, carried out or conducted on a basis substantially the whole of which is directed towards
the recovery of cost, and not resulting in unfair competition with taxable entities.
The undertaking or activity must, in addition, be of an occasional nature, and undertaken substantially
with assistance on a voluntary basis, without compensation. And it must be approved by the Minister of
Finance by notice in the Government Gazette, having regard to the following factors:
• The scope and benevolent nature of the undertaking or activity.
• The direct connection and interrelationship of the undertaking or activity with the sole or principal
object of the SBFE.
• The profitability of the undertaking or activity.
• The level of economic distortion that may be caused by the tax exempt status of the SBFE
carrying out the undertaking or activity.
Receipts and accruals from other undertakings or activities, which would otherwise not be allowed, are
then made permissible, to the extent that they do not exceed the greater of:
• 5% of the SBFE’s total receipts and accruals during the relevant tax year; and
• R200
000.
Amounts derived by an SMME from a SBFE are exempt from normal tax.
284 SPECIAL CLASSES OF TAXPAYERS
Requirements for approval (s 30C(1))
In order to achieve approval by the Commissioner for SARS for the purposes of the above exemption
from normal tax, an SBFE’s constitution or written instrument must satisfy a long list of requirements,
not dealt with here. In addition:
• It must be a trust (see 11.7), an association of persons or a ‘non-profit company’ as defined in s 1
of the Companies Act 71 of 2008 that has been incorporated, formed or established in South Africa.
• Its sole or principal object must be the provision of funding for SMMEs.
• The funding must be for the benefit, of or widely accessible to SMMEs, and must be provided on a non-
profit basis and with an altruistic or philanthropic intent, not intended to directly or indirectly promote
the economic self-interest of any fiduciary or employee of the SBFE, otherwise than by way of
reasonable remuneration.
• The SBFE must have submitted to the Commissioner for SARS a copy of the constitution or written
instrument under which it has been established.
Loss of approval (s 30C(2), (3), (4))
The Commissioner for SARS will notify a SBFE that he intends to withdraw its approval if it fails to take
corrective steps within the period stated in his notice. He will do so if the SBFE ( a) has, during a
particular tax year, in any material respect or ( b) has, during any tax year, on a continuous or repetitive
basis failed to comply with the requirements governing approval or with its constitution or written
instrument, to the extent that its constitution or written instrument relates to its approval.
Should it fail to take the required corrective steps, the Commissioner for SARS will withdraw its
approval, with effect from the commencement of the relevant tax year.
It must then, within six months after the date of the withdrawal (or a longer period allowed by the
Commissioner for SARS) transfer or take reasonable steps to transfer its remaining assets to a SBFE,
public benefit organization, institution, board or body or the South African government, as provided for
in its constitution or written instrument.
Winding-up or liquidation (s 30C(5))
An SBFE that is wound up or liquidated must, as part of the process, transfer its assets remaining after
the satisfaction of its liabilities to a SBFE, public benefit organization, institution, board or body or the
South African government, as provided for in its constitution or written instrument.
Sanctions (s 30C(6), (7))
Should an SBFE fail to respond in the required manner following upon its loss of approval or winding-up
or liquidation, an amount equal to the market value of the assets not transferred as required, less an
amount equal to its bona fide liabilities, will be deemed to be an amount of taxable income (see 2.3)
derived by it during the tax year in which the withdrawal of approval or the winding-up or liquidation
took place.
A person in a fiduciary capacity responsible for the management of the SBFE who intentionally fails to
comply with these rules or with its constitution or written instrument that small business funding entity
is established, to the extent that its constitution or written instrument relates to these rules, will be
guilty of an offence and liable on conviction to a fine or to imprisonment for a period not exceeding
twenty-five months.
Capital gains tax (8th Sch para 63B)
An SBFE may disregard capital gains and capital losses on the disposal of an asset (see 21.12).
First, it must not have used the asset in carrying on a business undertaking or trading activity. Or
substantially the whole of its use must have been directed at ( a) a purpose other than the carrying
on of a business undertaking or trading activity, or ( b) directed at the carrying on of a business

undertaking or trading activity permitted by the exempting provision (see above) although not the one
pertaining to 5% of its total receipts and accruals and the R200 000 cap.
Provisional tax (4th Sch para 1)
An SBFE is excluded from the definition of a ‘provisional taxpayer’ and so does not pay provisional tax
(see 17.12).
Limitation of deductions (s 23O)
A series of rules come into play when an amount is derived by an SMME from an SBFE to fund
expenditure by the SMME:
• If the amount is used to fund the acquisition, creation or improvement of trading stock, or as a
reimbursement for expenditure incurred on its acquisition, creation or improvement, the deductible
expenditure incurred on the trading stock or an amount taken into account for the value of trading stock
(see 10.26) must be reduced to the extent that the amount is derived from the SBFE.
• If the amount is used to fund the acquisition, creation or improvement of an allowance asset, or as a
reimbursement of expenditure incurred on its acquisition, creation or improvement, the base cost for
capital gains tax purposes (see 21.5) of the allowance asset must be reduced to the extent that the
amount is derived for that purpose.
• If the amount is used to fund the acquisition, creation or improvement of an allowance asset or as a
reimbursement of expenditure incurred on the acquisition, creation or improvement of the asset, the
aggregate amount of the deductions or allowances allowable to the SMME for the allowance asset may
not exceed an amount equal to the aggregate of the expenditure incurred on the acquisition, creation or
improvement of the allowance asset, reduced by an amount equal to the sum of the amount derived
from the SBFE for that purpose and the aggregate amount of all deductions and allowances previously
allowed to the SMME on the allowance asset.
• If the amount is used to fund the acquisition, creation or improvement of any other asset or as a
reimbursement of expenditure incurred on the acquisition, creation or improvement of such an asset,
the base cost of the asset for capital gains tax purposes must be reduced to the extent that the amount
derived from the SBFE for that acquisition, creation or improvement.
• When an amount is derived by the SMME from the SBFE and none of the above situations applies to the
amount, any amount allowed to be deducted from the income of the SMME in the relevant tax year must
be reduced to the extent of the amount derived from the SMFE. To the extent that the amount derived
from the SMFE exceeds the amount allowed to be deducted under this rule, it is deemed to be an amount
derived from an SBFE during the following tax year.
An ‘allowance asset’ is an ‘asset’ as defined for capital gains tax purposes (see 21.2), other than trading
stock, for which a deduction or allowance is allowable for purposes other than the determination of a
capital gain or capital loss.
And ‘base cost’ is ‘base cost’ as defined for capital gains tax purposes (see 21.5).
16.4 Body corporates, share block companies
s 10(1)( e)
and similar associations
Special rules apply to:
• A body corporate under the Sectional Titles Act 95 of 1986.
• A ‘share block company’ as defined in the Share Blocks Control Act 59 of 1980.
• Any other association of persons that the Commissioner for SARS is satisfied, subject to conditions set
by him, has been formed solely for the purposes of managing the collective interests common to all its
members, including expenditure applicable to their common immovable property and the collection of
levies for which they are liable, and is not permitted to distribute its funds to anyone other than similar
associations. In addition, it may not knowingly be party to or knowingly permit itself to be used in
identified tax-avoidance schemes. For this purpose, an association of persons includes a ‘non-profit
company’ as defined in the Companies Act 71 of 2008. Excluded are all other
‘companies’ as defined in the Companies Act 71 of 2008, co-operatives, close corporations (see 14.10)
and trusts (see 11.7).
Levies derived by a body corporate from its members, by a share block company from the holders of its
shares (see 14.1) or by a qualifying association from its members are exempt from income tax.
Also exempt are the receipts and accruals other than levies derived by a body corporate, a share block
company or a qualifying association up to an amount of R50 000, presumably per tax year.
16.5 Business, professional and occupational
ss 10(1)( d)(iv), 30B
associations
Exemption (s 10(1)( d)(iv))
A company (see 14.1), society or other association of persons established to promote the common
interests of its members carrying on a particular kind of business, profession or occupation will be
exempt from tax on all of its receipts and accruals, as long as it is approved by the Commissioner for
SARS.
Approval (s 30B)
The Commissioner must approve an ‘entity’ for the purposes of the exemption if it has submitted to him
a copy of the constitution or written instrument under which it has been established. The constitution or
written instrument must provide for the following things:
• The entity must have a committee, board of management or similar governing body consisting of at
least three persons, who are not connected persons (see 10.27) of each other, to accept the fiduciary
responsibility of the entity.
• No single person may directly or indirectly control the entity’s decision-making powers.
• The entity may not directly or indirectly distribute any of its funds or assets to a person other than in
the course of furthering its objectives. (This rule does not apply to a ‘mutual loan association’; see
16.9.)
• The entity must be required to use substantially the whole of its funds for the sole or principal object
for which it has been established.
• No ‘member’ may directly or indirectly have any personal or private interest in the entity. (This rule
does not apply to a mutual loan association; see 16.9).
• Substantially the whole of the entity’s activities must be directed to the furtherance of its sole or
principal object and not for the specific benefit of an individual member or minority group.
• The entity may not have a share or other interest in any business, profession or occupation carried on
by its members.
• The entity may not pay to its employee, office bearer, member or other person ‘remuneration’ as
defined for PAYE purposes (see 17.3) that is excessive in relation to what is generally considered
reasonable in the sector and the service rendered.
• Substantially the whole of the entity’s funding must be derived from its annual or other long-term
members or from an appropriation by the government of South Africa in the national, provincial or local
sphere.
• The entity must as part of its dissolution transfer its assets to another entity approved by the
Commissioner for SARS for the purposes of this approval process, an approved public benefit
organization (see 16.27), a qualifying exempt institution, board or body (see 16.2) or the government of
South Africa in the national, provincial or local sphere.
• The persons comprising the committee, board of management or governing body must submit any
amendment of the entity’s constitution or written instrument to the Commissioner for SARS
within thirty days of its amendment.
• The entity must comply with reporting requirements determined by the Commissioner for SARS
from time to time.

• The entity may not knowingly and will not knowingly become a party to and does not knowingly and
will not knowingly permit itself to be used as part of an impermissible avoidance arrangement or a tax-
avoidance transaction, operation or scheme (see 18.8).
When the entity’s constitution or written instrument does not comply with these requirements the
Commissioner for SARS may deem it to comply if the person who has accepted fiduciary responsibility
for its funds and assets furnishes the Commissioner with a written undertaking that it will be
administered in compliance with the requirements.
When the Commissioner for SARS is satisfied that an entity that has been approved has during a tax year
in any material respect or on a continuous or repetitive basis failed to comply with these rules or with
the constitution or written instrument under which it was established to the extent that it relates to
these rules, he must notify the entity that he intends to withdraw its approval if corrective steps are not
taken by it within the period stated in the notice. If no corrective steps are taken by the entity, the
Commissioner must withdraw approval of the entity with effect from the commencement of the relevant
tax year.
If the Commissioner for SARS has withdrawn the approval of an entity, it must within six months after
the date of the withdrawal of approval (or a longer period allowed by the Commissioner) transfer, or
take reasonable steps to transfer, its remaining assets to a qualifying entity, public benefit organisation,
institution, board or body or the government in the national, provincial or local sphere, as identified in
its constitution or written instrument.
If an entity is wound up or liquidated, it must, as part of the winding-up or liquidation, transfer its assets
remaining after the satisfaction of its liabilities to another qualifying entity, public benefit organisation,
institution, board or body or the government in the national, provincial or local sphere, as identified in
its constitution or written instrument.
Should it fail to transfer or to take reasonable steps to transfer its assets as required, an amount equal to
the market value of the assets that have not been transferred, less an amount equal to its bona fide
liabilities, will be deemed to be an amount of taxable income (see 2.3) that accrued to it during the tax
year in which the withdrawal of approval or the winding-up or liquidation took place.
Any person who is in a fiduciary capacity responsible for the management or control of the income and
assets of an approved association and intentionally fails to comply with any of these requirements or of
its constitution or written instrument, to the extent that it relates to these requirements, will be guilty of
an offence and liable on conviction to a fine or to imprisonment for a period not exceeding twenty-four
months.
An ‘entity’ is:
• A mutual loan association, fidelity or indemnity fund, trade union, chamber of commerce or industry
(or an association of such chambers) or local publicity association approved by the Commissioner for
SARS.
• A ‘non-profit company’ as defined in s 1 of the Companies Act 71 of 2008, society or other association
of persons established to promote the common interests of its members carrying on a particular kind of
business, profession or occupation approved by the Commissioner for SARS.
A ‘member’ of a fidelity or indemnity fund includes a contributor to that fund.

A ‘mutual loan association’ is an association of which the sole or principal object is to function as a
voluntary savings association where participants make regular contributions into a common pool
managed by the members for the mutual financial benefit of those members.
16.6 Clubs
See 16.29 for the current basis of taxation of recreational clubs.
16.7 Collective investment schemes
ss 1, 10(1)( i B),
25BA
Collective investment schemes in securities and foreign collective investment schemes (s 1) What
is very cumbersomely referred to as a portfolio comprised in a collective investment scheme in
securities contemplated in the Collective Investment Schemes Control Act 45 of 2002 managed or
carried on by a company registered as a manager under that Act is in law a trust (see 11.7).
This type of entity was previously colloquially referred to as an equity unit trust or mutual fund. In this
book it is referred to as a ‘collective investment scheme in securities’ or an ‘equity unit trust’ or
‘unit trust’.
Yet the definition of a ‘company’ (see also 14.1) still includes a portfolio comprised in an investment
scheme carried on outside South Africa that is comparable to a portfolio of a collective investment
scheme in participation bonds or a portfolio of a collective investment scheme in securities in pursuance
of an arrangement under which members of the public (as defined in s 1 of the Collective Investment
Schemes Control Act 45 of 2002) are invited or permitted to contribute to and hold participatory
interests in the portfolio through shares, units or any other form of participatory interest. This type of
arrangement or scheme is referred to in this book as a ‘foreign collective investment scheme’ or ‘foreign
unit trust’. It follows that, while a local collective investment scheme in securities is currently a trust, a
foreign collective investment scheme is a ‘company’ for tax purposes. The investors involved are
referred to in this book as ‘interest-holders’ or, more formally, as
‘holders of participatory interests’.
For the purposes of the definition of a ‘connected person’ (see 10.27) only, a portfolio of a collective
investment scheme is treated as a company and not a trust. And all collective investment schemes are
treated as ‘persons’ (see 11.1).
The Income Tax Act in fact envisages five types of collective investment scheme, namely, a portfolio of a
collective investment scheme in participation bonds. a portfolio of a collective investment scheme in
property, a portfolio of a collective investment scheme in securities, a portfolio of a declared collective
investment scheme and a portfolio of a hedge fund collective investment scheme. These are defined as
follows:
In the first place, a ‘portfolio of a collective investment scheme’ is a portfolio of a collective

investment scheme in participation bonds, portfolio of a collective investment scheme in property,
portfolio of a collective investment scheme in securities or portfolio of a declared collective investment
scheme;
A ‘portfolio of a collective investment scheme in participation bonds’ is a portfolio comprised in a
collective investment scheme in participation bonds contemplated in Part VI of the Collective
Investment Schemes Control Act 45 of 2002 that is managed or carried on by a company registered as a
manager under and for the purposes of that Part.
A ‘portfolio of a collective investment scheme in property’ is a portfolio comprised in a collective

investment scheme in property contemplated in Part V of the Collective Investment Schemes Control Act
45 of 2002 that is managed or carried on by a company registered as a manager under s 51
of that Act for the purposes of that Part. This type of collective investment scheme, when it
qualifies as a ‘REIT’ as defined in para 13.1(x) of the JSE Limited Listings requirements (see 16.30), is a
‘company’ as defined.
A ‘portfolio of a collective investment scheme in securities’ is a portfolio comprised in a collective

investment scheme in securities contemplated in Part IV of the Collective Investment Schemes Control
Act 45 of 2002 that is managed or carried on by a company registered as a manager under s 42 of that
Act for the purposes of that Part.
A ‘portfolio of a declared collective investment scheme’ is a portfolio comprised in a declared

collective investment scheme contemplated in Part VII of the Collective Investment Schemes Control Act
45 of 2002 that is managed or carried on by a company registered as a manager under s 64
of that Act for the purposes of that Part.
A ‘portfolio of a hedge fund collective investment scheme’ is a portfolio held by a hedge fund
business that qualifies as a declared collective investment scheme under s 63 of that Act.
Amounts derived by portfolios of collective investment schemes and interest-holders (s 25BA)
Any amount not of a capital nature (see 1.5) derived by a collective investment scheme, but not a
portfolio of a collective investment scheme in property, is, to the extent that it is distributed to a person
entitled to the distribution by virtue of being a holder of a participatory interest in the portfolio and is
distributed within twelve months after its accrual to, or, for interest, its receipt by, the portfolio, deemed
to have directly accrued to the person on the date of the distribution.
To the extent that the amount is not distributed within the twelve-month period allowed, it is deemed to
have accrued to the portfolio on the last day of the period of twelve months commencing on the date of
its accrual to, or its receipt by, the portfolio, and, to the extent that the amount is attributable to a
dividend (see 9.3) derived by the portfolio, is deemed to be the portfolio’s income.
When a portfolio of a hedge fund collective investment scheme is constituted as a partnership an

amount allocated by the portfolio to the partners in the partnership is treated as having been distributed
by the portfolio to the partners in that partnership by virtue of their being holders of participatory
interests in the portfolio.
The result is that a portfolio (but not a portfolio of a collective investment scheme in property) may
choose whether timeously to distribute its incomings to its interest-holders, who will then be regarded
as deriving the underlying interest or dividends, or to miss the deadline and be a taxpayer in its own
right. Should it make a distribution out of its taxed incomings, its interest-holders will enjoy the
exemption dealt with next.
Exemption (s 10(1)( iB)
An amount derived by a holder of a participatory interest in a collective investment scheme in securities

by way of a distribution that is deemed to have accrued to the collective investment scheme under the
above rule because it is not distributed within the twelve-month period allowed is exempt from tax in
the holder’s hands.
Taxation of REITs and interest-holders
For the position of portfolio of a collective investment scheme in property that is a REIT, and of its
interest-holders, see 16.30.
16.8 Co-operative societies
ss 1, 8(4)( a), 11( o), 12C, 27, 38(2)( d), 40B
Co-operatives (ss 1, 38(2)( d))
A ‘co-operative’ is an association of persons registered under s 27 of the Co-operatives Act 91
of 1981 or s 7 of the Co-operatives Act 14 of 2005. A co-operative is a ‘company’ as defined for tax
purposes (see 14.1). And it is recognized as a public company for tax purposes (see 14.7).
Agricultural co-operatives
Special taxation rules ( s 27)
An ‘agricultural co-operative’ is a ‘co-operative agricultural society or company’ or a ‘farmers’
special ‘co-operative company’, as defined in the Co-operative Societies Act 29 of 1939. In the
determination of its taxable income (see 2.3), on which it pays tax as a company, it is allowed the
following deductions:
• The amount of profits distributed by it to its members by way of bonuses, but limited to an amount
bearing to its qualifying taxable income the same ratio as the aggregate value of its business with its
members during the tax year bears to the aggregate value of all business conducted by it with its
members during that year. Bonuses distributed by the KWV out of a price-stabilization fund are not
deductible.
• A 2% annual allowance on qualifying storage buildings whose erection commenced before 1 January
1989 and on improvements, other than repairs, to storage buildings commenced before that date. This
allowance is calculated on the cost of the building or improvements as reduced by the now obsolete
17,5% storage building initial allowance. Double deductions are effectively ruled out.
• A 5% annual allowance on qualifying storage buildings whose erection commenced on or after 1

January 1989 and on improvements, other than repairs, to storage buildings commenced on or after that
date. This allowance is calculated on the cost of the building or improvements as reduced by the now
obsolete 17,5% storage building initial allowance. Again, double deductions are effectively ruled out.
• An allowance for losses as a result of damage to and deterioration of farm products held by the co-
operative on behalf of a control board established under the Marketing Act 59 of 1968. This allowance is
added back in the next tax year, when a fresh allowance may be claimed.
• The amount transferred by the KWV to a price-stabilization fund, subject to specified limitations.
The aggregate of the annual allowance on storage buildings and the general annual allowance on
buildings (see 10.18) is subject to a cap. When the annual allowance on storage buildings is recovered or
recouped (see 10.7), the amount involved may optionally be set off against the cost of a replacement
building.
Special rules apply when a new co-operative is formed through a conversion or the amalgamation of two
or more other co-operatives. When a co-operative is converted to a company the cooperative and the
company are treated as being and as having been one and the same company for tax purposes. One of
the results of this rule is that its allowances and deductions will be unaffected by the conversion.
The full amount of a bonus distributed by an agricultural co-operative is, to the extent that it qualifies for
deduction from the co-operative’s income (see 1.3) or, if it is distributed out of the KWV’s stabilization
fund, included in the gross income (see 1.1) of a member entitled to it, and is deemed to have been
derived by the member on the date of its distribution. For the purposes of these special rules, the
amount of a bonus distributed by way of capitalization shares or bonus debentures or securities shall is
deemed to be their nominal value.
A ‘bonus’ is an amount distributed by an agricultural co-operative out of its profits or surplus for a tax
year of assessment or an amount distributed out of the KWV’s stabilization fund, whether in cash or by
way of a credit or an award of capitalization shares or bonus debentures or securities. The amount must
be divided among the members entitled to it in such a manner that the amount accruing to each member
is determined in accordance with the value of the business transactions between the co-operative and
the member. A bonus out of profits or surplus must be distributed during the ‘specified period’ in
relation to the tax year.
‘Improvements’ to a storage building are an extension, addition or improvements (other than repairs)
to a storage building, effected for the purpose of increasing its capacity for storing or
packing pastoral, agricultural or other farm products or for carrying on a primary process involving such
products.
A ‘primary process’ is the first process to which a product produced in the course of pastoral,
agricultural or other farming operations is subjected by an agricultural co-operative, in order to render
it marketable or to convert it into a marketable commodity. It includes any further process carried on by
the co-operative so connected with the first process that the processes may be regarded as one process
and to be necessary to convert the product into a marketable commodity.
An agricultural co-operative’s ‘storage building’ is a building that, at a relevant time or during a

relevant period, is wholly or mainly used for storing or packing pastoral, agricultural or other products
produced by the co-operative’s members or for carrying on a primary process with such products.
Alternatively, it is a structure of a permanent nature that, at a relevant time or during a relevant period,
is wholly or mainly used by the co-operative in connection with the fattening of livestock on behalf of its
members. A rider caters for the members of a co-operative that itself is a member of a co-operative.
20% straight- line depreciation allowance ( s 12C)
This is available to an agricultural co-operative registered or deemed to be incorporated under the Co-
operatives Act 91 of 1981 or registered under the Co-operatives Act 14 of 2005. Qualifying machinery or
plant must be brought into use for the first time by the co-operative and used by it directly for storing or
packing pastoral, agricultural or other farm products of its members (including members of another
agricultural co-operative that is itself a member) or for subjecting such products to a primary process.
To qualify, the machinery or plant must be owned by the co-operative or acquired by it as a purchaser
under a qualifying instalment credit agreement (see 5.4).
Recoupments and scrapping allowance ( ss 8( 4)( a), 11( o))
These allowances are taxable if recovered or recouped (see 10.7). A scrapping allowance is available on
these buildings and improvements or parts of them and on the machinery or plant (see 10.58).
Co-operative trading societies (s 27(1))
A ‘co-operative trading society’ as defined in the Co-operative Societies Act 29 of 1939 also pays tax as a
company but a special deduction is allowed to ‘closed societies’ for bonuses distributed to members.
This deduction is limited to an amount equal to one-tenth of the value of the business done by the
society with its members during the relevant tax year.
Conversion of co-operative to company (s 40B)
A co-operative incorporated as a company under ss 161A or 161C of the Co-operatives Act 91
of 1981 or s 62 of the Co-operatives Act 14 of 2005 and the company so incorporated are deemed for
purposes of the Income Tax Act to be and to have been one and the same company.
16.9 Exempt bodies, associations and
s 10(1)( a), ( b A),( b B), ( c), ( c E),
persons
( c N), ( c Q), ( d), ( j), ( t), ( z E), ( z K) The following bodies, associations and persons are exempt from
tax:
• The government of South Africa in the national, provincial or local sphere – on all receipts and accruals.
• A sphere of government of a country other than South Africa – on all receipts and accruals.
• An institution or a body established by a foreign government, to the extent that it has been appointed
by that government to perform its functions under an official development assistance agreement that is
binding under s 231(3) of the Constitution of the Republic of South Africa, 1996, as long as the
agreement provides that its receipts and accruals must be exempt.
• A multi-national organization providing foreign donor funding under an official development

assistance agreement that is binding under s 231(3) of the Constitution of the Republic of South Africa,
1996, to the extent that its receipts and accruals are derived pursuant to the organization’s supplying
goods or rendering services in relation to projects approved by the Minister of Finance after
consultation with the Minister of Foreign Affairs; the agreement provides that the organization’s
receipts and accruals must be exempt, and the Minister announces that those receipts and accruals are
exempt by notice in the Government Gazette.
• The African Development Bank, established on 10 September 1964.
• The World Bank, established on 27 December 1945, including the International Bank for
Reconstruction and Development and International Development Association.
• The International Monetary Fund, established on 27 December 1945.
• The African Import and Export Bank, established on 8 May 1993.
• The European Investment Bank, established on 1 January 1958 under the Treaty of Rome.
• The New Development Bank, established on 15 July 2014.
• An ex-State President, an ex-Vice State President and their surviving spouses – on their pensions. A
President or ex-president elected under s 77 of the Constitution cannot qualify for this exemption.
• Qualifying officials of foreign governments – on their salaries and emoluments. They must hold office
in South Africa as an official of a foreign government, and be stationed but not ordinarily resident here.
• Qualifying domestic or private servants of such officials – on their salaries and emoluments for
domestic or private services rendered or to be rendered. They may not be South African citizens or
ordinarily resident here.
• Qualifying subjects of a foreign state temporarily employed in South Africa – on their salaries and
emoluments. The exemption must be authorized by an agreement entered into by the governments of
the foreign state concerned and South Africa.
• Qualifying subjects of a foreign state – on their salaries and emoluments, to the extent that the salary is
or the emoluments are paid by a qualifying institution or body, under the required agreement (third
exemption in this list); or a qualifying organization, for services rendered in relation to a qualifying
project (fourth exemption in this list). They may not be residents (see 1.1).
• A political party registered under s 15 of the Electoral Commission Act 51 of 1996 – on all its receipts
and accruals.
• An approved public benefit organization (PBO; see 16.27) – on all its receipts and accruals, except
those derived from business undertakings or trading activities. Nevertheless, the exemption is available
for amounts derived from a business undertaking or trading activity that is integral and directly related
to the PBO’s sole or principal object, is carried out or conducted on a basis substantially the whole of
which is directed towards the recovery of cost, and does not result in unfair competition in relation to
taxable entities; if the undertaking or activity is of an occasional nature and is undertaken substantially
with assistance on a voluntary basis without compensation; or if the undertaking or activity is
approved by the Minister by notice in the Government Gazette, having regard to the scope and
benevolent nature of the undertaking or activity, its direct connection and interrelationship with the
PBO’s sole or principal object, the profitability of the undertaking or activity and the level of economic
distortion that may be caused by the tax exempt status of the PBO carrying on the undertaking or
activity. But even the receipts and accruals from these permissible undertakings or activities will be
exempt from tax only if they do not exceed the greater of 5% of the PBO’s total receipts and accruals
during the tax year and R200 000.
• A ‘pension fund’, ‘pension preservation fund’, ‘provident fund’, ‘provident preservation fund’,
‘retirement annuity fund’ or a ‘beneficiary fund’ – on all its receipts and accruals.
• A ‘benefit fund’– on all its receipts and accruals.
• A mutual loan association, fidelity or indemnity fund, trade union, chamber of commerce or industries
(or an association of such chambers) or local publicity association approved by the Commissioner for
SARS (see 16.5) – on all its receipts and accruals.
• A bank that is not a resident of the Republic (an obsolete concept) and is, effectively, a foreign reserve
bank – on all its receipts and accruals.
• The Council for Scientific and Industrial Research, the South African Inventions Development
Corporation, the South African National Roads Agency Ltd, the Armaments Corporation of South Africa
Ltd and its qualifying wholly-owned subsidiary companies – on all their receipts and accruals.
Compliance with the reporting requirements prescribed by the Commissioner for SARS is essential.
• A traditional council or traditional community established or recognized or deemed to have been

established or recognized under the Traditional Leadership and Governance Framework Act 41
of 2003 or a ‘tribe’ as defined in s 1 of that Act – on all its receipts and accruals. Compliance with the
reporting requirements prescribed by the Commissioner for SARS is essential.
• A ‘water services provider’ – on all its receipts and accruals. Compliance with the reporting
requirements prescribed by the Commissioner for SARS is essential.
• The Development Bank of Southern Africa established on 23 June 1983 – on all its receipts and
accruals. Compliance with the reporting requirements prescribed by the Commissioner for SARS
is essential.
• The compensation fund established by s 15 of the Compensation for Occupational Injuries and
Diseases Act 130 of 1993 – on all its receipts and accruals. Compliance with the reporting requirements
prescribed by the Commissioner for SARS is essential.
• The reserve fund established by s 19 of the Compensation for Occupational Injuries and Diseases Act
130 of 1993 – on all its receipts and accruals. Compliance with the reporting requirements prescribed by
the Commissioner for SARS is essential.
• A mutual association licensed under s 30 of the Compensation for Occupational Injuries and Diseases
Act 130 of 1993 to carry on the business of insurance of employers against their liabilities to employees,
as long as the compensation paid by it is identical to compensation that would have been payable in
similar circumstances under that Act – on all its receipts and accruals.
Compliance with the reporting requirements prescribed by the Commissioner for SARS is essential.
• The National Housing Finance Corporation established in 1996 by the National Department of Human
Settlements. Compliance with the reporting requirements prescribed by the Commissioner for SARS is
essential.
• The Small Business Development Corporation Ltd – on a subsidy or assistance payable by the State.
16.10 Film owners – exemption/deduction

s 12O
Qualification (s 12O(2))
The receipts and accruals by way of income derived from the ‘exploitation rights’ of a ‘film’ are exempt
from normal tax:
• if the ‘National Film and Video Foundation’ has approved the film under s 3( c) read with s 4(1) of the
National Film and Video Foundation Act 73 of 1997 as a local production or co-production under which
a film is co-produced under an international co-production agreement between the South African
government and the government of another country, provided that the agreement is subject to the
Constitution;
• if income is derived from the exploitation rights of the film by a person that acquired the exploitation
rights of the film before the date that the principal photography of the film commenced, or by a person
that acquired the exploitation rights of the film after the date on which principal photography of the film
commenced but before the film’s completion date if consideration for the exploitation rights was not
directly or indirectly paid or applied for the benefit of the first type of person; and
• to the extent that the income is derived within a period of ten years after the film’s completion date.
Exclusion (s 12O(3))
No exemption is allowed to a person that is a ‘broadcaster’ as defined in s 1 of the Broadcasting Act 4 of

1999 or such a person’s connected person (see 10.27).
Reporting (s 12O(4))
A special purpose corporate vehicle or collection account manager managing exploitation rights under a
collection account management agreement approved by the Minister of Finance for the purpose of this
exemption by notice in the Government Gazette must provide a report to the National Film and Video
Foundation containing such information, within such time, and in such manner as is prescribed by the
Minister when income arising from exploitation rights of a film is distributed to a person within a period
of ten years commencing from the film’s completion date.
The National Film and Video Foundation must provide a report annually to the Minister on of all films
approved in the manner just described containing such information, within such time, and in such
manner as is prescribed by the Minister for a period of ten years commencing from the completion date
of a film if income is derived from the film and is eligible for this exemption.
Deduction (s 12O(5))
A taxpayer may deduct from its income an amount relating to expenditure incurred to acquire
exploitation rights in a film. The amount of the deduction is equal to the amount of expenditure so
incurred, less any amount derived during any tax year from the film.
No deduction may be made to the extent that the expenditure was funded from a loan, credit or similar
financing.
The deduction may be made only in a tax year commencing at least two years after the film’s completion
date, to the extent that the amount of expenditure incurred exceeds the total amount derived by the
taxpayer from the exploitation rights.
Both the exemption and the deduction cease to apply to income derived from a film in a tax year
subsequent to the date of a deduction made on account of the film.
Further exemption (s 12O(5))
In addition to the exemption, an amount derived by a special purpose corporate vehicle by way of a
grant payable by the State under the South African Film and Television Production and Co-production
Incentive administered by the Department of Trade and Industry is exempt from normal tax, subject to
the usual recoupment rules (see 10.7).
When a special purpose corporate vehicle derives such a grant and pays the whole or any portion of the
amount of the grant to another person pursuant to exploitation rights in the film this second exemption
applies to the amount derived by the other person to the extent that the amount does not exceed any
amount that the other person contributed to the production of the film.
Definitions (s 12O(1))
‘Completion date’ is the date on which a qualifying film is for the first time in a form in which it can be
regarded as ready for copies of it to be made and distributed for presentation to the general public.
‘Exploitation rights’ is the right to any receipts and accruals arising from the use of, the right of use of
or the granting of permission to use a film, to the extent that the receipts and accruals are wholly
dependent on profits and losses from the film.
‘Film’ is a feature film, a documentary or documentary series or an animation conforming to the

requirements stipulated by the Department of Trade and Industry in the Programme Guidelines for the
South African Film and Television Production and Co-production Incentive.
‘National Film and Video Foundation’ is the National Film and Video Foundation established by the
National Film and Video Foundation Act 73 of 1997.
‘Special purpose corporate vehicle’ is a company responsible for the production of a film as required
by the Department of Trade and Industry under the Programme Guidelines for the South African Film
and Television Production and Co-production Incentive.
16.10A Government grants
ss 10(1)( y), 12P, 11th Sch
Government grants (s 12P)
An amount derived by a person as a beneficiary of a qualifying government grant is exempt from normal
tax (see 1.2). In order to qualify, a government grant must be listed in the Eleventh Schedule to the
Income Tax Act. Alternatively, it must be identified by the Minister of Finance by notice in the
Government Gazette for the purpose of exempting it, with effect from a date specified by the Minister in
the notice (including a date preceding the date of the notice). The Minister is required to have regard to
the implications of the exemption for the National Revenue Fund, and the question whether the tax
implications were taken into account in the allocation of the grant.
A further such exemption is available of an amount derived by a person from the Government in the
national, provincial or local sphere, when that amount is granted for the performance by the person of
its obligations pursuant to a Public Private Partnership (see 16.28), and the person concerned is
required under the Public Private Partnership to expend an amount at least equal to the amount derived
on improvements on land or to buildings owned by any sphere of government or over which any sphere
of government holds a servitude.
A special rule applies when, during a particular tax year, a person derives a government grant of either
type in cash (rather than in kind) for the acquisition, creation or improvement, or as a reimbursement
for expenditure incurred on the acquisition, creation or improvement, of trading stock (see 10.26) or an
allowance asset. The deductible expenditure incurred on the trading stock or an amount taken into
account for the value of trading stock (see 10.26), and the base cost for capital gains tax purposes (see
21.5) of an allowance asset must be reduced to the extent that the amount of that government grant is
applied for that purpose.
A further special rule applies when a person derives a government grant of either type for the
acquisition, creation or improvement of an allowance asset or as a reimbursement for expenditure
incurred on such an acquisition, creation or improvement. The aggregate amount of the deductions or
allowances allowable to the person on the allowance asset is capped, the maximum being set as:
Aggregate of the expenditure so incurred
Sum of the amount of the government grant and the aggregate amount of all deductions and allowances
previously allowed to the person on the allowance asset
A third special rule applies when, during a particular tax year, a person derives a government grant of
either type in cash (rather than in kind) for the purpose of the acquisition, creation or improvement of
some other type of asset or as a reimbursement for expenditure incurred for the acquisition, creation or
improvement of such an asset. The base cost of the asset must be reduced to the extent that the amount
of the government grant is applied for the acquisition, creation or improvement.
What happens when, during a particular tax year, a person derives a government grant of either type in
cash (rather than in kind) and none of these special rules applies? An amount allowed to be deducted
from the person’s income (see 1.1) under s 11 of the Income Tax Act (see Chapter 10) in that tax year
must be reduced to the extent of the amount of the government grant. And, to the extent that the amount
derived by way of the government grant exceeds the amount so allowed to be deducted, the excess is
deemed for this purpose to be an amount derived under the government grant during the following tax
year.
An ‘allowance asset’ is an ‘asset’ as defined for capital gains tax purposes (see 21.2), other than trading
stock, for which a deduction or allowance is allowable for purposes other than the determination of a
capital gain or capital loss.
‘Base cost’ is ‘base cost’ as defined for capital gains tax purposes (see 21.5).
A ‘government grant’ is a grant-in-aid, subsidy or contribution by the government of the Republic in

the national, provincial or local sphere.
Government grants exempt from normal tax (11th Sch)
1. Automotive Production and Development Programme received or accrued from the Department of
Trade and Industry.
2.
Automotive Investment Scheme received or accrued from the Department of Trade and Industry.
3.
Black Business Supplier Development Programme received or accrued from the Department of Trade
and Industry.
4.
Business Process Services received or accrued from the Department of Trade and Industry.
5.
Capital Projects Feasibility Programme received or accrued from the Department of Trade and Industry.
6.
Capital Restructuring Grant received or accrued from the Department of Human Settlements.
7.
Clothing and Textiles Competitiveness Programme received or accrued from the Department of Trade
and Industry.
8.
Co-operative Incentive Scheme received or accrued from the Department of Trade and Industry.
9. Critical Infrastructure Programme received or accrued from the Department of Trade and Industry.
10. Eastern Cape Jobs Stimulus Fund received or accrued from the Department of Economic
Development, Environmental Affairs and Tourism of the Eastern Cape.
11. Enterprise Investment Programme received or accrued from the Department of Trade and Industry.
12. Equity Fund received or accrued from the Department of Science and Technology.
13. Export Marketing and Investment Assistance received or accrued from the Department of Trade and
Industry.
14. Film Production Incentive received or accrued from the Department of Trade and Industry.
15. Food Fortification Grant received or accrued from the Department of Health.
16. Idea Development Fund received or accrued from the Department of Science and Technology.
17. Industrial Development Zone Programme received or accrued from the Department of Trade and
Industry.
18. Industry Matching Fund received or accrued from the Department of Science and Technology.
19. Integrated National Electrification Programme Grant: Non-grid electrification service providers
received or accrued from the Department of Energy.
20. Integrated National Electrification Programme: Electricity connection to households received or

accrued from the Department of Energy.
21. Jobs Fund received or accrued from the National Treasury.
22. Manufacturing Competitiveness Enhancement Programme received or accrued from the Department
of Trade and Industry.
23. Sector Specific Assistance Scheme received or accrued from the Department of Trade and Industry.
24. Small, Medium Enterprise Development Programme received or accrued from the Department of
Trade and Industry.
25. Small/Medium Manufacturing Development Programme received or accrued from the Department of
Trade and Industry.
26. South African Research Chairs Initiative received or accrued from the Department of Science and
Technology.
27. Support Programme for Industrial Innovation received or accrued from the Department of Trade and
Industry.
28. Taxi Recapitalization Programme received or accrued from the Department of Transport.
29. Technology Development Fund received or accrued from the Department of Science and Technology.
30. Technology and Human Resources for Industry Programme received or accrued from the
Department of Trade and Industry.
31. Transfers to the South African National Taxi Council received or accrued from the Department of
Transport.
32. Transfers to the University of Pretoria, University of KwaZulu-Natal and University of Stellenbosch
received or accrued from the Department of Transport.
33. Youth Technology Innovation Fund received or accrued from the Department of Science and
Technology.
Government grants and scrapping allowances (s 10(1)( y)) (obsolescent) Government grants or
government scrapping payments derived under a programme or scheme approved under the national
annual budget process and identified by the Minister of Finance by notice in the Government Gazette
with effect from a date (including a date preceding the date of the notice) specified by him in that notice
for this purpose are exempt and thus tax free.
The Minister must have regard to the question whether the programme or scheme meets government
policy priorities and objectives relating to the encouragement of economic growth and investment, the
promotion of employment creation, the development of public infrastructure and transport, the
promotion of public health, the development of innovation and technology, the provision of housing and
basic services, or the provision of relief of natural disasters.
He must also have regard to the extent to which the programme or scheme will support these policy
priorities and objectives, the financial implications for government should government grants or
government scrapping payments under the programme or scheme be exempt from tax, and the question
whether the tax implications were taken into account in the determination of the appropriation or
payment for that programme or scheme.
16.11 Hotel
keepers
ss 1, 12C, 13 bis
Special allowances are granted for the qualifying equipment and buildings of ‘hotel keepers’.
A ‘hotel keeper’ is a person carrying on the business of hotel keeper or boarding house keeper or
lodging-house keeper in which meals and sleeping accommodation are supplied to others for money or
its equivalent.
All of these allowances are taxable if recovered or recouped (see 10.7), and qualifying equipment and
buildings qualify also for the scrapping allowance (see 10.58).
Capital allowances on hotel equipment (s 12C)
A 20% depreciation allowance is allowed on machinery, implements, utensils and articles brought into
use for the first time in a hotel, but not on vehicles, office equipment and equipment for managers’ and
servants’ rooms (see 10.63). To qualify, the items must be owned by you as the hotelkeeper or acquired
by you as a purchaser under a qualifying instalment credit agreement (see 5.4).
Capital allowances on hotel buildings and improvements (s 13 bis) A hotel keeper is entitled to
claim the following allowances on qualifying hotel buildings and improvements to hotel buildings:
• Annual allowances of 2% of the cost of hotel buildings whose erection commenced before 4 June 1988
and improvements commenced before that date.
• Annual allowances of 5% of the cost of hotel buildings whose erection commenced or commences on
or after 4 June 1988 and improvements commenced or commencing on or after that date. This allowance
is increased to 20% of the cost of the portion of improvements commenced on or after 17 March 1993
that do not extend the existing exterior framework of the building.
A currently qualifying portion of a building is a portion whose erection was commenced by the taxpayer
or a portion of improvements (but not repairs; see 10.52) to such a building, or improvements (but,
again, not repairs) to a previously qualifying building as was during the tax year used by the taxpayer for
the purpose of carrying on in it its trade (see 10.14) of hotel keeper, or was during the year let by the
taxpayer and used by the lessee for the purpose of carrying on it the lessee’s trade of hotel keeper.
A currently qualifying portion of improvements is a portion (but not repairs and not improvements
already qualifying for older or other allowances or deductions) currently commenced as was during the
tax year used by the taxpayer for the purposes of its trade of hotel keeper or was during the tax year let
by the taxpayer and used by the lessee for the purposes of the lessee’s trade of hotel keeper.
A special rule applies to a building that, during a previous financial year or years, was used by a taxpayer
for the purposes of a trade carried on by it if the receipts and accruals of that trade were not included in
its income (for example, because the building was located outside South Africa).
The building is then treated as if, during that time, it was eligible for deductions.
The total of all allowances for the building or improvements, including any deemed allowances
attributed to the building while it was generating untaxed receipts or accruals, is limited to the cost of
the building or improvements.
When the allowances on buildings or improvements is recovered or recouped (see 10.7), the amount
involved may optionally be set off against the cost of a replacement building.
Allowances for lessors of hotel equipment, buildings and improvements (s 12C, 13 bis) If you let
hotel equipment or a qualifying hotel building or effect improvements to a qualifying hotel building that
you let, you, rather than your lessee or tenant, will be entitled to deduct the allowances.
To qualify for the allowances on hotel equipment that you let, the items must be owned by you or
acquired by you as a purchaser under a qualifying instalment credit agreement.
The 20% straight-line depreciation allowance is limited by the ‘lessor’s limitation’ described in 8.4.
16.12 Industrial and commercial beneficiaries of
incentives
The relevant provisions are no longer applicable.
16.13 Insurers – long-term
ss 29A, 29B, 38, Sch I para 3( d)
Act 32 of 2019
Taxation of long-term insurers (s 29A(2))
While generally paying tax in the same way as any other company (see 14.1), an ‘insurer’, that is, a
‘long-term insurer’ as defined in s 1 of the Long-term Insurance Act 52 of 1998 (but not a foreign insurer
conducting business through a branch in South Africa under s 6 of the Insurance Act 18 of 2017), is
nevertheless subject to special rules.
The five funds (s 29A(3), (4))
An insurer is obliged to establish and then maintain five separate funds, namely, the ‘UPF’, ‘IPF’,
‘CPF’, ‘CF’ and the ‘RPF’.

The insurer is required to determine the taxable income (see 2.3) derived by its IPF, CPF, CF and RPF
separately as if each of these funds were a separate taxpayer, and a special formula and special rules
apply in the determination of the taxable income derived by these funds.
These are the three ‘policyholder funds’:
(1) THE UNTAXED POLICYHOLDER (UPF)
It must place in this fund assets having a ‘market value’ equal to the amount of its liabilities relating to
the business carried on by it with, and any ‘policy’ of which the ‘owner’ is, a pension fund, pension
preservation fund, provident fund, provident preservation fund, retirement annuity fund or benefit fund
(see Chapter 6); policies of which the owner is a person for whom an amount constituting gross income
(see 1.1) of any nature would be exempt from income tax (see 1.6) were it to be derived by that person –
the insurer has to make sure of such a person’s status; annuity contracts under which annuities are
being paid; and policies that are tax-free investments (see 7.4). Risk policies are excluded.
(2) THE INDIVIDUAL POLICYHOLDER FUND (IPF)
It must place, in this fund, assets having a market value equal to the amount of its liabilities relating to
any policy – but not a policy placed in the UPF or a policy placed in the RPF – of which the owner is a
person other than a company (see 14.1).
(3) THE COMPANY POLICYHOLDER FUND (CPF)
It must place, in this fund, assets having a market value equal to the amount of its liabilities relating to
any policy – but not a policy placed in the UPF or a policy placed in the RPF – of which the owner is a
company (see 14.1).
These are the remaining two funds:
(4) THE CORPORATE FUND (CF)
It must place, in this fund, any assets and liabilities other than those of the four other funds.
(5) THE RISK POLICY FUND (RPF)
It must place, in this fund, assets having a market value equal to the value of liabilities determined in
relation to any of its risk policies.
Policy-owner is trust or there are joint owners (s 29A(5))

Special rules apply when the owner is a trust (see 11.4) or there is joint ownership by more than one
person. If all the beneficiaries of the trust or all the owners are funds, persons or bodies qualifying under
the UPF, the fund, person or body will be treated as being the owner of the policy. If all the beneficiaries
or all the owners are persons other than a company, the owner of the policy will be treated as being a
person other than a company. In all other circumstances, the owner of the policy will be treated as being
a company.
Intra-fund transfers (s 29A(6), (7), (8))
An insurer becoming aware that, in consequence of a change of ownership of a policy, a change in the
status of the owner of a policy, or an annuity becoming payable under a policy, the assets held in relation
to that policy should be held in a different fund, is required, forthwith, to transfer from one fund to
another assets having a market value equal to the value of liabilities determined on the date of the
transfer.
The insurer is required to re-determine the value of liabilities of each of its funds within three months
after the end of every tax year. If the market value of the assets held in a fund exceeds the value of that
fund’s liabilities, it must, within the three-month period, transfer assets having a market value equal to
the excess from that fund to the CF. On the other hand, if the market value of the assets actually held in
the fund is less than the value of its liabilities, it must, within the same period, transfer assets having a
market value equal to the shortfall from its CF to the relevant fund. The transfer is regarded as having
been made on the last day of the tax year in which the excess or shortfall arose.
Transfers of assets between policyholder funds have to be effected by way of a disposal of the assets at
their market value, and will be treated as an acquisition or disposal in each fund involved.
Definitions (s 29A(1), (16))
‘Adjusted IFRS value’ is, for a policyholder fund or the risk policy fund, as from the date on which the
Insurance Act, 2016 comes into operation, is an amount, which may not be zero, calculated in
accordance with a complex formula, not dealt with here.
An ‘asset’ excludes negative liabilities, policies of reinsurance, deferred tax assets and goodwill
recognized as assets by IFRS as annually reported by the insurer to shareholders in its audited financial
statements. This definition does not apply to the definition of a ‘phasing-in amount’.
A ‘business’ is ‘long-term insurance business’ as defined in s 1 of the Long-term Insurance Act 52 of

1998.
The ‘market value’ of an asset is the sum that a person having the right freely to dispose of it might
reasonably expect to obtain from its sale in the open market.
‘Negative liability’ is, as from the date on which the Insurance Act, 2016 comes into operation, for a
long-term policy, the amount by which the expected present value of future premiums exceeds the
expected present value of future benefits to policyholders and expenses.
The ‘owner’ of a policy is the person who is entitled to enforce any benefit it provides for.
The ‘owner’ of a policy that is ceded or pledged solely for the purpose of providing security for the
performance of an obligation is the person who retains the beneficial interest in it.
The ‘owner’ of a reinsurance policy, that is, a policy reinsured by one insurer with another, is treated as
being the owner of the policy that is reinsured.
A ‘policy’ is a ‘long-term policy’ as defined in s 1 of the Long-term Insurance Act 52 of 1998 (but not a
policy issued by a foreign insurer conducting business through a branch in South Africa under s 6 of the
Insurance Act 18 of 2017).
A ‘risk policy’ is in the first instance a policy issued by the insurer during a tax year of that insurer
commencing on or after 1 January 2016. Under such a policy, the benefits payable cannot exceed the
amount of premiums receivable, except when all or substantially the whole of the policy benefits are
payable, owing to death, disablement, illness or unemployment. Excluded is a contract of insurance
under which annuities are being paid. Alternatively, under such a policy, the benefits payable cannot
exceed the amount of premiums receivable, except for payable owing to death, disablement, illness or
unemployment. Again excluded is a contract of insurance under which annuities are being paid.
The second type of risk policy is one for which an election has been made relating to similar policies (see
below).
A ‘risk policy fund’ means the fund described above (RPF).
The ‘value of liabilities’ is, for a policyholder fund or a risk policy fund, an amount equal to the value of
the insurer’s liabilities in the business conducted by it in the fund concerned, calculated on a basis
determined by the chief actuary of the Financial Services Board in consultation with the Commissioner
for SARS. As from the date on which the Insurance Act, 2016 comes into operation, it is, for a
policyholder fund and a risk policy fund, the adjusted IFRS value plus so much of the expenditure
allocated to the fund that has not been paid by the last day of the tax year of assessment and has not
been taken into account in determining the adjusted IFRS value.
Exemption of untaxed policyholder fund (s 29A(9))
The income (see 1.3) derived by an insurer from assets held by it in and business conducted by it in
relation to its untaxed policyholder fund is exempt from tax. (This exemption is subject to an obscure
rider having to do with the corporate fund).
Funds as taxpayers (s 29A(10), (11), (12), (13A), (13B))
As already mentioned, the insurer is required to determine the taxable income derived by its IPF, CPF,
CF and RPF separately as if each of these funds were a separate taxpayer. These four funds, as well as the
UPF, are treated as being separate companies that are each others’ connected persons (see 10.27),
although only for the purposes of a limited number of provisions of the tax law.
The determination of the taxable income of these four funds is bound by special rules.
First, the amount to be allowed as a deduction in the funds for expenses, allowances and transfers will
be limited to the total of:
• The amount of expenses and allowances directly attributable to the fund’s income;
• a defined percentage of direct expenses incurred in the selling and administration of policies and other
allocated expenses and allowances not directly attributable to exempt receipts and accruals. The
percentage is calculated under a complicated formula;
• the same percentage of 30% of the transfer of an identified excess from a policyholder fund to the CF,
to the extent that the transfer is required to be included in the CF’s income during the relevant tax year.
This deduction may not exceed the taxable income of the policyholder fund as established before the
deduction of this amount.
Then, as already suggested, transfers between funds also have tax consequences:
• A deduction is allowed in the determination of the taxable income of the RPF of an amount equal to the
taxable income before this deduction. The RPF is deemed not to have incurred an assessed loss (see
10.67) during the tax year.
• Upon a redetermination of the valuation of liabilities of policyholder funds or the RPF, the amount of
an identified excess transferred to the CF will be included in its income but the amount of an identified
shortfall transferred from the CF to another fund may not be deducted from the CF’s income. After a
transfer from the CF to any policyholder fund or the RPF.
• Subsequent transfers from a policyholder fund or RPF back to the CF will not be included in the CF’s
income, up to a maximum of the amount of previous transfers from the CF to the relevant fund.
• Subject to identified terms, amounts transferred to or from the CF will not be included in or deductible
from the income of the policyholder fund or RPF involved in the transfer.
• When amounts are transferred from one fund to another in consequence of a change of ownership, a
change of status or an annuity becoming payable under a policy, or by way of a purchase and sale at
market value they will not be deductible from the income of the transferor fund nor included in the
income of the transferee fund.
• Premiums and claims on a policy entered into between the insurer and a non-resident are disregarded,
unless the policy concerned is a risk policy. But when an amount of a claim is derived by an insurer
under a policy (subject to a technical exclusion) entered into between the insurer and a non-resident,
the amount, less the aggregate amount of premiums incurred or paid under the policy relating to the
claim, is included in the gross income of the policyholder fund associated with the policy.
• Otherwise, premiums and reinsurance claims received and claims and reinsurance premiums paid will
be disregarded, again, unless the policy concerned is a risk policy. But, again, when an amount of a claim
is derived by an insurer under a policy (subject to a technical exclusion) entered into between the
insurer and a non-resident, the amount, less the aggregate amount of premiums incurred or paid under
the policy relating to the claim, is included in the gross income of the policyholder fund associated with
the policy.
• No allowances may be deducted, other than by the CF or RPF, for ‘assets’ as defined for capital gains tax
purposes (see 21.2) other than financial instruments (see 21.8).
In the allocation of a receipt, accrual, asset, expenditure, liability or payment to a particular fund, upon
its establishment and at all later times, an insurer must allocate to it transactions, to the extent to which
they relate exclusively to business conducted by it in that fund. To the extent to which the transaction
does not relate exclusively to business conducted by it in any particular fund, it must allocate the
transaction in a manner consistent with and appropriate to the manner in which its business is
conducted.
Despite the prohibition against the deduction of income carried to a reserve fund or capitalized in any
way (see 10.79), in the determination of the taxable income derived by an insurer in its RPF in any tax
year a deduction will be allowed from the income of the RPF of an amount equal to the value of liabilities
for the year relating to risk policies. But any amount so deducted must be included in the income of the
RPF in the following tax year.
An insurer may elect that policies or classes of policies with substantially similar contractual rights and
obligations that would have constituted risk policies had they been issued during a tax year commencing
on or after 1 January 2016 be allocated to the risk policy fund from the first day of the tax year
commencing on or after that date. The election is binding for the duration of the policies concerned and
must be made in the prescribed manner and form. Assets with a value equal to the liabilities must then
be allocated to that policy fund from the beginning of that tax year. The amount of the allocated assets
may not be deducted from the income of the transferor fund or included in the income of the transferee
risk policy fund. A form of rollover relief then applies for capital gains tax purposes when assets other
than trading stock are transferred, while a form of rollover relief for income tax purposes applies when
trading stock is transferred.
Adjusted IFRS value and phasing-in amount (s 29A(14), (15))
Detailed provisions govern these issues.
Meaning of ‘asset’ (s 29A(16))
As from the date on which the Insurance Act, 2016 comes into operation, an ‘asset’ excludes ( a)
negative liabilities, ( b) policies of reinsurance, ( c) a deferred tax asset, ( d) goodwill, and ( e) an amount
of deferred acquisition costs determined in accordance with IFRS as annually reported by the insurer to
shareholders in the audited financial statement, recognized as an asset in accordance with IFRS as
annually reported by the insurer to shareholders in the audited financial statements. But this rule does
not apply in the determination of the phasing-in amount.
Mark-to-market taxation of long-term insurers (s 29B)
Apart from a list of excluded assets, an insurer is deemed to have disposed of each asset held by it on 29
February 2016, at the close of the day, in all of its policyholder funds.
Each asset affected is deemed to have been so disposed of on that date for an amount derived equal to its
market value on that date. The insurer is then deemed to have immediately reacquired the asset at an
expenditure equal to the same market value, deemed to be an amount of expenditure actually incurred
for purposes of the capital gains tax (see 21.5).
The disposal of an asset so deemed to have been disposed of by an insurer, if, in the hands of the insurer,
it constitutes an ‘asset’ as defined for capital gains tax purposes (see 21.2), is ignored for the purposes of
determining the amount of an allowance or a deduction to which the insurer may be entitled (see
Chapter 10) and the amount that is to be recovered or recouped by or included in the income of the
insurer on account of the asset.
In addition to any inclusion in the aggregate capital gain or aggregate capital loss (see 21.3) of the
insurer’s policyholder funds, it must, in relation to each policyholder fund, include in the aggregate
capital gain or aggregate capital loss for the realization year and each of the two tax years following that
year an amount equal to 27,75% of an amount equal to the aggregate of all capital gains and capital
losses (see 21.3) determined upon the deemed disposal of an asset.
Should a person cease to conduct the business of an insurer before the expiry of the two-year period,
this amount must, to the extent that it has not already been included, be included in the tax year during
which the cessation takes place.
The mark-to-market regime does not apply to an asset held by an insurer, and administered by a
Category III Financial Services Provider, solely for the purpose of providing a ‘linked policy’ as defined in
the Long-term Insurance Act 52 of 1998.
A ‘Category III Financial Services Provider’ is a ‘financial services provider’ as defined in s 1 of the
Financial Advisory and Intermediary Services Act 37 of 2002 that has been issued with a Category III
licence under that Act.
The ‘market value’ of an asset placed in a policyholder fund is:
• The sum that a person having the right to freely dispose of it might reasonably expect to obtain its sale
in the open market, if it is a financial instrument (see 21.8) listed on an ‘exchange’ as defined in s 1 of the
Financial Markets Act 19 of 2012 and licensed under s 9 of that Act, or listed on an exchange in some
other country that has been recognized by the Minister of Finance under a particular part of the
definition of ‘recognized exchange’ for capital gains tax purposes (see 21.5).
• The value of the asset as taken into account in the determination of the investment value of policies as
reported to their owners in relation to the policyholder fund in which the asset is placed, if asset is any
other asset.
The ‘realization year’ is the first tax year of an insurer ending on or after 29 February 2016.
Definition (s 1(1))
‘IFRS’ is the International Financial Reporting Standards issued by the International Accounting
Standards Board.
Corporate status (s 38)
Life insurance companies are recognized as public companies for tax purposes (see 14.7).
Tax rates (Sch I para 3( d) Act 32 of 2019)
The taxable income (see 2.3) of an IPF for tax years ending during the period of twelve months ending
on or after 1 April 2019 is taxed at the rate of 30%.
The taxable income of a CPF for tax years ending during the period of twelve months ending on or after 1
April 2019 is taxed at the rate of 28%.
The taxable income of a CF for tax years ending during the period of twelve months ending on or after 1
April 2019 is taxed at the rate of 28%.

The taxable income of a RPF for tax years ending during the period of twelve months ending on or after
1 April 2019 is taxed at the rate of 28%.
16.14 Insurers – short-term
ss 28, 38, Sch 1 para 3( a) Act 32 of 2019
Taxation of short-term insurers (s 28(2), (3), (4))
In addition to the ordinary tax rules, the following example illustrates the special basis by which the
taxable income (see 2.3) derived by a short-term insurer from carrying on short-term insurance
business is determined:
Premiums derived (including reinsurance premiums)..................................................................
R0 000
Other amounts derived from the carrying on of the business of insurance, for example, investment
income ...................................................................................................
0 000
Allowances claimed in the previous year for:
Unexpired
risks
.................................................................................................
R0 000
Claims intimated but unpaid ............................................................................. 0
000
Claims not intimated or paid .............................................................................
000
R0
000
000
Less: Total liability for reinsurance premiums .................................................... R0
000
Liability for claims (less claims recoverable under contracts of
insurance, reinsurance, guarantee, security or indemnity) ..................................
0 000
The sum of liabilities on investment contracts relating to short-term insurance business in accordance
with IFRS as reported by the insurer in its audited annual financial statements, and amounts recognized
as insurance liabilities by IFRS by the short-term insurer in its audited financial statements, relating to
premiums and claims, reduced by identified amounts recoverable under
reinsurance policies and identified deferred acquisition costs, and increased by the amount of deferred
revenue determined in accordance with IFRS as report-0 000
0 000
ed by the insurer in its audited annual financial statements ................................
Taxable income derived from short-term insurance ...........................................
R0
000
The sum of all amounts deducted for liabilities under the last item above must be included in the
insurer’s income in the following tax year.
Taxation of short-term insurers (s 28(3A))
Special rules apply to a foreign insurer conducting insurance business through a branch in South Africa
under s 6 of the Insurance Act 18 of 2017.
Definitions (s 28(1))
A ‘premium’ is a ‘premium’ as defined in the Short-term Insurance Act 53 of 1998.
‘Short-term insurance business’ is ‘short-term insurance business’ as defined in the Short-term

Insurance Act 53 of 1998, ‘micro-insurance business’ as defined in s 1 of the Insurance Act, and business
conducted by a foreign reinsurer through a branch in South Africa under s 6 of the Short-term Insurance
Act.
A ‘short-term insurer’ is a ‘short-term insurer’ as defined in the Short-term Insurance Act 53 of 1998, a
‘micro-insurer’ as defined in s 1 of the Insurance Act, and a foreign reinsurer conducting insurance
business through a branch in South Africa under s 6 of the Short-term Insurance Act.
A ‘short-term policy’ is a ‘short-term policy’ as defined in the Short-term Insurance Act 53 of 1998, a
policy issued by a ‘micro-insurer’ as defined in s 1 of the Insurance Act, and a policy issued by a foreign
reinsurer conducting insurance business through a branch in South Africa under s 6 of the Short-term
Insurance Act.
Definition (s 1(1))
Standards Board.
Corporate status (s 38)

Short-term insurance companies are recognized as public companies for tax purposes (see 14.7).
Tax rates (Sch I para 3( a) Act 32 of 2019)
The taxable income (see 2.3) of a company that is a short-term insurer for tax years ending on or after 1
April 2019 is taxed at the same rate as an ordinary company, that is, at 28%.
16.15 Micro
businesses
ss 10(1)( z J), 48, 48A–48C, 6th Sch,
Sch 1 para 8 Act 32 of 2019
Imposition of tax (s 48A)
A tax known as the turnover tax is payable on the ‘taxable turnover’ for the tax year of a ‘registered
micro business’.
Rates (s 48B)
The rate of this tax is fixed annually by Parliament. Whatever rate is fixed for a tax year continues to
apply until the next determination of the rate. The rate fixed for a particular tax year will be applied to
the next tax year if the Commissioner for SARS opines that the calculation and collection of the tax
chargeable on the ‘taxable turnover’ cannot be postponed until after the rates for that tax year have
been fixed without the risk of loss of revenue.
Transitional provisions (s 48C)
When, in the course of a tax year, a registered micro business is deregistered (see below) and a person
becomes liable for payment of normal tax (see 1.2) on the taxable income (see 2.3) of the deregistered
micro business, an exemption applies from any penalties for underpayment of tax for which that person,
solely as a result of becoming so liable on that taxable income, would otherwise become liable under the
PAYE or provisional tax rules (see Chapter 17) or under Chapter 15 of the Tax Administration Act 28 of
2011.
Qualifying micro businesses (6th Sch, para 2)
A qualifying micro business is one with a ‘qualifying turnover’ for a particular tax year of not more
than R1 million. The business may be owned by a natural person, the deceased estate or insolvent estate
(see 11.3) of a natural person who was a registered micro business at the time of his or her death or
insolvency, or a company (see 14.1).
The amount of R1 million is reduced proportionately when the taxpayer concerned carries on a business
for a period during the tax year that is less than twelve months. This reduction must take account of the
number of full months during the tax year that it did not carry on business.
Disqualified persons (6th Sch, para 3)
The following persons cannot qualify as micro businesses for a particular tax year:
• A person holding, at any time during the tax year, shares (see 9.3) or an interest in the equity of a
company (see 14.1), save for the excluded shares and interests described below.
• A natural person, or the deceased estate or insolvent estate (see 11.3) of a natural person who was a
registered micro business at the time of his or her death or insolvency, with total receipts during the tax
year, more than 20% of which consists of income (see 1.3) from the rendering of a professional service.
• A company with total receipts during the tax year, more than 20% of which consists of investment
income (see 1.1) and income from the rendering of a ‘professional service’.
• A personal service provider (see 17.5) or a labour broker without a PAYE exemption certificate (see
17.5).
• A person whose receipts of all amounts from the disposal of immovable property used mainly for
business purposes and any other asset of a capital nature (see 1.5) used mainly for business purposes
(but not financial instruments; see 21.8) exceeds R1,5 million over the three years comprising the
current tax year and the immediately preceding two tax years or any shorter period during which the
person was a registered micro business.
• A company with a tax year ending on a date other than the last day of February.
• A company with, at any time during its tax year, a holder of its shares (see 9.3) that is a person other
than a natural person or the deceased or insolvent estate of a natural person.
• A company with, at any time during its tax year, a holder of its shares holding shares or having an
interest in the equity of another company, save for the excluded shares and interests described below. In
addition, a holdings or interest in a company is allowed if the company concerned ( a) has not during
any tax year carried on a trade and has not owned assets with a total market value exceeding R5 000, or
( b) has taken the prescribed steps (see 22.1) to liquidate, wind up or deregister, unless it has at any
stage with-drawn any of these steps or done anything to invalidate any of these steps, with the result
that it will not be liquidated, wound up or deregistered.
• A company that is an approved public benefit organization (see 16.27).
• A company that is an approved recreational club (see 16.29).
• A company that is an approved business and occupational association (see 16.5).
• A company that is an approved small business funding entity (see 16.33).
• A partner in a partnership during the tax year with a partner that is not a natural person.
• A partner in a partnership during the tax year who is a partner in more than one partnership at any
time during the tax year.
• A partner in a partnership during the tax year when the qualifying turnover of the partnership for the
tax year exceeds R1 million (or a proportion of this amount when its tax year is shorter than twelve
months).
Qualifying shares and interests (6th Sch, para 4)
A person will not be disqualified under the relevant items above when the shares or interests held
comprise:
• Shares or interests in a domestic listed company (see 7.10).
• Interests in a so-called foreign collective investment scheme or foreign unit trust (see 16.7).
• Shares or interests in body corporates, share block companies and similar associations (see 16.4).
• Shares or interests in a venture capital company (see 10.4).
• Shares
or
interests
constituting
less than 5% of the interest in a ‘social co-operative’ or ‘consumer
co-operative’ or a ‘co-operative burial society’ as defined in the Co-operatives Act 14 of 2005, or another
similar co-operative, as long as all of the income derived from the trade of the cooperative during any tax
year is derived solely from its members.
• Shares or interests constituting less than 5% of the interest in a ‘primary savings co-operative bank’ or
a ‘primary savings and loans co-operative bank’ as defined in the Co-operative Banks Act 40 of 2007 that
may provide, participate in or undertake only qualifying banking services.
• Shares or interests in a ‘friendly society’ as defined in the Friendly Societies Act 25 of 1956.
Taxable turnover (6th Sch, para 5)
The ‘taxable turnover’ on which the turnover tax of a registered micro business is based for a tax year
consists of all amounts not of a capital nature received by it during that year from carrying on business
activities in South Africa, less amounts refunded to any person for goods or services supplied by the
registered micro business to that person during that tax year or a previous tax year.
Taxable turnover is further affected by the specific inclusions and specific exclusions listed below.
Inclusions in taxable turnover (6th Sch, para 6)
Specifically included in the taxable turnover of a registered micro business are the following amounts:
• 50% of all receipts of a capital nature from the disposal of immovable property mainly used for
business purposes (but not trading stock; see 10.66), and from the disposal of any other asset used
mainly for business purposes (but not financial instruments; see 21.8).
• If the registered micro business is a company, its investment income (see 16.33) (but not dividends –
see 9.3 – and foreign dividends – see 9.4).
Exclusions from taxable turnover (6th Sch, para 7)
And specifically excluded from the taxable turnover of a registered micro business are the following
amounts:
• If the registered micro business is a natural person, his or her investment income.
• Exempt amounts derived from a small business funding entity (see 16.3);
• Exempt government grants (see 16.10A).
• Amounts derived by a registered micro business that had already accrued to it before its registration
as a micro business and were subject to normal tax.
• Amounts received by a registered micro business from a person by way of a refund for goods or
services supplied by that person to the registered micro business.
A further inclusion in taxable turnover (6th Sch, para 13)
In determining whether a natural person, the deceased estate or insolvent estate of a natural person
who was a registered micro business at the time of his or her death or insolvency, or a company qualifies
as a micro business, you are required to include in the amount received from the carrying on of business
activities the total amount from carrying on of business activities by a connected person (see 10.27) of
the natural person, estate or company. The tests for making such an inclusion are affirmative answers to
both of the following questions:
• Should the connected person’s business activities properly be regarded as forming part of the business
activities carried on by the candidate micro business?
• Is the main reason or one of the main reasons for the connected person’s business activities in the way
that the connected person does carry them on to ensure that the qualifying turnover of the candidate
micro business does not exceed the R1 million turnover threshold?
Interim payments (6th Sch, para 11)
A registered micro business is required to make interim tax payments. Within six calendar months from
the first day of the tax year, it must estimate its taxable turnover for the tax year, calculate the amount of
tax payable on the estimated taxable turnover, and pay an amount equal to 50% of the amount of the
calculated tax.
The estimate may be no less than the taxable turnover of the previous tax year, unless the Commissioner
for SARS, on application and having regard to the circumstances, approves a lower estimate.
When full payment of the required amount is not received by the Commissioner for SARS within six
calendar months from the first day of the tax year, interest at the prescribed rate (see 18.5) is payable
from the first day after the six calendar months to the earlier of the date on which the shortfall is
received and the last day of the tax year. (This rule is slated to be replaced by forthcom-ing general
provisions relating to interest).
A registered micro business must, by the last day of the tax year, estimate the taxable turnover for the
tax year, calculate the amount of tax payable on the estimated taxable turnover, and pay an amount
equal to the amount of calculated tax less the amount paid with its earlier estimate for the tax year.
When full payment of the required amount is not received by the Commissioner for SARS by the last day
of the tax year, interest at the prescribed rate is payable from the day following the last day of the tax
year to the earlier of the date on which the shortfall is received and the due date of the assessment for
that tax year.
A registered micro business may elect to pay to the Commissioner for SARS PAYE deducted from
remuneration payable to its employees during the first six calendar months of the tax year within seven
days after the end of that six-month period, and that deducted during the last six months of the tax year
within seven days after the end of the tax year. The election has to be exercised as well in relation to the
skills development levy, and unemployment insurance contributions.
When the estimate for the full tax year turns out to be less than 80% of the taxable turnover for the tax
year, a percentage-based penalty, equal to 20% of the difference between the tax payable on 80% of the
taxable turnover for the tax year and the tax payable on the estimate is payable. This penalty is deemed
to be imposed under the Tax Administration Act 28 of 2011. Should the Commissioner for SARS issue an
assessment for the final tax payment, this penalty is not chargeable.
Nevertheless, should the Commissioner for SARS be satisfied that the estimate was not deliberately or
negligently understated, and was seriously made based on the information available, or be partly so
satisfied, he must waive the penalty in full or in part.
Registration (6th Sch, para 8)
A qualifying person may elect to be registered as a micro business before the beginning of a tax year or
from a later date during that tax year prescribed by the Commissioner for SARS by notice in the
Government Gazette or, for a person commencing business activities during a tax year, within two
months from the date of commencement. A person so electing must be registered by the Commissioner
for SARS with effect as from the beginning of the relevant tax year.
A person that has deregistered, whether voluntarily or compulsorily, may not again be registered as a
micro business.
Deregistration (6th Sch, paras 9, 10)
Voluntary deregistration: A registered micro business may elect to be deregistered before the
beginning of a tax year or from a later date during that tax year as the Commissioner for SARS may
prescribe by notice in the Government Gazette. A registered micro business electing to be deregistered
must be deregistered by the Commissioner for SARS with effect as from the beginning of that tax year.
Compulsory deregistration: A registered micro business must notify the Commissioner for SARS
within 21 days from the date on which its qualifying turnover for a tax year exceeds the qualifying
amount or there are reasonable grounds for believing that its qualifying turnover will exceed that
amount, or from the date from which it is disqualified by reason of having failed to qualify for
registration.
The Commissioner for SARS must deregister a registered micro business with effect as from the
beginning of the month following that during which the event necessitating its compulsory
deregistration occurred. Nevertheless, upon application, he may direct that a person remain a registered
micro business if he is satisfied that the increase in its qualifying turnover to an amount greater than the
registration threshold is of a nominal and temporary nature.
Recordkeeping (6th Sch, paras 14)
A registered micro business must retain a record of amounts received by it during a tax year,
dividends declared by it during a tax year, each of its assets as at the end of the tax year with a cost
price of more than R10 000, and each of its liabilities as at the end of the tax year that exceeded R10 000.
Definitions (s 48, 6th Sch, para 1)
‘Investment income’ is income (see 1.3) in the form of annuities, dividends (see 9.2), interest, rental
derived on immovable property, royalties, or income of a similar nature, and the proceeds derived from
the disposal of financial instruments (see 21.8).
A ‘micro business’ is a person that meeting the requirements for qualification as a micro business.
A ‘professional service’ is a service in the field of accounting, actuarial science, architecture,

auctioneering, auditing, broadcasting, consulting, draftsmanship, education, engineering, financial
service broking, health, information technology, journalism, law, management, real estate broking,
research, sport, surveying, translation, valuation or veterinary science.
‘Qualifying turnover’ is the total receipts from the carrying on of business activities, excluding amounts
of a capital nature (see 1.5), amount derived by a small, medium or micro-sized enterprise from a small
business funding entity (see 16.3), and exempt government grants (see 16.10A).
A ‘registered micro business’ is a micro business that is registered.
‘Taxable turnover’ is the amount determined in the manner described above.
Tax rates (s 10(1)( zJ), Sch I para 8 Act 32 of 2019) The rates fixed for tax years commencing on or
after 1 March 2019:
Taxable turnover
But
does
Exceeds not
exceed
Rates of tax
335 000
0%
Of each R1
335 000
500 000
1%
Of the excess over
335 000
500 000
750 000
1 650
+
2%
Of the excess over
500 000
750 000
6 650
3%
Of the excess over
750 000
Double taxation is avoided by an exemption from income tax afforded to a registered micro business on
amounts derived by it from the carrying on of a business in South Africa, but the exemption does not
extend to amounts derived by a natural person constituting investment income (see 16.33) or
remuneration for PAYE purposes (see 17.3).
16.16 Mining companies – diamonds
Sch 1
para
3( a) Act 32 of 2019
Diamond-mining companies are taxed at the same rate as ordinary companies, and pay a flat rate of tax
of 28% of their taxable income (see 2.3) for tax years ending on or after 1 April 2019, whether it is
derived from their diamond-mining operations or from non-mining sources.
They deduct their capital expenditure on a special basis (see 16.20). They are recognized as public
companies for tax purposes (see 14.7). A special rule applies to the trading stock of miners (see 10.66).
16.17 Mining companies – gold and uranium
s 1, Sch 1 para 3( a),
( b), ( c), 12 Act 32 of 2019
Gold-mining companies pay tax on a formula basis on their taxable income (see 2.3) derived from
‘mining for gold’ (and ‘to mine for gold’), which includes mining for uranium (and to mine for
uranium).
Income (see 1.1) derived from mining for gold includes income derived from silver, osmiridium,
uranium, pyrites or other minerals that may be won in the course of mining for gold, and any other
income resulting directly from mining for gold.
They pay tax on their taxable income from mining for gold in accordance with the following formula,
which is shown in simplified form:
34 – 170 %, where x = Taxable income from gold-mining × 100
Income from gold-mining
They will then pay tax at the same rate as ordinary companies, of 28% on their taxable income derived
otherwise than from mining for gold in a tax year ending on or after 1 April 2019.
Excess recoupments
Gold-mining companies are liable for tax on their excess recoupments of capital expenditure at the
greater of the following rates:
• 28%;
and
• the average rate of income tax.
For this purpose the average rate is:
Total income tax on total taxable income

(since commencement of mining, excluding excess recoupments tax for current year) Total taxable
income (since commencement of mining, excluding current year) General
Gold-mining companies deduct their capital expenditure on a special basis (see 16.20). They are
recognized as public companies for tax purposes (see 14.7). A special rule applies to the trading stock of
miners (see 10.66).
16.18 Mining companies – natural oil
Sch 1
para 3( a) Act 32 of 2019
Natural-oil-mining companies pay tax at the same rate as ordinary companies, of 28% of their taxable
income (see 2.3) from mining for natural oil in tax years ending on or after 1 April 2019.
On their taxable income derived other than from mining, they also pay a rate of tax of 28%.
They deduct their capital expenditure on a special basis (see 16.20).
16.19 Mining companies – other
Sch 1
para
3( a) Act 32 of 2019
Mining companies other than gold-mining companies pay tax at the same rate as ordinary companies, of
28% of their taxable income (see 2.3) in tax years ending on or after 1 April 2019, whether it is derived
from their mining operations or from non-mining sources.
They also deduct their capital expenditure on a special basis (see 16.20). A special rule applies to the
trading stock of miners (see 10.66).
16.20 Mining operators – capital expenditure
ss 1, 15( a), 36
A taxpayer deriving income (see 2.3) from ‘mining operations’ is allowed a special deduction, which
takes the place of the deductions for ordinary depreciation (see 10.27), so-called leasehold
premiums (see 8.3), intellectual property (see 10.35), scrapping (see 10.58), pipelines, transmission
lines and railway lines (see 10.48), rolling stock (see 10.57), airport and port assets (see 10.15) and
commercial buildings (see 10.19).
It follows that amounts written off as mining capital expenditure cannot also be claimed under these
other deductions.
‘Mining operations’ and ‘mining’ include every method or process by which a mineral or natural oil is
won from the soil or from any substance or constituent of the soil.
The special deduction (s 36(7C))
The amount to be deducted from income derived from the working of a producing mine is the amount of
capital expenditure incurred.
The overall mining cap (s 36(7E))
The total deduction for capital expenditure in a particular tax year on a mine or mines is limited to the
taxable income (see 2.3) derived by the taxpayer from mining, before this deduction for capital
expenditure, but after the set-off of a balance of assessed loss (see 10.67) incurred by the taxpayer on
that mine or those mines and brought forward from the preceding tax year. The excess, that is the capital
expenditure not deducted for this reason, is carried forward and regarded as capital expenditure
incurred during the next tax year on the mine or mines to which it relates.
Treatment of debt benefits (s 36(7EA))
When a debt benefit (see 10.7) arises on a debt owed by a person, and the debt was used directly or
indirectly to fund an amount of capital expenditure incurred, the debt benefit on that debt must be
applied to reduce an amount of capital expenditure incurred in the tax year in which the debt benefit
arises. The excess of a debt benefit over the capital expenditure incurred in the tax year in which the
debt benefit arises is treated as an amount derived by the person carrying on mining operations during
the tax year relating to a disposal of assets whose cost has been included in capital expenditure incurred
in relation to the mine to which the capital expenditure relates. Some of the reduction-of-debt rules
pertaining to the capital gains tax (see 21.10) take precedence over this rule.
The particular-mine cap (s 36(7F))
The total deduction for capital expenditure in a particular tax year on a particular mine is limited to the
taxable income derived from mining on that mine, before the deduction for capital expenditure, but after
the set-off of a balance of assessed loss incurred by the taxpayer on that mine and brought forward from
the preceding tax year. The excess, that is the capital expenditure not deducted for this reason, is carried
forward and regarded as capital expenditure incurred during the next tax year on that mine.
The Minister of Finance, after consultation with the Cabinet member responsible for mineral resources
and consideration of relevant fiscal, financial or technical implication, has the power to relieve the
taxpayer from this limitation.
A taxpayer carrying on mining operations on two or more mines on 5 December 1984 is relieved from
this cap, inasmuch as the several mines are treated as being one mine.
Special dispensation for ‘new mines’ (s 36(7G))
The particular-mine cap is partially relaxed for a ‘new mine’, that is, a mine on which mining operations
or related operations were commenced after 14 March 1990, for which there is an excess of capital
expenditure not qualifying for immediate deduction. The excess arising from all of the producing new
mines owned by the taxpayer may be claimed as a deduction, up to a maximum of 25% of that taxpayer’s
total taxable income from mining, after the deduction of capital expenditure allowable under the second
limitation, and after the set-off of an assessed loss incurred from mining operations in an earlier tax year
and brought forward.
This relaxation does not apply to capital expenditure on a new mine disposed of by the taxpayer in the
current or an earlier tax year or if the taxpayer is a company (see 14.1), and its acquisition of
the right to mine or the mineral rights for a mine was financed wholly or partly by the issue of shares on
which the dividend (see 9.3) or foreign dividend (see 9.4) rights are to be calculated by reference to the
portion of the company’s profits attributable to the operation of the mine.
Contiguous and non-contiguous mines (s 36(10))
When separate and distinct mining operations are carried on in mines that are not contiguous, the
allowance for capital expenditure must be computed separately for each mine. It follows that contiguous
mines are treated as being one mine in the application of the particular-mine cap.
General definitions (s 36(11))
‘Capital expenditure incurred’ is the amount by which the capital expenditure incurred during a tax
year on a particular mine exceeds the sum of the amounts derived during that year from the disposal of
assets whose cost has either wholly or partly been included in capital expenditure for purposes of
deduction.
‘Expenditure on shaft-sinking’ includes the expenditure on sumps, pump chambers, stations and ore
bins accessory to a shaft.
‘Expenditure’ is net expenditure, after rebates or returns from expenditure, no matter when the
expenditure on which a rebate or return is enjoyed was incurred.
A ‘social and labour plan’ is social and labour plan as contemplated in Part II of the Mineral and
Petroleum Resources Development Regulations, 2004 made by the Minister of Minerals and Energy
under the Mineral and Petroleum Resources Development Act 28 of 2002.
What is ‘capital expenditure’? (s 36(11))
‘Capital expenditure’ is made up of the seven elements of expenditure described here.
1. Shaft- sinking and mine equipment
Capital expenditure is expenditure on shaft-sinking and mine equipment (but not the indirect mine
equipment dealt with in item 4 below). Interest and finance charges are excluded under this head.
This capital expenditure is immediately deductible and in full.
2. Pre- production and non- production development, administration and management Capital
expenditure is expenditure on development, general administration and management incurred before
the commencement of production or during a period of non-production. Under this head, interest and
other charges payable on loans used for mining purposes are included. This capital expenditure is
immediately deductible and in full.
3. Post- 1973 gold mines and post- 1990 gold mines
For ‘post-1973 gold mines’ and ‘post-1990 gold mines’, capital expenditure is either a 10% or a 12%
annual allowance based on qualifying expenditure and a so-called unredeemed balance.
4. Indirect mine equipment

Capital expenditure is expenditure (but not the cost of land, surface rights and servitudes) on the
acquisition, erection, construction, improvement or laying out of:
• Housing for residential occupation by the taxpayer’s employees (but not housing intended for sale)
and furniture for such housing.
• Infrastructure of residential areas developed for sale to the taxpayer’s employees.
• Hospitals, schools, shops and similar amenities – including furniture and equipment – owned and
operated by the taxpayer mainly for the use of employees, garages or carports for employees’
privately or partly privately used motor vehicles.
• Recreational buildings and facilities owned and operated by the taxpayer mainly for use by employees.
• Railway lines or similar systems for the transport of minerals from the mine to the nearest public
transport system or outlet.
• Motor vehicles intended for the private or partly private use of the taxpayer’s employees.
Capital expenditure of this type is effectively written off over ten years, except for the motor vehicles,
which are written off over five years. The first instalment is deductible on the date on which payment of
the relevant expenditure became due, and the succeeding instalments on the appropriate anniversaries
of that date. When an anniversary falls on a date after the asset concerned has been sold, disposed of or
scrapped by the taxpayer, the instalment concerned is disregarded.
The exclusion from this type of capital expenditure of the cost of land, surface rights and servitudes
means that its cost will qualify for immediate deduction in full.
Should the expected life of the relevant mine extend over a period shorter than the write-off period, the
Commissioner for SARS enjoys the power to accelerate the write-off accordingly.
A special write-off applies when, in a particular tax year, a qualifying asset is sold, disposed of or
scrapped by the taxpayer.
When the taxpayer completes an improvement of one of these items (but not a motor vehicle) that is not
owned by it, that is, when it is effected to someone else’s asset in the particular circumstances described
in 10.14, the expenditure incurred by it to complete the improvement is deemed to be expenditure for
the purposes of the deduction of capital expenditure.
5. Expenditure incurred in terms of a mining right ( whatever that might mean)
When the trade (see 10.4; presumably, the taxpayer’s) constitutes mining, capital expenditure is
expenditure incurred in terms of a mining right pursuant to the Mineral and Petroleum Resources
Development Act 28 of 2002. Excluded is expenditure incurred on infrastructure or environmental
rehabilitation expenditure.
6. Expenditure on a social and labour plan
Capital expenditure is expenditure (but not the cost of land, surface rights and servitudes) actually
incurred and paid during a tax year on a social and labour plan under which holders of mining rights
contribute towards the socio-economic development of the areas in which those holders are operating
on the acquisition, erection, construction, improvement or laying out of:
• Housing for residential occupation (but not housing intended for sale) and furniture for such housing.
• Infrastructure of residential areas developed.
• A hospital, school, shop or similar amenity (including furniture and equipment).
• Recreational buildings and facilities:
Capital expenditure of this type is effectively written off over ten years, except for the motor vehicles,
which are written off over five years. The first instalment is deductible on the date on which payment of
the relevant expenditure became due, and the succeeding instalments on the appropriate anniversaries
of that date. When an anniversary falls on a date after the asset concerned has been sold, disposed of or
scrapped by the taxpayer, the instalment concerned is disregarded.
The exclusion from this type of capital expenditure of the cost of land, surface rights and servitudes
means that its cost will qualify for immediate deduction in full.
Should the expected life of the relevant mine extend over a period shorter than the write-off period, the
Commissioner for SARS enjoys the power to accelerate the write-off accordingly.
A special write-off applies when, in a particular tax year, a qualifying asset is sold, disposed of or
scrapped by the taxpayer.
7. Low- cost residential units
Capital expenditure is 10% of an amount arising on the disposal of a low-cost residential unit (see
10.20) to the taxpayer’s employee that is owing to it or to its associated institution (see 5.4) by its
employee on account of the unit at the end the taxpayer’s tax year. No deduction is allowed in the
eleventh and subsequent tax years after the disposal of the unit.
The deduction is not allowed in any of the following circumstances:
• The disposal is conditional. The only conditionality allowed is a requirement that the employee, on
termination of employment or in the event of his or her consistent failure for a period of three months to
pay an amount owing to the taxpayer or its associated institution for the unit, dispose of it to the
taxpayer or its associated institution, for an amount equal to its actual cost (other than borrowing or
finance costs) to the employee and the land on which it is erected.
• The employee must pay the taxpayer interest on the amount owing for the unit.
• The disposal is for an amount exceeding the actual cost (excluding borrowing or finance costs) to the
taxpayer of the unit and the land on which it is erected.
If the amount owing to the taxpayer or any part of it is paid to it, it is deemed to have recovered or
recouped an amount equal to the lesser of the amount paid and the amount allowed as a deduction to it
in the current and previous tax years.
16.21 Mining operators – capital expenditure on sale of
s 37
mining property
A special rule comes into play when a taxpayer sells, transfers, leases or cedes ‘mining property’
and disposes of ‘capital assets’ as a result of the sale, transfer, lease or cession.
The person acquiring the capital assets is treated as having acquired them at a cost equal to their
‘effective value’ to it on the effective date of the agreement of sale, transfer, lease or cession of the
mining property. It is this cost that is treated as being expenditure incurred by the acquirer during the
tax year during which the agreement takes effect, and to be capital expenditure qualifying to be taken
into account as capital expenditure incurred (see 16.20).
A scaling-down exercise is called for when the acquirer acquiring the assets disposed of gives a
consideration and the effective value of all the assets acquired, including mining property, exceeds the
consideration. The amount of the cost of and expenditure on the capital assets is then treated as being an
amount bearing to the total consideration the same ratio as the effective value of the assets acquired
bears to the effective value to the acquirer of all the assets, including mining property, disposed of to it.
For the purposes of establishing its excess recoupments (see 16.22) and its capital expenditure incurred
(see 16.20), the taxpayer disposing of the capital assets is treated as having disposed of them for a
consideration equal in value to their cost to the acquirer. That consideration is treated as having been
derived by it on the effective date of the agreement of sale, transfer, lease or cession.
Should the value of the consideration given or the value of the property disposed of be in dispute, the
Commissioner for SARS may fix that value. The value of mining property will then be determined in the
same manner as if transfer duty were payable, while the value of a capital asset will be set at its market
value.
Definitions
‘Capital assets’ are those assets falling within a mine’s capital expenditure (see 16.20) available for
deduction.
‘Mining property’ is land on which mining (see 16.20) is carried on. It is also a right to minerals,
including a right to mine for minerals, and a lease or sublease of such a right.
The ‘effective value’ on the effective date of the agreement of sale, transfer, lease or cession of all the
assets disposed of is required to be determined by the Director-General for Minerals and Energy, who is
given special powers for this purpose.
16.22 Mining operators – excess recoupments
s 8(4)
Any deduction claimed by a mining operator of capital expenditure (see 16.20) is not subject to taxation
if recovered or recouped (see 10.7).
Instead, its expenditure is reduced by rebates and returns from expenditure, and its capital expenditure
incurred (see 16.20) is effectively reduced by amounts derived from the disposal of assets whose cost
has either wholly or partly been included in capital expenditure.
Then, in addition, there will be included in its ‘gross income’ (see 1.1) what are usually referred to as its
excess recoupments. Excess recoupments are calculated in relation to each mine. They represent the
excess of:
• the sum of the amounts derived during the tax year from disposals of assets whose cost has either
wholly or partly been included in the capital expenditure of a particular mine taken into account for
deduction under the rules described in 16.20,
over
• the sum of that mine’s unredeemed capital expenditure at the beginning of that tax year and the capital
expenditure that is incurred during that year on that mine, before the application of the definition of
‘capital expenditure’.
Excess recoupments are treated as giving rise to taxable income derived from mining operations.
16.23 Mining
rehabilitation
bodies
ss 10(1)( c P), 37A
Closure rehabilitation company or trust (s 37A(1))
A person (referred to here as ‘a claimant’) may, in determining its taxable income (see 2.3) from carrying
on a trade (see 10.14), deduct any cash paid during a particular tax year to a company (see 14.1) or trust
(see 11.4) meeting the following the requirements:
• Its sole object must be to apply its property solely for rehabilitation upon premature closure,
decommissioning and final closure, and post-closure coverage of any latent and residual environmental
impacts on the area covered under a qualifying permit, right, reservation or permission to restore one or
more areas to their natural or predetermined state, or to a land use conforming to the generally
accepted principle of sustainable development.
• It must hold assets solely for these purposes.
• It must make distributions solely for these or other prescribed purposes.
The claimant must hold a permit or right allowing prospecting, exploration, mining or production, an
‘old order right’ or ‘OP26 right’ as defined in item 1 of Schedule II of the Mineral and Petroleum
Resources Development Act 28 of 2002, or a reservation or permission for or right to the use of the
surface of land as contemplated in item 9 of Schedule II to that Act. Alternatively, the claimant must be
engaged in prospecting, exploration, mining or production under a qualifying permit, right, reservation
or permission.
In the alternative, the claimant must have, after approval by the Commissioner for SARS, paid cash to the
company or trust, in circumstances in which the payment was not part of a transaction, operation or
scheme designed solely or mainly for purposes of shifting the allowable deduction from another person
to the claimant.
Permitted investments (s 37A(2))
The company or trust may hold only financial instruments (see 21.8) issued by a collective investment
scheme, long-term insurer, bank or mutual bank. It may also hold financial instruments of a listed
company, but not those issued by a qualifying claimant or its connected person (see 10.27). It may also
hold financial instruments issued by a sphere of government in South Africa, and may continue to hold
other investments that it held before 18 November 2003.
Winding-up or liquidation (s 37A(3), (4))
To the extent that the Cabinet member responsible for mineral resources is satisfied that all the areas
under a permit, right, reservation or permission have been rehabilitated, the company or trust for those
areas must be wound-up or liquidated and its assets remaining after the satisfaction of its liabilities
transferred to another qualifying company or trust approved by the Commissioner for SARS. But if no
such company or trust has been established, the assets must be transferred to an account or trust
prescribed by the Cabinet member responsible for mineral resources and approved by the
Commissioner for SARS, as long as the Commissioner is satisfied that the company or trust qualifies.
If the Cabinet member responsible for mineral resources is satisfied that a company or trust will be able
to satisfy all its liabilities and has sufficient assets to rehabilitate and restore all areas to which a permit,
right, reservation or permission relates, it may transfer assets not required for these purposes to
another qualifying company or trust approved by the Commissioner for SARS.
Constitutional imperative (s 37A(5))
The constitution of a company or the instrument establishing a trust must incorporate all the
requirements set out here as well as any amendments to them. If the constitution or instrument does not
comply, it will be deemed to comply for a period not exceeding two years, as long as the person
responsible in a fiduciary capacity for its funds and assets furnishes the Commissioner for SARS
with a written undertaking that it will be administered in compliance with the rules.
Prohibited property (s 37A(6))
If a company or trust holds prohibited property during a tax year, an amount equal to 50% of the highest
market value of the property during the tax year is deemed to be an amount of normal tax (see 1.2)
payable by a claimant holding a qualifying permit or right or a qualifying reservation or permission or a
claimant engaged in qualifying prospecting, exploration, mining or production, to the extent that the
property is directly or indirectly derived from cash paid by the claimant to the company or trust. The
special recovery rule applying to such a normal tax charge is dealt with below.
Prohibited distributions (s 37A(7), (9))
There will also be repercussions for the company or trust if it contravenes any of the rules governing
qualification for the deduction during a tax year by distributing property for a purpose other than
rehabilitation upon premature closure, decommissioning and final closure, post-closure coverage of
latent or residual environmental impacts, or transfer to another company, trust or account established
for qualifying purposes, or if it uses its property as security for a debt raised for a purpose other than
rehabilitation upon premature closure or decommissioning and final closure. An amount equal to 50%
of the highest market value of the property so distributed or used as security during the tax year is
deemed to be an amount of normal tax payable by a claimant holding a qualifying permit or right or a
qualifying reservation or permission or a claimant engaged in qualifying prospecting, exploration,
mining or production for that tax year. The special recovery rule applying to such a normal tax charge is
dealt with immediately below.
This rule against prohibited distributions does not apply to an amount deemed to be an amount of
normal tax paid to the Commissioner of SARS by the company or trust. In other words, such a payment is
not regarded as a prohibited distribution.
Special recovery rule (s 37A(8))
An amount deemed to be an amount of normal tax payable by a claimant holding a qualifying permit or
right or a qualifying reservation or permission or a claimant engaged in qualifying prospecting,
exploration, mining or production is, to the extent that it cannot be recovered from the claimant,
recoverable from the trust or company.
Reporting (s 37A(10))
A company or trust must within three months after the end of a particular tax year, submit a report to
the Director-General of the National Treasury for that year, providing the Director-General with
information comprising the total amount of contributions to the company or the trust, the total amount
of withdrawals from the company or the trust, and the purposes for which any amount of those
withdrawals were applied.
In addition, within seven days after receiving a request from the Director-General, it must provide
whatever information the Director-General might require.
Exemption (s 10(1)( cP))
The receipts and accruals of a company or trust dealt with here are exempt from normal tax (see 1.2).
16.24 Mining operators – oil and gas companies
s 26B, 10th Sch
Scheme of taxation (s 26B)
The taxable income (see 2.3) of an ‘oil and gas company’ is determined in accordance with the
provisions of the Income Tax Act but subject to the provisions of the Tenth Schedule to the Act. The
dividends tax (see 9.5) imposed on dividends paid by an oil and gas company out of amounts
attributable to its ‘oil and gas income’ is also determined in accordance with the Act but subject to the
Tenth Schedule. In addition, the provisions of the Act dealing with impermissible tax avoidance
arrangements are made applicable to the Tenth Schedule.
Rates of tax (10th Sch para 2)
The rate of tax on taxable income derived from oil or gas income of an oil and gas company may not
exceed 28 cents on each rand of taxable income.
Withholding taxes (10th Sch para 3)
The rate of dividends tax (see 9.5) may not exceed 0% of the amount of a dividend paid by an oil and gas
company derived from its oil and gas income.
The rate of the withholding tax on interest (see 15.19) may not exceed 0% of the amount of interest paid
by an oil and gas company on loans applied to fund qualifying expenditure.
Foreign currency gains or losses (10th Sch para 4)
Currency gains or losses, whether realized or unrealized, of an oil and gas company during a tax year are
determined solely with reference to the functional currency (see 15.2) of the company and the
translation method that it uses for purposes of financial reporting.
Amounts derived or expenditure incurred by, an oil and gas company during a tax year in a currency
other than that of South Africa are determined in the functional currency of the company and translated
to the currency of South Africa by the application of the average exchange rate (see 10.74) for that year.
Deductions from income (10th Sch para 5)
An oil and gas company is allowed to deduct from its oil and gas income for a particular tax year the
expenditure and losses actually incurred, in that year on exploration or post-exploration. An
expenditure or a loss actually incurred on the acquisition of an oil and gas right is allowed only on a
limited basis, arising when an oil and gas right is disposed of (see below).
In addition, for the purpose of determining its taxable income during a particular tax year, it may deduct
from its oil and gas income derived during that year an additional deduction comprising:
• 100% of expenditure of a capital nature actually incurred in the tax year on exploration under an oil
and gas right.
• 50% of expenditure of a capital nature actually incurred in the tax year on post-exploration under an
oil and gas right.
Again, for the purpose of determining its taxable income during a particular tax year, it may set off
assessed losses (see 10.65) from exploration or production only against its oil and gas income and
income (see 1.3) from the refining of gas derived from an oil and gas right held by it, and then only to the
extent that the assessed losses do not exceed such income.
To the extent that any assessed losses remain after the set-off, an amount equal to 10% of the excess
may be set-off against other income derived by the company.
To the extent that any assessed loss remains after these set-offs, the remaining loss may be carried
forward to the succeeding tax year.
Exploration and post-exploration expenses (10th Sch para 6)
A company holding an oil and gas right (but not if it holds only a production right acquired by virtue of a
conversion contemplated in item 5 of Schedule II to the Mineral and Petroleum Resources Development
Act 28 of 2002 or an interest in such a right) is deemed to be carrying on a trade in relation to its right,
and expenditure and losses incurred by it in relation to the right are deemed to be incurred in the
production of its income.
Disposal of oil and gas right (10th Sch para 7)
An oil and gas company disposing of an oil and gas right to another company, may agree in writing with
the other company that, rather than some other relevant provision of the Income Tax Act, a special
rollover treatment or special participation treatment will apply to the right.
When the special rollover treatment applies, by agreement: The market value of the oil and gas
right disposed of must equal to or exceed its base cost for capital gains tax purposes (see 21.5) on the
date of the disposal, if the right is held as a capital asset. If the right disposed of is held as trading stock
(see 10.66), its market value must equal to or exceed the amount taken into account for it as a deduction
or as opening or closing stock (see 10.66). In either event, the company is deemed to have disposed of
the right for an amount equal to its base cost or the amount taken into account as a deduction for
opening or closing stock.
The company acquiring a right disposed of as a capital asset is, in turn, deemed to have acquired it at a
cost equal to the disposing company’s base cost for capital gains tax purposes and to have incurred that
cost at the date on which it was incurred by the disposing company. If it is acquired as trading stock, the
same amount must be treated as the amount to be taken into account by the acquirer for the right for the
purposes of the deduction for the cost of trading stock and as opening and closing stock.
When the special participation treatment applies, by agreement:
The oil and gas right disposed of is held as a capital asset – its market value must exceed its base cost on
the date of the disposal. The gain (see 21.3) made by the disposing company is deemed to be an amount
of gross income (see 1.1). The acquiring company may deduct from its oil and gas income (but not as an
additional deduction; see above) an amount equal to the amount of gross income deemed to have been
derived by the disposing company.
The oil and gas right disposed of is held as trading stock – its market value must exceed the amount
taken into account for it as a deduction or trading stock. The acquiring company may deduct from its oil
and gas income (but not as an additional deduction; see above) an amount equal to the amount of gross
income deemed to have been derived by the disposing company (it is unclear which deeming provision
is envisaged) less the deduction allowable for the acquisition of the trading stock and the amount taken
into account for the right as trading stock.
Fiscal stability (10th Sch para 8)
For purposes of the fiscal stability agreements dealt with here, an ‘oil and gas right’ is:
• an ‘exploration right’ or ‘production right’ as defined in the Mineral and Petroleum Resources
Development Act 28 of 2002 or a right or an interest in such a right;
• an exploration right acquired by virtue of a conversion contemplated in item 4 of Schedule II to the

Mineral and Petroleum Resources Development Act 28 of 2002 or an interest in such a right; or
• a production right acquired by virtue of a conversion contemplated in item 5 of Schedule II to the

Mineral and Petroleum Resources Development Act 28 of 2002 or an interest in such a right.
An exploration right, a renewal of an exploration right and an initial production right converted from an
exploration right or its renewal held by a company are all deemed to be one and the same oil and gas
right in the hands of the company, to the extent that the rights relate to the same geograph-ical area.
The Minister of Finance may enter into a binding agreement with an oil and gas company relating to an
oil and gas right held by it, guaranteeing that the provisions of the Tenth Schedule to the Income Tax Act
(as at the date on which the agreement is concluded) will apply to the right as long as it is held by the
company.
Alternatively, the Minister may enter into a binding agreement with a company in anticipation of an oil
and gas right to be acquired by it, guaranteeing that the provisions of the Schedule (as at the date on
which the oil and gas right is granted) will apply to the right as long as it is held by the company.
But the agreement has no force and effect if the oil and gas right is not granted within a year after the
agreement is concluded.
If an oil and gas company jointly holds with another oil and gas company an ‘exploration right’, as
defined in s 1 of the Mineral and Petroleum Resources Development Act 28 of 2002, and either company
has concluded a fiscal stability agreement relating to the right, all of the fiscal stability rights under the
agreement, will apply to both companies.
On the disposal of such an exploration right, an oil and gas company that has concluded a fiscal stability
agreement may, as part of the disposal, assign all of its fiscal stability rights under the agreement
relating to the exploration right disposed of to another oil and gas company.
On the disposal of a ‘production right’, as defined in the same Act, an oil and gas company that has
concluded a fiscal stability agreement relating to the right disposed of may, as part of the disposal, assign
all its fiscal stability rights under the agreement relating to the production right disposed of to another
oil and gas company, as long as the other company is a company within the same group of companies
(see 14.1) as the oil and gas company transferring the fiscal stability right at the time the agreement is
concluded.
When an oil and gas company holding a participating interest in an oil and gas right has concluded a
fiscal stability agreement, its terms and conditions will apply to all participating interests subsequently
held by it in the oil and gas right.
An oil and gas company that has concluded a fiscal stability agreement relating to an oil and gas right
may at any time unilaterally terminate the agreement, with effect as from the commencement of the tax
year immediately following the notification date of the termination.
The portion of taxable income and profits of an oil and gas company derived from all the oil and gas
rights governed by the version of the Tenth Schedule to the Income Tax Act applicable to an oil and gas
right covered by a binding agreement must be determined under that version of the Schedule.
Should the State fail to comply with the terms of a fiscal stability agreement and its failure has a material
adverse economic impact on the taxation of income or profits of the oil and gas company that is party to
the agreement, the company is entitled to compensation for the loss of market value caused by the
failure (and interest at the prescribed rate (see 18.5) calculated on the compensation
from the date of non-compliance), or to an alternative remedy otherwise eliminating the full impact of
the failure.
Definitions (10th Sch para 1)
‘Exploration’ is the acquisition, processing and analysis of geological and geophysical data or the
undertaking of activities in verifying the presence or absence of hydrocarbons (up to and including the
appraisal phase) conducted for the purpose of determining whether a reservoir is economically feasible
to develop.
‘Gas’ is any subsoil combustible gas consisting primarily of hydrocarbons, other than hydrocarbons
converted from bituminous shales or other stratified deposits of solid hydrocarbons.
‘Oil’ is any subsoil combustible liquid consisting primarily of hydrocarbons, other than hydrocarbons
converted from bituminous shales or other stratified deposits of solid hydrocarbons.
An ‘oil and gas company’ is a company holding an oil and gas right or engaging in exploration or post-
exploration under an oil and gas right.
‘Oil and gas income’ comprises the receipts and accruals derived by an oil and gas company from
exploration under an oil and gas right, post-exploration relating to an oil and gas right, or the leasing or
disposal of an oil and gas right.
An ‘oil and gas right’ is:
• a reconnaissance permit, technical cooperation permit, an exploration right, or a ‘production right’ as

defined in s 1 of the Mineral and Petroleum Resources Development Act 28 of 2002 or an interest in
such a permit or right;
• an exploration right acquired by virtue of a conversion contemplated in item 4 of Schedule II to the

Mineral and Petroleum Resources Development Act 28 of 2002 or an interest in such a right; or
• a production right acquired by virtue of a conversion contemplated in item 5 of Schedule II to the

Mineral and Petroleum Resources Development Act 28 of 2002 or an interest in such a right.
‘Post-exploration’ is an activity carried out after the completion of the appraisal phase, and includes the
separation of oil and gas condensates, the drying of gas, and the removal of non-hydrocarbon
constituents, to the extent that these processes are preliminary to refining.
16.25 Mining operators – royalties or compensation
s 11( h B)
A deduction is allowed for expenditure actually incurred and paid in the production of income to
discharge all consideration, royalties or compensation otherwise payable to a community or natural
person for an existing consideration, contractual royalty, future consideration or compensation that
accrued to that community or natural person as contemplated in Item 11 of Schedule II of the Petroleum
Resources Development Act 28 of 2002. The allowance in a particular tax year may not exceed an
amount equal to the expenditure incurred and paid divided by the number of years for which all
consideration, royalties or compensation otherwise payable has been discharged.
16.26 Prospecting
s 15( b)
Expenditure incurred by a taxpayer during the tax year on prospecting operations, including surveys,
boreholes, trenches, pits and other prospecting work preliminary to the establishment of a mine, in an
area within South Africa, as well as expenditure incidental to prospecting operations, is deductible from
the income (see 1.1) derived by the taxpayer from mining operations (see 16.20).
Except for a person deriving income from mining for diamonds in South Africa, this expenditure must be
deducted in annual instalments in such proportions as may be determined by the Commissioner for
SARS. A company (see 14.1) deriving income from different classes of mining operations has to spread
its prospecting deduction among those classes in proportions determined by the Commissioner for
SARS. And this expenditure does not form part of the capital expenditure (see 16.18) of a company.
From a date yet to be determined, the Commissioner for SARS is required to exercise his discretionary
power by public notice.
16.27 Public benefit organizations
ss 10(1)( c N), 30, 38, 9th Sch,
Sch 1 para 4 Act 32 of 2019
Exemption (s 10(1)( cN))
A public benefit organization (PBO) that has been approved by the Commissioner for SARS is exempt
from income tax on its receipts and accruals, to the extent that they are derived otherwise than from a
business undertaking or trading activity.
It will also be exempt from income tax on its receipts and accruals, to the extent that they are derived
from a business undertaking or trading activity that is integral and directly related to its qualifying sole
or principal object, is carried out or conducted on a basis substantially the whole of which is directed
towards the recovery of cost, and does not result in unfair competition with taxable entities.
An undertaking or activity will also qualify for exemption if it is of an occasional nature and undertaken
substantially with assistance on a voluntary basis without compensation.
And an undertaking or activity will also qualify for exemption if it is approved by the Minister of Finance
by notice in the Government Gazette. The Minister is required to have regard to the scope and benevolent
nature of the undertaking or activity, its direct connection and inter-relationship with the sole or
principal object of the public benefit organization, its profitability, and the level of economic distortion
that may be caused by the tax-exempt status of the public benefit organization carrying out the
undertaking or activity.
The receipts and accruals of a business undertaking or trading activity that does not otherwise qualify
under these rules will qualify for exemption as long as they do not exceed the greater of 5%
of the total receipts and accruals of the public benefit organization during the relevant tax year and
R200 000.
Requirements for approval (s 30(3), (3A), (3B), (4))
The Commissioner for SARS’s duty is to approve a PBO, on the basis that: (1) It complies with the
conditions prescribed by the Minister of Finance by regulation, designed to ensure that its activities and
resources are directed in the furtherance of its object.
Any such conditions prescribed by him must be tabled in Parliament within a period of twelve months
after the date of publication by him of those conditions in the Government Gazette, for incorporation into
the Income Tax Act.
(2) It has submitted to him a copy of a qualifying constitution, will or other written instrument under
which it has been established.
Should the constitution, will or other written instrument not qualify for this purpose, it will be deemed
to qualify if the person responsible in a fiduciary capacity for the PBO’s funds and assets furnishes the
Commissioner for SARS with a written undertaking that the PBO will be administered in compliance
with these rules governing PBOs.
(3) He is satisfied that it is or was not knowingly a party to, does not knowingly permit and has not
knowingly permitted itself to be used as part of a transaction, operation or scheme whose sole or main
purpose is or was the reduction or postponement of or avoidance of liability for a
tax, duty or levy that would otherwise have been or would have become payable by any person under
the Income Tax Act or any other Act administered by him.
(4) It has not and will not pay remuneration for PAYE purposes (see 17.3) to an employee, office-bearer,
member or other person that is excessive in the light of what is generally considered reasonable, both in
the sector concerned and in relation to the service rendered, and has not and will not economically
benefit any person in a manner inconsistent with its objects.
(5) It complies with the reporting requirements determined by the Commissioner for SARS.
(6) He is satisfied that a PBO providing funds to a particular type of association of persons (see para
10(iii) of Part I of the Ninth Schedule to the Income Tax Act) has taken reasonable steps to ensure that
those funds are used for the purpose for which they have been provided.
(7) It has not and will not use its resources directly or indirectly to support, advance or oppose any
political party.
He is also empowered to grant approval to a group of organizations sharing a common purpose and
carrying on a ‘public benefit activity’ under the direction or supervision of a regulating or co-ordinating
body, as long as that body takes steps prescribed by him to exercise control over the organizations so as
to ensure their compliance with these rules governing PBOs.
A further power he enjoys is to approve an organization as a PBO with retrospective effect, as long as he
is satisfied that it complied with the requirements of a PBO during the period before its application. But,
even if the PBO has complied with all its obligations under Chapters 4, 10 and 11
of the Tax Administration Act 28 of 2011, he may not extend approval to tax years for which an
assessment may not be made under s 99(1) of that Act. On the other hand, should it not have so
complied, he may not extend approval to tax years for which an assessment could not have been made
under s 99(1), had the PBO submitted the relevant income tax returns in accordance with s 25(1) of that
Act.
Withdrawal of approval (s 30(3C), (5), (5A), (6), (6A), (7))
After giving an approved PBO due notice to take corrective steps within a period stated in the notice, the
Commissioner for SARS may withdraw its approval with effect from the commencement of a particular
tax year. But he must be satisfied that, during that tax year, the PBO has, in any material respect, or on a
continuous or repetitive basis failed to comply with these rules governing PBOs, or with the constitution,
will or other written instrument under which it is established, to the extent that it relates to these rules.
Similarly, after giving an approved regulating or co-ordinating body directing or supervising a group of
qualifying organizations due notice to take corrective steps within a period stated in the notice, he may
withdraw its approval with effect from the commencement of a particular tax year.
But it must, with intent or negligently, have failed to have taken the prescribed steps to exercise control
over a PBO, or it must have failed to notify him when it became aware of a material failure by a PBO over
which it exercises control to comply with these rules governing PBOs.
In such circumstances, further special rules come into play governing the transfer of assets to another
qualifying PBO, institution, board or body or the government, a failure to carry out such a transfer and a
re-application for approval.
The Director of Non-profit Organizations designated under the Non-profit Organizations Act 71
of 1997 may request the Commissioner for SARS to withdraw the approval of a PBO that has been
convicted of an offence under that Act, and the Commissioner may then withdraw the approval.
Re-application for approval (s 30(8))
Should the Commissioner for SARS be satisfied that non-compliance giving rise to the withdrawal of
approval has been rectified, the organization concerned may apply for approval under these rules in the
tax year following the tax year during which its approval was withdrawn.
Qualifying constitution (s 30(3)( b))
The constitution, will or other written instrument under which a PBO has been established required to
be submitted by a PBO seeking approval has to satisfy numerous and onerous requirements.
Under the constitution, will or other written instrument, the PBO must be:
• Required to have at least three persons, who are not each others’ connected persons (see 10.27), to
accept the organization’s fiduciary responsibility. No single person may directly or indirectly control its
decision-making powers. Absolved from this particular requirement is a trust established under a will
(will trust).
• Prohibited, other than in the course of undertaking a public benefit activity, from distributing any of its
funds directly or indirectly to any person.
• Required to use its funds solely for the object for which it has been established.
• If it is a ‘non-profit company’ as defined in the Companies Act 71 of 2008 or a trust or an association of

persons incorporated, formed or established in South Africa, required, upon its dissolution, to transfer
its assets to ( a) an approved PBO, ( b) a qualifying, exempt institution, board or body (see 16.2) having
as its sole or principal object the carrying on of a public benefit activity, ( c) the government of South
Africa in the national, provincial or local sphere of government in South Africa, or ( d) the National
Finance Housing Corporation (see 16.9). In each instance, the recipient must be required to use the
assets solely for the purposes of carrying on one or more public benefit activities.
• If it is a branch within South Africa of a company, association or trust incorporated, formed or

established in a foreign country that is exempt from tax on income in that country, required on
termination of its activities in South Africa to transfer its assets to ( a) an approved PBO; ( b) a
qualifying, exempt institution, board or body (see 16.2) having as its sole or principal object the carrying
on of a public benefit activity; ( c) the government of South Africa in the national, provincial or local
sphere; or ( d) the National Finance Housing Corporation (see 16.9). But only if more than 15% of the
receipts and accruals attributable to the branch during the period of three years preceding the
termination were derived from a source within South Africa.
• Prohibited from accepting a donation that is revocable at the instance of the donor for reasons other
than a material failure to conform to the designated purposes and conditions of the donation, including a
misrepresentation made by the PBO about tax deductibility of the donation (see 19.1). Ordinary donors
are not permitted to impose conditions that could enable the donor or the donor’s connected person to
derive some direct or indirect benefit from the application of the donation. Not governed by this last
prohibition is a donor that is an approved PBO or a qualifying, exempt institution board or body having
as its sole or principal object the carrying on of a public benefit activity (see 16.2).
• Required to submit to the Commissioner for SARS a copy of any amendment to the constitution, will or
other written instrument under which it was established.
Provision of information (s 30(10))
By notice in writing, the Commissioner for SARS may require a person regarded as being able to furnish
information about an approved PBO to answer questions relating to it, make available for inspection by
the Commissioner or the Commissioner’s appointee, books of account, records or other documents
relating to the PBO, or to attend, at a time and place appointed by the Commissioner, for the purposes of
producing for examination by the Commissioner or the Commissioner’s appointee, books of account,
records or other documents relating to the PBO.
Sanctions (s 30(11))
A person in a fiduciary capacity responsible for the management or control of the income and assets of
an approved PBO who intentionally fails to comply with these rules or with the constitution, will or
other written instrument under which the PBO is established, to the extent that it relates to
these rules, will be guilty of an offence and liable upon conviction to a fine or to imprisonment for a
period not exceeding twenty-four months.
Definitions (s 30(1), (2))
A ‘public benefit activity’ is an activity listed in Part I of the Ninth Schedule to the Income Tax Act, as
well as any other activity determined, from time to time, by the Minister of Finance by notice in the
Government Gazette, to be of a benevolent nature, having regard to the needs, interests and well-being
of the general public. Any such activity determined by him must be tabled in Parliament within a period
of twelve months after the date of publication by him of that activity in the Government Gazette, for
incorporation into the Income Tax Act.
A ‘public benefit organization’ is an organization that is a ‘non-profit company’ as defined in the

Companies Act 71 of 2008 or a trust or an association of persons incorporated, formed or established in
South Africa, or a branch within South Africa of a company, association or trust incorporated, formed or
established in a foreign country that is exempt from tax on income in that country, whose sole or
principal object is the carrying on of one or more public benefit activities. All of its activities must be
carried on in a non-profit manner and with an altruistic or philanthropic intent, and no such activity may
be intended, directly or indirectly, to promote the economic self-interest of any fiduciary or employee of
the PBO, otherwise than by way of reasonable remuneration payable to him or her. Each of its activities
must be for the benefit of, or be widely accessible to the general public at large, including any sector of
the general public at large, although not small and exclusive groups.
The Ninth Schedule to the Income Tax Act
Part I of the Ninth Schedule to the Income Tax Act sets out the principal activities that are public benefit
activities. The categories of activities catered for are welfare and humanitarian; health care; land and
housing; education and development; religion, belief or philosophy; cultural; conservation, environment
and animal welfare; research and consumer rights; sport; and the provision of funds, assets or other
resources.
Part II of the Ninth Schedule is relevant to deductible donations (see Chapter 19).
General (s 38)
An approved PBO that is a company (see 14.1) will be a public company for tax purposes (see 14.7).
Rate of tax (Sch 1 para 4 Act 32 of 2019)
The rate of tax on taxable income (see 2.3) derived by a PBO that is a company (see 14.1) is 28% in the
tax year ending on or after 1 April 2019, and, if it is a trust (see 11.4), in the tax year commencing on or
after 1 March 2019.
16.28 Public Private Partnerships
ss 1, 12N, 12NA, 12P
Definitions
A ‘Public Private Partnership’ is a ‘Public Private Partnership’ as defined in Regulation 16 of the

Treasury Regulations issued under s 76 of the Public Finance Management Act 1 of 1999 or the
Municipal Public-Private Partnership Regulations made under s 168 of the Local Government: Municipal
Finance Management Act 56 of 2003.
The concept is relevant to a deduction for qualifying improvements not owned by the taxpayer (see
10.14), a deduction for improvements on property over which the government holds a right of use or
occupation (see 10.68), and the exemption of amounts derived by way of government grants (see
16.10A).
16.29 Recreational clubs
ss 10(1)( c O), 30A, Sch 1 para 4 Act 32 of 2019
Exemption (s 10(1)( cO))
The receipts and accruals of a recreational club approved by the Commissioner for SARS are exempt
from tax, to the extent that they are derived from the following sources:
• Membership fees or subscriptions paid by its members.
• A business undertaking or trading activity that is integral and directly related to the provision of social
and recreational amenities or facilities for its members, is carried out on a basis substantially the whole
of which is directed towards the recovery of cost, and does not result in unfair competition with taxable
entities.
• Fundraising activities of an occasional nature, undertaken substantially with assistance on a voluntary
basis without compensation.
• Any other source, as long as they do not in total exceed the greater of 5% of the total membership fees
and subscriptions due and payable by its members during the relevant tax year, and R120 000.
Requirements for approval (s 30A(2))
The Commissioner for SARS must approve a recreational club for the purposes of the exemption if it has
submitted a copy of its constitution or other written instrument under which it is established to him and
it meets the prescribed requirements.
The recreational club must also undertake to submit to the Commissioner for SARS a copy of any
amendments to its constitution or the other written instrument.
The Commissioner for SARS must also be satisfied that the recreational club is not knowingly a party to
and has not knowingly permitted itself to be used as part of a transaction, operation or scheme of which
the sole or main purpose is or was the reduction, postponement or avoidance of liability for a tax, duty
or levy payable by any person under the Income Tax Act or any other Act administered by the
Commissioner.
Qualifying constitution (s 30A(2)( a))
The constitution or written instrument of recreational club seeking approval must provide that:
• It is required to have at least three persons, who are not connected persons (see 10.27), to accept the
fiduciary responsibility of the recreational club, and no single person may directly or indirectly controls
its decision-making powers.
• Its activities must be carried on in a non-profit manner.
• It is prohibited from directly or indirectly distributing surplus funds to any person, other than upon its
dissolution.
• It is required upon its dissolution to transfer its assets and funds to ( a) some other approved
recreational club; ( b) an approved public benefit organization that is a ‘non-profit company’ as defined
in s 1 of the Companies Act 71 of 2008 or a trust (see 11.3) or an association of persons incorporated,
formed or established in South Africa; ( c) a qualifying, exempt institution, board or body (see 16.2)
having as its sole or principal object, the carrying on of a public benefit activity; or ( d) the government
of South Africa in the national, provincial or local sphere.
• It is prohibited from paying remuneration to any person that is excessive, regard being had to what is
generally considered reasonable in the sector and in relation to the service rendered.
• It is prohibited from paying remuneration determined as a percentage of amounts derived by it.
• All members are entitled to annual or seasonal membership.
• Its members are prohibited from selling their membership rights or any entitlement under those
rights.
Non-compliant constitution (s 30A(3))

When the constitution or other written instrument under which a recreational club is established does
not comply with these rules, it will be deemed to comply if a person responsible in a fiduciary position
for its funds and assets furnishes the Commissioner for SARS with a written undertaking by the
recreational club that it will be administered in compliance with these rules.
Application for approval (s 30A(4))
When a recreational club applies for approval, the Commissioner for SARS may approve it for purposes
of these rules with retrospective effect, to the extent that he is satisfied that it complied with the
requirements of a recreational club during the period before its application. But, even if the recreational
club has complied with all its obligations under Chapters 4, 10 and 11 of the Tax Administration Act 28
of 2011, he may not extend approval to tax years for which an assessment may not be made under s
99(1) of that Act. On the other hand, should it not have so complied, he may not extend approval to tax
years for which an assessment could not have been made under s 99(1), had the recreational club
submitted the relevant income tax returns in accordance with s 25(1) of that Act.
Withdrawal of approval (s 30A(5), (6), (7), (7A), (8))
The Commissioner for SARS may withdraw his approval in qualifying circumstances. He may do so if he
is satisfied that an approved recreational club has, during a particular tax year, in any material respect
or, on a continuous or repetitive basis, failed to comply with these rules or its constitution or other
written instrument under which it was established, to the extent that it relates to these rules. He must
notify the recreational club that he intends to withdraw his approval if no corrective steps are taken by
the recreational club within a period stated in the notice.
Should the recreational club fail to take the required corrective steps, the Commissioner for SARS
must withdraw his approval, with effect from the commencement of the relevant tax year.
Once the Commissioner for SARS has withdrawn his approval of a recreational club, it must within six
months after the date of the withdrawal, or a longer period allowed by the Commissioner, transfer or
take reasonable steps to transfer its remaining assets to ( a) some other approved recreational club; ( b)
an approved public benefit organization that is a ‘non-profit company’ as defined in s 1 of the Companies
Act 71 of 2008 or a trust (see 11.3) or an association of persons incorporated, formed or established in
South Africa; ( c) a qualifying, exempt institution, board or body (see 16.2) having as its sole or principal
object the carrying on of a public benefit activity; or ( d) the government of South Africa in the national,
provincial or local sphere.
It must transfer the assets as part of its dissolution.
Should it fail to transfer or to take reasonable steps to transfer its assets, an amount equal to the market
value of the assets that have not been transferred, less an amount equal to its bona fide liabilities, will be
deemed to be an amount of taxable income (see 2.3) that accrued to it during the tax year in which
approval was withdrawn or the dissolution took place.
Sanctions (s 30A(9))
A person who is in a fiduciary capacity responsible for the management or control of the income and
assets of an approved recreational club and intentionally fails to comply with these rules or of the
constitution or other written instrument under which the recreational club is established, to the extent
that it relates to these rules, will be guilty of an offence and liable upon conviction to a fine or to
imprisonment for a period not exceeding twenty-four months.
Definition (s 30A(1))
A ‘recreational club’ is a ‘non-profit company’ as defined in the Companies Act 71 of 2008, society or
other association of which the sole or principal object is to provide social and recreational amenities or
facilities for its members.
Rate of tax (Sch 1 para 4 Act 32 of 2019)
The rate of tax payable by a recreational club that is a company (see 14.1) on taxable income (see 2.3)
derived by it during the tax year ending on or after 1 April 2019 is 28%.
16.30 REITs
ss 1, 10(1)( k)(i)( aa), 25BB
Deduction (s 25BB(2))
A deduction is allowed from the income (see 1.1) for a tax year of a ‘REIT’ or a ‘controlled company’
that is a resident (see 1.1) of the amount of a ‘qualifying distribution’ made by the REIT or controlled
company in a tax year, as long as the company is a REIT or controlled company on the last day of the tax
year.
The aggregate amount of such deductions may not exceed the taxable income (see 2.3) for that tax year
of the REIT or controlled company, before account is taken of the deduction itself, any assessed loss
brought forward (see 10.67), and the amount of a taxable capital gain (see 21.3) included in taxable
income.
Calculating taxable income for this purpose (s 25BB(2A))
Complex rules govern the calculation of the taxable income (see 2.3) for a tax year of a REIT or a
controlled company.
• The REIT or controlled company is a beneficiary of a vesting trust (see 11.5) that is not a resident (see
1.1), and the trust is liable for or subject to tax on income (see 1.1) in the country in which it is
established or formed.
Before claiming the special deduction available, allow as a primary deduction to the REIT or controlled
company so much of an amount of tax on income proved to be payable by the trust to the government of
a foreign country as is attributable to the interest of the REIT or controlled company in the trust. The tax
must be payable without any right of recovery by any person (but allowed is a right of recovery under an
entitlement to carry back losses arising during a particular tax year, limited to the amount of taxable
income attributable to such an amount).
• The REIT or controlled company is liable to taxes on income proved to be payable by it, on any amount
to any sphere of government of a foreign country. The tax must be payable without any right of recovery
by any person, although a right of recovery under an entitlement to carry back losses arising during a tax
year is permissible.
Allow as a deduction from the income of the REIT or company the sum of such taxes. But the deduction
is limited to the amount of taxable income attributable to such amounts, before claiming the special
deduction available, and before claiming the deduction for qualifying donations described immediately
below.
• The REIT or controlled company has, during a tax year, made a bona fide donation to one of the first
three organizations listed in 19.1 as qualifying to receive deductible donations.
Allow as a deduction an amount equal to the amount of that donation. But the deduction is limited to
10% of the REIT’s or controlled company’s taxable income, after claiming the deductions described in
the preceding two bullet-points but before claiming the special deduction available.
Prohibited deductions (s 25BB(4))
A company that is a REIT or a controlled company on the last day of the tax year, despite owning
immovable property, may not deduct the allowances for leasehold improvements (see 10.41), buildings
used for manufacturing (see 10.18), buildings used by hotelkeepers (see 16.11), residential buildings
(see 10.21), urban development zones (see 10.22), commercial buildings (see 10.19) or residential units
(see 10.21).
Capital gains tax (s 25BB(5))
In determining the aggregate capital gain or aggregate capital loss (see 21.3) of a company that is a REIT
or controlled company on the last day of the tax year, disregard, for CGT purposes, a capital gain or
capital loss (see 21.12) determined on the disposal of immovable property of a company that is a REIT
or controlled company at the time of disposal, a share or a ‘linked unit’ in a company that is a REIT at
the time of disposal, or a share or a linked unit in a company that is a property company at the time of
disposal.
Interest deemed to be dividends or foreign dividends (s 25BB(6))
Interest derived by a person in a tax year on a debenture forming part of a linked unit held by that
person in a company that is a resident REIT or controlled company is deemed to be a dividend (see 9.3)
derived by that person.
Interest derived by a person in a tax year on a debenture forming part of a linked unit held by that
person in a company that is a controlled company that is a foreign company (see 15.2) is deemed to be a
foreign dividend (see 9.4) derived by that person during that tax year.
Interest derived by a company that is a REIT or a controlled company that is a resident during a tax year
on a debenture forming part of a linked unit held by the company in a ‘property company’
is, if the property company is a resident, deemed to be a dividend. If the property company is a foreign
company, such interest is deemed to be a foreign dividend. The receiving company must be a REIT or
controlled company that is a resident at the time the interest is derived.
Interest paid on a linked unit in a REIT or a controlled company is deemed to be a dividend paid by the
REIT or controlled company that is a resident for the purposes of the dividends tax (see 9.4) and not to
be interest paid for the purposes of the withholding tax on interest (see 15.19).
Change of status (s 25BB(7))
When, during a tax year, a company that is a REIT ceases to be a REIT and does not qualify as a
controlled company, or a company that is a controlled company ceases to be a controlled company and
does not qualify as a REIT, its tax year is deemed to end on the day preceding the date it ceases to be
either a REIT or a controlled company, and its following tax year is deemed to commence on the day it
ceased to be either a REIT or a controlled company.
Debenture part of a linked unit cancelled (s 25BB(8))
Should a REIT or controlled company cancel the debenture part of a linked unit and capitalize the issue
price of the debenture to stated capital for the purposes of financial reporting in accordance with ‘IFRS’:
• the cancellation of the debenture is disregarded in the determination of the taxable income of the
holder of the debenture and of the REIT or controlled company.
• Expenditure incurred by the holder of shares (21.12) of the REIT or controlled company on the shares
is deemed to be equal to the amount of the expenditure incurred in the acquisition of the linked unit.
• The issue price of the cancelled debenture is then added to the contributed tax capital (see 22.4) of the
class of shares forming part of the linked unit.
Definitions (s 25BB(1))
A ‘controlled company’ is a company (see 14.1) that is a ‘subsidiary’, as defined in IFRS (see 10.75), of a
REIT.
A ‘property company’ is a company in which 20% or more of the equity shares (see 14.7) or linked
units are held by a REIT or a controlled company (whether alone or together with any other company
forming part of the same group of companies (see 14.1) as the REIT or controlled company).
At the end of the previous tax year, 80% or more of the value of the assets, reflected in the annual
financial statements prepared in accordance with the Companies Act 71 of 2008 or IFRS for the previous
tax year, must be directly or indirectly attributable to immovable property.
A ‘qualifying distribution’, for a tax year of a company that is a REIT or a controlled company at the
end of the tax year, is a dividend (see 9.2) (but not a dividend arising on a share buy-back; see 9.2) paid
or payable, or interest incurred on a debenture forming part of a linked unit in the company, if the
amount involved is determined with reference to the financial results of the company as reflected in the
financial statements prepared for that tax year, as long as:
• in the first tax year, at least 75% of the gross income (see 1.1) derived by a company in the first tax
year that it qualifies as a REIT or a controlled company consists of ‘rental income’; or
• in any other tax year, at least 75% of the gross income derived by a REIT or a controlled company in
the preceding tax year consists of rental income.
But an amount required to be included in the income of the REIT or controlled company under the rules
dealing with controlled foreign companies (see 15.2) must not be included in the gross income of the
REIT or controlled company for that tax year for the purposes of this definition.
‘Rental income’ is an amount calculated in accordance with the formula —
RI = PI + EG
In this formula:
• ‘RI’ represents the amount.

• ‘PI’ represents the aggregate of all amounts derived ( a) for the use of immovable property, including a
penalty or interest on a late payment of such an amount; ( b) as a dividend (but not a dividend arising
from a share buy-back) from a company that is a REIT at the time of the distribution of the dividend; ( c)
as a qualifying distribution from a company that is a controlled company at the time of the distribution;
as a dividend (see 9.3) or foreign dividend (see 9.4) from a company that is a property company at the
time of the distribution; and ( d) as an amount recovered or recouped under particular aspects of the
provision dealing with recoupment of allowances previously deducted (see 10.7).
• ‘EG’ represents the total of foreign exchange gains under the definition of ‘exchange difference’
(see 10.75), determined under the rules determining foreign exchange gains and losses on exchange
items (see 10.75) in relation to the amounts referred to in ‘PI’ constituting exchange items or exchange
items serving as a hedge on such amounts.
Standards Board.
The ‘JSE Limited Listings Requirements’ are the JSE Limited Listings Requirements, 2003
made by the JSE Limited under the Financial Markets Act 19 of 2012.
A ‘linked unit’ is a unit comprising a share and a debenture in a company, the share and the debenture
being linked and traded together as a single unit.
A ‘REIT’ is company that is a resident (see 1.1), the shares of which are listed on an exchange (as defined
in s 1 of the Financial Markets Act and licensed under that Act), as ‘shares in a REIT' as defined in the JSE
Limited Listings Requirements.
Exempt REIT dividends (10(1)( k)(i)( aa)) Dividends distributed by a company that is a REIT or a
controlled company are exempt from normal tax (see 1.2) when derived by a non-resident or
comprising a share buyback. Otherwise, they are included in a recipient’s gross income (see 1.1) and are
taxable.
16.31 Share-dealers
ss 9C, 22(1), (4), (4A), (9)
Proceeds arising upon sale of shares deemed to be capital (s 9C(2), (2A), (3)) An amount derived
and expenditure incurred on an ‘equity share’ is deemed to be of a capital nature (see 1.5) if, at the time
the amount is derived or the expenditure is incurred, the equity share has been held for at least three
years. This rule does not apply to a dividend (see 9.3) or a foreign dividend (see 9.4) derived on an
equity share.
The rule also does not apply to so much of the amount derived upon the ‘disposal’ of an equity share
held in a venture capital company (see 10.4) as does not exceed the expenditure on the venture capital
share allowed as a deduction (see 10.4), unless the equity share has been held for longer than five years.
The rule also does not apply to an equity share if, at the time of the receipt or accrual of an amount
(excluding a dividend – see 9.3 – or foreign dividend – see 9.4), the taxpayer was a ‘connected person’
of the company (see also 14.1) that issued it, and more than 50% of the market value of the equity
shares of the company was attributable directly or indirectly to immovable property. Excluded from this
determination is immovable property held directly or indirectly by a person that is not the taxpayer’s
connected person, as well as immovable property held directly or indirectly for a period of at least three
years immediately before the receipt or accrual.
Finally, the rule also does not apply to an equity share if, at the time of its disposal, the taxpayer was a
connected person of the company that issued it, that company acquired an asset during the period of
three years immediately before the disposal, and amounts were paid or payable by a person to a person
other than the company for the use of the asset while it was held by the company during that period.
Securities lending and collateral arrangements (s 9C(4), (4A))
When a share (see 9.3) has been transferred by a lender to a borrower under a securities lending
arrangement (see 10.66) and an identical share (see 10.66) has been returned by the borrower to the
lender under the arrangement, the two shares are deemed to be one and the same share in the hands of
the lender.
When a share has been transferred by a transferor to a transferee under a collateral arrangement (see
21.9) and an identical share has been transferred by the transferee to the transferor under the
arrangement, the two shares are deemed to be one and the same share in the hands of the transferor.
Disposal of sheltered equity shares (s 9C(5), (6), (7))
In the tax year in which you dispose of an equity share held for at least three years, you must include in
your income (see) the expenditure or losses incurred on the share and allowed as a deduction from your
income during that or a previous tax year under the provision providing for general deductions (see
10.14). But you need not do so to the extent that the expenditure or losses are taken into account as a
recoupment (see 10.7) or under the debt reduction provision (see 10.7).
Nor does this rule apply to expenditure on equity shares in a resident (see 1.1) REIT or controlled
company (see 16.30), except to the extent that the amount was taken into account in the determination
of the cost price or value of the trading stock under the so-called general deduction formula (see 10.14)
or the trading stock rules (see 10.26).
If you hold shares of the same class in the same company that were acquired by you on different dates,
and you dispose of any of those shares, you will be deemed to have disposed of those held by you for the
longest period of time.
The deemed-recoupment rules ordinarily applying to trading stock (see 10.66) do not apply on or after
the date that an equity share has been held for a period exceeding three years.
Substitution of equity shares (s 9C(8))
For the purposes of these rules, when a company issues shares to you in substitution of previously held
shares in that company, by reason of a subdivision, consolidation or similar arrangement, or a
conversion of a close corporation to a company (see 14.10) or of a co-operative to a company (see 16.8),
the new shares and the previously held shares will be deemed to be one and the same shares, as long as
your participation rights and interests in the company remain unaltered and no consideration
whatsoever passes directly or indirectly from you to the company for the issued shares.
Definitions (s 9C(1))
A ‘connected person’ is a connected person as ordinarily understood (see 10.27), except that the
expression ‘and no holder of shares holds the majority voting rights in the company’ is disregarded.
A ‘disposal’ is a ‘disposal’ as defined for capital gains tax purposes.
An ‘equity share’ includes a participatory interest in a portfolio of a collective investment scheme in

securities, and a portfolio of a hedge fund collective investment scheme (see 16.7). But excluded are
shares (see 14.1) that at any time before the disposal were shares in a share block company, shares in a
non-resident company (unless it is domestically listed) and hybrid equity instruments (see 7.5).
Special rules for trading stock (s 22(1))
A share (see 14.1) is a financial instrument (see 21.8). When held as trading stock (see 10.66), that is, by
a share-dealer, financial instruments held and not disposed of at the end of the tax year must be valued
at their cost price (see 10.66), and may not be written down to their market value.
From 1 January 2020: For this purpose, you must take into account the amount of trading stock held
and not disposed of at the end of the tax year in determining the share-dealer’s taxable income (see 2.3)
by including it in the share-dealer’s gross income (see 1.1). In determining any diminution in the value of
trading stock held and not disposed of at the end of the tax year, you may not take into account the fact
that the value of some items of trading stock held and not disposed of by the share-dealer may exceed
their cost price.
A share may also be described as a ‘security’.
Securities lending and collateral arrangements (s 22(4), (4A), (4B)) The usual rule is that trading
stock acquired for no consideration may be brought into account at its market value on the date of its
acquisition (see 10.66).
But when a security has been lent by a lender to a borrower under a securities lending arrangement, the
security is deemed not to have been acquired by the borrower. Similarly, when an identical security has
been returned by the borrower to the lender, the identical security is deemed not to have been acquired
by the lender.
And when a share has been transferred by a transferor to a transferee under a collateral arrangement,
the share is deemed not to have been acquired by the transferee. And an identical share returned by the
transferee to the transferor under the collateral arrangement is deemed not to have been acquired by
the transferor.
Securities and bonds issued by the government (s 22(9))
Special rules apply to a security or bond issued by the South African government in the national or local
sphere or a bond issued by any sphere of government of a foreign country. Such a bond must be listed on
a recognized exchange (see 21.5).
When, during a particular tax year, a person lends trading stock comprising such securities or bonds to a
borrower under a securities lending arrangement, and an identical security or the same bond has not
been returned by the borrower to the lender by the end of that tax year, the security or bond will be
deemed to be trading stock held and not disposed of by the lender at the end of the tax year.

As for the borrower under such an arrangement, the security or bond will be deemed not to be trading
stock held and not disposed of by the borrower at the at the end of the borrower’s tax year.
When, during a particular tax year, a person has transferred trading stock comprising a share issued by
the South African government in the national or local sphere or such bonds to a transferee under a
collateral arrangement, and an identical share or the same bond has not been returned by the transferee
to the transferor by the end of that tax year, the share or bond will be deemed to be trading stock held
and not disposed of by the transferor at the end of the tax year.
As for the transferee, under such an arrangement, if an identical share or the same bond has not been
returned by the transferee to the transferor at the end of the tax year, the share or bond will be deemed
not to be trading stock held and not disposed of by the transferee at the end of the transferee’s year of
assessment.
16.32 Ship-owners
ss 10(1)( c G), 12C, 12Q, 23D, 24P, 33, 38
Straight-line depreciation (s 12C)
Ship-owners are entitled to the 20% straight-line depreciation allowance (see 10.63). This depreciation
applies to a ship (but not a South African ship, on which, see below) owned by the taxpayer or acquired
by the taxpayer as a purchaser under a qualifying instalment credit agreement (see 5.4) and brought
into use for the first time by the taxpayer for the purposes of the taxpayer’s trade (see 10.14).
Ordinary depreciation (ss 11( e), 23D)
Ships not qualifying for 20% straight-line depreciation might be subject to ordinary depreciation (see
10.14). As a depreciable asset (see 10.7), a ship is vulnerable to the limitation of allowances (see 8.5)
applicable when such an asset is let or licensed by a taxpayer to a lessee or licensee and was held within
a period of two years preceding the commencement of the lease or licence by the lessee or licensee or by
a sub-lessee or sub-licensee or by a person that at any time during that period was the lessee’s,
licensee’s, sub-lessee’s or sub-licensee’s connected person (see 10.27).
Allowance for future repairs (s 24P)
A ship-owner that is a resident carrying on business as owner or charterer of a ship and is likely, within
five years of the current tax year, is likely to incur expenditure on repairs to a ship used by it for the
purposes of its trade (see 10.14) may claim an allowance for future repairs. This allowance may be
deducted despite the rule prohibiting the deduction of amounts transferred to reserves (see 10.79).
In determining the amount to claim as a deduction, the taxpayer must have regard to the estimated cost
of the repairs and the date when the costs are likely to be incurred.
An amount claimed as a deduction for future repairs in a tax year must be included in the taxpayer’s
income in the next tax year, when a new allowance may be claimed if applicable.
Non-resident owners or charterers (ss 10(1)( cG), 33, 38) Owners or charterers of a ship that are not
residents (see 1.1) are exempt from normal tax (see 1.2) on their receipts and accruals derived from
carrying on business as owners or charterers of a ship, as long as a similar exemption or equivalent
relief is granted by their country of residence to South African residents for any tax imposed by that
country on income derived from the carrying on of such a business.
Non-resident owners or charterers of a ship are usually treated as having derived a taxable income (see
2.3) from this source – apart from taxable income from other sources – equal to 10% of freight received
from the embarking of passengers or loading of livestock, mails and goods in South Africa. They are
alternatively free to render accounts satisfactorily disclosing their taxable income from this source.
This type of tax is colloquially referred to as a ‘liftings tax’.
Special provisions apply when such an owner or charterer is not adequately represented in South Africa.
A company paying tax on this basis is recognized as a public company for tax purposes (see 14.7).
Any other income from South African sources is taxed in the normal way.
South Africa has entered into agreements with other countries in order to avoid double taxation on
profits from the operation of ships (see 18.10).
International shipping exemption (s 12Q(2))
The ‘international shipping income’ of an ‘international shipping company’ is exempt from

normal tax (see 1.2).
A capital gain or capital loss (see 21.12) in a tax year of an international shipping company determined
in relation to a ‘South African ship’ engaged in ‘international shipping’ is disregarded in the
determination of the international shipping company’s aggregate capital gain or aggregate capital loss
(see 21.3) .
Withholding taxes (s 12Q(3), (4))
The rate of dividends tax (see 9.4) paid by an international shipping company on dividends derived from
international shipping income may not exceed 0% of the amount of the dividend.
Interest paid to a foreign person (see 15.19) by an international shipping company on a debt used to
fund the acquisition, construction or improvement of a South African ship used in international shipping
is exempt from the withholding tax on interest (see 15.19).
Definitions (s 12Q(1))
‘International shipping’ is the conveyance for compensation of passengers or goods by means of the
operation of a South African ship mainly engaged in international traffic.
An ‘international shipping company’ is a company (14.1) that is a resident (1.1) operates one or more
South African ships used in international shipping.
‘International shipping income’ is the receipts and accruals of a person derived from international
shipping mainly from the operation of one or more South African ships registered in South Africa in
accordance with Part 1 of Chapter 4 of the Ship Registration Act 58 of 1998.
A ‘South African ship’ is a ship registered in South Africa in accordance with Part 1 of Chapter 4
of the Ship Registration Act 58 of 1998, or another ship or ships used temporarily in lieu of such a ship
by virtue of that ship being subject to repair or maintenance.
General
See also 10.75 for the foreign exchange issues affecting international shipping companies.
16.33 Small business corporations
s 12E, Sch 1 paras 5, 7 Act 32 of 2019
100% depreciation allowance (s 12E(1))
A ‘small business corporation’ (SBC) is entitled to a depreciation allowance equal to the full ‘cost’
of an asset comprising plant or machinery owned by it or acquired by it as purchaser under a qualifying

instalment credit agreement (see 5.4) in the year in which the SBC brings it into use. The SBC must bring
it into use for the first time by it; the asset must be brought into use for the purpose of its trade (see
10.14), but not in mining or farming; and the asset must be used by it directly in a process of
manufacture or any other process carried on by it that is of a similar nature (see 10.63).
The full cost is immediately deductible in that tax year no matter on what date the asset is brought into
use.
An asset previously hired and used by an SBC will not qualify, since it will not be brought into use
‘for the first time’ by it. And the asset must be used in the qualifying manner by the SBC itself; it may not
be let to someone else, no matter how that person might use it.
This allowance will be taxable if it is recovered or recouped (see 10.7). Since it provides for a 100%
deduction, the availability of the scrapping allowance (see 10.55) is irrelevant.
‘50/30/20’ depreciation (s 12E(1A))
An SBC is entitled to choose to claim either the 50/30/20 depreciation or the ordinary wear-and-tear
allowance on machinery, plant, implements, utensils, articles, aircraft or ships acquired by it, as long as
the asset in question would have qualified for the ordinary wear-and-tear allowance (see 10.27). This
elective allowance is 50% of the cost of the asset in the year in which it is first brought into use, 30% in
the second year and 20% in the third year, and is granted in full each year even if the asset is used for
less than twelve months in that year.
Cost to the taxpayer (s 12E(2))
The ‘cost’ to an SBC for these purposes of an asset is treated as being the lesser of its actual cost to the
SBC to acquire the asset, and the cost that a person acquiring it under a cash transaction concluded at
arm’s length on the date on which the transaction for its acquisition was in fact concluded would have
incurred on the direct cost of its acquisition, including the direct cost of its installation or erection.
100% Moving allowance (s 12E(3))
When expenditure – other than expenditure deductible under the so-called general deduction formula
(see 10.14) (which is in any event deductible) – is incurred by an SBC during the tax year in moving an
asset for which it qualifies for the 50/30/20 depreciation in that tax year and one or more succeeding
tax years from one location to another, that expenditure must be deducted in equal instalments in the
year in which it is incurred and in each succeeding tax year in which the 50/30/20
depreciation is allowed.
For example, if the moving expenditure is incurred in the second year of use of the asset, that is, in the
tax year in which the 30% depreciation is claimable, the moving expenditure must be deducted in two
equal instalments, the first in the tax year in which the expenditure was incurred and the second in the
following tax year. But when the expenditure is incurred in moving an asset qualifying for the 100%
depreciation allowance from one location to another in any tax year, it is immediately deductible from
its income in that year.
Definitions (s 12E(4))
‘Investment income’ is income (see 1.1) in the form of dividends (see 9.3), foreign dividends (see 9.4),
royalties, rentals derived on immovable property, annuities, or income of a similar nature.
It is interest for the purposes of the day-to-day incurring or accrual of interest (other than interest
derived by a targeted co-operative bank). And it is the proceeds derived from investment or trading in
financial instruments (see 21.8), including futures, options and other derivatives, marketable securities
or immovable property.
‘Personal service’, in relation to a company (see 14.1), co-operative (see 14.1) or close corporation (see
14.10), is service in the fields of accounting, actuarial science, architecture, auctioneering, auditing,
broadcasting, consulting, draftsmanship, education, engineering, financial service broking, health,
information technology, journalism, law, management, real estate broking, research, sport, surveying,
translation, valuation or veterinary science, if that service is performed personally by a person holding
an interest in the company, co-operative or close corporation or by such a person’s connected person
(see 10.27), and the company, co-operative or close corporation does not, throughout the tax year,
employ three or more full-time employees who are on a full-time basis
engaged in the business of the company, co-operative or close corporation of rendering that service.
Excluded from this minimum complement is an employee who is a holder of a share (see 14.1) in the
company or a member of the co-operative or close corporation, or is a connected person of a holder of a
share in the company or a member.
A ‘small business corporation’ must satisfy several, complex requirements: (1) It must be a close
corporation, co-operative or a private company as defined in the Companies Act 71 of 2008 or a
personal liability company as contemplated in s 8(2)( c) of that Act, and, at all times during a particular
tax year, all the holders of its shares (or members) must be natural persons, that is, individuals.
(2) Its gross income (see 1.1) for the tax year may not exceed R20 million.
This R20 million maximum gross income is scaled down when the SBC carries on the trade for less than
twelve months during the tax year. The maximum is then reduced in the following way: R20 million
Number of months it carried on that trade
12 months
For this purpose, a part of a month is treated as a full month.

In other words:
Maximum gross income = R20 million × number of trading months or part-months
÷ 12 months
(3) None of its holders of shares or members may at any time during its tax year hold any shares or have
any interest in the equity of any other company (see 14.1).
But excluded from this prohibition are holdings or interests in the equity of:
• A company listed on the Johannesburg Securities Exchange.
• A foreign collective investment scheme (see 16.7).
• A sectional titles body corporate, share block company or a qualifying property association (see 16.4).
• Less than 5% of the interest in a ‘social co-operative’ or ‘consumer co-operative’ or a ‘cooperative

burial society’, as defined in the Co-operatives Act 14 of 2005, or another similar cooperative, as long as
all of its income derived from the trade of the co-operative during a tax year is derived solely from its
members.
• A ‘friendly society’ as defined in the Friendly Societies Act 25 of 1956.
• Less than 5% of the interest in a ‘primary savings co-operative bank’ or a ‘primary savings and loans
co-operative bank’ as defined in the Co-operative Banks Act 40 of 2007 that may provide, participate in
or undertake only qualifying banking services.
• A venture capital company (see 10.4).
• A company, close corporation or co-operative that has not during any tax year carried on a trade and
has not during any tax year owned assets whose total market value exceeds R5 000.
• A company, co-operative or close corporation that has taken the required steps (see 22.1) to liquidate,
wind up or deregister, unless it has at any stage withdrawn any of these steps or done anything to
invalidate any of these steps with the result that it will not be liquidated, wound up or deregistered.
(4) Not more than 20% of all of its revenue receipts and accruals and all of its capital gains (see 21.12)
may consist, collectively, of investment income and income from the rendering of a personal service.
(5) It must not be a personal service provider (see 17.5).
Tax rates (Sch 1 paras 5, 7 Act 32 of 2019)
A small business corporation pays tax on its taxable income (see 2.3) in the tax year ending on or after 1
April 2019 at the following rates:
Taxable income
But
does
Exceeds not
exceed
Rate
of
tax
79 000
0%
Of taxable income
79 000
365 000
7%
Of the excess over

78 150
365 000
550 000
20 020
21%
Of the excess over
365 000
550 000
58 870
28%
Of the excess over
550 000
For a special rule relating companies operating in a special economic zone, see 10.33.
16.34 Township
developers
ss 24, 24C
Dealers in land, for example, in townships, are subject to a special deemed-accrual rule, and may claim
two special allowances, an allowance for outstanding debts, and an allowance for so-called contingent
development expenditure.
Deemed accrual (s 24(1))
This rule applies to a taxpayer entering into an agreement with another person whose effect is that
transfer of immovable property be passed from the taxpayer to the other person upon or after the
receipt by the taxpayer of the whole or a specified portion of the amount payable to the taxpayer under
the agreement. For the purposes of the Income Tax Act, the whole of that amount is deemed to have
accrued to the taxpayer on the day on which the agreement was entered into. Any interest element
nevertheless has to be dealt with under the day-by-day interest rule (see 7.8).
Allowance for outstanding debts (s 24(2))

As long as at least 25% of the amount payable under such an agreement becomes due and payable only
on or after the expiry of a period of not less than twelve months after the date of the agreement, the
Commissioner for SARS, taking into consideration any allowance he has made on account of doubtful
debts (see 10.36), may make a further allowance as under the special circumstances of the trade (see
10.14) of the taxpayer seems to him to be reasonable, on all amounts deemed to have accrued under
such agreements but which have not been received at the close of the taxpayer’s accounting period.
An allowance so made is included as income (see 1.3) in the taxpayer’s returns for the following tax year
of assessment and then forms part of the taxpayer’s income.
(An amendment to this rule is pending determination by the Minister of Finance).
The allowance is a percentage calculated by means of the following formula: Allowance
x – ( y + z)
× 100%
Where x = estimate of the aggregate proceeds to be derived from the sale of township land; y = actual
cost price of the township land; and
z = estimate of the development expenditure to be incurred, for example, on roads, water, electricity and
other amenities.
The percentage that is calculated represents the ratio that the taxpayer’s estimated gross profits bear to
its estimated turnover. The percentage is fixed at the commencement of operations and is not normally
varied. The percentage is applied to the outstanding debts at the end of each tax year
after allowance has been made for bad and doubtful debts, and is included in the taxpayer’s income in
the next tax year, when a fresh allowance may be claimed.
Allowance for future expenditure (s 24C)
This allowance may be claimed, whether the property is sold for cash or on terms, when the taxpayer
incurs development expenditure, say, on the provision of roads, water and electricity. The allowance is
intended to allow for the fact that much of this expenditure may be incurred in tax years subsequent to
that in which the sales of land take place.
The allowance is calculated by means of the following formula:

Allowance =
( d – a)
Where m = number of plots sold from the commencement of sales to the end of current year; n = total
number of plots for sale;
estimate of the development expenditure to be incurred; and
a = actual development expenditure incurred from the commencement of the development to the end of
the current year.
The estimate of development expenditure to be incurred (item d) is made at the commencement of

operations and is not normally varied. The allowance is included in the taxpayer’s income in the tax year
following that in which it is granted, and a fresh allowance may be claimed in that year.
16.35 Example – township developers
The following information applies to A (Pty) Ltd, a developer of a township: Gross proceeds of plots
sold.............................................................................
R600
000
Cost
of
plots
sold ...............................................................................................
200
000
Development expenditure incurred (on roads and the supply of water and electricity) 80 000
Current expenditure (on rates and interest) ......................................................
50 000
Current allowance for outstanding debts ..........................................................
75 000
Current allowance for contingent development expenditure ............................
120
000
Previous year’s allowance for outstanding debts ..............................................
55 000
Previous year’s allowance for contingent development expenditure
160 000
Calculate the taxable income from the township of A (Pty) Ltd.

Gross proceeds of plots sold.............................................................................
R600
000
Less: Cost of plots sold ..........................................................
R200 000
Development
expenditure
incurred
..............................
80 000
Current
expenditure .....................................................
50 000
330
000
R270
000
Add: Allowances granted in previous year (R55 000 plus R160 000) ............
215 000
R485
000
Less: Allowances for current year (R75 000 plus R120 000) ..........................
195 000
Taxable income ........................................................................
R290
000
16.36 Toll-road
operators
ss 8(4), 24G
The four special allowances (s 24G(2))

Four special allowances are allowed to be deducted in the determination of a taxpayer’s taxable income
(see 2.3) derived during a particular tax year:
(1) The sum of annual allowances (see below) for expenditure incurred during the current or a previous
tax year on any ‘permanent work’, ‘road pavement’, major rehabilitation of the road pavement or
erection or construction of ancillary services in relation to a ‘toll road’. The aggregate of the allowances
available under this deduction may not exceed the total expenditure incurred by the taxpayer on such
permanent work, road pavement, major rehabilitation of road pavement or erection or construction of
ancillary services.
(2) Expenditure incurred during the tax year on the repair or maintenance of a toll road or an ancillary
service in relation to a toll road, but not expenditure incurred on major rehabilitation of the road
pavement.
(3) Interest incurred during the tax year on a loan used for financing the expenditure described in items
1 and 2, but not interest that is deductible under the so-called general deduction formula (see 10.14).
(4) An amount disallowed in the preceding tax year because it exceeded the taxable income to which the
deductions in items 1 and 2 and this item are limited (see the cap described below).
Prohibition of any other deduction or allowance (s 24G(4))
No other deduction or allowance is available for expenditure of the nature described.
The annual allowance (s 24G(3))
In order to calculate the annual allowance referred to above, divide the expenditure incurred by the
taxpayer on permanent works, road pavements, major rehabilitation of road pavements and the
erection, construction, installation or provision of ancillary services during a tax year by the lesser of ( a)
the number of years reckoned from the commencement of that year until the end of the tolling period,
with a portion of a year being regarded as a year, and ( b) twenty-five years for expenditure incurred on
permanent works or the erection or construction of ancillary services, and eight years for expenditure
incurred on road pavements or major rehabilitation of road pavements.
Cap for single toll roads (s 24G(5))
The allowances available on a ‘single toll road’ under items 1, 2 and 4 above in a particular tax year
may not in total exceed the taxable income before these allowances derived by the taxpayer during that
year from the exploitation of the toll road or any related ancillary service, and interest derived in the
ordinary course of that exploitation, and the financing of any expenditure qualifying for the annual
allowance relating to the toll road.
Definitions (s 24G(1))
An ‘agreement’ is an agreement concluded by the taxpayer under which it is entitled to operate a toll
road.
An ‘ancillary service’ in relation to a toll road is a vehicle service station, breakdown or repair facility,
shop or restaurant, park, recreation or rest area, emergency medical or first-aid facility, hotel or other
accommodation, entertainment facility or other service or facility to which persons or vehicles may gain
access from the toll road.
A ‘permanent work’ is an earthwork, tunnel, bridge or structure forming part of a toll road, including a
building erected for the purpose of housing toll equipment but excluding any such work constructed or
erected solely for the purposes of the repair or maintenance of a toll road. It is also the reimbursement
for the cost of acquisition or expropriation of land required for the purposes of
the toll road, and a payment made to the South African National Roads Agency Limited for the
acquisition of the right to operate a toll road.
The ‘road pavement’ is the road surface, road shoulders, sub base, base course, wearing courses, road
signage, road markings, lighting, guard rails, tolling equipment, emergency telephone systems,
emergency telephone repeater stations, access roads to emergency telephone repeater station sites and
other parts and road furniture of a toll road, excluding any permanent work or ancillary service.
A ‘single toll road’ is a single continuous toll road or portion of it or two or more toll roads or portions
of them that are not contiguous but which the Minister of Transport Affairs, after consultation with the
Minister of Finance, considers should be regarded as a single toll road. Alternatively, it is two or more
toll roads or part of them for which a single ‘agreement’ has been concluded with the South African
National Roads Agency Limited.
The ‘South African National Roads Agency Limited’ is the South African National Road Agency
Limited incorporated under s 3 of the South African National Roads Agency Limited and National Roads
Act 7 of 1998.
A ‘tolling period’, in relation to a toll road, is the initial period during which the South African National
Roads Agency Limited has granted the taxpayer or any other person the right to operate the toll road,
including a period for which the right was granted under an interim agreement concluded by the South
African National Roads Agency Limited, but excluding an extension of the initial period over which a
right of renewal may be exercised.
A ‘toll road’ is a road or section of a road, including an access road, crossroad or ramp constituting a
necessary adjunct to the road or section, from which the taxpayer derives or will derive income through
the imposition of a toll or the exploitation of the right to impose a toll.
General (s 8(4))
These allowances are taxable if recovered or recouped (see 10.7).
16.37 Headquarter
companies
ss 1, 9D(1), (2), 9H, 9I, 10(1)( k)(i), 10B,
20C, 24I, 25D(4), (7), 31(5), 41(1), 49D,
50D(1), 64E(1), 8th Sch paras 43(7), 64B(2)
Definition (s 1(1))
The status as such of a ‘headquarter company’ must be determined for a tax year. It is a company that
has made an election to opt into the headquarter-company rules.
Headquarter-company rules (s 9I)
A company (see 14.1) that is a resident (see 1.1) and complies with the prescribed requirements may
elect, in the form and manner determined by the Commissioner for SARS, to be a headquarter company
for a particular tax year of the company.
It will be eligible to make such an election as long as it complies with all of the following requirements:
• For the duration of the tax year concerned, each holder of shares (see 14.1) in the company (whether
alone or together with any other company forming part of the same group of companies; see 14.1) held
10% or more of the equity shares (see 14.7) and voting rights in that company. In the determination
whether a company complies with these requirements in the tax year in which it commences carrying on
trade (see 10.14), the period during that tax year before it commenced carrying on trade is disregarded.
• At the end of the tax year concerned and of all its previous tax years, 80% or more of the cost of its
total assets was attributable to one or more of:
– an interest in equity shares (see 14.7),
– a debt owed by, or
– intellectual property as defined in 10.37 (referred to here as ‘qualifying intellectual property’) licensed
by the company to,
a foreign company (see 15.2) in which the company (whether alone or together with any other company
forming part of the same group of companies) held at least 10% of equity shares and voting rights. In the
determination of the company’s total assets, no account is taken of an amount in cash or in the form of a
bank deposit payable on demand. And in the determination whether a company complies with the
relevant requirements in a particular tax year, no regard must be had to a tax year if the company did
not at any time during that tax year own assets with a total market value exceeding R50 000. Such a
foreign company is referred to here as a ‘qualifying foreign company’.
• If the company’s gross income (see 1.1) for the tax year concerned exceeds R5 million, 50% or more of
its gross income consisted of amounts in the form of one or both of the following:
– A rental, dividend, interest, a royalty or a service fee paid or payable by a qualifying foreign company.
– The proceeds from the disposal of an interest in equity shares or of qualifying intellectual property.
In the determination of the company’s gross income, no account is taken of an exchange difference (see
10.75) determined on an exchange item (see 10.75) to which the company is a party.
An election made by a company is effective as from the commencement of the tax year for which the
election is made.
A headquarter company is required to submit to the Minister of Finance an annual report providing the
Minister with the information the Minister may prescribe, within the time and containing the
information prescribed by the Minister.
Ring-fenced interest (s 20C(2))
When a headquarter company has during a tax year incurred interest on financial assistance (see 18.9)
granted to it by a non-resident, and, if that person is a company, it directly or indirectly (either alone or
together with any other companies forming part of the same group of companies; see 14.1) holds at least
10% of the equity shares (14.7) and voting rights in the headquarter company, the amount of the
interest for which a deduction is allowable to it in that year is limited.
The limit is set as so much of the amount of interest derived by it as relates to any portion of the
financial assistance that is directly applied as financial assistance to a foreign company in which it
directly or indirectly, whether alone or together with any other company forming part of the same group
of companies as it, holds at least 10% of the equity shares and voting rights.
Ring-fenced royalty (s 20C(2A))
When a headquarter company has during a tax year incurred an amount constituting a royalty payable
to a non-resident, and, if that person is a company, it directly or indirectly (either alone or together with
any other companies forming part of the same group of companies) holds at least 10% of the equity
shares and voting rights in the headquarter company, the amount of the royalty for which a deduction is
allowable to it in that year is also limited.
The limit is set as so much of the amounts derived by it for the use or right of use of or permission to use
qualifying intellectual property or the imparting of or the undertaking to impart any scientific, technical,
industrial or commercial knowledge or information, or the rendering of or the undertaking to render,
any assistance or service in connection with the application or use of the knowledge or information,
from a foreign company in which the headquarter company directly or indirectly (whether alone or
together with any other company forming part of the same group of companies as the headquarter
company) holds at least 10% of the equity shares and voting rights.
Carry-forward (s 20C(3))
An amount that is disallowed as a deduction in a particular tax year of a headquarter company is carried
forward to the immediately succeeding tax year of the headquarter company. It is deemed to be either (
a) an amount of interest actually incurred by the headquarter company during the succeeding year on
financial assistance granted to it by a non-resident or ( b) an amount actually incurred by the
headquarter company during that succeeding year constituting a royalty payable to a non-resident.
Definitions (s 20C(1))
‘Financial assistance’ is financial assistance contemplated in the transfer-pricing provisions (see

16.37).
A ‘royalty’ is an amount subject to the withholding tax on royalties, before account is taken of the
exemption for royalties relating to headquarter companies (see 15.14).
Other provisions (ss 9D(1), (2), 9H, 9I, 10(1)( k)(i), 10B, 24I, 25D(4), (7), 31(5), 41(1), 49D,
50D(1), 64E(1), 8th Sch paras 43(7), 64B(2))
Headquarter companies are also referred to in several other provisions of the Income Tax Act:
• In the determination whether a company is a controlled foreign company (CFC) (see 15.2), the
holdings of participation rights or voting rights by headquarter companies is disregarded; also
disregarded is a foreign company whose financial results are reflected in the IFRS 10 consolidated
financial statements of a resident headquarter company (s 9D(1)).
• A headquarter company does not need to include the net income (see 15.2) of a CFC in its income (s
9D(2)).
• The inclusion in the income for the tax year of a resident who holds participation rights in a CFC is
made inapplicable to the extent that the participation rights are held by the resident indirectly through a
company that is a resident, but this provision is made inapplicable when the resident company through
which participation rights are indirectly held is a headquarter company (s 9D(2)(B)).
• When a company that is a resident becomes a headquarter company during a tax year, the company is
treated as having disposed of each of its assets on the date immediately before the day on which it
became a headquarter company for an amount equal to the asset’s market value on that date, and re-
acquired each of the assets on the day it became a headquarter company, for an amount equal to the
market value so determined (see 15.8) (s 9H).
• The exemption from normal tax of domestic dividends (see 9.3) is inapplicable to dividends paid or
declared by a headquarter company (see 16.37) (s 10(1)( k)(i)).
• Instead, dividends paid or declared by headquarter companies are exempt from normal tax when
derived by qualifying persons (see 9.3) (s 10B).
• The definition of ‘local currency’ in the provision dealing with gains or losses on foreign currency
transactions (see 10.75) includes as local currency in relation to a headquarter company for an exchange
item that is not attributable to a permanent establishment outside South Africa the functional currency
of the headquarter company (s 24I(1)).
• A special rule applies when, during a tax year, an amount is derived by or an amount of expenditure is
incurred by a headquarter company in a currency other than the functional currency (see 15.2) of the
company, and the functional currency of the company is a foreign currency. It provides that the amount
must be determined in the functional currency of the headquarter company, and must be translated to
the currency of South Africa by the application of the average exchange rate for the tax year (see 10.47)
(s 25D(4)).

• A further special rule applies when, during a tax year, an amount is derived by or expenditure is
incurred by a headquarter company in a functional currency that is a currency other than rand. It
provides that the amount must be translated to rand by the application of the average exchange rate for
the tax year (see 10.47) (s 25D(7)).
• There are special transfer-pricing rules for headquarter companies (see 18.9) (s 31(5)).
• For the purposes of the corporate restructuring rules (see Chapter 22), a ‘company’ does not include a
headquarter company (s 41(1)).
• The withholding tax on royalties does not apply to a royalty paid by a headquarter company on the
granting of the use or right of use of or permission to use qualifying intellectual property to which the
transfer-pricing rules do not apply, as a result of identified exclusions in those rules (s 49D).
• The withholding tax on interest (see 15.19) does not apply to interest paid to a foreign person by a
headquarter company on ‘financial assistance’, for purpose of the transfer-pricing rules, to which the
transfer-pricing rules do not apply, as a result of identified exclusions in those rules (s 50D(1)).
• Dividends paid by a headquarter company are not subject to the dividends tax (see 9.4) (s 64E(1)).
• The definition of ‘local currency’ in the capital gains tax (CGT) rule dealing with foreign currency
transactions (see 21.32) caters for headquarter companies. It is defined in relation to a headquarter
company, in relation to amounts that are not attributable to a permanent establishment outside South
Africa, as the functional currency of the company (8th Sch para 43(7)).
• The CGT rules dealing with the disposal of equity shares in foreign companies include a special rule
dealing with a disposal by a headquarter company (see 21.12) (8th Sch para 64B(2)).
Employees’ and provisional tax
17.1 The pay-as-you-earn system (PAYE)
The system of PAYE provides for the collection of tax from taxpayers throughout the tax year.
Targeted taxpayers identified as ‘employees’ (but not necessarily employees in fact) have tax deducted
by their ‘employers’ based upon their remuneration, which is called ‘employees’ tax’, or PAYE, while
other taxpayers pay estimated amounts of tax at periodic intervals, which is called
‘provisional tax’. But the two collection systems are not mutually exclusive, and some taxpayers have tax
deducted by their employers while they themselves also pay provisional tax. In this way the authorities
are able to collect taxes in advance without waiting for taxpayers to be assessed at the end of each tax
year, and taxpayers are able to meet their tax liability more easily.
17.2 Employees’
tax
4th Sch paras 1, 2(1), (2), 9(1), (2), (6)
An ‘employer’ is a person that pays or is liable to pay to another person an amount by way of
remuneration (see 17.3 and 17.4). It is also a person responsible for the payment of an amount by way of
remuneration to another person under the provisions of any law or out of public funds (including the
funds of a provincial council or an administration or undertaking of the State) or out of funds voted by
Parliament or a provincial council. While a person not acting as a principal is excluded, specifically
included are persons acting in a fiduciary capacity, in the capacity as a trustee in an insolvent estate, an
executor, and as an administrator of a benefit fund, pension fund, pension preservation fund, provident
fund, provident preservation fund, retirement annuity fund or any other fund.
Employers to deduct tax (para 2(1), (1B))
Every ‘employer’ that is a resident (see 1.1) or ‘representative employer’ of an employer that is a non-
resident who pays or becomes liable to pay remuneration to an employee (see 17.5) must deduct an
amount of employees’ tax from the remuneration and pay the tax over within a specified period to the
Commissioner for SARS. An employer must deduct employees’ tax from variable remuneration (see
10.79) when it is actually paid rather than when it is due and payable. This rule applies whether or not
the employer is registered as such for employees’ tax purposes (see 17.7).
Voluntary over-deductions (para 2(2))
An employee is entitled to request his or her employer in writing to deduct employees’ tax in excess of
the amounts shown in the tables. This type of deduction is treated in exactly the same way as a
compulsory deduction.
The amount to be deducted will depend on the amount of remuneration payable and must be
determined by reference to specially prepared tables or according to special rules. The Commissioner
always has the power to grant authority for no, for some other or for some reduced amount to be
deducted. The deductions are made in acknowledgement of the employee’s liability for income tax or, in
special circumstances (see 3.3), that of the employee’s spouse.
Since, for employees’ tax purposes, a ‘month’ is any of the twelve portions into which a calendar year is
divided, an employer is not restricted to basing its employees’ tax system on calendar months.
343
344 EMPLOYEES’ AND PROVISIONAL TAX
Employment tax incentive (para 2(2A))
An employer who is eligible for an amount under the Employment Tax Incentive Act of 2013 may deduct
the employment tax incentive from the employees’ tax payable.
Compulsory annuities from funds (para 2(2B))
As from 1 March 2021, an employer that is a pension fund, pension preservation fund, provident fund,
provident preservation fund or retirement annuity fund or any other person who pays a compulsory
annuity (see 2.4) must, when deducting employees’ tax for a tax year, disregard the tax rebates (see 2.8)
in determining the amount of employees’ tax to deduct, if the Commissioner, on application by the
employee concerned, has issued a directive to that effect, provided the employee concerned receives
remuneration from more than one employer.
Tax tables (para 9(1), (2))
The Commissioner enjoys the power, from time to time, having regard to the rates of normal tax (see
1.2) fixed by Parliament or foreshadowed by the Minister of Finance in his budget statement and to any
other factors having a bearing upon the probable liability of taxpayers for normal tax, to prescribe
deduction tables applicable to various classes of employees, taking into account the applicable personal
rebates (see 2.9). In addition, and very significantly, he may also determine, although only in the tables
themselves, the manner in which the tables are to be applied. In these tables he sets out the amount of
employees’ tax to be deducted from any particular amount of remuneration. Deviations from the
deductions laid down in these tables are allowed only in specific circumstances laid down in the law and
described in this chapter.
Tables prescribed in this manner by the Commissioner come into force on a date notified by him in the
Government Gazette, remaining in force until withdrawn by him. In practice, though, the Commissioner
ignores this rule and simply publishes annual tax tables on his own cognisances.
Medical schemes fees tax credit (para 9(6))
This is a deduction from the PAYE deduction otherwise specified by the law, that is, it constitutes a
reduction of or discount on the PAYE to be deducted, amounting to the employee’s medical scheme fees
tax credit and, when applicable, additional medical expenses tax credit (see 2.5). The employer is
allowed to apply the discount as long as it effects payment of qualifying medical scheme fees or,
alternatively and at its option, it does not affect such payment but proof of payment of such fees has
been furnished to it.
17.3 Amounts included in remuneration
4th Sch paras 1, 2(4), (6)
‘Remuneration’ in its broadest form is described as an amount of income paid or payable to you by way
of salary, leave pay, wage, overtime pay, bonus, gratuity, commission, fee, emolument, pension,
superannuation allowance, retiring allowance or stipend, regardless whether in cash or in kind or
whether for services rendered or for some other reason (this gloss is misplaced; ordinarily you will
obviously earn remuneration for services rendered or to be rendered). It therefore includes all the items
described as ‘income from employment’ in 5.1. But broad as this opening statement of the definition of
‘remuneration’ might be, it is broadened even further by the following specific inclusions:
• Both ordinary annuities and the taxable portion of purchased annuities (see 2.4). Included here would
be pensions and annuities from employment (see 5.6).
• Both contractual and voluntary amounts you derive for services rendered or to be rendered, from
employment or from the holding of an office.
• Taxable restraint payments (see 5.10).
• Resignation and retirement benefits and redundancy payments (see 5.7).
• Taxable lump-sum benefits from retirement funds (see 6.6).
EMPLOYEES’ AND PROVISIONAL TAX 345
• Amounts to be included in gross income (see 1.1) arising from ‘transfer’, ‘conversion’, ‘debt
redemption’ or other benefits from a ‘public-sector’ fund (see 5.13).
• Payments made in commutation of amounts due under a contract of employment or service (see 5.1).
• The taxable part of fringe benefits (see 5.4), excluding the use of a motor vehicle, which is dealt with
separately (see below).
• Taxable gains on rights to acquire shares (see 5.9).

• All fully taxable allowances (see 5.24) but not the non-taxable subsistence allowances (see 5.26).
But when the subsistence allowance was paid or granted to you during a month for a night away from
your usual place of residence and you have not by the last day of the following month either spent the
night away from your usual place of residence or refunded that allowance or advance to your employer,
the allowance or advance is deemed not to have been paid or granted to you during that first month for
accommodation, meals or other incidental costs but is deemed to be an amount that has become payable
to you in that following month for services rendered by you.
• Fifty percent of an allowance payable to you as the holder of a public office (see 5.25).
• Eighty percent of a travelling allowance or advance, except an allowance based on the actual distance
you travelled on business. But when your employer is satisfied that at least 80% of the use of the motor
vehicle for the tax year will be for business purposes only 20% of the amount of the allowance or
advance is included.
• Eighty percent of the fringe benefit determined on your employer’s granting you the use of a motor
vehicle (see 5.4). But when your employer is satisfied that at least 80% of the use of the motor vehicle
for the tax year will be for business purposes only 20% of the amount of the fringe benefit is included.
• For tax years commencing on or after 1 March 2018, 100% of so much of a travelling allowance or
advance as exceeds the amount determined by applying the rate per kilometre applicable under the
simplified method set in the notice fixing the rate per kilometre applicable to the actual distance you
travelled on business. This basis is currently available when your business travel for the tax year does
not exceed 12 000 km and deems the cost per kilometre to be R3,55
(see 5.27).
• Gains determined under broad-based employee share plans required to be included in your
‘income’ under such a plan (see 5.2).
• An amount required to be included in your income upon the vesting in you of an ‘equity instrument’
(see 5.3).
• Amounts deemed to be income accrued to a person by way of a deduction from the minimum
individual reserve of a former spouse under a maintenance order under s 37D(1)( d)(iA) or (ii) of the
Pension Funds Act 24 of 1956.
• Dividends on certain restricted equity instruments (see 5.3) that are included in your income.
Remuneration does not include the amounts listed in 17.4.
Balance of remuneration (para 2(4))
An employee’s ‘balance of remuneration’ is the actual amount from which employees’ tax is deducted.
It is simply the employee’s remuneration calculated in the manner illustrated here reduced by a limited
number of qualifying deductions.
• When an employee makes current or ‘past-period’ deductible contributions to an approved pension

fund or provident fund, these contributions must be deducted from his remuneration before the amount
of tax to be deducted is established. The deduction from remuneration is compulsory when the
employer is entitled or required to dock the employee’s salary for the contributions. The deduction is
limited to the deduction for income tax purposes to which the employee is entitled on account of his or
her contributions.
• Contributions made by an employee to a retirement annuity fund. The deduction is optional for the
employer under this rule, where the employee himself or herself pays contributions directly to a
retirement annuity fund, as long as the employee provides the employer with proof of payment.
The deduction is limited to the deduction for income tax purposes to which the employee is entitled on
account of his or her contributions.
• Contributions made or amounts paid by an employer to a retirement annuity fund on behalf of or for
the benefit of an employee. The deduction is limited to the deduction for income tax purposes to which
the employee is entitled on account of his or her contributions.
Employees are allowed to deduct contributions to pension, provident and retirement annuity funds for
income tax purposes. The deduction is limited to the lesser of R350 000 and 27,5% of (the greater of
their remuneration or taxable income for the year). When the limit of R350 000 applies, the amount
deductible for employees’ tax purposes under the 3 items above must be reduced proportionately when
the employee was paid remuneration by the employer for less than a full year.
• So much of the deductible donations made by the employer on behalf of the employee as does not
exceed 5% of the employee’s remuneration after the deduction of all the deductions detailed above and
for which the employer will be issued a valid receipt by the beneficiary of the donation (see 19.1).
No other deductions may be made from an employee’s remuneration in the calculation of the employees’
tax deduction.
Public-sector retirement fund lump-sum benefits (para 2(6))
Amounts included in gross income arising from transfer or conversion benefits from a public-sector
fund are for employees’ tax purposes regarded as amounts of remuneration payable by an employer to
an employee and so are subject to employees’ tax.
17.4
When employees’ tax is not deductible
4th Sch para 1
Thanks to the very concept of and specific exclusions from the definition of ‘remuneration’, employees’
tax must not be deducted from amounts paid:
• To suppliers of goods, as opposed to services, to the extent that payment is made for such supplies.
Such suppliers cannot be ‘employees’ in any sense of the term.
• To independent contractors, such as professionals, service-providers and others carrying on their own
businesses, to the extent that payment is made for services rendered in their independent capacity. Such
suppliers cannot be ‘employees’ under our labour laws. In order to be excluded from the PAYE system,
they must render their services independently both of the person paying for the services and of the
person to whom the services are rendered.
• As pensions under the Aged Persons Act 81 of 1967 or the Blind Persons Act 26 of 1968, disability
grants or allowances under the Disability Grants Act 27 of 1968 or grants or contributions under the
Children’s Act 33 of 1960.
• To an employee, wholly in reimbursement of expenditure incurred by the employee in the course of his
or her employment. In other words, it must be incurred on behalf or for the benefit of the employer, not
the employee.
• Annuities payable under an order of divorce, decree of judicial separation or agreement of separation.
Special position of targeted independent contractors
Although independent contractors supplying services cannot be ‘employees’ under our labour laws, in
very special circumstances the PAYE rules deem them to derive ‘remuneration’ and so qualify as
‘employees’ solely for PAYE purposes (17.5):
• If the independent contractor if not a resident (see 1.1). This inclusion in the ranks of PAYE
employees applies to individuals only.
• If the independent contractor derives remuneration by reason of services rendered to or on behalf of a

labour broker (see 17.5). Such an independent contractor is deemed to be an
‘employee’ for PAYE purposes.
• If the independent contractor is itself a labour broker. Such an independent contractor is deemed to be
an ‘employee’ for PAYE purposes.
• If the independent contractor has been declared to be an or part of a class or category of
‘employee’ for PAYE purposes by the Minister of Finance by notice in the Government Gazette.
The Minister in fact made such a declaration in GN 412 GG 32109 of 7 April 2011. Such an independent
contractor is deemed to be an ‘employee’ for PAYE purposes, and is identified in this book as a ‘declared
employee’.
• If the independent contractor is a personal service provider (see 17.5). Such an independent
contractor is deemed to be an ‘employee’ for PAYE purposes.
• If the independent contractor’s services are required to be performed mainly at the premises of the
person by whom the amount is paid or payable or of the person to whom the services were or are to be
rendered, and, in addition, the person who rendered or will render the services is subject to the control
or supervision of any other person as to the manner in which his or her duties are performed or to be
performed or as to his or her hours of work. Nevertheless, even if the independent contractor fails this
test, it will be deemed to be carrying on a trade independently (and thus not an ‘employee’ for PAYE
purposes) if, throughout the tax year, it employs three or more full-time employees who, on a full-time
basis, are engaged in its business of rendering the service. These employees may not include the
independent contractor’s connected person (see 10.27). This inclusion in the ranks of PAYE employees
applies to individuals only.
17.5
Employees, labour brokers and
4th Sch paras 1, 2(1A), 2(5),

personal service providers
Schedule 1 paras 2, 3( a) Act 32 of 2019
Individuals and incorporated and other strange ‘employees’ (para 1) As demonstrated in 17.4,
several types of independent contractor are rendered capable of deriving
‘remuneration’, and some, for deeply complex reasons, are in addition deemed to be ‘employees’
for PAYE purposes. Under our labour laws, only individuals can be ‘employees’ but, under the PAYE
law, while ‘employees’ will in the great majority of instances be individuals, in the right circumstances,
which can be very difficult properly to identify, ‘employees’ might be companies, close corporations, the
estates of deceased or insolvent persons or even trusts.
An ‘employee’ is:
• A person, but not a company (see 14.1) that receives any remuneration (see 17.3 and 17.4) or to whom
remuneration accrues. Individuals, trusts and the estates of deceased or insolvent persons fall under this
head.
• A director (see 5.4) of a private company (see 14.7) who is not otherwise included under the
immediately preceding bullet-point (see 17.6). Only individuals fall under this head.
• A person that receives remuneration or to whom remuneration accrues by reason of services rendered
by the person to or on behalf of a labour broker.
• A labour broker. Only individuals fall under this head.
• A person or class or category of person that the Minister of Finance by notice in the Government
Gazette declares to be an employee for the purposes of this definition – a ‘declared employee’
(see 17.4).
Although the law does not actually say so, it is obvious that not merely some but all of these
‘employees’ for PAYE purposes must derive remuneration in order to be subject to the deduction of
PAYE.
Labour brokers, declared employees and personal service providers (paras 1, 2(1A), (5)) Even so,
a labour broker or a declared employee may avoid PAYE deductions by applying to the Commissioner
for SARS for an exemption certificate. In order to qualify for such a certificate, such a person:
• Must carry on an independent trade and be registered as a provisional taxpayer (see 17.12).
• If a labour broker, must be registered as an employer for employees’ tax purposes.
• Must have submitted all returns required by the Income Tax Act timeously, subject to any extension
granted by the Commissioner.
But even if such a person meets all of these criteria, no exemption certificate will be issued if:
• more than 80% of its gross income (see 1.1) during the tax year consists of or is likely to consist of an
amount or amounts received from any one of its clients or its client’s associated institution (see 5.4),
unless it is a labour broker that, throughout the tax year, employs three or more full-time employees
who are on a full-time basis engaged in its business of providing persons to or procuring persons for its
clients and are not its connected persons (see 10.27);
• it provides the services of any other labour broker to its clients; or
• it is contractually obliged to provide a specified employee of its own to render a service to the client.
An employer may not deduct employees’ tax from remuneration payable by it to a labour broker or
declared employee producing a valid exemption certificate, which will be valid for a period indicated on
the certificate.
A ‘labour broker’ is a natural person who conducts or carries on a business in which it for reward
provides a client of the business with other persons to render services or perform work for the client, or
procures other persons for the client, for which services or work the persons concerned are
remunerated by the broker.
A ‘personal service provider’ is in the first place a company or a trust whose services to its clients are
rendered on its behalf personally by its connected person or connected persons. In addition, any one of
the following features of the relationship must be present:
• The connected person would be regarded as the client’s employee if he or she rendered the services
directly to the client and not on behalf of the company or trust.
• When those duties must be performed mainly at the client’s premises, either the connected person or
the company or trust is subject to the control or supervision of the client as to the manner in which the
duties are performed or are to be performed in rendering the service.
• More than 80% of the company’s or trust’s income during the tax year from services rendered consists
of or is likely to consist of amounts received directly or indirectly from any one of its clients or its client’s
associated institution.
But, even if it fails one or all of these tests, the company or trust will escape classification as a personal
service provider as long as, throughout the tax year, it employs three or more full-time employees who,
on a full-time basis, are engaged in its business of rendering the service to clients.
These employees may not include a holder of a share in the company or a settlor or beneficiary of the
trust or a connected person of the person personally rendering the services.
A person is not required to deduct employees’ tax in a particular tax year solely by virtue of the last
requirement above (‘the 80% requirement’) if the company has provided him or her with an affidavit or
solemn declaration stating that this requirement has not been met and he or she relied on the affidavit
or declaration in good faith.
Rates of PAYE (Sch 1 paras 2, 3( a) Act 32 of 2019)
While the employees’ tax must be deducted from the remuneration payable to individuals at the rates
prescribed in the tax deduction tables, it must be deducted at the corporate rate of 28% from

remuneration payable to a personal service provider that is a company. From a personal service
provider that is a trust, it must be deducted at the rate of 45%.
17.6 Directors of companies
4th Sch paras 1, 9
As a person deriving remuneration, a director (see 5.4) of a company is an employee (see 17.5) for
employees’ tax purposes and is treated for PAYE purposes exactly in the same way as any other
employee.
Tax years commencing before 1 March 2018
Directors of private companies
Special rules applied to directors of private companies (see 14.7) in tax years commencing before 1
March 2018, but these rules are no longer applicable.
17.7 Registration by employers
4th Sch para 15
Anyone paying remuneration (see 17.3 and 17.4) is an employer and must register with the
Commissioner for SARS as an employer, and must notify the Commissioner within fourteen days of
changing address or ceasing to be an employer.
But there is no need to register as an employer if none of your employees is liable for income tax.
In practice it is possible for an employer undertaking to register its branches separately. The employer
may then elect that, for certain purposes, each branch will be treated as a separate employer.
17.8 Directives
4th Sch paras 1, 9(3), (4), 10, 11, 11A
Fund benefits (para 9(3), (4))
The employer must obtain a directive from the Commissioner as to the amount of PAYE to deduct to be
deducted from targeted lump-sum benefits for services and for targeted retirement fund lump-sum
benefits and retirement fund lump-sum withdrawal benefits before paying them out.
A directive is also required as to the amount to be deducted or withheld on the transfer or conversion of
an amount for the benefit or ultimate benefit of a member of identified governmental and quasi-
governmental pension funds.
Employer’s special agreement (para 10)
An employer may apply to the Commissioner for SARS to consider whether the circumstances warrant a
variation of the usual basis for the determination of the amounts of PAYE to be deducted from the
remuneration of its employees. The Commissioner may then agree with the employer on some other
basis to be applied by the employer. Thereafter the amounts to be deducted by the employer will be
determined accordingly, save in certain special circumstances, for example, when the Commissioner
issues a directive affecting a particular employee (see below).
Such an agreement remains in force indefinitely, although either the Commissioner or the employer may
give notice to terminate it. At the end of the three-month notice period the agreement then terminates.
Directives affecting particular employees (para 11)
The Commissioner may issue a directive to an employer authorizing it to refrain from deducting PAYE
from remuneration due to a particular employee of that employer. He may also issue a directive to the
employer to deduct as PAYE from remuneration a specified amount or an amount to be determined in
accordance with a specified rate or scale. He must do so when it is necessary to alleviate hardship to that
employee, owing to circumstances outside that employee’s control; or to correct an error in the
calculation of PAYE; or if the remuneration constitutes commission; or when
the remuneration is received by a personal service provider. The employer is obliged to comply with
such a directive.
In tax years commencing before 1 March 2018, the Commissioner may also issue a directive to a private
company (see 14.7) that is an employer authorizing it to refrain from paying PAYE relating to its
directors (see 17.6). He may also issue a directive to such an employer to pay as PAYE relating to its
directors a specified amount or an amount to be determined in accordance with a specified rate or scale.
He must do so when it is necessary to alleviate hardship to such an employer. Again, the employer is
obliged to comply with such a directive.
Share-incentive schemes (para 11A)
Your remuneration as an employee includes any gain made by you on the exercise, cession or release of
a right to acquire a marketable security (see 5.9), on the disposal of a qualifying equity share under a
broad-based employee share plan (see 5.2) or on the vesting of an equity instrument (see 5.3) as well as
taxable dividends on certain restricted equity instruments (see 9.1).
Gains and dividends thus included in remuneration are deemed to be an amount of remuneration
payable to the employee concerned by the person by whom the relevant right leading to a gain was
granted of, from whom the relevant equity instrument or qualifying equity share was acquired or by
whom the dividend was paid.
That person must deduct PAYE from any consideration paid or payable by the person to the employee
for the cession or release of the right or the disposal of the equity instrument or qualifying equity share
or from any cash remuneration paid or payable by the person to the employee after, to the person’s
knowledge, the right has been exercised, ceded or released or the equity instrument has vested or the
qualifying equity share has been disposed of.
Should that person be an associated institution (see 5.4) in relation to an employer paying or liable to
pay to the employee an amount by way of remuneration during the tax year during which a gain arises
and is neither resident (see 1.1) nor has a representative employer (see 17.10) or is unable to deduct the
full amount of employees’ tax during that tax year because the amount to be deducted by way of PAYE
exceeds the amount from which the deduction can be made or the dividend consists of an equity
instrument, the associated institution and the employer must deduct from the remuneration payable by
them to the employee over the entire tax year an aggregate amount equal to the PAYE payable on the
gain, and are jointly and severally liable for that PAYE.
All the PAYE rules apply to the deductions made under this rule as if they had been deducted from the
gain itself.
The person concerned and the employer must obtain a directive as to the amount to be deducted before
making any deduction.
When the person concerned and the employer are unable to deduct the full amount of PAYE during the
tax year during which the gain arises because the amount to be deducted exceeds the amount from
which it is to be made they must immediately notify the Commissioner of this fact.
When neither the person concerned nor the employer is a party to the transaction under which the
employee has made a gain or disposed of the qualifying equity share, the employee must immediately
inform both the person concerned and the employer of the transaction and of the amount of the gain. An
employee who without just cause shown by him or her fails to comply with this rule will be guilty of an
offence and liable upon conviction to a fine not exceeding R2 000.
The application of these rules to dividends is effective for tax years commencing on or after 1 March
2019.
17.9
Tax certificates and underpayments
s 66, 4th Sch paras 13,
and overpayments of employees’ tax
14, 28(1)
By a date or dates prescribed by the Commissioner an employer must give its employees a certificate
(Form IRP 5) showing the total remuneration from which employees’ tax has been deducted and the
total amount of tax deducted over the tax year, and, when applicable, a certificate of taxable fringe
benefits derived by employees from which no employees’ tax has been deducted. Unless the
Commissioner otherwise directs, the employer may not give its employees their certificates until it has
rendered its annual return to the Commissioner (see below). The Commissioner’s decision is made
subject to objection and appeal (see 18.6).
An employer is entitled, if it so wishes, to close its tax year for employees’ tax purposes for all its
employees or any class of employees within fourteen days (or a longer period allowed by the
Commissioner) before or after the end of February. Its employees are then regarded as having earned
their remuneration not over the period selected by it but over the tax year.
Once an employee is assessed his or her total tax liability is reduced by the amount of employees’ tax
already paid as well as by any provisional tax payments, and he or she will be required to pay only the
balance outstanding. Any overpayment of employees’ tax by a taxpayer who is not a provisional
taxpayer (see 17.12) will be refunded without interest. In certain circumstances, overpayments of
employees’ tax and provisional tax by a provisional taxpayer will be refundable with interest (see
17.15).
An employer ceasing to be an employer must supply its former employees with their certificates within
fourteen days of its ceasing to be an employer.
An employer is also required to render a return to the Commissioner showing, for the tax year, the
names and addresses of all its employees, the total remuneration paid to each employee and the total
employees’ tax deducted from that remuneration. This return must be rendered by the prescribed date
or dates after the end of the tax year or of the date chosen by the employer as the close of the tax year for
employees’ tax purposes (see above) or, if it has ceased to be an employer, within fourteen days of it
ceasing to be an employer.
If an employer fails to render this return in time, the Commissioner may impose on the employer a
penalty, which is deemed to be a percentage based penalty imposed under Chapter 15 of the Tax
Administration Act, 2011, for each month that the employer fails to submit a complete return. It may not
exceed 10% of the total amount of employees’ tax deducted or withheld or that should have been
deducted or withheld by the employer from the remuneration of employees for the relevant period.
An employer is required to maintain a record showing the amounts of remuneration paid or due to
employees, the amount of employees’ tax deducted from that remuneration, the income tax reference
numbers of employees who are registered taxpayers and any other information prescribed by the
Commissioner.
Persons whose ‘gross income’ for a tax year consists of or includes remuneration not exceeding an
amount stated by the Commissioner for SARS by public notice are not obliged to render an income tax
return for that year. These persons are, however, entitled to render returns if they have had too much
employees’ tax deducted from their earnings and they calculate that a refund is owing to them (see
18.2).
17.10 Payment, interest and penalties
4th Sch paras 2, 5, 6
Time for payment
Employees’ tax deducted must be paid over to the Commissioner within seven days after the end of the
month during which the amount was deducted. For an employer ceasing to be an employer for
employees’ tax purposes before the end of the month, the payment must be made within seven days
after the day it ceased to be an employer. The Commissioner for SARS has in either event the power to
extend the period for payment.
Interest
For the interest payable on late payments of employees’ tax, see 18.5.
10% Penalty for late payment
If the employer fails to make the payment within this fixed or extended period, it will be liable for a
penalty of 10% of the amount not paid on time. The Commissioner has the power to remit this 10%
penalty, either fully or partly. This penalty is imposed in accordance with the Tax Administration Act,
2011.
Personal liability and recovery
An employer that fails to deduct the full amount of employees’ tax due becomes personally liable for
payment of the amount that it failed to deduct or withhold. It must pay that amount to the Commissioner
not later than the date on which payment should have been made if the employees’ tax had in fact been
deducted. By doing so, it will be deemed to have discharged its obligation to deduct and pay the tax.
(This rule does not apply in certain circumstances in which the employer and employee share a joint
liability to pay employees’ tax).
As long as its failure to deduct was not due to an intent on its part to postpone payment of the tax or to
evade its employees’ tax obligations, and as long as he is satisfied that there is a reasonable prospect of
ultimately recovering the tax from the employee concerned, the Commissioner may, on application by
the employer, absolve the employer from this personal liability.
A payment of this nature made by an employer not so absolved that it does not recover from the
employee is, as far as it is concerned, deemed to be a penalty due and payable by it.
An employer not so absolved enjoys an automatic right of recovery against the employee concerned of
the amount paid by it under its personal liability. Apart from any other right of recovery the employer
might enjoy under other laws, the tax law authorizes it to deduct that amount from future remuneration
payable by the employer to the employee. Nevertheless, it is compulsory for the employer to obtain a
directive from the Commissioner fixing the manner in which such a deduction from future remuneration
is to be made.
Until the employee pays the amount concerned back to the employer, he or she may not be issued with
an employees’ tax certificate (see 17.9) for that amount.
What is not clear is whether the employer may issue a tax certificate for any part payment made by the
employee.
Duties and liability of representative employers, directors and shareholders This subject is dealt
with in the Tax Administration Act, 2011.
17.11 Provisional
tax
4th Sch Part III
A person who has employees’ tax deducted from his or her remuneration (see 17.3) may also be liable
for the payment of provisional tax. Similarly, a provisional taxpayer may have to pay employees’ tax, and
only in the circumstances mentioned in 17.4 will he or she be exempt from the deduction of employees’
tax.
17.12 Who are provisional taxpayers?
4th Sch paras 1, 17(8)
Provisional tax payments must be made by:
• Individuals and other non-corporate taxpayers, who during any tax year in which provisional tax is
payable derive any income (see 1.1) by way of remuneration from an employer who is not registered as
an employer for employees’ tax purposes or an amount that is not remuneration (see 17.3), for example,
from carrying on a business, interest, dividends or professional fees, or taxable allowances or advances
(see 5.24).
• All companies (see 14.1).
• All close corporations.
• Any other person who is notified by the Commissioner that he, she or it is a provisional taxpayer.
Every person who is a provisional taxpayer must apply to the Commissioner for registration as a
provisional taxpayer in accordance with the Tax Administration Act, 2011.
Exclusions from being provisional taxpayers (para 1)
Excluded from the definition of a ‘provisional taxpayer’ are approved public benefit organizations (see
16.27), approved recreational clubs (see 16.30), body corporates, share block companies and qualifying
similar associations (see 16.4), (see 16.3), non-resident owners or charterers of ships or aircraft who are
liable for the so-called liftings tax (see 16.1 and 16.32), individuals who do not derive income from the
carrying on of business whose taxable income for the tax year does not exceed the ‘tax threshold’ (at
present R79 000) or whose taxable income for the tax year derived from interest, dividends, foreign
dividends and rentals from fixed property does not exceed R30 000, small business funding entities (see
16.3) and deceased estates.
Those exempt from the payment of provisional tax comprise:
• An owner or charterer of a ship or an aircraft liable to the liftings tax (see 16.1 and 16.32).
• An individual who does not derive any income from the carrying on of a business, as long as his or her
taxable income (see 1.1) for that year will not exceed the ‘tax threshold’, or whose taxable income for
that year derived from interest, dividends, foreign dividends (see 9.3), rentals from the letting of fixed
property or from an employer who is not registered for employees’ tax purposes will not exceed R30
000.
The ‘tax threshold’ is defined in relation to a natural person as the maximum amount of taxable income
of that person in a year of assessment that would result in no tax payable when the rates of tax
prescribed for that year (see 2.7) and the primary (see 2.9), over-65 (see 2.10) and over-75 (see 2.11)
rebates are applied to that taxable income. In effect, this is the level of taxable income at which the tax
determined according to the tax tables would equal the amount of the primary and, when applicable,
over-65 and over-75 rebates.
17.13 When provisional tax falls due
4th Sch paras 21, 23, 23A
Individual provisional taxpayers, companies and close corporations must make at least two payments of
provisional tax each year but may voluntarily make additional payments. These payments must be
accompanied by a special form (Form IRP 6).
Payments by individuals and other non-corporate taxpayers
As an individual, you are required to make your first provisional tax payment on or before the last day of
August and the second on or before the last day of each tax year.
If you are permitted to make up accounts to a date other than the last day of February, the dates for
payment of provisional tax will be six months and twelve months respectively from the commencement
of the accounting period.
These two provisional tax periods are not treated as two six-month periods but as one six-month period,
the first period, and one twelve-month period, the second period.
Within the first period of six months you must make a first payment equal to one-half of your total
estimated liability for income tax for the whole of the current tax year, less the total amount of
employees’ tax deducted by your employer (see 17.2) from your remuneration during that first period,
and less any tax proved to be payable to the government of any other country qualifying for the rebate
for foreign taxes paid by residents (see 15.4).
Within the second period of twelve months you must make a second payment equal to the total of your
estimated liability for income tax for the whole of the current tax year, less the total amount of
employees’ tax deducted by your employer from your remuneration during the whole year, and less any
tax proved to be payable to the government of any other country qualifying for the rebate for foreign
taxes paid by residents.
In calculating your second payment, you must also deduct from your total estimated liability for the year
the amount of your first payment. Your estimated liability for these purposes is not your actual
estimated liability but your liability established on the basis of the technically defined ‘estimates’
described in 17.14.
You may also make voluntary further payments on or before a date seven months after the end of
February, that is, up to the end of the immediately following September, or, if your accounting period
ends on some other date, six months after the end of the accounting period, so as to avoid the payment
of interest that might otherwise become payable in certain circumstances. Later payments will not avoid
but will limit the amount of interest payable (see 17.14). The liability to pay interest will as from a date
as yet to be determined, be governed by the Tax Administration Act, 2011 and not the Income Tax Act,
1962.
These rules apply equally to other taxpayers that are not companies.
Payments by companies
A company or close corporation must make its first payment within six months of the first day of its
financial year and its second payment on or before the last day of its financial year.
Again, these two provisional tax periods are not treated as two six-month periods but as one six-month
period, the first period, and one twelve-month period, the second period.
Within the first period of six months it must make a first payment equal to one-half of its total estimated
liability for income tax for the whole of its current tax year, less the total amount of employees’ tax
deducted by its employer (see 17.5) from its remuneration during the six-month period and any tax that
it proves is payable to the government of any other country and will qualify for the foreign-tax rebate
(see 15.4).
Within the second period of twelve months it must make a second payment equal to its total estimated
liability for income tax for the whole of its current tax year, less the total amount of employees’ tax
deducted by its employer from its remuneration during the twelve-month period and any tax that it
proves is payable to the government of any other country and will qualify for the foreign-tax rebate (see
15.4), and less the amount of its first payment.
Again, the estimated liability of a company or close corporation for these purposes is not its actual
estimated liability but its liability established on the basis of the technically defined ‘estimates’
described in 17.14.
A company or close corporation may also make voluntary further payments of provisional tax on or
before a date six months after the end of a financial year so as to avoid the payment of interest that
might otherwise be payable in certain circumstances. Later payments will not avoid but will limit the
amount of interest payable (see 17.14). The liability to pay interest will as from a date that is yet to be
fixed be governed by the Tax Administration Act, 2011 and not the Income Tax Act, 1962. A company or
close corporation with a tax year ending on the last day of February may, like an individual, make a
voluntary additional payment up to the immediately following September (that is, seven months after
the year-end) without incurring any interest penalty. Later payments will again not avoid but will limit
the amount of interest payable (see 17.14). The liability to pay interest will as from a date that is yet to
be fixed be governed by the Tax Administration Act, 2011 and not the Income Tax Act, 1962.
17.14 Estimates of taxable income
ss 23( d), 24, 89 bis(2), 89 quat, 103(6),
4th Sch paras 17, 19, 20, 20A, 21, 23, 23A, 24
In order to make your first provisional tax payment, as a provisional taxpayer you must estimate your
taxable income for the full tax year (which at the time will still have six months to run). This estimate
may not be less than what is known as the ‘basic amount’, which is your taxable income derived in the
most recent tax year for which you have been assessed, less any taxable capital gain (see 2.3), the
taxable portion of any retirement fund lump-sum benefits, retirement fund lump-sum withdrawal
benefits or severance benefits and certain other fund benefits, unless the circumstances justify the
submission of a lower estimate because your taxable income for the current tax year will in fact be less.
Also excluded from the basic amount are amounts (other than severance benefits), including voluntary
awards, derived on the relinquishment, termination, loss, repudiation, cancellation or variation of an
office or employment or the right to claim to be appointed to an office or employment.
If the assessment for the most recent tax year for which you have been assessed was issued less than
fourteen days before the date on which the estimate is submitted together with the payment of
provisional tax, the basic amount is the taxable income for the next most recent tax year for which an
assessment has been issued at least fourteen days before the date of submission of the estimate.
When an estimate must be made for a period that ends more than eighteen months after the end of the
latest preceding tax year in relation to the estimate, the basic amount determined above must be
increased by an amount equal to 8% a year from the end of that year to the end of the tax year for which
the estimate is made.
In order to make your second payment, as a provisional taxpayer you must re-estimate your taxable
income for the full tax year. Additional tax may be imposed in two situations: First, if your actual taxable
income for the year is finally determined at more than R1 million and this estimate is less than 80% of
your actual taxable income for that year as finally assessed, you may be liable for a penalty of up to 20%
of the difference between the amount of normal tax calculated at the rates applicable for the current tax
after taking account of any applicable rebates on a taxable income equal to 80% of your actual taxable
income for the tax year and the amount of employees’ tax and provisional tax actually paid. This penalty
is not payable when the Commissioner has increased your estimate.
And, secondly, if your actual taxable income for the year is finally determined at R1 million or less and
this estimate is less than 90% of your actual taxable income for that year as finally assessed and is also
less than the basic amount applicable to the estimate, you will be liable for a penalty of 20% of the
amount by which the lesser of the following amounts:
• the amount of normal tax calculated, at the rates applicable to the tax year and after taking into
account any applicable rebates, on a taxable income equal to 90% of the actual taxable income; and
• the amount of normal tax calculated on a taxable income equal to the basic amount at the rates
applicable to the tax year and taking into account any applicable rebates; exceeds the amount of
employees’ tax and provisional tax for the tax year paid by the end of the tax year.
The taxable portion of any retirement fund lump-sum benefits, retirement fund lump-sum withdrawal
benefits or severance benefits and certain other fund benefits, as well as amounts (other than severance
benefits), including voluntary awards, derived on the relinquishment, termination, loss, repudiation,
cancellation or variation of an office or employment or the right to claim to be appointed to an office or
employment must be ignored.
The Commissioner may remit the penalty in the second situation in whole or partly if he is satisfied or
partly satisfied that the amount of your estimate was seriously calculated with due regard to the factors
having a bearing on it and was not deliberately or negligently understated.
If, as a provisional taxpayer, you fail to submit your final estimate of taxable income for the tax year by
the last day of a period of four months after the last day of the tax year, you will be deemed to have
submitted a nil estimate. The 20% penalty must be reduced by the 10% penalty for a late payment (see
17.16) if that penalty is imposed. The Commissioner may remit this penalty wholly or partly if he is
satisfied that your failure to submit your estimate timeously was not due to an intent to evade or
postpone the payment of provisional tax or normal tax.
You may, in addition, establish your own, further estimate in order to make a third, voluntary payment
of provisional tax within the period ending six months or, for individuals and companies and close
corporations with tax years ending on the last day of February, seven months after the end of the tax
year to avoid a liability for interest that might otherwise become payable. This interest is payable only
by individual provisional taxpayers whose taxable income for the tax year exceeds R50 000 and
companies and close corporations whose taxable incomes exceed R20 000 for the tax year. These
thresholds will fall away from a date to be fixed by the Minister of Finance, after which interest will be
payable by all taxpayers and not just provisional taxpayers.
The interest, currently at the rate of 10% a year, (it was 10,25% from 1 March 2019 to 31 October 2019;
10% from 1 July 2018 to 28 February 2019; 10,25% from 1 November 2017 to 30 June 2018; 10,50%
from 1 July 2016 to 31 October 2016; 10,25% from 1 May 2016 to 30 June 2016, 9,75% from 1 March
2016 to 30 April 2016; 9,5% from 1 November 2015 to 29 February 2016; 9,25% from 1 November
2014 to 31 October 2015; 9% from 1 May 2014 to 31 October 2014; 8,5% from 1 March 2011 to 30 April
2014; 9,5% from 1 July 2010 to 28 February 2011; 10,5% from 1 September 2009 to 30 June 2010;
11,5% from 1 August 2009 to 31 August 2009; 12,5% from 1 July 2009 to 31 July 2009; 13,5% from 1
May 2009 to 30 June 2009; 15% from 1 September 2008 to 30 April 2009; 14% from 1 March 2008 to
31 August 2008; 13% from 1 November 2007 to 29 February 2008; 12% from 1 March 2007 to 31
October 2007; 11% from 1 November 2006 to 28 February 2007; 10,5% a year from 1 November 2004
to 31 October 2006), is payable if the income tax payable by you for the tax year exceeds your ‘credit
amount’ for that year. It does not qualify as a deduction for income tax purposes. The ‘credit amount’ is
the sum of the following amounts:
• The compulsory, provisional tax payments for the year.
• Any further, voluntary, payments of provisional tax for the year.
• Any amounts of employees’ tax deducted or withheld by the taxpayer’s employer during the year.
The interest runs from the ‘effective date’ in relation to the tax year, that is, a date falling six months, or
for individuals and companies and close corporations with tax years ending on the last day of February,
seven months after the last day of the tax year, until the due date printed on the assessment notice for
the year. The seven-month period also applies to a person who or that is not a company who or that has
not been granted permission by the Commissioner to render accounts for a period ending on a date
other than the last day of February.
The Commissioner for SARS has the power to waive the interest in whole or in part when he is satisfied
that the interest is payable as a result of circumstances beyond the taxpayer’s control.
He may also waive the interest payable by a natural person for the tax year in which he or she first
becomes a provisional taxpayer if he is satisfied that the circumstances warrant this concession.
But, again, he is debarred from exercising this further power and waiving the interest on the tax payable
that is attributable to his successful application of the general anti-tax-avoidance provision.
As a provisional taxpayer liable to pay such interest, you may also receive interest on overpayments of
tax, since, if your credit amount for the tax year exceeds your assessed tax liability for the year, the
excess will earn interest currently at the rate of 6% a year (it was 6,25% from 1 March 2019
to 31 October 2019; 6% from 1 July 2018 to 28 February 2019; 6,25% from 1 November 2017 to 30 June
2018; 6,5% from 1 July 2016 to 31 October 2017; 6,25% from 1 May 2016 to 30 June 2016; 5,75% from
1 March 2016 to 30 April 2016; 5,5% from 1 November 2015 to 29 February 2016; 5,25%
from 1 November 2014 to 31 October 2015; 5% from 1 May 2014 to 31 October 2014; 4,5% from 1
March 2011 to 30 April 2014; 5,5% from 1 July 2010 to 28 February 2011; 6,5% from 1 September
2009 to 30 June 2010; 7,5% from 1 August 2009 to 31 August 2009; 8,5% from 1 July 2009 to 31 July
2009; 9,5% from 1 May 2009 to 30 June 2009; 11% from 1 September 2008 to 30 April 2009; 10%
from 1 March 2008 to 31 August 2008; 9% from 1 November 2007 to 29 February 2008; 8% from 1
March 2007 to 31 October 2007; 7% from 1 November 2006 to 28 February 2007; 6,5% from 1
November 2004 to 31 October 2006; 7,5% from 1 December 2003 to 31 October 2004; 9% from 1
October 2003 to 30 November 2003; 10%, from 1 September 2003 to 30 September 2003; 11%
from 1 July 2003 to 31 August 2003; 12,5% from 1 April 2003 to 30 June 2003; 11,5% from 1 October
2002 to 31 March 2003; 9% from 1 March 2000 to 30 September 2002; 10,5% from 1 September 1999
to 28 February 2000 and 12% from 1 May 1999 to 31 August 1999). This interest, which is taxable, runs
from the effective date to the date on which the excess is refunded to you. The interest is payable to any
provisional taxpayer whose excess is greater than R10 000. When the excess does not exceed R10 000,
interest is payable to an individual provisional taxpayer only if his or her taxable income for the tax year
exceeded R50 000 and to a company or close corporation that is a provisional taxpayer only if its taxable
income for the tax year exceeded R20 000. These thresholds will fall away from a date to be fixed by the
Minister of Finance, after which the interest will be payable to all taxpayers and not just provisional
taxpayers. When interest is payable to a taxpayer who receives a refund of tax overpaid following a
successful appeal to a court of law or when the Commissioner concedes an appeal before the court
hearing (see 18.6), the taxpayer will not also be entitled to interest for the same period under these
rules.
You may also make voluntary payments after the effective date if you believe that you still have not met
your full liability for a particular tax year, but such a further payment would, of itself, attract a liability
for interest as from the effective date to the date it was made. Thereafter it would be treated in the same
way as any other payment of provisional tax.
These provisions dealing with the payment of interest will be deleted from the Income Tax Act and will
instead be dealt with in the Tax Administration Act, 2011 as from a date that is yet to be fixed.
Provisional tax is payable at the rate of tax that is in force for the relevant tax year at the date when the
provisional tax is paid or, if the rate of tax for the relevant year has not yet been fixed at that date, at the
rate of tax foreshadowed by the Minister of Finance in his latest Budget statement.
If the rate of tax for the relevant year has not been fixed or foreshadowed at that date, it is payable at the
rate that is in force for the most recent tax year.
18.6).
Individuals
If you do not use the basic amount as your estimate, you must estimate your taxable income in the same
way that you would calculate your actual taxable income, that is, by deducting, for example,
contributions to pension or retirement annuity funds (see 6.2 and 6.3). You may determine the tax
payable on your estimated taxable income either by using the special provisional tax tables provided by
the authorities or by making your own calculation.
At the time of your first payment one-half of the tax payable on the estimated taxable income less any
employees’ tax deducted during the first six months of the tax year is payable. At the time of your second
payment the tax payable on your re-estimated taxable income must be reduced by the amount of
employees’ tax that has been deducted over the whole tax year and the amount of your first provisional
tax payment. In making a further, voluntary payment, you should take into account your own estimate of
your taxable income, all your other provisional tax payments for the year and your employees’ tax for
the year.
Retirement fund lump sum benefits (see 6.8), retirement fund lump sum withdrawal benefits (see 6.10),
severance benefits (see 5.7) and awards, including voluntary awards, derived on the relinquishment,
termination, loss, repudiation, cancellation or variation of an office or employment or the
right to claim to be appointed to an office or employment derived by you during the relevant tax year
must be ignored in your estimate.
Companies and close corporations
A company or close corporation must follow the same rules applying to an individual in estimating its
taxable income, in establishing the basic amount and in determining the rate at which it must pay
provisional tax. The rate of tax payable on the estimated taxable income of a company or close
corporation is currently 28%.
At the time of its first payment a company or close corporation must pay one-half of the full amount of
tax payable on its estimated taxable income. At the time of its second payment it must again estimate its
taxable income, and the full amount of the tax less the first provisional payment is payable.
In making any further, voluntary payment, it will follow the same procedure as would an individual.
The Commissioner may absolve a provisional taxpayer from making a first provisional tax payment for a
tax year if he is satisfied that the taxable income that may be derived by the taxpayer in that year cannot
be estimated on the facts available at the time when payment of the relevant amount has to be made.
17.15 Underpayments
and
overpayments
4th Sch para 28(1)
of provisional tax
At the end of each tax year you, as a provisional taxpayer, are required to render your income tax return
in the normal way, showing your actual income from all sources during the tax year. An assessment will
be raised on the basis of the return, and any underpayment of provisional tax will have to be made good,
while an overpayment will be refunded. In certain circumstances interest is payable on underpayments
of provisional tax and on refunds of overpayments (see 17.14).
17.16 Penalties
ss 3(4), 89 bis(2), 89 quat, 89 quin,
4th Sch paras 20, 20A, 27, 30
As has already been mentioned (see 17.14), when the second payment of provisional tax is under-
estimated a penalty amounting to 20% of the underpayment may be levied. When a payment of any
portion of the provisional tax due (that is, the first or second payment) is not made on due date the
taxpayer may be liable to a further penalty of 10% plus interest (see 17.14) from the due date to the date
of payment of the amount not paid. This interest runs from the end of each period within which a
payment must be made. The Commissioner has the power to remit these penalties in special
circumstances.
A failure to submit any of the compulsory estimates constitutes an offence, and the submission of an
unauthorized lesser estimate for the first payment (see 17.14) could also be an offence.
The interest payable or receivable by certain provisional taxpayers in relation to all their tax payments
for a particular tax year is described in 17.14.
The provisions dealing with the payment of interest will be deleted from the Income Tax Act and will
instead be dealt with in the Tax Administration Act, 2011 as from a date that is yet to be fixed.
General provisions
18.1 Registration as a taxpayer
s 67
Every person who or that at any time becomes liable for any income tax or becomes liable to submit a
return under the rules set out in 18.2 must apply to the Commissioner for SARS to be registered as a
taxpayer in accordance with the provisions of the Tax Administration Act 28 of 2011.
18.2 Returns of income
ss 1, 66
Annual public notice
Each year the Commissioner must give public notice of the persons who are required by the
Commissioner to render returns for the assessment of normal tax (see 18.3) within the period
prescribed in the notice.
Interim returns
Before the issue by him of his annual notice calling for returns the Commissioner may require you, by
personal notice in writing, to render an interim return for any particular period specified in the personal
notice, and may then raise an assessment for that period (see 18.4).
Interim returns are called for, for example, in the event of the death or insolvency of a taxpayer or upon
your leaving the country.
Obligation to render a return
Should you not be required to render a return for a particular tax year, you may nevertheless submit one
so as to have your liability for normal tax determined on assessment. The submission of the return must
be made within three years after the end of the tax year concerned.
Period covered by the return
The return of income to be made by you as a person other than a company for any particular tax is
required to be a return for the whole period of twelve months ending upon the last day of the tax year.
Special rules apply when an individual dies, when a return has to be made for the period commencing on
the first day of the period in which he or she dies and ending on the date of death.
Special rules also apply when an individual’s estate is sequestrated, when two separate returns must be
made, one for the period commencing on the first day of the period in which sequestration took place
and ending on the date preceding the date of the sequestration, and another for the period commencing
on the date of sequestration and ending on the last day of that period. Similarly, when a person ceases to
be a resident (see 11.1) a return has to be made for the period commencing on the first day of that
period and ending on the day preceding the date the person ceases to be a resident.
The return made by a company must be a return for the whole period of the company’s relevant
‘financial year’ comprising the year of assessment (tax year; see 2.1).
A company’s ‘financial year’ is the period, whether of twelve months or not, commencing on the date of
its incorporation or creation and ending upon the last day of the immediately succeeding February. But
the Commissioner may approve some other closing date. In later years, a company’s 359
360 GENERAL PROVISIONS
‘financial year’ is the period, again, whether of twelve months or not, commencing immediately after
the last day of the immediately preceding financial year and ending on the first anniversary of that last
day. Again, the Commissioner may approve some other closing date.
It is on this basis that companies may apply to change their financial years and thus their tax years. In
practice, SARS sometimes seems to avoid the situation in which a company ends up with a tax year
longer than twelve months.
Should you, as a person other than a company, be able to establish to the Commissioner’s satisfaction
that the whole or any part of your income cannot conveniently be returned for a particular tax year, he
may, while imposing conditions at his discretion, accept accounts for the whole or a part of your income
as a taxpayer drawn to a date agreed to by him. The period involved may be either a longer or a shorter
period than the tax year under charge. The income disclosed in your accounts will then be deemed to be
your income for the tax year under charge. No further regard is taken in any subsequent tax year of the
income disclosed by your accounts drawn to a date later than the last day of the tax year. And, if your
accounts are drawn to a date falling within the tax year and you die or your estate is sequestrated during
the interim period between that date and the last day of the tax year, the income derived by you during
that interim period will be deemed to be part of your income for the tax year.
When a company does not close its accounts on the last day of its financial year the Commissioner may
accept accounts of its income drawn to a fixed day approved by him. This day must fall within ten days
before or after the last day of the financial year. When these accounts are drawn to a date later than the
last day of the year of assessment, no further regard is had to the income disclosed by those accounts for
purposes of a subsequent tax year.
When a company ceases to be a resident during its financial year, it must render a return for the period
commencing on the first day of that financial year and ending on the day preceding the date on which it
ceases to be a resident.
Other matters relevant to returns are dealt with in the Tax Administration Act 28 of 2011.
18.3 Other returns and reportable arrangements
s 72A
While the Income Tax Act still deals with the return that has to be submitted reporting a participation
right in a controlled foreign company (CFC) (see 15.2), the other matters affecting returns and
reportable arrangements are dealt with in the Tax Administration Act 28 of 2011.
18.4 Assessments
Assessments are dealt with exhaustively in the Tax Administration Act 28 of 2011.
18.5 Payment of tax, interest and penalties
ss 1, 89, 89 quin,
90, 91
The ‘tax’ chargeable must be paid when and where the Commissioner for SARS determines by
notification or as prescribed by particular provisions of the tax law. It may be paid in one sum or in
instalments of equal or varying amounts as may be determined by the Commissioner.
Should you fail to pay any tax in full within the period for payment notified or prescribed, you will have
to pay interest at the ‘prescribed rate’ on the outstanding balance of tax for each completed month
during which any part of the tax remains unpaid. The period of completed months over which interest is
payable runs from the date for payment specified in the notice of assessment or the date specifically
prescribed. The Commissioner has the discretion both to grant an extension of the period for payment
and to delay the running of interest.
This interest is best identified as the interest on overdue payments.
GENERAL PROVISIONS 361
The period for the payment of income tax is stated on the notice of assessment. For this purpose the
notice of assessment specifies two dates, the date when payment is due, the due date, which is the date
of assessment (see 18.4), and the last day by which the tax must be paid in order to avoid the payment of
interest, the ‘second date’.
‘Tax’ is defined as tax or a penalty (see 18.8) imposed under the Income Tax Act. On this basis, any
administrative or other penalty you are required to pay is a tax and not a penalty.
The general ‘prescribed rate’ is the rate of interest fixed from time to time by the Minister of Finance by
notice in the Government Gazette under the relevant provision of the Public Finance Management Act 1
of 1999. But the ‘prescribed rate’ of interest payable to a taxpayer (see 1.1) under the provisional tax
system (see 17.14) is a rate determined at four percentage points below the general prescribed rate.
The current interest rate is 10%, and has been applied since 1 November 2019. The previous rates were
10,25% from 1 March 2019; 10% from 1 July 2018; 10,25% from 1 November 2017; 10,50% from 1 July
2016 to 31 October 2017; 10,25% from 1 May 2016 to 30 June 2016; 9,75%
from 1 March 2016 to 30 April 2016; 9,5% from 1 November 2015 to 29 February 2016; 9,25% from 1
November 2014 to 31 October 2015; 9% from 1 May 2014 to 31 October 2014; 8,5% from 1 March 2011
to 30 April 2014; 9,5% from 1 July 2010 to 28 February 2011; 10,5% from 1 September 2009 to 30 June
2010; 11,5% from 1 August 2009 to 31 August 2009; 12,5% from 1 July 2009
to 31 July 2009; 13,5% from 1 May 2009 to 30 June 2009; 15% from 1 September 2008 to 30 April 2009;
14% from 1 March 2008 to 31 August 2008; 13% from 1 November 2007 to 29 February 2008; 12%
from 1 March 2007 to 31 October 2007; 11% from 1 November 2006 to 28 February 2007; 10,5% from
1 November 2004 to 31 October 2006; 11,5% from 1 December 2003 to 31 October 2004; 13% from 1
October 2003 to 30 November 2003; 14% from 1 September 2003 to 30 September 2003; 15% from 1
July 2003 to 31 August 2003; 16,5% from 1 April 2003 to 30 June 2003; 15,5% from 1 October 2002 to
31 March 2003; 13% from 1 March 2000 to 30 September 2002; 14,5% from 1 September 1999 to 29
February 2000; and 16% from 1 May 1999 to 31 August 1999.
Interest at this rate for each completed month is payable on overdue tax, that is, tax that is not paid by
the second date. If the tax is not paid by the second date, interest runs from the due date.
For example, if the interest rate is, say, 10%, the income tax payable is R5 000, the due date is 1
November 2019, the second date is 30 December 2019 and payment of the tax is made only on 19
January 2020, interest is calculated as follows: 10% × R5 000 × 2/ since there are only two 12
completed months in the period between the due date – 1 November 2019 – and the date of payment –
19 January 2020.
If you are unable to pay your tax in one sum, you should as soon as possible make application to the
Commissioner for SARS to pay the tax in instalments. Permission to pay tax in instalments will be
granted only in special circumstances, and you will be liable to pay interest on the deferred payments.
The rate at which interest is payable on overdue payments, on overdue employees’ tax (see 17.9) or
provisional tax payments (see 17.15), on voluntary underpayments of provisional tax or on the payment
of tax pending appeal (see 18.6) may be changed with effect from a particular date.
Should you be liable to pay interest over a period or a number of completed months commencing before
that date, the old rate will apply to the period that ended immediately – or to the completed months that
commenced – before that date.
The Commissioner may prescribe by notice in the Government Gazette that interest payable under the
Income Tax Act be calculated on the daily balance owing and compounded monthly. This method of
determining interest will then apply to whatever tax types and from whatever date the Commissioner
prescribes.
The tax – other than donations tax – and interest payable on overdue payments and on voluntary
underpayments of provisional tax must be payable by the ‘representative taxpayer’ liable to assessment
or for the payment or, if no representative taxpayer is involved, by the person by whom the
income (see 1.1) is derived or who is legally entitled to its receipt. You are entitled to recover the tax
paid by you on account of the inclusion in your income of an amount or capital gain treated as having
been derived by you under the diversion-of-income rules described in 11.7 or the diversion-of-gains
rules described in 21.20 from the person entitled to the receipt of that income, whether on that person’s
own behalf or in a representative capacity. But these rules cannot serve to relieve anyone from making
employees’ tax payments (see 17.2) or from any liability, responsibility or duty imposed by the Income
Tax Act.
The Commissioner may recover the tax payable by you on account of the inclusion in your income of an
amount treated as having been derived by you under the diversion-of-income rules described in 11.7
from the assets by which that income was produced. The interest on overdue payments relating to that
tax may also be recovered from those assets. Similarly, he may recover the tax payable by you on
account of the inclusion in your income of a capital gain treated as having been derived by you under the
diversion-of-gains rules described in 21.20 from the proceeds arising upon the disposal of the asset
giving rise to the capital gain. (Through an oversight, no mention is made of interest in this context.)
These matters are as from this date largely dealt with in the Tax Administration Act, 2011, but the
matters dealing with interest will be dealt with in that Act from a date that at the time of writing is yet to
be fixed.
18.6 Objection and appeal
These matters are dealt with exclusively in the Tax Administration Act 28 of 2011.
18.7 Refunds of tax overpaid s
102(1A)
This matter is currently largely dealt with in the Tax Administration Act 28 of 2011. But the
Commissioner may refuse to authorize a refund under the Tax Administration Act if the person
concerned has failed to furnish a return required under the Income Tax Act until the person has
furnished the return as required or if the refund is claimed by the person after a period of three years
after the end of the tax year when the person was not required by any provision of the Income Tax Act to
furnish a return of income for that tax year and did not render such a return during the period of three
years since the end of that tax year.
18.8 Tax evasion and tax avoidance ss 1, 7(7), 7(8), 80A–80L, 103(2), (4), (5) There is an important
distinction between tax evasion and tax avoidance.
Tax evasion
The expression tax evasion refers to all those activities deliberately undertaken by you to free yourself
from tax that the law charges upon your income, for example, the falsification of your returns, books or
financial statements. It is illegal and subject to severe penalties. You may be liable to a fine or to
imprisonment for a period not exceeding two years – for each offence (see 18.14). In addition, additional
tax may be imposed on income omitted from a return (see 18.2).
Tax avoidance
The expression tax avoidance, on the other hand, refers to your activities when you have legally
arranged your affairs in such a way that either you have reduced your income or you have no income on
which tax is payable. For example, you may invest your surplus funds in tax-free securities and pay no
tax on the income or you may render services to others free of charge and uncondi-tionally and thus
derive no income on which tax may be levied.
Provisions to prevent avoidance
Nevertheless, several provisions exist that are designed to counteract specific forms of tax avoidance.
The donations tax (see 19.2), the diversion-of-income rules described in 3.3, 3.5 and 11.7, the diversion-
of-gains rules described in 21.20, and the rule governing redeemable preference shares in 7.5 serve as
examples of such provisions, but there are several others.
Cessions of income while you retain or will regain income-producing property (s 7(7)) For details
of this provision, see 11.7. For your right of recovery of the tax payable, see 18.5. For your reporting
duties, see 18.2.
Cession of interest in trust (s 7(7))
For details of this provision, see 11.7. For your right of recovery of the tax payable, see 18.5. For your
reporting duties, see 18.2.
Diversion of income by resident to non-resident (s 7(8))
For details of this provision, see 11.7. For your right of recovery of the tax payable, see 18.5.
Impermissible avoidance arrangements (ss 80A–80L)
Special rules are intended to counter ‘impermissible avoidance arrangements’ or steps or parts of
such arrangements.
An avoidance arrangement is considered to be an ‘impermissible avoidance arrangement’ if its sole
or main purpose was to obtain a ‘tax benefit’. An ‘arrangement’ entered into in the context of business
will be hit if it was entered into or carried out by means or in a manner that would not normally be
employed for bona fide business purposes, other than the enjoyment of a tax benefit or if it lacks
commercial substance. An arrangement entered into in a context other than business will be hit if it was
entered into or carried out by means or in a manner that would not normally be employed for a bona
fide purpose, other than the enjoyment of a tax benefit. An arrangement entered into in any context will
be hit if it has created rights or obligations that would not normally be created between persons dealing
at arm’s length or would result directly or indirectly in the misuse or abuse of the provisions of the Act.
Tax consequences of impermissible tax avoidance
The Commissioner for SARS may determine the tax consequences under the Act of any impermissible
avoidance arrangement for any ‘party’ by disregarding, combining, or re-characterizing any steps in or
parts of the impermissible avoidance arrangement; disregarding any ‘accommodating or tax-
indifferent party’ or treating any accommodating or tax-indifferent party and any other party as one
and the same person; deeming persons who are connected persons (see 10.27) in relation to each other
to be one and the same person for purposes of determining the tax treatment of any amount;
reallocating any gross income (see 1.1), receipt or accrual of a capital nature (see 1.5), expenditure or
rebate (see 1.5) among the parties; re-characterizing any gross income, receipt or accrual of a capital
nature or expenditure; or treating the impermissible avoidance arrangement as if it had not been
entered into or carried out, or in such other manner as in the circumstances he deems appropriate for
the prevention or diminution of the relevant tax benefit.
He must then make compensating adjustments that he is satisfied are necessary and appropriate to
ensure the consistent treatment of all parties to the impermissible avoidance arrangement, but, prior to
1 October 2012, subject, under various related provisions, to a three-year time limit. As from that date,
various time limits are imposed by the Tax Administration Act 28 of 2011.
Lack of commercial substance
An avoidance arrangement lacks commercial substance under these rules if it would result in a
significant tax benefit for a party but for the application of the rules but does not have a significant
effect upon either the business risks or net cash flows of that party, apart from any effect attributable to
the tax benefit that would be obtained but for the application of the rules.
Characteristics of an avoidance arrangement that are indicative of a lack of commercial substance

include but are not limited to the following circumstances:
• The legal substance or effect of the avoidance arrangement as a whole is inconsistent with or differs
significantly from the legal form of its individual steps.
• The inclusion or presence of round-trip financing, an accommodating or tax-indifferent party or

elements having the effect of offsetting or cancelling each other.
Round-trip financing
‘Round-trip financing’ identifies an avoidance arrangement in which:

• funds are transferred between or among the parties (‘round-tripped amounts’).
• in circumstances in which the transfer of the ‘funds’ would result, directly or indirectly, in a tax benefit
but for the application of these rules and significantly reduce, offset or eliminate any business risk
incurred by any party in connection with the avoidance arrangement.
These rules apply to any round-tripped amounts, regardless whether the round-tripped amounts can be
traced to funds transferred to or received by any party in connection with the avoidance arrangement;
the timing or sequence in which round-tripped amounts are transferred or received; or the means by or
manner in which round-tripped amounts are transferred or received.
The term ‘funds’ includes cash, cash equivalents or any right or obligation to receive or pay cash or cash
equivalents.
Accommodating or tax-indifferent parties
A party to an avoidance arrangement will be regarded as an ‘accommodating or tax-indifferent party’

if any amount derived by the party in connection with the avoidance arrangement is either not subject
to normal tax or is significantly offset either by an expenditure or a loss incurred by the party in
connection with the avoidance arrangement or the party’s assessed loss. In addition, one of the following
sets of circumstances must prevail:
• As a direct or indirect result of the party’s participation, an amount that would have been included in
the gross income (including the recoupment of an amount) or receipts or accruals of a capital nature of
another party would be included in the first party’s gross income or receipts or accruals of a capital
nature; an amount that would have constituted a non-deductible expenditure or loss in the hands of
another party would be treated as a deductible expenditure by that other party; an amount that would
have constituted revenue in the hands of another party would be treated as capital by that other party;
or an amount that would have given rise to taxable income to another party would either not be
included in gross income or be exempt from normal tax.
• Alternatively, the party’s participation must directly or indirectly involve a pre-payment by another
party.
A person may be an accommodating or tax-indifferent party whether or not a connected person in

relation to any party.
These rules do not apply if the amounts derived by the party in question are cumulatively subject to
income tax by one or more spheres of government of countries other than South Africa equal to at least
two-thirds of the amount of normal tax that would have been payable on those amounts had they been
subject to tax under the Income Tax Act. For this purpose the amount of tax imposed by another country
is determined allowance for any applicable double taxation agreements and any assessed loss, credit or
rebate to which the party in question might be entitled or any other right of recovery to which the party
or the party’s connected person (see 10.27) might be entitled.
The rules also do not apply if the party in question continues to engage directly in substantive, active
trading activities in connection with the avoidance arrangement for a period of at least eighteen months.
But these activities must be attributable to a place of business, place, site, agricultural land, vessel,
vehicle, rolling stock or aircraft that would constitute a foreign business establishment for CFC purposes
(see 15.2) if it were located outside South Africa and the party in question were a CFC.
For the purposes of determining if there is a lack of commercial substance and whether a tax benefit
exists under the rules, the Commissioner for SARS may treat parties that are connected persons in
relation to each other as one and the same person. Alternatively, he may disregard an accommodating or
tax-indifferent party or treat an accommodating or tax-indifferent party and any other party as one and
the same person.
Presumption of purpose
A party obtaining a tax benefit is presumed to have entered into or carried out an avoidance
arrangement for the sole or main purpose of obtaining a tax benefit unless and until the party proves
that, reasonably considered in light of the relevant facts and circumstances, the pursuance of a tax
benefit was not the sole or main purpose of the avoidance arrangement. The purpose of a step in or part
of an avoidance arrangement is allowed to be different from a purpose attributable to the avoidance
arrangement as a whole.
General
The Commissioner for SARS may apply these provisions to steps in or parts of an arrangement. He may
also apply these provisions in the alternative or in addition to any other basis for raising an assessment.
The Commissioner must, before determining the liability of a party for tax under the rules, give the party
concerned notice that he believes that the rules might apply to an arrangement. He must set out his
reasons in the notice. The party receiving the notice from the Commissioner may, within sixty days after
the date of the notice or a longer period allowed by the Commissioner, submit reasons to him why the
rules should not be applied. The Commissioner must respond within 180 days of receipt of the reasons
or the expiry of the period for the party concerned to have given reasons why the rules should not be
applied. He may request additional information in order to determine whether the rules apply to an
arrangement, give notice to the party that the notice has been withdrawn, or determine the party’s
liability for tax under the rules.
If at any stage after he has given notice to a party additional information comes to the knowledge of the
Commissioner, he may revise or modify his reasons for applying the rules, or, if the notice has been
withdrawn, give notice afresh.
Definitions (s 80L)
‘Arrangement’ is a transaction, an operation, a scheme, an agreement or an understanding (whether

enforceable or not), including all its steps or parts, and includes any such events involving the alienation
of property.
‘Avoidance arrangement’ is any arrangement that, but for these rules, results in a tax benefit.
‘Impermissible avoidance arrangement’ is an avoidance arrangement as described above.
‘Party’ is a person, permanent establishment in South Africa of a person that is not a resident,
permanent establishment outside South Africa of a person that is a resident, partnership or joint venture
that participates or takes part in an arrangement.
‘Tax’ includes any tax, levy or duty imposed by the Income Tax Act or any other Act administered by the
Commissioner.

Definition (s 1)
A ‘tax benefit’ includes any avoidance, postponement or reduction of any liability for tax.
Trafficking in assessed losses (s 103(2), (4))
There is also a special provision to prevent the trafficking in assessed losses of companies, close
corporations or trusts.
This comes into operation when the Commissioner for SARS is satisfied that income has been derived by
a company, close corporation or trust (see 11.4) – or proceeds derived by it or treated as being derived
by it in consequence of the disposal of an asset for capital gains tax purposes result in a capital gain
during the tax year (see 21.3) – as a direct or indirect result of an agreement affecting it or as a direct or
indirect result of a change in the shareholding (see 14.1) in the company, the members’ interests in the
close corporation or the trustees or beneficiaries of the trust.
He must also be satisfied that the agreement was entered into or the change effected by a person solely
or mainly for the purpose of using the assessed loss (see 10.67), balance of assessed loss (see 10.67),
capital loss or assessed capital loss (see 21.3) of the company, close corporation or trust in order to
avoid liability on its part, or the part of any other person, for the payment of tax, duty or levy on income
or to reduce its amount.
The consequence of his satisfaction on these two points is that the set-off of the assessed loss or balance
of assessed loss against the income derived will be disallowed; the set-off of the assessed loss or balance
of assessed loss against any taxable capital gain (see 21.3) will be disallowed to the extent that the
taxable capital gain takes into account the capital gain arising from the proceeds; or the set-off of the
capital loss or assessed capital loss against the capital gain will be disallowed.
Cession of other income for dividends (s 103(5))
A transaction, an operation or a scheme under which you cede your right to receive an amount in
exchange for an amount of dividends (see 9.3) having the consequence that your liability for normal tax
(see 1.2) or that of any other party to the scheme before the application of this anti-avoidance measure
has been reduced or extinguished will place the Commissioner for SARS under the obligation to
determine your liability for normal tax as well as that of any other party to the scheme as if the cession
had not been effected.
18.9 International
transactions
s 31
This specific anti-tax-avoidance provision, presented as if it were a prescriptive rule, comes into play in
complex circumstances.
In the first place, you are required to identify a transaction, an operation, a scheme, an agreement or an
understanding, referred to here for convenience as an arrangement, and then determine whether it
constitutes an ‘affected transaction’.
The next step is to determine whether any term or condition of the arrangement ( a) is different from
the terms or conditions that would have existed had those persons been independent persons dealing at
arm’s length, and ( b) results or will result in a tax benefit (see 18.8) being derived by a person that is a
party to the arrangement.
At this point the consequences are imposed, in that the taxable income of each person that is a party to
the arrangement and derives a tax benefit must be calculated as if the arrangement had been entered
into on the terms and conditions that would have existed had they been independent persons dealing at
arm’s length.
A minor complication follows, in the form of a deemed loan constituting an ‘affected transaction’.
This arises to the extent that there is a difference between the adjusted amount (after application of this
anti-avoidance provision) applied in the calculation of the taxable income of a resident (see 1.1) that is a
party to an affected transaction and the unadjusted amount that would otherwise have been applied in
the calculation of the resident’s taxable income that is, if the resident had been allowed to get away with
the arrangement.
The amount of the difference must be dealt with as follows, if the person concerned is a resident and the
other person who is a party to the affected transaction is a non-resident or is a resident that has a
permanent establishment (see 10.74) outside South Africa to which the transaction relates. If the
resident is a company, the difference will be deemed to be a dividend (see 9.3) consisting of a
distribution of an asset in specie declared and paid by the resident to the other party. Or, if the resident is
a person other than a company, the difference will be deemed to be a donation made by the resident to
the other person for donations tax purposes. These deemed transactions will be deemed to have
occurred on the last day of the period of six months following the end of the tax year for which the
adjustment is made. But when the amount of the difference was prior to 1 January 2015 deemed to be a
loan that constitutes an affected transaction, whatever part of the loan is not repaid before that date
must be deemed to be a dividend in specie declared and paid by the resident to the other person, or, if
the resident is a person other than a company, the amount must be deemed to be a donation made by
the resident to the other person for donations tax purposes.
In either event, the transactions are deemed to have occurred on 1 January 2015.
Special reliefs exist for headquarter companies (see 16.37).
The first applies when an arrangement has been entered into between a headquarter company and any
other person that is not a resident. Should the arrangement involve the granting of financial assistance
by the other person to the headquarter company, this anti-avoidance provision does not apply to so
much of the financial assistance that is directly applied as financial assistance to any foreign company
(see 15.2) in which the headquarter company directly or indirectly (whether alone or together with any
other company forming part of the same group of companies – see 14.1 – as the headquarter company)
holds at least 10% of the equity shares (see 14.7) and voting rights.
The second applies when an arrangement has been entered into between a headquarter company and a
foreign company (see 15.2) in which the headquarter company directly or indirectly (whether alone or
together with any other company forming part of the same group of companies as the headquarter
company) holds at least 10% of the equity shares and voting rights. Should the arrangement comprise
the granting of financial assistance by the headquarter company to the foreign company, this anti-
avoidance provision does not apply to the financial assistance.
The third applies when an arrangement has been entered into between a headquarter company and
another person that is not a resident and the arrangement is in respect of the granting of the use, right of
use or permission to use any ‘intellectual property’ (see 10.37) by the other person to the headquarter
company. This anti-avoidance provision does not apply to the extent that the headquarter company
grants the use, right of use or permission to use that intellectual property to a foreign company in which
the headquarter company directly or indirectly (whether alone or together with any other company
forming part of the same group of companies (see 14.1) as the headquarter company) holds at least 10%
of the equity shares and voting rights and does not make use of that intellectual property otherwise than
as contemplated above.
And the fourth applies when an arrangement has been entered into between a headquarter company
and a foreign company in which the headquarter company directly or indirectly (whether alone or
together with any other company forming part of the same group of companies (see 14.1) as the
headquarter company) holds at least 10% of the equity shares and voting rights. If the arrangement
comprises the granting of the use, right of use or permission to use any intellectual property (see 10.37)
by the headquarter company to the foreign company, this anti-avoidance provision does not apply to the
granting to the foreign company.
When an arrangement comprises the granting of financial assistance or the use, right of use or
permission to use any intellectual property (see 10.37) by a person that is a resident (other than a
headquarter company) to a controlled foreign company (see 15.2) (CFC) in relation to the resident, or
(as from 1 April 2014) in relation to a company that forms part of the same group of companies as the
resident, the anti-avoidance provision must not be applied in the calculation of the taxable
income or tax payable by the resident on an amount received by or accrued to the resident in terms of
the arrangement.
This rule applies if the CFC has a foreign business establishment (see 15.2), and the aggregate amount of
tax payable to all spheres of government of a country other than South Africa by the CFC
in a foreign tax year of the CFC during which the arrangement exists is at least 75% (from 1 January
2020: 67,5%) of the amount of normal tax that would have been payable on any taxable income of the
CFC had it been a resident for that foreign tax year.
The aggregate amount of tax payable must be determined after account is taken of any applicable double
taxation agreement and any credit, rebate or other right of recovery of tax from any sphere of
government of a country other than the South Africa and after disregarding any loss in a year other than
that foreign tax year or from a company other than that CFC.
Apart from the deemed affected transaction already identified, an ‘affected transaction’ is an
arrangement that has been directly or indirectly entered into or effected between or for the benefit of
either or both:
• A person that is a resident (see 1.1) and any other person that is not a resident, provided that they are
connected persons (see below) in relation to each other.
• A person that is not a resident and any other person that is not a resident with a permanent
establishment in South Africa to which the arrangement relates, provided that they are connected
persons in relation to each other.
• A person that is a resident and any other person that is a resident with a permanent establishment
outside the Republic to which the arrangement relates, provided that they are connected persons in
relation to each other.
• A person that is not a resident and any other person that is a CFC (see 15.2) to any resident, provided
that they are connected persons in relation to each other.
‘Financial assistance’ includes the provision of a debt, a security or a guarantee.
The anti-avoidance rules detailed above do not apply when a transaction, operation, scheme, agreement
or understanding has been entered into between a company that is a resident (referred to as ‘resident
company’) or a company that forms part of the same group of companies as the resident company and
any foreign company in which the resident company (alone or together with another company that
forms part of the same group of companies as the resident company) directly or indirectly holds in
aggregate at least 10% of the equity shares and voting rights. The transaction, operation, scheme,
agreement or understanding must comprise the granting of financial assistance that constitutes a debt
owed by the foreign company to the resident company or any company that forms part of the same
group of companies as the resident company. In addition, the foreign company must not be obliged to
redeem the debt in full within thirty years from the date the debt is incurred. Thirdly, the redemption of
the debt in full by the foreign company must be conditional upon the market value of the foreign
company’s assets not being less than the market value of its liabilities. And, finally, no interest must have
accrued on the debt during the tax year.
18.10 Double taxation agreements
s 108
The South African Government has entered into agreements with the governments of other countries for
the purpose of preventing double taxation of the same income under the South African tax law and
under the tax law of these other countries. A further object of the agreements is to render reciprocal
assistance in the prevention of tax evasion.
Agreements are comprehensive in character and extend to a number of different types of income.
The broad basis of these agreements is that the industrial or commercial profits of an enterprise of one
of the contracting states are not subjected to tax in the other contracting state unless the
enterprise carries on a trade or business through a permanent establishment in the other contracting
state. The mere conclusion of a contract of sale in South Africa by a non-resident enterprise will
therefore not create a liability for tax in South Africa. The non-resident enterprise must have a
permanent establishment in South Africa in order to attract a liability for tax in South Africa. These
agreements also deal with various other specific types of income, for example, dividends, interest,
royalties, fees for independent personal services, directors’ fees, income of entertainers and sports
persons, pensions and annuities and income from governmental services.
Agreements of this type have been concluded with Algeria, Australia, Austria, Belarus, Belgium,
Botswana, Brazil, Bulgaria, Cameroon, Canada, Chile, China, Croatia, Cyprus, the Czech Republic,
Democratic Republic of Congo, Denmark, Egypt, Ethiopia, Finland, France, Gabon, Germany, Ghana,
Greece, Grenada, Hong Kong, Hungary, India, Indonesia, Iran, Ireland, Israel, Italy, Japan, Kenya, Korea,
Kuwait, Lesotho, Luxembourg, Malawi, Malaysia, Malta, Mauritius, Mexico, Mozam-bique, Namibia, the
Netherlands, New Zealand, Nigeria, Norway, Oman, Pakistan, People’s Republic of China, Poland,
Portugal, Qatar, Romania, Russian Federation, Rwanda, Saudi Arabia, Seychelles, Sierra Leone,
Singapore, the Slovak Republic, Spain, Sudan, Swaziland, Sweden, Switzerland, Tanzania, Taiwan,
Thailand, Tunisia, Turkey, Uganda, Ukraine, the United Arab Emir-ates, the United Kingdom, the United
States of America, Zambia and Zimbabwe.
Other agreements are awaiting signature or ratification.
It is the National Executive that has the power to enter into these agreements. Upon approval by
Parliament of an agreement under the Constitution, the arrangements made are required to be notified
by publication in the Government Gazette. At that point they have effect as if enacted in the Income Tax
Act itself. The secrecy rules (see 18.11) are relaxed so as allow disclosure to authorized officers of
countries with which agreements have been made.
Special provisions govern the collection of taxes under the agreements as well as reciprocal assistance.
The Tax Administration Act, 2011 also contains provisions dealing with the recovery of tax on behalf of
foreign governments.
18.11 Secrecy
The secrecy provisions that were previously dealt with in the Income Tax Act fell away there as from 1
October 2012 and have since then been dealt with in the Tax Administration Act 28 of 2011.
18.12 Powers of the Commissioner and Minister
ss 3, 4A
Exercise of powers and performance of duties (s 3)
The powers and duties imposed by or under the provisions of the Income Tax Act upon the
Commissioner may be exercised or performed by him or by an officer under his control, direction or
supervision.
Identified discretionary powers of the Commissioner are specifically made subject to objection and
appeal (see 18.6). These have been indicated in various places throughout this book.
The Commissioner may, in writing and on conditions agreed upon between him and the executive officer
of the Financial Services Board appointed under s 13 of the Financial Services Board Act 97
of 1990, delegate the power to approve pension, pension preservation, provident, provident
preservation or retirement annuity funds to the executive officer, subject to any limitations or
conditions determined by the Commissioner under the definitions of these funds (see 6.7) and the
compliance of a fund with the requirements imposed by those definitions. He may also so delegate the
power to withdraw approval, should such limitations, conditions or requirements not be met. Decisions
made
by the executive officer in the exercise of this power are subject to objection and appeal (see 18.6).
For this purpose, a decision by the executive officer against which an objection has been lodged is
deemed to be a decision of the Commissioner.
The other provisions that applied before 1 October 2012 are from that date dealt with in the Tax
Administration Act 28 of 2011.
Deductible donations
and donations tax
19.1 Deductible
donations
ss 10(1)( c A)(i),18A
Under the so-called general deduction formula (see 10.14), a donation is not ordinarily deductible for
income tax purposes, although in fairly rare circumstances a donation might be made for the purposes of
trade and in the production of income while not being of a capital nature.
But a special deduction exists, allowing to be deducted from a taxpayer’s taxable income (see 2.3), so
much of the sum of bona fide donations made by a taxpayer in cash or of property made in kind and
actually paid or transferred during the tax year to a qualifying recipient.
The deduction ordinarily allowed is the sum of such donations but may not exceed 10% of the taxpayer’s
taxable income (excluding retirement fund lump-sum benefits, retirement fund lump-sum withdrawal
benefits and severance benefits; see 6.10) as calculated before this deduction and the deduction allowed
for certain taxes payable to foreign governments (see 15.4).
But when the taxpayer is a unit trust the deduction allowed is again the sum of such donations but may
not exceed an amount determined under this formula:
A = B × 0,005
In this formula, ‘A’ represents the amount to be determined, while ‘B’ represents the average value of
the aggregate of all of the participatory interests held by investors in the unit trust for the tax year,
determined on the basis of the aggregate value of all of the participatory interests in the portfolio at the
end of each day during that year.
The deduction is made available despite the normal prohibition against the deduction of outlays of this
type (see 10.80).
But, because the deduction is required to be made in the determination of your taxable income, it cannot
be claimed to the extent that it creates or increases an assessed loss (see 10.71).
An amount of a donation that is disallowed solely by reason of the fact that it exceeds the amount that is
allowable as a deduction in a tax year is carried forward and is then deemed for the purposes of the
deduction to be a donation actually paid or transferred in the next tax year.
What is envisaged by the word ‘donation’ in this context is a donation in the common-law sense rather
than in its defined sense for donations tax purposes (see 19.2).
Qualifying recipients (s 18A(1), (1A), (1B), (1C))
There are various qualifying recipients, in the sense that a donation made to such a recipient will be
deductible to the extent that the requirements described here are satisfied.
Approved public benefit organization ( PBO)
• A public benefit organization (PBO) incorporated, formed or established in South Africa approved by
the Commissioner for SARS.
This recipient of deductible donations (referred to in this book as an ‘approved public benefit
organization’ or ‘approved PBO’) is required to be carrying on a public benefit activity in South Africa.
Alternatively, it must be carrying on some other activity determined from time to time by the Minister of
Finance by notice in the Government Gazette for the purposes of this special deduction. An activity of
this nature determined by the Minister must be tabled in Parliament, for incorporation into the Income
Tax Act, within a period of twelve months after the date of its publication by him in the Gazette.
371
372 DEDUCTIBLE DONATIONS AND DONATIONS TAX
The Minister may, by regulation, prescribe additional requirements with which a PBO carrying on some
specific public benefit activity identified by him in the regulations must comply before a donation made
to it will be allowed as a deduction. Again a requirement of this nature determined by the Minister must
be tabled in Parliament, for incorporation into the Income Tax Act, within a period of twelve months
after the date of its publication by him in the Gazette.
In addition, the constitution or founding document of a PBO engaged in the establishment and
management of a transfrontier area must expressly provide that the PBO may not issue a receipt for a
donation made to it by a person unless that person (if a company, together with any other company in
the same group of companies; see 14.1) has during its relevant tax year donated an amount of at least R1
million to the PBO. It must also ensure that every donation for which a receipt has been issued will be
matched by a donation to the PBO of the same amount by a person who is not a resident and made from
funds generated and held outside South Africa. It must also use all the receipted donations and all
income derived from them in carrying on the relevant activity in South Africa, and must use all matching
donations by non-residents either in carrying on that activity in South Africa or for a transfrontier
conservation area of which South Africa forms part.
Section 10( 1)( cA)( i) entity
• An entity of the type qualifying for the exemption from tax identified in 16.2 that is approved by the
Commissioner for the purposes of this deduction. The entities encompassed comprise an institution, a
board or a body established by or under any law.
In addition, such an entity must, in the furtherance of its sole or principal object:
• conduct scientific, technical or industrial research;
• provide necessary or useful commodities, amenities or services to the State (including a provincial
administration) or members of the general public; or
• carry on activities, including the rendering of financial assistance by way of loans or otherwise,
designed to promote commerce, industry or agriculture or any branch of commerce, industry or
agriculture.
Such a recipient of deductible donations (referred to in this book as a ‘section 10(1)( c A)(i) entity’ or
‘s 10(1)( c A)(i) entity’) is required to be carrying on a public benefit activity in South Africa.
Alternatively, it must be carrying on some other activity determined from time to time by the Minister of
Finance by notice in the Government Gazette for the purposes of this special deduction. An activity of
this nature determined by the Minister must be tabled in Parliament, for incorporation into the Income
Tax Act, within a period of twelve months after the date of its publication by him in the Gazette.
The Minister may, by regulation, prescribe additional requirements with which a s 10(1)( c A)(i) entity
carrying on some specific public benefit activity identified by him in the regulations must comply before
a donation made to it will be allowed as a deduction. Again a requirement of this nature determined by
the Minister must be tabled in Parliament, for incorporation into the Income Tax Act, within a period of
twelve months after the date of its publication by him in the Gazette.
Approved feeder PBO
• A public benefit organization incorporated, formed or established in South Africa approved by the
Commissioner.
This type of recipient of deductible donations (referred to in this book as an ‘approved feeder PBO’) is
required to provide funds or assets to an approved PBO or s 10(1)( c A)(i) entity.
Specialized bodies
• An agency as defined in the definition of ‘specialized agencies’ in s 1 of the Convention on the Privileges
and Immunities of the Specialized Agencies 1947 set out in Schedule 4 to the Diplomatic Immunities and
Privileges Act 37 of 2001.
DEDUCTIBLE DONATIONS AND DONATIONS TAX 373
• The United Nations Development Programme (UNDP).
• The United Nations Children’s Fund (UNICEF).
• The United Nations High Commissioner for Refugees (UNHCR).
• The United Nations Population Fund (UNFPA).
• The United Nations Office on Drugs and Crime (UNODC).
• The United Nations Environmental Programme (UNEP).
• The United Nations Equity for Gender, Equality and the Empowerment of Women (UN Women).
• The International Organisation for Migration (IOM).
• The Joint United Nations Programme on HIV/AIDS (UNAIDS).
• The Office of the High Commissioner for Human Rights (OHCHR).
• The United Nations Office for the Coordination of Humanitarian Affairs (OCHA).
In order to qualify, the body concerned must carry on in South Africa a public benefit activity or any
other activity determined from time to time by the Minister of Finance by notice in the Gazette for
purposes of the this deduction, must furnish the Commissioner with a written undertaking that it will
comply with the provisions governing the deduction, and, for a particular purpose, waive the relevant
diplomatic immunity.
Governmental and other public bodies
• A department of government of South Africa in the national, provincial or local sphere (see 16.9) to the
extent that the amount donated is to be used for purposes of a public benefit activity.
The Minister may, by regulation, prescribe additional requirements with which such a department
carrying on some specific public benefit activity identified by him in the regulations must comply before
a donation made to it will be allowed as a deduction. A requirement of this nature determined by the
Minister must be tabled in Parliament, for incorporation into the Income Tax Act, within a period of
twelve months after the date of its publication by him in the Gazette.
Proof of payment (s 18A(1), (2), (2A), (2D), (5C))
Your claim for a deduction will not be allowed unless it is supported by a receipt issued by the qualifying
recipient. This must show the recipient’s special tax reference number issued by the Commissioner; the
date of receipt of the donation; the recipient’s name and address to which enquiries may be directed; the
donor’s name and address; the amount or, if it is not made in cash, the nature of the donation; and a
certification recording the facts that the receipt is issued for the purposes of deduction under the
relevant provision of the Income Tax Act and that the donation has been or will be used exclusively for
the recipient’s object or, if it is a qualifying department, in carrying on the relevant public benefit
activity.
When the donation has been made by an employer on behalf of an employee and taken into account for
employees’ tax purposes, the claim for the deduction must also be supported by the employees’ tax
certificate (see 17.3) for which the employer has been issued with a receipt for the donation.
An approved PBO or s 10(1)( c A)(i) entity may issue a receipt for a donation to the extent only that the
donation will be used solely in carrying on qualifying public benefit activities.
A feeder PBO may issue a receipt for a donation to the extent only that it will, within twelve months after
the end of the relevant year of assessment, distribute or incur the obligation to distribute at least 50% of
all funds received by way of donations during that year for which receipts were issued. The
Commissioner may, however, upon good cause shown and subject to any conditions that he might
determine, either generally or in a particular instance, waive, defer or reduce the obligation to distribute
any funds, having regard to the public interest and the purpose for which the relevant organization
wishes to accumulate the funds.
The feeder PBO must, however, distribute or incur the obligation to distribute all amounts received from
investment assets held by it, other than amounts received on the disposal of those investment assets to a
qualifying PBO, institution, board or body, no later than six months after:
• every five years from the date on which the Commissioner issued a reference number to the PBO
if it is incorporated, formed or established on or after 1 March 2015; or
• every five years from 1 March 2015, if the PBO was incorporated, formed or established and issued
with a reference number prior to 1 March 2015.
If the feeder PBO has not distributed amounts as required or has not incurred the obligation to
distribute those amounts received on investment assets held by it, those amounts will be deemed to be
taxable income of that PBO in that tax year. In addition, if it provides funds to public benefit entities as
well to other entities, it may issue a receipt for a donation to the extent only that it will be used solely to
provide funds to a qualifying PBO or s 10(1)( c A)(i) entity that will use the funds solely in carrying on
public benefit activities.
A qualifying department may issue a receipt for a donation to the extent only that the donation will be
used solely in carrying on qualifying public benefit activities.
Audit certificates (s 18A(2B), (2C))
The general rule is that qualifying recipients must obtain and retain audit certificates confirming that all
donations received or accrued in a particular year during which receipts were issued under the rules
were used in a qualifying manner.
But when the recipient is a qualifying department its Accounting Authority under the Public Finance
Management Act 1 of 1999 that issued receipts under the rules must on an annual basis submit an audit
certificate to the Commissioner confirming that all donations received or accrued in the year for which
receipts were so issued were used in a qualifying manner.
Donations in kind (s 18A(3), (3A), (3B))
Special rules apply to your donations of property in kind so as, artificially, to fix the amount of the
donation:
• Should you donate a financial instrument that is your trading stock (see 10.66), the lower of its fair
market value on the date of the donation and the amount included in your income on account of the
donation of trading stock (see 10.63 and 12.2) will be taken as the amount of your donation.
• Should you donate any other trading stock (see 10.66), including farming livestock or produce (see
12.2), the same amount included in your income on account of the donation of trading stock or livestock
or produce (see 10.66 and 12.2) will be taken as the amount of your donation.
• Should you donate some other asset used for the purposes of your trade (see 10.14), it is the lower of
the fair market value of the property on the date of the donation and its cost to you, less the deductible
allowances – but not investment allowances – you have claimed on it, that is taken as the amount of your
donation.
• Should you donate any other property, the lower of the fair market value of the property on the date of
the donation and its cost to you is taken as the amount of your donation, although a movable asset that
has deteriorated may be depreciated under a special rule.
• And, should you donate property that is purchased, manufactured, erected, assembled, installed or
constructed by you or on your behalf specifically in order that you may donate it, the lower of its fair
market value on the date of the donation and its cost to you will be taken as the amount of your
donation.
• A special rule applies to donations of immovable property of a capital nature when the lower of its
market value or municipal value exceeds the cost. The amount of the deduction for this property is
determined in accordance with a formula:
A = B + (C x D)
‘A’ is the amount of the deduction;
‘B’ is the cost of the property donated;
‘C’ is the amount of any capital gain that would have been determined for CGT purposes (see Chapter 21)
had the property been disposed of for an amount equal to the lower of the market value and the
municipal value on the day the donation is made; and
‘D’ is 60% for a natural person or special trust or 20% for any other donor.
In other words, the deduction is an amount equal to the cost of the property plus the specified
percentage of the capital gain that would have been determined had the property been disposed of for
an amount equal to the lower of the market value and the municipal value of the property on the date of
the donation.
No deduction is allowed for a donation of property in kind constituting or subject to a fiduciary right,
usufruct or other similar right or is an intangible asset or financial instrument, although financial
instruments that are listed shares or issued by an ‘eligible financial institution’ as defined in s 1
of the Financial Sector Regulation Act are allowed.
Record-keeping (s 18A(4))
Some of the access-to-information rules applying to a PBO apply also to s 10(1)( c A)(i) entities.
Notice of taxability and invalidity (s 18A(5))
The Commissioner enjoys the power, by notice in writing addressed to a qualifying recipient, to direct
that:
• donations for which receipts were issued by it during a particular year of assessment specified in the
notice will be deemed to be its taxable income in that year.
• if corrective steps are not taken by the entity within a period stated in the notice, receipts issued by it
for donations made on or after a date specified in the notice will not qualify as valid receipts for
purposes of the deduction.
He may exercise this power if he has reasonable grounds for believing that anyone in a fiduciary capacity
responsible for the management or control of the entity’s income or assets (other than entities
otherwise catered for) has:
• in any material way failed to ensure that the objects for which the entity was established are carried
out or has expended moneys belonging to it for purposes not covered by its objects;
• issued or allowed a receipt to be issued to a taxpayer for purposes of the deduction for fees or other
emoluments payable to the entity by the taxpayer; or
• issued or allowed a receipt to be issued in contravention of the rules governing receipts or used a
donation for which a receipt was issued for any purpose other than a purpose allowed by those rules.
Notice of contravention (s 18A(5B))

Should the Commissioner have reasonable grounds for believing that an accounting officer or accounting
authority under the Public Finance Management Act 1 of 1999 or an accounting officer under the Local
Government: Municipal Finance Management Act 56 of 2003 of an entity to which these Acts apply has
issued or allowed a receipt to be issued in contravention of the rules governing receipts or used a
donation for which a receipt was issued for any purpose other than a purpose allowed by those rules, he:
• must notify the National Treasury and, if necessary, the Provincial Treasury of the contravention; and
• may, by notice in writing addressed to the accounting officer or accounting authority, direct that, if
corrective steps are not taken by him or her within a period stated in the notice, receipts issued by the
relevant entity for donations made on or after a date specified in the notice will not qualify as a valid
receipt for purposes of the deduction.
Approved group s 10(1)( cA)(i) body (s 18A(5A), (6))
The Commissioner for SARS has the authority, for the purposes of this deduction, to approve a group of
qualifying entities sharing a common purpose and carrying on public benefit activities under the
direction or supervision of a regulating or co-ordinating body, as long as the body takes steps prescribed
by the Commissioner to exercise control over the entities so as to ensure that they comply with the
provisions governing the deduction. Each such entity must be a s 10(1)( c A)(i) entity.
Such a group of entities is referred to in this book as ‘an approved group s 10(1)( c A)(i) body’.
Notice of invalidity
The Commissioner also enjoys the authority, by notice in writing addressed to an approved group s
10(1)( c A)(i) body or to a group of PBOs described in 16.25, to direct that receipts issued by entities
within the group for donations made on or after a specified date will not be valid for purposes of the
deduction, unless corrective steps are taken by the regulating or co-ordinating body within a stated
period.
He may take this action if he has reasonable grounds for believing that an approved group s 10(1)( c A)
(i) body fails to:
• take any steps to exercise control over any entity in its group; or
• notify him when it becomes aware of any material failure by an entity over which it exercises control
to comply with any provision governing this deduction.
Sanctions (s 18A(7))
A person who is in a fiduciary capacity responsible for the management or control of the income and
assets of any public benefit organisation, institution, board or body contemplated above or the
accounting officer or accounting authority contemplated in the Public Finance Management Act 1
of 1999, or the Local Government: Municipal Finance Management Act 56 of 2003, as the case may be,
for any institution in respect of which that Act applies, who intentionally fails to comply with any of the
obligations imposed upon him or her under the above provisions, or a provision of the constitution, will
or other written instrument under which the organisation is established to the extent that it relates to
the above provisions, will be guilty of an offence and liable on conviction to a fine or to imprisonment for
a period not exceeding twenty-four months.
19.2 What is donations tax?
ss 3(4), 54, 55(1), (3), 57, 57A, 58, 59, 64
Donations tax is designed to discourage the making of donations as a means of avoiding estate duty (see
Chapter 20). The assets donated may be in South Africa or anywhere else in the world; and it does not
matter where the donor or done are at the time of the donation. While the donor will not be able to claim
the donation as a deduction for income tax purposes, except in the circumstances described in 19.1, the
donee will not have to pay income tax on the donation derived, unless it takes the form of an annuity.
For the consequences of a donation under the capital gains tax, see 21.17.
Donations tax is payable on the value of ‘property’ disposed of under a ‘donation’ by a resident (see 1.1),
who is identified as the ‘donor’. The property may be disposed of either directly or indirectly by the
donor, and the donor may make the donation either in trust – the donation is made to a trust for the
benefit of the intended beneficiary – or not – the donation is made directly to the
‘donee’.
A ‘donation’ is a gratuitous disposal of property, including a gratuitous waiver or renunciation of a

right. A ‘donee’ is a beneficiary under a donation. When property has been disposed of under a donation
to a trustee, to be administered by the trustee for the benefit of a beneficiary, the ‘donee’ is that trustee.
And ‘property’ is any right in or to property, movable or immovable, corporeal or incorporeal, wherever
it is situated.
Property disposed of for a consideration that the Commissioner for SARS considers to be inadequate will
be treated as having been disposed of under a donation. The value of the property for donations tax
purposes is then reduced by an amount equal to the value of the consideration actually given.
The result of this rule is that donations tax cannot be avoided by disguising a donation as a cheap or
even an expensive sale.
When a person disposes of a ‘restricted equity instrument’ (see 5.3) under particular circumstances the
restricted equity instrument is for donations tax purposes deemed to have been donated by the person
at the time that it is deemed to vest under special rules and to have a value equal to its fair market value
at that time. Again, a reduction is made of an amount equal to the value of any consideration for the
donation in the determination of the value of the restricted equity instrument.
A donation is treated as taking effect on the date on which all the legal formalities necessary for a valid
donation have been complied with.
A special rule applies to spouses (see 3.2) married in community of property when one of them disposes
of property under a donation. The donation of property falling within their joint estate is treated as
having been made in equal shares by each spouse, while the donation of property excluded from their
joint estate is treated as having been made solely by the spouse who actually made the donation.
Another special rule applies when property is disposed of by a company at the instance of some other
person in circumstances such that, had the disposal been made by the person concerned, it would have
been treated as a donation. The property will be deemed to be disposed of under a donation by the other
person rather than by the company.
The person liable to pay the tax is the donor, although, if the donor fails to pay the tax within the
prescribed period, the donor and the ‘donee’ then become jointly and severally liable for the tax.
Under a donation made in trust, it is the trustee who is the donee. Should donations tax be paid or
payable by the trustee, in his or her capacity as a trustee, the tax may be recovered by him or her from
the assets of the trust. This power of recovery would override anything said in the trust deed dealing
with this issue.
The rate of the donations tax is currently 20%. However, the Minister of Finance may change the rate in
the national annual budget speech with effect from a date mentioned in the announcement of the change
in the rate. The new rate will then apply for a period of twelve months, subject to parliament’s passing
legislation giving effect to the announcement within that twelve-month period.
19.3 Exempt
maintenance s
56(2)( c)
Bona fide contributions made by a donor towards the maintenance of another person are exempt from
donations tax to the extent that the Commissioner for SARS considers them to be reasonable.
19.4 Annual R100 000 exemption ss
56(2)( b), 60(2)
As a natural person, the first R100 000 of the sum of the values of all property (see 19.2) you, as a donor
(see 19.2), dispose of under donations (see 19.2) during a particular tax year will be exempt from
donations tax.
These donations may be made to any donee. Should your donations in a particular tax year exceed R100
000, the exemption will apply to the first R100 000, and only the excess will be subject to donations tax.
You must calculate the amount to be exempted of each of multiple dispositions of property under
donations qualifying for this exemption according to the order in which these donations took effect (see
19.2).
19.5 Exempt
casual
gifts
ss 56(2)( a), 60(2)
As a donor (see 19.2) other than a natural person, the first R10 000 of the sum of the values of all casual
gifts you make during a particular tax year will be exempt from donations tax.
This exemption would apply, for example, to a company. Should your donations in a particular tax year
exceed R10 000, the exemption will apply to the first R10 000, and only the excess will be subject to
donations tax.
In a period of assessment of less than a full year (see 2.2), the total of casual gifts that is exempt is:
Days in your period of assessment
R10 000 ×
365 (366 in a leap year)
You must calculate the amount to be exempted of each of multiple dispositions of property under
donations qualifying for this exemption according to the order in which these donations took effect (see
19.2).
19.6 Other
exempt
donations s
56(1)
Donations tax is not payable on the value of property (see 19.2) disposed of under a donation (see 19.2):
• To or for the benefit of the donor’s spouse under a duly registered antenuptial or postnuptial contract
or under a notarial contract entered into under s 21 of the Matrimonial Property Act 88
of 1984.
• To or for the benefit of the donor’s spouse (see 19.6). But the spouses must not be separated under a
judicial order or notarial deed of separation.
• As a ‘death-bed’ disposition ( donatio mortis causa).
• Under which the donee (see 19.2) will not obtain any benefit until the donor’s death.
• Cancelled within six months from the date on which it took effect (see 19.2).
• Made by or to or for the benefit of a traditional council, traditional community or tribe qualifying for a
particular exemption from income tax (see 16.8).
• Consisting of a right in property situated outside South Africa acquired by the donor before becoming a
resident of South Africa for the first time; by inheritance from a person who at the date of his or her
death was not ordinarily resident in South Africa; by donation from a person – but not a company – that
was not ordinarily resident in South Africa at the date of the donation; out of funds derived by the donor
from the disposal of such exempt property; out of funds derived by the donor from the disposal of
property situated outside South Africa acquired as successive replacements of exempt property, or out
of funds derived from the disposal of exempt property or from revenue from that property.
• By or to the government, in the national, provincial or local sphere.
• By or to an approved institution, board or body or association, corporation or company identified in

16.2.
• By or to a political party registered under s 36 of the Electoral Act 45 of 1979.
• By or to an approved PBO.
• By or to an approved recreational club (see 16.28).
• By or to a small business funding entity (see 16.3).
• By or to a pension fund, pension preservation fund, provident fund, provident preservation fund,
retirement annuity fund, beneficiary fund, benefit fund, mutual loan association, fidelity or indemnity
fund, trade union, chamber of commerce or industries (or an association of such chambers) or an
approved local publicity association (see 16.9).
• By or to a business, professional or occupational association identified in 16.5.
• By or to a body corporate, share block company or similar association (see 16.4).
• As a voluntary award whose value is required to be included in the donee’s ‘gross income’ as arising
from services rendered (see 5.1), the termination of employment (see 5.7) or as a taxable fringe benefit
(see 5.4) or the gain from which must be included in his or her income as a gain on a right to acquire
marketable securities (see 5.9), a gain under a broad-based employee share plan (see 5.2) or a gain on
the vesting of an equity instrument (see 5.3).
• If the property is disposed of under and in pursuance of a trust (see 11.4).
• If the property consists of a right – but not a fiduciary, usufructuary or other like interest – to the use
or occupation of property used for farming purposes for no consideration or for a consideration that is
inadequate, as long as the donee is the donor’s child.
• By a company that is recognized as a public company (see 14.7).
• If the property consists of the full ownership in immovable property acquired by a beneficiary entitled
to a grant or services under the Land Reform Programme and the Minister of Land Affairs or a person
designated by him or her has, on terms and conditions prescribed by the Minister in consultation with
the Commissioner, approved the particular project under which the immovable property was acquired.
• Also, if the property consists of the full ownership in immovable property acquired by a person in
terms of land reform initiatives by virtue of the measures as contemplated in Chapter 6 of the National
Development Plan: Vision 2030 of 11 November 2011 released by the National Planning Commission,
Presidency of the Republic of South Africa.
• By a company to another company that is a resident and a member of the same group of companies
(see 22.1) as the company making the donation.
19.7 Value of donations
ss 55(1), (2), 62
As a general rule, the value of property (see 19.2) for donations tax purposes will be treated as being its
‘fair market value’ as at the date upon which the donation takes effect (see 19.2).
In the determination of this value, conditions that, in the opinion of the Commissioner of SARS, were
imposed by or at the instance of the donor (see 19.2) and have the result of reducing the value of
property in consequence of the donation must be ignored. The value of the property will then be
determined as if those conditions had not been imposed.
Special rules apply to the valuation of fiduciary, usufructuary or other like interests in property, a right
to an annuity and to a right of ownership in movable or immovable property subject to a fiduciary,
usufructuary or other like interest. Some of these rules depend upon the concept of the ‘annual value of
the right of enjoyment of a property’. Also for the purposes of these rules, the life-expectancy of a person
other than a natural person is treated as being fifty years.
The ‘fair market value’ of immovable property on which a bona fide farming undertaking is being
carried on in South Africa is the price that could be obtained upon its sale between a willing buyer and a
willing seller dealing at arm’s length in an open market, reduced by 30%.
The value of immovable property on which bona fide farming operations are being carried on in South
Africa owned by a company (see 14.1) not listed on a stock exchange is valued in the same way for
purposes of the valuation of the company’s shares.
The Commissioner may fix the fair market value of property, if he is of the opinion that the amount
shown in your return as its fair market value is less than its actual fair market value. The value he fixes is
then treated as being its fair market value for donations tax purposes, subject to your right of objection
and appeal (see 18.6). In fixing its value, he must have regard to the municipal or divisional council
valuation of the property, a sworn valuation of the property furnished by or on behalf of the donor or
donee (see 19.2), and to a valuation made by a competent and disinterested person appointed by him.
19.8 Payment and administration of donations tax s
60
Donations tax must be paid to the Commissioner for SARS by the end of the month following that in
which the donation took effect or a longer period allowed by the Commissioner (see 19.2). The payment
must be accompanied by a return in the form prescribed by the Commissioner.
A donor may elect the order in which dispositions of property under more than one donation on the
same date will be treated as having taken effect. Such an election is necessary to the determination of the
tax payable on each particular donation. But if the donor fails to make an election within fourteen days
after having been called upon to do so by the Commissioner, the Commissioner will determine the order
of such donations.
The Commissioner may at any time assess either the donor or the donee (see 19.2) or both of them for
the amount of donations tax payable or, when he is satisfied that the tax payable has not been paid in
full, for the difference between the tax payable and the tax actually paid. Payment by either of the parties
of the amount payable under such an assessment discharges their joint obligation.
Several of the procedural and administrative provisions of the Income Tax Act and the Tax
Administration Act, 2011 apply also to the donations tax.
Estate duty
20.1 Determining estate duty liability
ss 2, 3, 4, 4A*
The general rule is that, if you are ordinarily resident in South Africa at the time of your death, all your
assets, wherever they may be situated, form part of the ‘total value’ of your estate on which liability for
estate duty will be determined. The position of non-residents is dealt with in 20.11.
The ‘net value’ of your estate is determined when permissible deductions are made from the total value
of all property included in the estate. There are special rules for the valuation of the property in your
estate.
The ‘dutiable amount’ of your estate is determined when the fixed deduction of R3,5 million permitted is
deducted from the net value.
Estate duty will be levied on the dutiable amount of your estate at the flat rate of 20%.
For an example illustrating the basic principles of the imposition of estate duty, see 20.6.
20.2 Total value of estate
ss 3(2)( a), ( b), ( b A), (3)( a), ( a) bis, ( c A), ( c B), 5
The ‘total value’ of your estate consists of all your property situated anywhere in the world, for
example, land, shares, goodwill of a business or debts owing to you.
It also includes targeted amounts not belonging to you or arising after death only but that are regarded
as property in your estate. For example:
• The proceeds of an insurance policy on your life, no matter who the legal owner is (subject to
exceptions and, in appropriate circumstances, less a reduction for premiums or a consideration paid by
the owner of the policy, together with interest compounded at 6% a year from the date of payment to
your death).
• Benefits due and payable by or in consequence of membership or past membership of a pension fund,
pension preservation fund, provident fund, provident preservation fund or retirement annuity fund on
or as a result of death are excluded from property in the estate. Also included, in the estates of persons
dying before 30 October 2019, are certain contributions to funds that were not deductible for income tax
or were exempt from income tax under the provision dealing with the exemption of the capital element
of purchased annuities (see 2.4), or, for the estates of persons dying on or after 30 October 2019, those
contributions made on or after 1 March 2016 that are allowed as a deduction in the determination of the
taxable portion of the lump-sum benefit that is deemed to have accrued to the deceased immediately
prior to death (see 6.5).
• ‘Death-bed’ donations and donations made by you during your lifetime under which the donee will not
obtain any benefit until the death of the donor if those donations are exempt from donations tax and the
property in question is not otherwise included as property of the deceased for estate duty purposes.
• A claim that your estate acquires against your spouse or the estate of your spouse under the so-called
accrual system under the Matrimonial Property Act 88 of 1984.
* The section numbers in this chapter refer to the Estate Duty Act 45 of 1955.
381
382 ESTATE DUTY
If at the date of death you were enjoying any fiduciary, usufructuary or other like interest (including an
annuity) charged upon targeted property or that will accrue to another person, such an interest will also
form part of the value of your estate. The assets and rights forming part of your estate are valued
according to the applicable rules, and the total is the total value of your estate.
20.3 Net value of estate s
The more common deductions that will be made from the ‘total value’ of your estate in order to arrive at
the ‘net value’ of your estate are as follows:
• Funeral, tombstone and death-bed expenses.
• Debts owing by you at the date of your death to persons ordinarily resident in South Africa.
Excluded is a debt comprising a claim by someone to property donated by you under a death-bed
donation or a donation made by you during your lifetime under which the donee would not obtain any
benefit until your death, if those donations were exempt from donations tax.
• Costs of administering and liquidating your estate.
• Claims against your estate by your spouse or the estate of your spouse under the so-called accrual
system under the Matrimonial Property Act.
• Amounts included in the total value of your estate accruing to your spouse (unless they are otherwise
deductible). The deduction is not allowed for any amount that your spouse is required by your will to
dispose of to any other person or to a trust. It is also not allowed for property accruing to a trust
established by you for the benefit of your spouse if the trustees of the trust have a discretion to allocate
the property or any income from it to any person other than your spouse.
• The value of property included in your estate that accrues or accrued to an approved PBO (see 19.1), a
s 10(1)( c A)(i) entity (see 19.1) that has as its sole or principal object the carrying on of a public benefit
activity (see 16.27), or the State or a municipality. There is no limit to the sum that may be deducted.
• A usufructuary or other like interest (including an annuity) charged upon property enjoyed by you at
the date of your death, if it can be shown that the right or interest was created by your late spouse; that
the property over which you enjoyed the right or interest formed part of his or her estate; and that no
deduction was allowable in his or her estate for the value of the interest or right in question as an
amount accruing to his or her surviving spouse (see above). For example, if, on the death of your
husband, you were entitled under his will to the income of his estate (the capital being bequeathed to
your children), no estate duty is payable upon your death on the value of your right to income that
ceases, as long as your husband’s estate was not entitled to a deduction for the value of the property in
question. But your husband would not have been entitled to such a deduction only if he died before 1
November 1984.
• Qualifying foreign property of your estate and debts due to non-residents (see 20.12).
• A usufructuary or other like interest (including a right to an annuity charged upon property) donated
to you by the person to whom the interest accrues upon your death or, if the right takes the form of an
annuity, by the owner of the property upon which the annuity is charged.
• The amount by which the value of property included in your estate or a usufructuary or other like
interest ceasing on your death has been enhanced by improvements made with your consent at the
expense of the person to whom the property or right accrues upon your death.
• The value of books, pictures, statuary or other art objects (or the value of shares in a company
attributable to such items) lent by you under a notarial deed to the government of South Africa in the
national, provincial or local sphere for a period of at least thirty years that has not yet ended at the time
of your death.
ESTATE DUTY 383
20.4 Dutiable amount of estate s
4A
A fixed deduction of R3,5 million is made from the ‘net value’ of your estate in order to arrive at the
‘dutiable amount’.
When a person was the spouse at the time of death of one or more previously deceased persons, the
dutiable amount of the estate of that surviving spouse must be determined by the deduction from the
net value of his or her estate of an amount equal to R3,5 million:
• multiplied by two; and
• reduced by the amount deducted as a fixed deduction from the net value of the estate of any one of the
previously deceased persons.
When a person was but one of the spouses at the time of death of a previously deceased person, the
dutiable amount of the estate of that person must be determined by the deduction from the net value of
his or her estate of an amount equal to the sum of:
• R3,5 million; and
• R3,5 million divided by the number of spouses, reduced by an amount determined by the division of
the amount of R3,5 million deducted from the net value of the estate of the previously deceased person
by the number of spouses of that previously deceased person.
The amounts in each of the second bulleted items above may not exceed R3,5 million.
The bringing-forward of the previously unused fixed deduction of a predeceased spouse is inapplicable
unless the executor of the deceased person’s estate submits to the Commissioner, at the prescribed time
and in the prescribed manner and form, a copy of a return submitted to the Commissioner for the estate
of the previously deceased person or other relevant material that the Commissioner may regard as
reasonable.
For example, say Mr X is married to Mrs X. Mr X passes away. The net value of Mr X’s total estate is nil,
because all of his assets have been transferred to Mrs X upon death. Mrs X then passes away. The net
value of her estate is R10 million. No portion of the fixed deduction available to Mr X
was used. Mrs X’s estate is therefore entitled to a total fixed deduction of R7 million. If the net value of
Mr X’s total estate was R500 000 and his estate was therefore entitled to a fixed deduction of R500 000,
Mrs X’s estate would be entitled to a total fixed deduction of R7 million minus the R500 000 amount
used by the estate of Mr X. Mrs X’s estate would therefore be entitled to a fixed deduction of R6,5 million.
When a person and his or her spouse die simultaneously the one whose estate has a smaller net value is
for the purposes of the fixed deduction deemed to have died immediately before the other spouse.
20.5 Rate of estate duty 1st
Sch
The rate of estate duty to be applied to the dutiable amount of the estate of a deceased person has as
from 1 March 2018 been 20% of the first R30 000 000 of the dutiable amount of the estate and 25% of
the amount by which the dutiable amount exceeds R30 000 000. Before that date it was a flat 20%.
The Minister of Finance may, however, announce a change in the rate in the Budget speech with effect
from a date mentioned in the announcement. That rate continues to apply for a period of twelve months
from that date subject to Parliament passing legislation giving effect to the announcement within that
twelve-month period.
384 ESTATE DUTY
20.6 Example – calculation of estate duty
Assume your estate consists of:
Land and buildings ....................................................................................
R4 900 000
Shares
........................................................................................................
90
000
Claims owing to you ...................................................................................
60
000
Cash in bank ..............................................................................................
20 000
Proceeds of life policies .............................................................................
55
000
Local
government
bonds ...........................................................................
70
000
R5
195
000
Assume
also:
Five years ago you donated to your wife ...................................................
R10 000
Claims
against
the
estate ...........................................................................
R10
000
Bequest to your wife...................................................................................
R140 000
Bequest to university in South Africa .........................................................
R30 000
Your wife and two children survive you .....................................................
‘Total value’ of property in estate ...............................................................
R5
195
000
Less: Deductions
Claims
against
estate ...........................................................
R10 000
Bequest to wife .....................................................................
140 000
Bequest to university ............................................................
30
000
180
000
‘ Net value’ of estate ..............................................................

R5
015
000
Less: Fixed deduction ...............................................................................
3 500 000
‘Dutiable amount’ ..................................................................
R1
515
000
Estate duty payable (see 20.5):
20%
of
R1 515 000 .................................................................................
R303 000
Note:
The estate is allowed a fixed deduction of R3,5 m only, since there was no predeceased spouse. No other
deductions are allowed for the life policies or the local government bonds or for the surviving children.
20.7 Rebate in the event of successive deaths 1st
Sch
There is relief from estate duty when the same property is included in the estates of persons dying
within ten years of each other. The relief consists of a deduction from the total duty payable in the estate
of the last-dying of a varying percentage of the duty relating to the value of the property that has been
included twice in the two dutiable estates. This percentage varies from 100% (when the period between
the two deaths is not more than two years) to 20% (when the period is more than eight years but not
more than ten years).
20.8 Marriage in community of property
If you are married in community of property, upon the death of your spouse only the half-share of the
joint estate belonging to your spouse forms part of his or her dutiable estate. Upon your death the
remaining half, which belongs to you, will form part of your dutiable estate.
20.9 Your
spouse s
The ‘spouse’ of someone who has died is a person who, at the time of the death of the deceased, was the
partner of the deceased in a marriage or customary union recognized in terms of South African law; in a
union recognized as a marriage in accordance with the tenets of any religion; or in
ESTATE DUTY 385
a same-sex or heterosexual union that the Commissioner for SARS is satisfied is intended to be
permanent. In the absence of proof to the contrary, a religious marriage or a same-sex or heterosexual
union is treated as a marriage or union without community of property.
20.10 Recovery of estate duty
ss 11, 12, 13
The general rule is that the estate is liable for estate duty, which is recoverable from the executor. If,
however, any person other than your estate obtains the benefit of property that is regarded as property
of the estate and is subject to estate duty, for example, an insurance policy on your life belonging to
another person, the executor may recover the appropriate estate duty from that person.
20.11 Non-residents
s3
If you are not a resident of South Africa but have assets in South Africa at the time of your death, these
assets will be subject to South African estate duty. The calculation of the ‘total value’, ‘net value’ and
‘dutiable amount’ of the estate and the estate duty payable will be made in the same way as for South
African residents except that all non-South African assets will be ignored.
If you were previously not a resident but you immigrate to South Africa, the effect of your moving to
South Africa is that estate duty becomes payable on your whole estate, no matter where individual
assets might be situated, unless you qualify for the exemption described in 20.12.
20.12 Foreign assets: special exemption s
4( e)
There is one exception to the general rule that foreign assets of whatever kind form part of your dutiable
estate. Excluded from your dutiable estate are assets situated outside South Africa acquired by you
before you became ordinarily resident in South Africa for the first time, or that, after coming to South
Africa for the first time, you inherited from a person who was not ordinarily resident in South Africa at
the date of his or her death, or that were donated to you by a person not ordinarily resident in South
Africa at the date of the donation. If you sell any such exempted assets and use the proceeds to acquire
new foreign assets, these new assets will also not be subject to estate duty.
20.13 Agreements to avoid double death duties s
26
The same asset may be subject to estate duty (or death duties) both in South Africa and in another
country. South Africa has entered into agreements with the United Kingdom, the United States of
America, Zimbabwe, Lesotho, Botswana and Swaziland for the avoidance of estate duty on the same
property being payable both in South Africa and in the other country concerned. The agreement with
Sweden was terminated on 1 January 2005. The effect of these agreements is that any death duties paid
to a foreign state on any property situated outside South Africa and included in your dutiable estate are
deductible from the estate duty payable in South Africa.
Capital gains tax
21.1 Capital
gains
tax
s 26A
There is no separate capital gains tax (CGT) in South Africa. A person’s taxable capital gain for a tax year
is included in his or her taxable income and subjected to normal tax. This means that taxable capital
gains are subject to normal tax rather than a separate CGT. Taxable capital gains are determined under
the Eighth Schedule to the Act and references in this chapter to the Schedule are references to the Eighth
Schedule, while references to paragraphs are references to paragraphs of the Eighth Schedule. What
distinguishes taxable capital gains from normal taxable income on income account is the fact that only a
certain percentage of a person’s capital gains will in fact make up his or her taxable capital gain (see
21.3).
Certain provisions will come in to force only when the pending new dividends tax eventually becomes
effective. They are not deal with in this edition of this work.
21.2 Liability for tax on capital gains
s 9H, 8th Sch paras 1, 2, 12
The capital gains that are taxed are those derived on assets disposed of on or after 1 October 2001. The
definition of an ‘asset’ includes:
• property of any nature, whether movable or immovable, corporeal or incorporeal, excluding any
currency, but including any coin made mainly from gold or platinum; and
• a right or an interest of any nature in such property.
The definition is wide enough to include virtually any asset, for example, fixed property, listed or
unlisted shares, gold coins, machinery and plant, vehicles, aircraft and intellectual property such as
trademarks, copyrights and goodwill.
Residents (see 1.1) pay tax on the capital gains that they make on the disposal of assets situated
anywhere in the world, while non-residents are taxed on gains made from the disposal only of the
following assets:
• Immovable property situated in South Africa and any interest or right of any nature to or in immovable
property situated in South Africa, including rights to variable or fixed payments as consideration for the
working of, or the right to work, mineral deposits, sources and other natural resources.
• Assets effectively connected with a ‘permanent establishment’ (see 10.74) of the non-resident in South
Africa.
A non-resident will be regarded as holding an interest in immovable property situated in South Africa
when he or she holds equity shares (see 14.7) in a company, ownership or the right to ownership in any
other entity or a vested interest in assets of a trust, if 80% or more of the market value of those equity
shares, ownership or right to ownership or vested interest, at the time when they are disposed of, is
attributable directly or indirectly to immovable property. And when the non-resident holds his or her
interest via a company or other entity, it includes the situation where he or she, either alone or together
with his or her connected persons, directly or indirectly holds at least 20%
of the equity shares of the company or the ownership or right to ownership of the other entity.
This means, for example, that if the non-resident disposes of his or her interest in a company and 80% or
more of the market value of its net assets is attributable to immovable property situated in South Africa,
the gain that he or she makes on the disposal of the shares will be subject to tax.
386
CAPITAL GAINS TAX 387
A resident cannot take advantage of the fact that gains on the disposal of certain assets of non-residents
are not subject to tax by ceasing to be a resident before disposing of them. A resident is deemed to have
disposed of all his or her assets at their market value on the day before he or she ceased to be a resident,
except those assets that will still give rise to capital gains when he or she disposes of them as a non-
resident, that is, the assets mentioned above. He or she is accordingly deemed to make a capital gain of
an amount equal to the market value of the relevant assets less their base cost. If he or she subsequently
disposes of these assets while he or she is a non-resident, there will be no further tax to pay in South
Africa.
A non-resident is permitted to disregard a portion of any gains or losses on assets that are brought into
the tax net because he or she has become a resident. The portion of the capital gain or capital loss to be
disregarded is the portion attributable to the period for which he or she held the relevant assets before
becoming a resident. A non-resident will be treated as having disposed of certain of his or her assets on
the day before he or she became a resident and as having reacquired each of those assets at their market
value on the date on which he or she became resident. The result is that when he or she subsequently
disposes of any of these assets, the gain will be an amount equal to the proceeds of disposal less the
market value on the date on which he or she became a resident. These rules do not apply to assets that
were already within the tax net while he or she was not a resident (see above).
21.3 Determination of taxable capital gains
s 1, 8th Sch paras 3–10
Capital gains
A person’s ‘capital gain’ for a tax year is defined as the amount by which the proceeds accruing in
respect of the disposal during that year of an asset exceed the base cost of the asset.
A capital gain or capital loss on an asset that was disposed of in a previous tax year may also arise in the
current tax year. It will be any part of the proceeds from the disposal of the asset that is received or
accrues in the current year and has not already been taken into account in determining the capital gain
or capital loss on the disposal in a previous year or in the redetermination of the capital gain or capital
loss (see 21.5). This means that any part of the proceeds of an asset disposed of in a previous year, but
that are received by or accrue to the person only in the current year, will be taxed in the current year.
A capital gain will also arise when any part of the base cost taken into account in determining the capital
gain or capital loss on a disposal in a previous year is recovered or recouped by the taxpayer during the
current tax year, otherwise than by way of a reduction of a debt owed by the taxpayer, and has not been
taken into account in the redetermination of the capital gain or capital loss (see 21.5), for example,
because the supplier cancels his or her debt or changes the terms of the transaction and refunds an
amount to him or her. The amount of the benefit will be taxed as a capital gain in the current year.
Then, a capital gain will arise from the disposal of an asset in a previous year equal to the sum of any
capital gain re-determined in the current tax year (see 21.5) and certain capital losses (if any)
determined in respect of the disposal in a certain earlier tax year.
What has been said above does not apply to a capital gain that arises from the disposal of an asset in a
previous year when the asset has been reacquired in the circumstances described in 21.5. The capital
gain will then be an amount equal to the capital loss determined on the original disposal.
Capital losses
A ‘capital loss’ on an asset for a tax year is the amount by which the base cost of the asset exceeds the
proceeds that were derived in respect of the disposal of the asset.
388 CAPITAL GAINS TAX
A capital loss may also arise in a particular tax year on an asset disposed of in a previous tax year. In this
situation, the capital loss will be any part of the base cost expenditure incurred during the current tax
year in respect of the asset that has not been taken into account during any tax year in the determination
or redetermination (see 21.5) of the capital gain or capital loss on the disposal of the asset. This amount
will constitute a capital loss in as far as it has not already been taken into account in any previous year in
determining the capital gain or capital loss on the disposal of the asset.
A capital loss will also arise on an asset disposed of in a previous year if the taxpayer is no longer
entitled to any part of the proceeds of the disposal of the asset as a result of the cancellation, termination
or variation of an agreement, the prescription or waiver of a claim, a release from an obligation or any
other event that occurs during the current year of assessment and that part has not been taken into
account in the redetermination of the capital gain or capital loss (see 21.5). The amount to which he or
she is no longer entitled will constitute a capital loss.
A capital loss will also arise if any part of the proceeds on the disposal of an asset in a previous tax year
becomes irrecoverable during the current tax year and that part has not been taken into account in the
redetermination of the capital gain or capital loss (see 21.5).
A capital loss will also arise if an amount derived by the taxpayer on the disposal of the asset in a
previous year has been repaid or becomes repayable by him or her during the current tax year and has
not been taken into account in the redetermination of the capital gain or capital loss (see 21.5).
Then, a capital loss will arise from the disposal of an asset in a previous year equal to the sum of any
capital loss re-determined in the current tax year (see 21.5) and certain capital gains (if any) determined
in respect of the disposal in a certain earlier tax year.
What has been said above does not apply to a capital loss that arises from the disposal of an asset in a
previous year when the asset has been reacquired in the circumstances described in 21.5. The capital
loss will then be an amount equal to the capital gain determined on the original disposal.
Annual exclusion
A natural person and a special disabled trust (see below) may deduct an annual exclusion of R40 000 in
each tax year. The annual exclusion is increased to an amount of R300 000 in the tax year in which the
taxpayer dies.
If the Minister of Finance announces in his annual budget speech a change in the amounts of the annual
exclusion with effect as from a certain date or certain dates, the change will come into effect on that date
or those dates and continue to apply for a period of twelve months subject to Parliament’s passing
A ‘special trust’ is described in 11.4. There are two types of special trust. The first type is a trust created
for qualifying disabled persons (referred to in this chapter as a ‘special disabled trust’) and the second
type is a will trust created for qualifying relatives of the testator (referred to in this chapter as a ‘special
will trust’). A special disabled trust is treated as a natural person for most purposes for CGT.
Aggregate capital gain or loss
A taxpayer’s ‘aggregate capital gain’ for a tax year is the amount by which the sum of his or her capital
gains for the year and any other capital gains that are required to be taken into account exceed the sum
of his or her capital losses for the year and, for a natural person or a special trust, the annual exclusion
for the year while his or her aggregate capital loss for a year is the amount by which the sum of his or
her capital losses for the year exceed the sum of his capital gains for the year and any other capital gains
that are required to be taken into account and, for a natural person or a special trust, the annual
exclusion for the year.

Net capital gain or assessed capital loss
A person’s ‘net capital gain’ for the tax year is the amount by which his or her aggregate capital gain for
the year exceeds his or her assessed capital loss brought forward from the previous year. And when he
or she has made a capital gain on the disposal of an interest in the equity share capital of a foreign
company that was disregarded in the current or a previous tax year, the disregarded gain must in certain
circumstances be added to his or her net capital gain (see 21.12).
If a person has an aggregate capital gain for the current year but incurred an assessed capital loss of a
bigger amount in the previous year, his or her assessed capital loss for the current year is the amount by
which his or her assessed capital loss brought forward from the previous tax year exceeds the amount of
his or her aggregate capital gain for the current year. If he or she has an aggregate capital loss for the
current year, his or her assessed capital loss for the year is the sum of his or her aggregate capital loss
for the current year and his or her assessed capital loss brought forward from the previous year. If he or
she does not have an aggregate capital gain or capital loss for the current year, but incurred an assessed
capital loss in the previous year, his or her assessed capital loss for the current year is the amount of his
or her assessed capital loss brought forward from the previous year.
Taxable capital gain
A taxpayer’s ‘taxable capital gain’ for the tax year is the following percentage of his or her or its net
capital gain:
For natural persons and both types of special trust .................................................................................. 40%
For an insurer’s individual policyholder fund ................................................................................................... 40%
For an insurer’s untaxed policyholder fund ....................................................................................................... 0%
For an insurer’s company policyholder fund ................................................................................................... 80%
For an insurer’s risk policy fund ....................................................................................................................... 80%
For any other taxpayer, for example, a company, close corporation or
ordinary trust .................................................................................................................................................... 80%
A person cannot set off his or her assessed capital loss against his or her normal taxable income and
must, instead, carry it forward for setting off against his or her capital gains in future years. A taxable
capital gain must be added to his or her taxable income on income account or may be set off against his
or her assessed loss on income account.
If the Minister of Finance announces in his annual budget speech a change in the abovementioned
percentages with effect as from a certain date or certain dates, the change will come into effect on that
date or those dates and continue to apply for a period of twelve months subject to Parliament’s passing
21.4 Meaning of ‘proceeds’
8th Sch paras 35, 39A, 43A
The proceeds from the disposal of an asset are equal to the total amount received by or accrued to a
person in respect of that disposal in a particular tax year. The following amounts are expressly included
as proceeds:
• The amount by which any debt owed by a person has been reduced or discharged. For example, if he or
she is forgiven all or part of the debt that he or she owes for an asset, the amount forgiven will be treated
as part of the proceeds of his or her disposal of the asset.
• Any amount received by or accrued to a lessee from the lessor of leased property for improvements to
the property.
• The amount by which the market value of a person’s interest in a company, trust or partnership
decreases in consequence of a ‘value-shifting arrangement’ (see 21.22).
The following amounts are expressly excluded from proceeds:
• Amounts included in a person’s gross income or that must be taken into account in determining his or
her taxable income on income account before the inclusion of any taxable capital gain.
This means that if an amount is already subject to tax on income account, it will not be taxable as a
capital gain as well.
• Any amount that has during the tax year been repaid or becomes repayable to the person to whom a
person disposed of the asset. If, therefore, the buyer repays to the seller part or all of the proceeds of the
disposal of an asset, the amount repaid will be excluded from proceeds.
• Any reduction of an amount that has accrued as part of the proceeds of the disposal of an asset as the
result of the cancellation, termination or variation of an agreement, but not a cancellation or termination
of an agreement that results in the asset being reacquired by the person that disposed of it, the
prescription or waiver of a claim, the release from an obligation or any other event during the tax year.
For example, if the price of an asset disposed of is reduced for any reason, the proceeds must be reduced
accordingly.
If a person becomes entitled to an amount during the current tax year, but it is payable only in a later
year, the amount is treated as having accrued to him or her in the current year.
Unaccrued proceeds
A special rule applies when you dispose of an asset during a tax year and all the proceeds from the
disposal of the asset will not accrue to you during that year. You must disregard any capital loss on the
disposal in that year and any subsequent tax year. You may then deduct the disregarded capital loss that
has not otherwise been allowed as a deduction from your capital gains in a subsequent tax year.
If you show that no further proceeds will accrue to you from the disposal of the asset during any later
tax year, you may take the portion of the capital loss that has not yet been deducted into account in that
tax year.
Dividends as proceeds
A special rule applies when a company disposes of shares in another company during the tax year and it
held a qualifying interest in the other company at any time during the period of eighteen months prior to
the disposal. As from 1 January 2019, this rule does not apply when the transaction is a deferral
transaction. To the extent that any exempt dividend derived by the company on the disposal of the
shares constitutes an extraordinary dividend, it must be taken into account when the shares are
disposed of, if the company immediately before the disposal held the shares disposed of as a ‘capital
asset’ (see 22.1), But if the dividend is received or accrues after that tax year, the amount in question
must be taken into account in the year in which the dividend is received or accrues as part of the
proceeds from the disposal of those shares. If, however, the provision dealing with ‘target companies’
applies (see below), the amount in question must be treated as a capital gain and not proceeds.
When a company disposes of shares in terms of a transaction that is not a deferral transaction within a
period of eighteen months after having acquired those shares in terms of a deferral transaction, other
than an unbundling transaction (see 22.6), and within a period of eighteen months prior to the disposal
of those shares by the company an exempt dividend in respect of the shares accrued to or was received
by a person that disposed of those shares in terms of a deferral transaction and that person was a
connected person (see 10.27) of the company at any time within that period or immediately after the
disposal, the dividend must be treated as a dividend that accrued to or was received by the company in
respect of those shares within the period during which the company held the shares. If the company
acquired the shares (referred to as ‘new shares’) in terms of that deferral transaction in return for or by
virtue of the holding by it of other shares (referred to as ‘old shares’) that were disposed of in terms of
that deferral transaction and an exempt dividend in respect of the old shares, other than a dividend
consisting of new shares, accrued to or was received by the
company within a period of eighteen months prior to the disposal of the new shares, that dividend must
for purposes of this rule be treated as an amount that accrued to or was received by the company as an
exempt dividend in respect of the new shares.
As from 20 February 2019, when a company holds shares in another company (referred to as a
‘target company’) and the target company issues shares (referred to as the ‘new shares’) to a person
other than that company and that company’s effective interest in the target company is therefore
reduced, the company must be treated as having disposed of a percentage of its holding of equity shares
in the target company equal to the percentage by which its effective interest in the equity shares of the
target company has been reduced by reason of the issue of the new shares in the target company. For
this purpose, any new shares that are convertible to equity shares must be treated as equity shares.
For the purposes of these rules, a ‘deferral transaction’ is a transaction to which the corporate
restructuring concessions (see Chapter 22) apply.
An ‘exempt dividend’ means a dividend or foreign dividend to the extent that it is not subject to the
dividends tax (see 9.4) and is exempt from normal tax under certain provisions.
An ‘extraordinary dividend’ means, for a preference share on which dividends are determined with
reference to a rate of interest, so much of the amount of any dividend received or accrued as exceeds an
amount determined at a rate of 15% a year for the period in respect of which the dividend was received
or accrued. For any other share, it means so much of the amount of any dividend received or accrued
within a period of eighteen months prior to the disposal of that share or in respect, by reason or in
consequence of that disposal, as exceeds 15% of the higher of the market value of that share as at the
beginning of the period of 18 months and as at the date of disposal of that share. As from 30 October
2019, a dividend in specie distributed in terms of a deferral transaction must not be taken into account
to the extent to which the distribution was made in terms of an unbundling transaction (see 22.6) or a
liquidation distribution (see 22.8).
A ‘preference share’ means a preference share as defined in the provision treating certain dividends on
third-party backed shares as income for the recipients of those dividends (see 7.6).
A ‘qualifying interest’ means an interest held by a company in another company, whether alone or
together with any connected persons in relation to that company, that constitutes, if that other company
is not a listed company, at least 50% of the equity shares or voting rights in that other company or 20%
of the equity shares or voting rights in that other company if no other person (whether alone or together
with any connected person of that person) holds the majority of the equity shares or voting rights in that
other company.
And if the other company is not a listed company, it means an interest held by a company in another
company, whether alone or together with any of its connected persons, that constitutes, if that other
company is a listed company, at least 10% of the equity shares or voting rights in that other company.
21.5 Base cost
s 24J, 8th Sch paras 20, 20A, 21, 22, 24, 25–28, 33, 34
The base cost of an asset is the sum of the following amounts:
• The expenditure incurred when the asset was acquired or created.
• The expenditure incurred on valuing the asset for the purpose of calculating a capital gain or capital
loss on the asset.
• The following expenditure actually incurred by the taxpayer that is directly related to the acquisition
or disposal of the asset:
– Remuneration for services rendered by a surveyor, valuer, auctioneer, accountant, broker, agent,
consultant or legal advisor.
Transfer
costs.
– Stamp duty, transfer duty, securities transfer tax or similar duty.
– Advertising costs to find a seller or buyer.
– The cost of moving the asset from one location to another.
– The cost of installing the asset, including the cost of foundations and supporting structures.
– A portion of the donations tax (calculated in accordance with a special formula) payable by the donor
or the donee on an asset disposed of by donation.
– If the asset was acquired or disposed of by the exercise of an option acquired before 1 October 2001,
the expenditure actually incurred on the acquisition of the option.
• The cost of establishing, maintaining or defending a legal title to or right in the asset.
• Expenditure actually incurred in effecting an improvement to or enhancement of the value of the asset.
• If the asset was acquired or disposed of by the exercise on or after 1 October 2001 of an option
acquired before that date, the value of the option on that date, which must be treated as the expenditure
actually incurred on the asset on that date.
The base cost of an asset will include one-third of the interest (other than interest referred to in 10.77)
on money borrowed to finance the expenditure dealt with in the first or fifth bulleted items above on
shares listed on a recognised exchange or participatory interests in a portfolio of a collective investment
scheme (including money borrowed to refinance those borrowings).
A ‘recognised exchange’ is defined as an exchange licensed under the Financial Markets Act 19 of 2012
or an exchange in a country other than South Africa that is similar to such an exchange and that has been
recognised by the Minister of Finance for purposes of the capital gains tax.
The following amounts must also be included in the base cost of an asset:
• For a marketable security or an equity instrument (see 5.3), the acquisition or vesting of which
resulted in the determination of a gain or loss to be included in or deducted from the person’s income
for income tax purposes under the rules dealing with the exercise of a right to acquire marketable
securities (see 5.9) or the taxation of directors and employees on the vesting of equity instruments (see
5.3), what must be added to base cost is the market value of the marketable security or equity
instrument or the amount derived from disposing of them that was taken into account in the
determination of the amount of the gain or loss (including when the gain or loss was nil). But any
expenditure actually incurred by the person concerned in respect of the asset prior to the date on which
its market value or value for fringe benefits tax purposes (see 5.4) was determined or prior to the date
when the asset was disposed of when the amount received or accrued from the disposal is taken into
account under the rules dealing with the taxation of directors and employees on the vesting of equity
instruments (see 5.3) must be ignored. This provision ensures that only the market value or
consideration, whichever is applicable, is included in the base cost and not the expenditure actually
incurred by the person when acquiring the marketable security on the exercise of the option or right or
on the vesting of the equity instrument.
• For any other asset, what must be added to base cost is so much of the amount included in the person’s
income as a deemed recoupment at the end of a lease (see 10.8) as was applied towards the reduction of
the purchase price of the asset (but ignoring any expenditure actually incurred by the person concerned
in respect of the asset prior to the date on which its market value or value was determined for fringe
benefits tax purposes (see 5.4) or prior to the date when the asset was disposed of when the amount
received or accrued from the disposal is taken into account under the rules dealing with the taxation of
directors and employees on the vesting of equity instruments (see 5.3)); when an amount has been
included in any person’s gross income as a fringe benefit (see 5.4), the value placed on the asset in the
determination of the amount included in his or her gross income (but again ignoring any expenditure
actually incurred by the person concerned in respect of the asset prior to the date on which its market
value or value was determined for fringe benefits tax purposes (see 5.4) or prior to the date when the
asset was disposed of when the amount received or accrued from the disposal is taken into account
under the
rules dealing with the taxation of directors and employees on the vesting of equity instruments (see
5.3)); when an amount has been included in the gross income of a lessor on account of leasehold
improvements (see 8.2), so much of that amount as exceeds the amount of any lessor’s special allowance
granted to him or her (see 8.3) and when the value of an asset derived for services rendered has been
included in the person’s gross income, the value so included (see 5.1).
• For a right in a controlled foreign company (referred to as a ‘CFC’) held directly by a resident (see
15.2), an amount equal to the ‘proportional amount’ of its net income (ignoring the percentage
adjustments made in the determination of the taxable capital gain; see 21.3) (or any other CFC in
relation to the resident in which the first CFC and the resident have a direct or indirect interest) that has
been included in the resident’s income during any tax year (see 15.2), reduced by any foreign dividends
distributed to the resident concerned by the CFC that was exempt from tax under the rule exempting
certain foreign dividends and certain dividends paid or declared by a headquarter company (see 16.37)
distributed out of the net income of the CFC that were exempt from income tax because they were
already included in the resident’s income in terms of the CFC rules (see 9.3).
• For a right in a CFC held directly by another CFC, an amount equal to the proportional amount of the
net income (again ignoring the percentage adjustments made in the determination of the taxable capital
gain; see 21.3) of the first CFC and of any other CFC in which both the first and second CFCs have a direct
or indirect interest that during any tax year would have been included in the income of the second CFC
had it been a resident, reduced by the amount of any foreign dividend distributed by the first CFC to the
second CFC if that dividend would have been exempt from tax had the second CFC been a resident under
the rule exempting certain foreign dividends or certain dividends paid or declared by a headquarter
company (see 16.37) distributed out of the net income of the CFC that were exempt from income tax
because they were already included in the resident’s income in terms of the CFC rules (see 9.3).
• For an asset that was acquired by a resident by way of inheritance from a deceased person who was
not a resident at the time of his or her death, the market value of the asset immediately before death and
any base cost expenditure incurred by the executor of the deceased estate in respect of the asset in the
process of liquidation or distribution of the estate. This item does not, however, apply to assets that may
give rise to capital gains or capital losses for a non-resident (see 21.2).
• For an asset that was acquired on or after the valuation date (see 21.6) by a person from a person who
at the time of the acquisition was not a resident by means of a donation, for a consideration not
measurable in money or from a connected person for a non-arm’s length price (see 21.17), the market
value of the asset on the date of its acquisition.
• The following expenditure incurred by a person in respect of an asset is not included in the base cost of
the asset:
– Borrowing costs, including certain interest (see 7.6), raising fees, bond registration costs or bond
cancellation costs.
– Expenditure on repairs, maintenance, protection, insurance, rates and taxes and similar expenditure.
– The value on 1 October 2001 of an option or right to acquire marketable securities under the rules
dealing with the exercise of a right to acquire marketable securities (see 5.9).
Excluded from these rules are borrowing costs and the expenditure mentioned above directly related to
the cost of ownership of an asset used by the taxpayer wholly and exclusively for business purposes or
constituting a share listed on a recognised exchange or a participatory interest in a portfolio of a
collective investment scheme.
The expenditure incurred by a person on an asset must be reduced by the following amounts:
• Any amount allowable or deemed to have been allowed as a deduction in determining the taxpayer’s
taxable income and not included in his or her taxable income as the write-back of the cost of shares that
have become ‘qualifying shares’ (see 16.31), before the inclusion of any taxable capital gain. (But there is
an exception to this prohibition for certain farming capital development expenditure; see below.)
• Any amount that has for any reason been reduced or recovered or become recoverable from, or that
has been paid by any other person (whether before or after the expense to which it relates was
incurred) to the extent that it is not taken into account as a recoupment for income tax purposes of an
amount allowable as a deduction for those purposes does not reduce the amount of expenditure covered
by way of an exempt government grant (see 16.12), and is not applied to reduce an amount taken into
account for trading stock (see 10.8) or any other asset (see 21.10) on the reduction or cancellation of a
debt.
• Any amount that is tax-free as a governmental incentive grant (see 16.12) (in tax years commencing
before 1 January 2013) or under an approved project in terms of an official development assistance
agreement (see 10.11) if it was paid or granted for purposes of the acquisition of the asset.
The second and third items do not apply to a government grant or government scrapping payment that
is provided in respect of programmes or schemes identified by the Minister by notice in the Gazette for
this purpose.
The expenditure incurred by a person on the acquisition of an asset must, in tax years commencing
before 1 January 2014, be reduced by the amount of any foreign exchange gain or premium received or
increased by the amount of any foreign exchange loss or premium paid (see 10.74), if the gain, loss or
premium is not included in or deducted from the income of the person incurring the expenditure or that
of any company forming part of the same group of companies as the company concerned.
A taxpayer may not take any amount into account more than once in determining the base cost of an
asset.
A person who disposed of an asset to another person in terms of an agreement; and then reacquired the
asset from the other person by reason of the cancellation or termination of the agreement and the
restoration of both persons to the position they were in prior to entering into the agreement, must be
treated as having acquired the asset for an amount equal to the base cost of the asset prior to the
disposal plus so much of any expenditure incurred on the asset by the other person that has been
recovered from him or her and would have constituted expenditure incurred in effecting an
improvement to or enhancement of the value of the asset that is still reflected in its state or nature at the
time of the reacquisition.
Farming capital development expenditure
Despite the general rule reducing the base cost of an asset by any amount allowable as a deduction in
determining the taxpayer’s taxable income, a special rule applies to a farmer who has ceased to carry on
farming operations during any year of assessment and at any time after that disposes of immovable
property on which he or she carried on those operations. He or she may elect to treat the under-
deducted capital development expenditure carried forward (see 12.4) as expenditure incurred and paid
in respect of the immovable property for CGT purposes.
The amount of the capital development expenditure for which the election may be made is limited to the
proceeds from the disposal of the immovable property, reduced by:
• for a pre-valuation date asset, the sum of the value of the asset on 1 October 2001 and the base cost
expenditure incurred on or after that date; or
• for any other asset, the base cost expenditure on that asset.
A farmer who adopts or determines the market value of the immovable property as its value on 1
October 2001 may take into account only capital development expenditure incurred by him or her on or
after that date for the purposes of calculating the amount in respect of which the election may be made.
Base cost of assets acquired before 1 October 2001
Special rules apply to the determination of the base cost of assets (other than identical assets valued on
the weighted-average basis; see below) acquired before 1 October 2001 and still held by the taxpayer on
that date. As a general rule, the base cost of an asset acquired by a taxpayer before 1 October 2001 is the
sum of:
• the value of the asset on 1 October 2001; and
• any qualifying expenditure incurred on the asset on or after that date.
But a special rule requires you to re-determine the base cost of the asset in certain circumstances.
This rule applies if in any tax year:
• you derive any amount of proceeds from the disposal of the asset that has not already been taken into
account in any prior year in the determination of your capital gain or capital loss on the disposal of the
asset;
• any amount of proceeds that you have taken into account in determining your capital gain or capital
loss on the disposal of the asset has become irrecoverable or has become repayable, or you are no longer
entitled to the amount as a result of the cancellation, termination or variation of an agreement or due to
the prescription or waiver of a claim or a release from an obligation or any other event during the
current year;
• you incur any amount of base cost expenditure on the asset that you have not taken into account in any
prior year in determining your capital gain or loss on the disposal of the asset; or
• any amount of base cost of that asset that you have taken into account in any prior year in determining
your capital gain or capital loss on the disposal of the asset has been recovered or recouped.
You must in any of these events re-determine the base cost of the asset and your capital gain or capital
loss from the disposal of the asset having regard to the full amount of the proceeds and base cost that
you have re-determined. You must then take the re-determined capital gain or capital loss into account
in the current tax year.
Base cost of assets acquired before 1 October 2001 when the proceeds of disposal exceed the cost
When the proceeds from the disposal of an asset (other than certain financial instruments and identical
assets valued on the weighted-average basis; see below) exceed the qualifying expenditure incurred
before, on and after 1 October 2001, the taxpayer must adopt one of the following amounts as the
valuation date value of the asset:
• The market value of the asset on 1 October 2001.
• 20% of the proceeds of the disposal of the asset (as reduced by allowable expenditure incurred on or
after 1 October 2001).
• The ‘time-apportionment base cost’ of the asset (see 21.7).
If he or she has adopted the market value on 1 October 2001 as the valuation date value of the asset and
the proceeds from the disposal of the asset do not exceed that market value, he or she must substitute as
the value on 1 October 2001 the proceeds less the expenditure incurred on the asset on or after that
date.
Base cost of assets acquired before 1 October 2001 when the cost is unknown When neither the
taxpayer nor the Commissioner can determine the expenditure incurred on an asset before 1 October
2001, he or she may adopt any of the following amounts as the valuation date value of the asset:
• The market value of the asset on 1 October 2001.
• 20% of the proceeds from the disposal of the asset (as reduced by allowable expenditure incurred on
or after 1 October 2001).
Base cost of assets acquired before 1 October 2001 when the proceeds of disposal do not exceed
the cost
A special rule applies when the proceeds from the disposal of an asset (other than certain financial
instruments and identical assets valued on the weighted-average basis) do not exceed the qualifying
expenditure incurred before, on and after 1 October 2001 and the taxpayer determined the market value
on that date or the market value was published by the Commissioner (see 21.6) and the allowable
expenditure incurred before that date is equal to or exceeds the proceeds from the disposal of the asset
as well as the market value of the asset on 1 October 2001. The value on 1 October 2001 must then be
taken to be the higher of that market value or those proceeds less the expenditure incurred on or after
that date. The value of the asset must otherwise be taken to be the lower of the market value or the time-
apportionment base cost of the asset (see 21.7). If he or she did determine the market value of the asset
on 1 October 2001, he or she must adopt the time-apportionment base cost of the asset as its value on 1
October 2001.
Base cost of asset of person becoming a resident on or after 1 October 2001
When a non-resident becomes a resident, he or she is deemed to have disposed of all his or her assets
other than the assets that were already in the CGT net while he or she was a non-resident and to have re-
acquired them at a cost equal to their market value at the time when he or she becomes a resident,
which must be treated as expenditure actually incurred by him or her for the purposes of the
determination of their base cost.
The base cost of the qualifying assets acquired by a person before the date on which he became a
resident is the sum of the value of the asset determined as set out below and the expenditure incurred
on the asset on or after that date.
If an asset that is deemed to have been disposed of and re-acquired on the person’s ceasing or
commencing to be a resident or a controlled foreign company is disposed of on or after the date on
which he or she became a resident and the proceeds from disposal and the expenditure incurred prior to
that date are each lower than the market value of the asset at the time when he or she became a
resident, the asset will be treated as having been acquired at a cost equal to the higher of:
• the expenditure incurred on the asset prior to the relevant date; and
• the proceeds less the expenditure incurred on the asset on or after the relevant date.
If the asset is disposed of on or after the date on which the non-resident became a resident and the
expenditure incurred on the asset prior to his or her becoming a resident (but not the deemed
expenditure referred to above) exceeds the proceeds from the disposal and the market value at the time
when he or she became a resident, the asset will be treated as having been acquired at a cost equal to the
higher of:
• the market value of the asset on the relevant date; or
• the proceeds less the expenditure incurred on the asset on or after the relevant date.
These rules do not apply to assets of a person who became a resident before 1 October 2001.

Part disposals
When part of an asset is disposed of, the proportion of the expenditure attributable to the part disposed
of is an amount that bears to the base cost expenditure on the entire asset the same proportion as the
market value of the part disposed of bears to the market value of the entire asset immediately prior to
the disposal. For this purpose the market value on the valuation date attributable to the part disposed of
is an amount that bears to the valuation date market value adopted or determined for the entire asset
the same proportion as the market value of the part disposed of bears to the market value of the entire
asset immediately prior to the disposal. No apportionment need be made, however, when part of the
base cost expenditure or the valuation date market value adopted or determined for the entire asset can
be directly attributed to the part of the asset that is disposed of or retained.
The granting of an option in respect of an asset by a person must not, however, be treated as a part
disposal of that asset, nor must the granting, variation or cession of a right of use or occupation of that
asset by that person in respect of which no proceeds are received by or accrue to that person. But when
proceeds are received by or accrue to a person in respect of the granting, variation or cession of a right
of use or occupation of an asset by the person concerned, the portion of the base cost expenditure or
valuation date market value adopted or determined that is attributable to the part of the asset in respect
of which those proceeds were received or accrued is an amount that bears to the expenditure on or
market value of the entire asset the same proportion as those proceeds bear to the market value of the
entire asset immediately prior to that disposal.
Also not treated as a part disposal is the improvement or enhancement of immovable property that the
person hires from a lessor.
And also not treated as a part disposal is the replacement of part of an asset in repairing the asset.
A person who has adopted the ‘20%-of-the-proceeds’ method (see above) in determining the valuation
date value of a part of an asset that has been disposed of must adopt the same method in determining
the valuation date value of any remaining part of that asset.
Debt substitution
When a person reduces a debt owed by him or her to a creditor by disposing of an asset to the creditor,
the asset must be treated as having been acquired by the creditor at a cost equal to its market value at
the time of the disposal and that cost must be treated as an amount of expenditure actually incurred and
paid by the creditor for the purposes of the determination of the base cost of the asset.
21.6 Market value of assets on 1 October 2001
8th Sch paras 1, 29
Special rules apply to the determination of the market value on the valuation date (1 October 2001) of
‘pre-valuation date asset’, that is, assets acquired before the valuation date (see below), which is
usually 1 October 2001 by a person and not disposed of by him or her before that date.
The ‘valuation date’ is defined as 1 October 2001. But for a person that qualified as an exempt body for
CGT purposes (see 21.12), but after 1 October 2001 ceased to be an exempt body, it is the date on which
it ceased to be an exempt person.
Listed financial instruments
The market value on the valuation date of a financial instrument (see 21.8) listed on a recognised
exchange for which a price was quoted on that exchange both before and after the valuation date is:
• If it is listed on an exchange in the Republic, the price published by the Commissioner in the Gazette.
This will be the aggregate of value of all transactions in the financial instrument as traded on the
exchange during the five business days preceding the valuation date divided by the total quantity of that
financial instrument traded during the same period.
• If it is listed on an exchange outside the Republic and is not listed on any exchange in the Republic, the
ruling price on the foreign exchange on the last business day before valuation date.
The ‘ruling price’ is defined as:
‘( a) in the case of a financial instrument listed on a recognized exchange in the Republic, the last sale
price of that financial instrument at close of business of the exchange, unless there is a higher bid or
lower offer on that day subsequent to the last sale in which case the price of that higher bid or lower
offer will prevail; or
( b) in the case of a financial instrument listed on a recognized exchange outside the Republic, the ruling
price of that financial instrument as determined in item ( a) and if the ruling price is not determined in
this manner by that exchange, the last price quoted in respect of that financial instrument at close of
business of that exchange.’
The Commissioner must adjust the market value of a financial instrument on the valuation date in
certain circumstances. He must do so when:
• the financial instrument is listed on an exchange in the Republic and was not traded during the last five
business days preceding valuation date;
• the financial instrument is listed on an exchange in the Republic and was suspended for any period
during September 2001; or
• the market value of the financial instrument determined above exceeds the average of the ruling price
of that financial instrument determined for the first fourteen business days of September 2001, by 5% or
more.
The Commissioner must, after consultation with the recognized exchange and the Financial Services
Board, determine the market value of the financial instrument having regard to its value, the
circumstances surrounding its suspension or reasons for the increase in its value. The Commissioner’s
decision is subject to objection and appeal (see 18.6).
The Act recognizes that a value attaches to a controlling interest in a company by making a special rule
for the valuation of a controlling interest in a company whose shares are listed on a recognised exchange
when that entire controlling interest is disposed of by a person to someone who is not his connected
person.
A ‘controlling interest’ in a company for this purpose means an interest in more than 35% of the equity
shares (see 14.7) of the company, even though in practice a smaller holding might create a controlling
interest.
This rule requires that the base cost of the shares on 1 October 2001 be adjusted when the controlling
interest is subsequently disposed of.
If the price per share for the disposal deviates from the ruling price of the share on the day prior to the
announcement of the transaction, the market value on 1 October 2001 (base cost) must be increased or
decreased by an amount that bears to the market value the same ratio as the amount of the deviation
bears to the ruling price.
For example, say the shares are sold for R13,20, the ruling price of the share prior to the announcement
of the transaction was R12,00, and the market value on 1 October 2001 was R10,00.
The adjustment to be made to the base cost will be calculated based on the formula: (Selling price –
Ruling price before announcement of sale) / Ruling price before announcement of sale × Market value
on 1 October 2001
This is equivalent to:
(R13,20 – R12,00)/R12,00 × R10,00, or R1,00
The adjusted base cost will therefore be R11,00.
Former unit trusts
The market value on 1 October 2001 of units or participatory interest in what was then known as an
equity or property unit trust that is not listed on a recognized exchange on 1 October 2001 is the price
published by the Commissioner in the Gazette, namely, the average of the price at which a unit could be
sold to the management company of the scheme for the last five trading days before 1 October 2001.
Units in foreign investment schemes
The market value on 1 October 2001 of a participatory interest in a foreign collective investment
arrangement or scheme, is the last selling price published before 1 October 2001 at which a
participatory interest could be sold to the management company of the scheme. If there is no
management company, this will be the arm’s length price that would have prevailed between a willing
buyer and a willing seller in an open market on 1 October 2001.
Interest-bearing arrangements
Despite the usual valuation rules above, the value on 1 October 2001 of a so-called interest-bearing
arrangement is its:
( a) ‘adjusted initial amount’ (see 7.6) on that date; or
( b) the price that could have been obtained upon a sale of the instrument between a willing buyer and a
willing seller dealing at arm’s length in an open market. For an instrument listed on a recognized
exchange, this value must be determined on the last trading day before the valuation date; otherwise it
must be determined on valuation date.
When a person has adopted the adjusted initial amount as the value on 1 October 2001 of an unlisted
instrument and the proceeds from the disposal of the instrument are less than that adjusted initial
amount, its value on that date is the time apportionment base cost.
Other assets
The market value on 1 October 2001 of all other assets must be determined on the basis described in
21.8.
Reporting requirements
A person may adopt or determine the market value of an asset as its valuation date value when the
valuation date is 1 October 2001 only if:
• he or she has valued the asset on or before 30 September 2004;
• the price of the asset has been published by the Commissioner in the Gazette; or
• he or she acquired the asset from his or her spouse who had adopted or determined a market value in
terms of these rules, in which event he or she (the transferee spouse) must be treated as having adopted
or determined that same market value.
When the valuation date is after 1 October 2001, he or she may adopt the market value as the valuation
date value only if:
• he or she has valued the asset within two years after the valuation date; or
• the asset is a listed financial instrument or unit in an equity unit trust and the value is determined
under the rules applying to these assets.
Certain of the rules described here do not apply to assets whose valuation date falls after 1 October
2001.
When a person has valued an asset and:
• the market value of the asset exceeds R10 million;
• the asset is an intangible asset (other than a financial instrument) and its market value exceeds R1
million; or
• the asset is an unlisted share in a company and the market value of all the shares held by the person in
that company exceeds R10 million,
he or she may adopt the market value as its valuation date value if he or she has furnished proof of the
valuation to the Commissioner in the prescribed form with his or her first tax return submitted after the
date on which the valuation was required to be done. If he or she disposes or disposed of any of these
larger assets before having submitted the proof of valuation or any other asset before it has been valued,
he or she must submit proof of valuation in the prescribed form with the tax return for the tax year
during which the asset was disposed of. If the valuation was not submitted with the relevant return, it
may be submitted within a further period allowed by the Commissioner if proof is submitted that the
valuation was performed within the prescribed period. If he or she disposes or disposed of an asset
whose valuation date falls after 1 October 2001 before it has been valued, he or she must submit proof of
valuation in the prescribed form with the tax return for the tax year during which the asset was
disposed of. The Commissioner may request further information or documents relating to a valuation or,
when he is not satisfied with a valuation, may adjust the value accordingly. His decision is subject to
objection and appeal (see 18.6).
21.7 Time-apportionment base cost
8th Sch para 30
Expenditure incurred in a single year
In certain circumstances, a person may choose to take the time-apportionment base cost as the valuation
date value of the asset. This value will be determined as follows: If the total expenditure on the asset was
incurred in a single year of assessment before 1 October 2001, the time-apportionment base cost will be:
• the amount of that expenditure; plus
• a proportion of the difference between the proceeds from the disposal of the asset and the amount of
the expenditure equal to the number of years or part-years the asset was owned before 1 October 2001
compared with the total number of years or part-years the asset was owned. It should be noted that part
years are treated as full years for this purpose and no adjustment is required for part years.
This determination is expressed by the following formula:
[(P – B) × N]
Y=B+
T+N
In this formula:
‘Y’ = The amount to be determined.
‘B’ = The expenditure incurred on the asset prior to 1 October 2001 that is allowable before, on or after
that date.
‘P’ = The proceeds in respect of the disposal of the asset.
‘N’ = The number of years determined from the date that the asset was acquired to 30 September 2001.
‘T’ = The number of years determined from 1 October 2001 until the date the asset was disposed of after
that date.
A part of a year must be treated as a full-year for the purposes of the formula.
For example, if an asset was acquired for R50 000, 15 years before 1 October 2001 and was disposed of
for R120 000, 10 years after 1 October 2001, the time-apportionment base cost will be as follows:
Expenditure (R50 000) + ((Proceeds of disposal (R120 000) – Expenditure (R50 000)) × Years owned
before 1 October 2001 (15)/(Years owned before 1 October 2001 + Year owned after 1 October 2001
(25)).
= R50 000 + 42 000

= R92 000.
The time-apportionment base cost is, therefore, R92 000 and the capital gain on the disposal using the
time-apportionment base cost will be R28 000 (R120 000 – R92 000).
Part of expenditure incurred on or after 1 October 2001
There are differences in the application of the time-apportionment base cost when a portion of the
expenditure on an asset was incurred on or after 1 October 2001. First, the number of years before 1
October 2001 that may be taken into account will be limited to 20. And, secondly, an adjustment must be
made to the proceeds to be used in the application of the formula for calculating the time-apportionment
base cost.
This determination involves the application of the following two formulae: First there is the formula for
the determination of the proceeds to be used in the application of the main formula:
R×B
P=
(A
B)
In this formula:
‘P’ = The proceeds attributable to B.
‘R’ = The total amount of the proceeds as determined in consequence of the disposal of the asset less any
selling expenses (see below) incurred on or after 1 October 2001.
‘A’ = The amount of the expenditure on the asset incurred on or after 1 October 2001.
‘B’ = The amount of the expenditure incurred on the asset prior to 1 October 2001 that is allowable
before, on or after that date.
For example, say the qualifying expenditure on the asset was incurred as follows: R200 000 in August
1976 and R100 000 in October 2002. It was then sold for R480 000 in July 2006. The proceeds to be
used in determining the time-apportionment base cost will be an amount equal to the cost incurred
before 1 October 2001 (R200 000) over the total cost (R300 000) times the proceeds (R480 000), that is,
R360 000. These proceeds must then be used in the application of the second formula, which reads as
follows:
[(P – B) × N]
B+
T+N
In this formula:
‘Y’ = The amount to be determined.
‘B’ = The expenditure incurred on the asset prior to 1 October 2001 that is allowable before, on or after
that date.
‘P’ = The amount of the proceeds attributable to the expenditure in ‘B’ above as determined in
accordance with the first formula immediately above less any selling expenses (see below) incurred on
or after 1 October 2001.
‘N’ = The number of years or part years the asset was owned prior to 1 October 2001, but limited to 20
years.
‘T’ = The number of years or part years the asset was owned after 1 October 2001.
This formula would be applied as follows based on the figures used in the above example illustrating the
application of the first formula:
Expenditure incurred before 1 October 2001 (R200 000) + (Deemed proceeds of disposal (R360 000) –
Above expenditure (R200 000)) × (Years or part years owned before 1 October 2001 (limited to 20)
(20)/
((Years or part years owned before 1 October 2001 (limited to 20), that is, 20) + (Years or part years
owned after 1 October 2001, that is, 5, or 25).
= R200 000 + 128 000
= R328 000.
The time-apportionment base cost of the asset will therefore be R328 000 and the capital gain on the
disposal using the time-apportionment base cost and using the actual proceeds for this purpose will be
R152 000 (R480 000 – R328 000).
‘Depreciable’ assets
Despite the rules set out above, a special rule comes into play in the determination of time-
apportionment base cost when:
• a person has incurred certain expenditure on an asset on or after 1 October 2001;
• any part of that expenditure incurred before, on or after the valuation date is or was allowable as a
deduction in the determination of his or her taxable income before the inclusion of any taxable capital
gain; and
• the proceeds of the disposal of that asset exceed the expenditure incurred on the asset before, on and
after 1 October 2001.
In this situation, the person concerned must determine the time-apportionment base cost of the asset
using the following formulae:
[(P – B) × N]
Y=B+
T+N
And
R×B
P=
(A + B )
In these formulae:
‘Y’ = The time-apportionment base cost of the asset.
‘P ’= The proceeds attributable to B, (see 21.4).
1
‘A ’= The sum of the expenditure on the asset that was incurred on or after 1 October 2001 and any
amounts 1
of that expenditure that have been recovered or recouped and included in gross income or taken into
account in the determination of taxable income and therefore excluded from proceeds (see 21.4).
‘B ’= The sum of the expenditure on the asset that was incurred before 1 October 2001 and, again, any 1
amounts of that expenditure that have been recovered or recouped and included in gross income or
taken into account in the determination of taxable income and therefore excluded from proceeds (see
21.4).
‘B’, ‘N’ and ‘T’ have the same meanings as is ascribed to them in the regular time-apportionment base
cost formula above.
‘R ’
= The sum of the proceeds of the disposal of the asset and any amounts of that expenditure that 1
have been recovered or recouped and included in gross income or taken into account in the
determination of taxable income and therefore excluded from proceeds (see 21.4) less any selling
expenses (see below) incurred on or after 1 October 2001.
The term ‘selling expenses’ is defined for the purposes of the application of time apportionment as base
cost expenditure comprising remuneration for services rendered by a surveyor, valuer, auctioneer,
accountant, broker, agent, consultant or legal advisor, transfer costs, stamp duty, transfer duty or similar
duty and advertising costs to find a seller or buyer incurred directly for the purposes of the disposal of
an asset.
The application of the formula immediately above is illustrated in the following example involving an
asset that has been subject to capital allowances:
Pre-
Post-
1 October 2001
1 October 2001
Total
R
RR
Cost
1 000
2 000
3 000
Capital allowances
1 000
200
1 200
Expenditure on asset
1 800
1 800
Period (years)
10
15
Received on disposal
4 510
Recouped for income tax (see (10.7)
1 200
Proceeds of disposal of asset
3 310
The capital gain will be determined as follows:
Step 1 – Determine whether the depreciable asset formula is applicable.
The asset in the example meets all the necessary requirements:
Expenditure before 1 October 2001 = 100; and on or after 1 October 2001 = 200.
Capital allowances of 1 200 were claimed.
There is an overall profit of 4 510 – 3 000 = 1 510.
Step 2 – Determine the receipts generated by pre-1 October 2001 expenditure.
P=R×
(A + B )
1
= 4 510 × 1 000/(2 000 + 1 000)
= 4 510 × 1 000/3 000
= 1503,33
Step 3 – Apply the depreciable asset time-apportionment formula.
Y=B+
[(P – B ) × N]
T + N,
= 0 + [(1503,33 – 1 000) × 10/(10 + 5)]
= 0 + 503,33 × 10/15
= 335,55
Step 4 – Determine the capital gain.
Capital gain =
Proceeds – [Time-apportionment base cost + expenditure
(incurred on or after 1 October 2001)]
3 310 – (335,55 + 1 800)
3 310 – 2135,55
=
1174,45
The normal rules are applied under step 4 so that the proceeds are reduced by taxable recoupments and
the expenditure on or after 1 October 2001 is reduced by capital allowances allowable for normal tax
purposes.
21.8 Market value of assets other
s 1, 8th Sch paras 1, 12, 31, 32, 38, 40
than on 1 October 2001
In certain circumstances, it is necessary to determine the market value of an asset on a specified date,
namely, when it is deemed to have been disposed of by one person and acquired by another at its
market value. This happens when a person disposes of an asset by means of a donation or for a
consideration not measurable in money or when a person disposes of an asset to a person who is his or
her connected person for a price that is more or less than its arm’s length price.
A deceased person is deemed to dispose of his or her assets (but for certain exceptions) for an amount
received or accrued equal to their market at the date of his or her death, while the assets are deemed to
have been acquired by his or her estate at a cost equal to the same market value.
The estate is then deemed to dispose of the assets that are disposed of to an heir or legatee or a trustee
of a trust for the same market value.
Certain deemed disposals of assets are also treated as having occurred at market value, for example,
when a person’s residential status changes or when there is a change of use of certain assets.
Financial instruments
The market value of financial instruments listed on a recognised exchange and for which a price was
quoted on that exchange, is the ruling price (see 21.6) of the instrument on the exchange at the close of
business on the last business day before the specified date for valuation of the instrument.
The definition of a ‘financial instrument’ includes:
• a loan, advance, debt, stock, bond, debenture, bill, share, promissory note, banker’s acceptance,
negotiable certificate of deposit, deposit with a financial institution, a participatory interest in a portfolio
of a collective investment scheme, or a similar instrument;
• a repurchase or resale agreement, a forward purchase arrangement, a forward sale arrangement, a

futures contract, an option contract or a swap contract;
• any other contractual right or obligation that derives its value from the value of a debt security, equity,
commodity, rate index or a specified index;
• an interest-bearing arrangement; and
• a financial arrangement based on or determined with reference to the time value of money or cash
flow or the exchange or transfer of an asset.
Unlisted shares
The market value of unlisted shares is the price that could have been obtained for them upon a sale
between a willing buyer and a willing seller dealing at arm’s length in an open market. Certain
restrictions are, however, imposed in determining the market value of unlisted shares.
Long-term insurance policies
The market value of a long-term insurance policy is the greater of:
• the amount that would be payable to the policyholder upon the surrender of the policy on the relevant
day; or
• the amount that, according to the insurer, is the fair market value of the policy if it runs its remaining
term as determined on that day.
Collective investment schemes (previously known as unit trusts)
The market value of an unlisted right of a holder of a participatory interest in a collective investment
scheme in securities or in any portfolio comprised in a collective investment scheme in property carried
on in South Africa is the price at which it can be sold to the management company of the scheme on the
specified date of the valuation.
Foreign collective investment schemes
The market value of an unlisted right of a holder of a participatory interest in a foreign collective
investment arrangement or scheme is the selling price at which it can be sold to the management
company of the scheme on the specified date of valuation. When there is no management company, it is
the price that that could be obtained upon a sale of the asset between a willing buyer and a willing seller
dealing at arm’s length in an open market.
Fiduciary, usufructuary or other similar interests
The market value of fiduciary, usufructuary or other similar interests in an asset is an amount
determined by capitalising the annual value (see below) of the right of enjoyment of the asset subject to
the relevant interest at 12% over the expectation of life of the person to whom the interest was granted,
or if it is to be enjoyed for a lesser period, over that lesser period.
The life expectancy of a natural person for this purpose must be determined in accordance with the
rules used for the determination of the life expectancy of a person for estate duty purposes. For a person
other than a natural person, for example, a company or a trust, it is taken to be 50 years.
The market value of an asset subject to such an interest is the amount by which the fair market value of
the full ownership of the asset exceeds the value of the relevant interest as determined above.
The annual value of the right of enjoyment of an asset subject to one of the relevant interests is an
amount equal to 12% of the fair market value of the full ownership of the asset. If the asset cannot
reasonably be expected to produce an annual yield of 12%, the Commissioner must decide, on
application by the taxpayer, what sum reasonably represents the annual yield for the purposes of the
valuation. His decision is subject to objection and appeal (see 18.6).
Farming property
The market value of immovable property on which farming operations are carried on is up until the day
before the date of promulgation of the Revenue Laws Second Amendment Act 2005 (1 February 2006),
either the so-called Land Bank value of the property (as used for estate duty purposes) or its fair market
value. And as from the date of promulgation of that Act (1 February 2006), it is either the price that
could be obtained upon a sale of the property between a willing buyer and a willing seller dealing at
arm’s length in an open market or the amount determined by reducing that amount by 30%.
The Land Bank value or open-market value discounted by 30% may be used on a person’s death or
when the property is disposed of by way of donation or a non-arm’s length transaction only if he or she
has valued the asset on that basis as at 1 October 2001 in determining its base cost. He or she may also
use the Land Bank value or discounted value for farming property acquired at that value by way of
donation or inheritance or a non-arm’s length transaction.
Other assets
The market value of any other asset is the price that could have been obtained upon a sale of the asset
between a willing buyer and a willing seller dealing at arm’s length in an open market.
Identical assets
A special averaging rule applies to the valuation of financial instruments or other assets forming part of
a holding of identical assets. The term ‘identical assets’ for this purpose means a group of similar assets
such that, if any one of them were to be disposed of, it would realise the same amount, regardless of
which one of them was disposed of. They are assets that cannot be individually distinguished, except
from any identification numbers that they may bear.
The base cost of the identical assets mentioned below must be determined by the use of one of the
following methods:
• Specific
identification.
• First in first out.
• Weighted
average.
The only assets for which the weighted average method may be used as an alternative to the other two
methods are assets (other than certain assets of long-term insurers, which are dealt with separately
below) that:
( a) from the date of their acquisition to the date of their disposal constituted financial instruments
listed on a recognised exchange for which a price was quoted on that exchange (see above), other than
interest rate agreements referred to in ( d) below;
( b) constitute participatory interests in collective investment schemes in securities, collective
investment schemes in property or foreign collective investment schemes whose prices are regularly
published in a national or international newspaper; or
( c) constitute coins made mainly from gold or platinum, where the prices of the coins are regularly
published in a national or international newspaper; or
( d) from the date of their acquisition to the date of their disposal constituted interest-bearing
arrangements (see 7.7) that were listed on a recognised exchange and for which a price was quoted on
that exchange.
A person who uses the weighted average method for any identical assets mentioned in items ( a), ( b), (
c) or ( d) above must use the same method for all the identical assets in that item that are held be him or
her. This means that if he or she chooses to use the weighted average method for, say, his or her listed
financial instruments, participatory interests or coins, he or she must use it for all his or her quoted
financial instruments, participatory interests or coins.
The weighted average method of determination for identical assets must be used for identical assets of
long-term insurers that are allocated to all the policyholder funds of the insurer (see 16.13). But it does
not apply to an asset that constitutes an instrument (see 7.6), an interest rate agreement (see 7.7), a
contractual right or obligation the value of which is determined directly or indirectly with reference to
the abovementioned instruments, a specified rate of interest, trading stock, a policy of re-insurance or
an asset held by an insurer that is a Category III Financial Services Provider (see 16.13) when the asset
is held by the insurer in its capacity as a Category III Financial Services Provider.
In applying the weighted average method, the weighted average base cost on 1 October 2001 of identical
assets acquired and not disposed of before that date is equal to value on that date of those identical
assets under the rule for the valuation of interest-bearing arrangements (see 21.6), or the market value
of those identical assets under the general rules (see 21.6), divided by the number of those identical
assets. For example, if the value on 1 October 2001 of 1 000 shares acquired and not disposed of before
that date is R10 000 on that date, the weighted average base cost of each share will be R10.
After that date, the weighted average base cost of identical assets must be calculated by adding the
expenditure on identical assets to the base cost of identical assets acquired and not disposed of before
that expenditure was incurred and dividing that amount by the number of identical assets acquired and
not disposed after that expenditure was incurred. For example, say a person has bought 100 shares in X
Ltd for a total cost of R1 000, the average price would be R10. If he or she then buys another 300 shares
in the same company for R3 800, his or her total cost would then be R4 800 and the weighted average
price would become R12 (that is, R4 800/400).
The time-apportionment base cost method, which is dependent upon the actual cost of assets and the
dates of acquisition of assets to which it is applied, may not be used when the weighted-average method
of valuation is applied. This is because when assets are pooled, the date of acquisition of each asset and
the actual cost of individual assets will not be known, and this is essential to time-apportionment.
Once a person has adopted one of the methods of valuation specified above for a class of qualifying
identical assets, he or she must continue to use that method until all those identical assets have been
disposed of.
21.9 Disposals
s 1, 8th Sch paras 1, 11, 14
A capital gain or a capital loss is made when there is a disposal or deemed disposal of an asset. A
disposal arises when there is any event, act, forbearance or operation of law that results in the creation,
variation, transfer or extinction of an asset and includes:
• The sale, donation, expropriation, conversion, granting, cession, exchange or any other alienation or
transfer of ownership of an asset.
• The forfeiture, termination, redemption, cancellation, surrender, discharge, relinquishment, release,

waiver, renunciation, expiry or abandonment of an asset.
• The scrapping, loss or destruction of an asset.
• The vesting of an interest in a trust asset in a beneficiary.
• The distribution of an asset by a company to a holder of shares (see 21.28).
• The granting, renewal, extension or exercising of an option.
• The decrease in value of a person’s interest in a company, trust or partnership as a result of a
‘value-shifting arrangement’ (see 21.22).
Non-disposals
The following events will not be regarded as disposals of an asset and will therefore not give rise to
liability for tax:
• The transfer of an asset by a person as security for a debt or the release of the security by the creditor
who transfers the asset back to that person when the security is released.
• The issue, cancellation or extinction of a share by a company or the granting by a company of an option
to acquire a share in or certificate acknowledging or creating a debt owed by the company.
• The issuing by a portfolio of a collective investment scheme of a participatory interest in that portfolio
or the granting by such a portfolio of an option to acquire a participatory interest in that portfolio.
• The issuing of a debt by or to a person.
• The disposal by a person in order to correct an error in the registration of immovable property in his
name.
• A transaction under which a security or bond is lent by a lender to a borrower in terms of a ‘securities
lending arrangement’. A ‘securities lending arrangement’ is a lending arrangement as defined in the
Uncertificated Securities Tax Act 31 of 1998. In this situation, the security is deemed not to have been
disposed of by the lender to the borrower or by the borrower to the lender.
• The vesting of a person’s asset in the Master of the High Court or in a trustee in consequence of the
sequestration of the estate of his or her spouse, as contemplated in s 21 of the Insolvency Act 24 of 1936,
or the subsequent release by the Master or the trustee of the asset as contemplated in that section.
• Prior to 1 March 2016, when the asset constitutes an equity instrument (see 5.3), it has not yet vested.
• The cession or release, wholly or partly, by a director or an employee of a right to acquire a marketable
security for a consideration consisting of or including another right to acquire a marketable security (see
5.9).
• There is no disposal by a person of shares held in a company when the company subdivides,
consolidates or converts shares of par value to no par value or vice versa or converts shares
(see 14.10) solely in substitution of the shares held by the person when the proportionate participation
rights and interests of the person in that company remain unaltered and no other consideration
whatsoever passes directly or indirectly in consequence of that subdivision, consolidation or conversion.
• When a person exchanges a qualifying equity share for another equity share in his or her employer
company or a company that is an ‘associated institution’ (as defined for the purposes of the taxation of
fringe benefits) of the employer.
• When a share or bond has been transferred from a transferor to a transferee or vice versa under a
collateral arrangement. A ‘collateral arrangement’ is defined as a collateral arrangement as defined in
s 1 of the Securities Transfer Tax Act 25 of 2007.
• When a person that disposed of an asset to another person in terms of an agreement and reacquired
the asset from that other person by reason of the cancellation or termination of the agreement and the
restoration of both persons to the position they were in prior to entering into that agreement.
Disposals by spouses married in community of property
When any asset is disposed of by a spouse married in community of property and that asset falls within
the joint estate of the spouses, the disposal is treated as having been made in equal shares by each
spouse. But if the asset in question was excluded from the joint estate of the spouses, the disposal is
treated as having been made solely by the spouse making the disposal.
21.10 Deemed
disposals
s 22(3)( a)(ii), 8th Sch paras 1, 12, 12A, 35A, 53
In the following circumstances, a person is deemed to have disposed of an asset for an amount received
or accrued equal to its market value for the purposes of the CGT and to have reacquired it immediately
for expenditure equal to the same market value, which is deemed to be expenditure actually incurred in
the determination of the base cost of the asset:
Commencing or ceasing to be a resident or CFC
When a person commences to be a resident or a foreign company (see 15.2) commences to be a CFC.
The deemed disposal rule does not apply to:
• Immovable property situated in South Africa, interests or rights in such property, certain shares in
companies owning such property and assets of a permanent establishment in South Africa through
which a trade is carried on during the year of assessment.
• A qualifying equity share (see 5.2) that was granted to the person less than five years before the date
on which he or she ceases to be a resident.
• An equity instrument (see 5.3) that had not yet vested at the time that the person ceases to be a
resident.
• A right to acquire a marketable security by a director or employee (see 5.9).
In the event of a company or person ceasing to be a CFC as a result of becoming a resident, it must be
treated as having disposed of its assets and to have immediately reacquired them at an expenditure
equal to their market value immediately before the disposal. This expenditure must be treated as an
amount of expenditure actually incurred and paid for base cost purposes (see 20.5).
This deemed disposal rule also does not apply to immovable property situated in South Africa, interests
or rights in such property, certain shares in companies owning such property and assets of a permanent
establishment in South Africa through which a trade is carried on during the year of assessment and
assets held by the company if any amount received or accrued from the disposal of those assets would
have been taken into account for purposes of the determination of the ‘net
income’ (see 15.2) of the company. This rule applies subject to the provision that applies in the
determination of the base cost of assets of a person who becomes a resident.
Change in status of non-resident’s assets
There is also a deemed disposal when an asset of a non-resident becomes an asset of his or her
permanent establishment in South Africa other than by way of acquisition, or when an asset ceases to be
an asset of his or her permanent establishment other than by way of a disposal.
A person becomes a resident
A person who becomes a resident or a company that ceases to be a CFC due to becoming a resident is
effectively permitted to disregard the portion of any gains or losses on certain assets attributable to the
period for which he or she or it held the relevant assets before becoming a resident. The assets in
question are those that fall into the tax net by virtue of his or her or its becoming a resident, namely,
assets other than local immovable property and interests or rights in such property, certain shares in
companies owning such property and other indirectly held interests in such immovable property and
assets of a permanent establishment in South Africa through which a trade is carried on during the year
of assessment. He or she or it is deemed to have disposed of these assets and to have reacquired them at
a cost equal to their market value, which must be treated as expenditure actually incurred and paid by
him or her or it in the determination of the base cost of the asset. The rules for the determination of the
base cost of assets acquired before the person became a resident are set out in 21.5.
A capital asset becomes trading stock
A person is deemed to have disposed of an asset that was not his or her trading stock if it becomes his or
her trading stock, for example, when he or she changes his or her intended use of an asset from a capital
asset to trading stock.
Since he or she is deemed to have reacquired the asset at the same market value on the same date, he or
she will be able to deduct this amount for normal tax purposes as the cost of the trading stock.
Trading stock becomes a capital asset

When a person does not dispose of trading stock, but instead begins to hold it for purposes other than
trading stock, for example, as a capital asset, he or she is deemed to have disposed of it for a
consideration equal to the amount included in his or her income for income tax purposes and to have
immediately reacquired it at a base cost equal to the same amount, which must be treated as
expenditure actually incurred and paid for the asset in the determination of its base cost (see 21.5).
The amount will be subject to normal tax but will then be regarded as the base cost of the asset for the
purposes of determining any subsequent capital gain or loss on its disposal. This means that when the
person concerned subsequently disposes of the asset, the capital gain or capital loss will be an amount
equal to the proceeds of the disposal less the base cost as determined when the asset became a capital
asset.
Change of use of ‘personal-use assets’
A natural person or special disabled trust must disregard the capital gain or capital loss arising on the
disposal of personal-use assets. A ‘personal-use asset’ is an asset of a natural person or such a special
trust that is used mainly for purposes other than the carrying on of a trade. But an asset of a natural
person or such a special trust to whom an allowance is or was paid for the use of the asset for business
purposes must be treated as being used mainly for purposes other than the carrying on of a trade.
The following items cannot be personal-use assets:
• A coin made mainly from gold or platinum, the market value of which is mainly attributable to the
material from which it is minted or cast.
• Immovable
property.
• An aircraft with an empty mass exceeding 450 kgs.
• A boat exceeding ten metres in length. A ‘boat’ is defined as any vessel used or capable of being used
in, under or on the sea or internal waters, whether self-propelled or not and whether equipped with an
inboard or outboard motor.
• A financial instrument.
• Any fiduciary, usufructuary or other like interest, the value of which decreases over time.
• A contract in terms of which a person, in return for payment of a premium, is entitled to policy benefits
upon the happening of a certain event and includes a reinsurance policy in respect of such a contract, but
excludes a short-term policy contemplated in the Short-term Insurance Act 53
of 1998.
• A short-term policy contemplated in the Short-term Insurance Act 53 of 1998 to the extent that it
relates to any asset that is not itself a personal-use asset.
• A right or interest of whatever nature to, or in any of the above assets.

When a person does not dispose of a personal-use asset, but rather begins to hold it for purposes other
than as a personal-use asset, he or she will be deemed to have disposed of it at its market value and then
to have reacquired it at the same value. Since the asset was a personal-use asset, the deemed disposal
will not give rise to a taxable capital gain or a capital loss. The market value at the time will, however,
then constitute its base cost for the purposes of determining any capital gain or loss on the subsequent
disposal of the asset.
There is also a deemed disposal when a person begins to use an asset that was previously not held as a
personal-use asset as a personal-use asset. In this situation, a capital gain or capital loss will arise of the
difference between the market value of the asset at the time of the change in use and its base cost. Since
the asset will then become a personal-use asset, the subsequent disposal of the asset will not give rise to
a taxable capital gain or capital loss.
Transfer of an asset between the funds of a long-term insurer
When a long-term insurer (see 16.12) transfers an asset from one of its policyholder funds to another,
the transferor fund will be deemed to have disposed of it at its market value and the transferee fund will
be deemed to have acquired it at the same value.
Concession or compromise of debts
The law applicable to tax years commencing on or after 1 January 2018
There are special rules that deal with the concession or compromise of debts. They apply when a debt
benefit arises in a tax year by reason or as a result of a concession or compromise during that tax year of
a debt owed by a person and the debt was used, directly or indirectly, to fund expenditure other than on
trading stock for which a deduction or allowance was granted. If the reduced debt was used to fund
expenditure incurred on an asset that was not disposed of by the person in a tax year prior to that in
which the debt benefit arises, the base cost expenditure (see 21.5) incurred on the asset must be
reduced by the amount of the debt benefit.
When a debt is reduced and it was used to fund expenditure incurred on an asset other than on trading
stock for which a deduction or allowance was granted and the asset was disposed of in a tax year prior
to the tax year in which the debt benefit arises, the person concerned must, if the capital gain or capital
loss determined on the disposal of the asset differs from that which would have been determined had
the debt benefit been taken into account in the year of disposal, treat that absolute difference as a capital
gain to be taken into account in the tax year in which the debt benefit arises. The person concerned must
however take into account the extent to which the expenditure on the asset has already been reduced by
the amount of any other debt benefit taken into account in respect of that disposal.
A special rule applies when the asset financed by the debt that is reduced is a pre-valuation date asset
(see 21.6). It provides that when the above provisions apply to a debt that was used to fund expenditure
on a pre-valuation date asset (see 21.6) of a person, for the purposes of determining the date of
acquisition of the asset and the expenditure incurred on the asset, the person must be treated as having
disposed of the asset at a time immediately before the debt benefit arose for an amount equal to the
market value of the asset at that time, and immediately reacquired the asset at that time at an
expenditure equal to the market value less any capital gain and increased by any capital loss that would
have been determined had the asset been disposed of at market value at that time. This expenditure
must be treated as an amount of base cost expenditure actually incurred at that time.
These rules do not apply to a debt benefit on a debt owed by a person:
• that is an heir or legatee of a deceased estate, to the extent that the debt is owed to the deceased estate,
the debt is reduced by the deceased estate, and 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
(see 20.3);
• to the extent that the debt is reduced by way of donation as defined for donations tax or any
transaction that is a deemed donation for donation tax purposes on which donations tax is payable (see
19.2);
• to an employer of the person, to the extent that the reduction of the debt is a taxable fringe benefit (see
5.4);
• to another person when the person and that other person are companies that form part of the same
group of companies (see 22.1) and the debtor company has not carried on any trade during the tax year
in which the debt benefit arises and the immediately preceding year, but this does not apply to a debt:
– incurred, directly or indirectly by the company to fund expenditure incurred on an asset that was
subsequently disposed of by the company by way of an asset-for-asset (see 22.2), intra-group (see 22.5)
or amalgamation transaction (see 22.4) or a liquidation distribution (see 22.8); or
– incurred or assumed by the company in order to settle, take over, re-finance or renew, directly or
indirectly, a debt incurred by another company that is a controlled foreign company in relation to a
company that forms part of the same group of companies.
• that is a company, when the debt is reduced in the course, or in anticipation of, the liquidation, winding
up, deregistration or final termination of the existence of the company and the person to whom the debt
is owed is a connected person of the company, to the extent that the debt benefit does not, at the time
that it arises, exceed the amount of base cost expenditure incurred on the debt by the connected person.
This item does not apply if the debt was reduced as part of a transaction, operation or scheme entered
into to avoid any tax imposed by the Act and if the company became a connected person (see 10.26) of
the person to whom the debt is owed after the debt (or any debt issued in substitution of the debt)
arose. Nor does it apply if the company:
– has not, within thirty-six months of the date on which the debt is reduced or such further period as the
Commissioner may allow, taken the required steps (see 22.1) to liquidate, wind up, deregister or finally
terminate its existence;
– has at any stage withdrawn any of these steps; or
– does anything to invalidate any such step, with the result that the company is or will not be liquidated,
wound up, deregistered or finally terminate its existence.
• to the extent that the debt that is owed is settled by means of an arrangement described in the second
bulletted item in the definition of ‘concession or compromise’ below and does not consist of or represent
an amount owed by a person for any interest incurred by that person during any tax year.

Any tax that becomes payable as a result of the application of these 3 items dealing with the taking,
withdrawal or invalidation of the required steps must be recovered from the company and the
connected person, who will be jointly and severally liable for the tax.
‘Concession or compromise’ means an arrangement in terms of which:
• a debt is cancelled or waived or extinguished by redemption of the claim in respect of that debt by the
person owing that debt or by a connected person (see 10.27) of that person or by merger by reason of
the acquisition, by the person owing the debt of the claim in respect of that debt, otherwise than as the
result or by reason of the implementation of an arrangement described below; or
• a debt owed by a company to a person is settled, directly or indirectly by being converted to or

exchanged for shares in that company or by applying the proceeds from shares issued by the company.
The
‘debt benefit’ is effectively the amount cancelled or waived, extinguished or settled under the definition
of ‘concession or compromise’.
‘Debt’ means an amount that is owed by a person in respect of expenditure incurred by that person or a
loan, advance or credit that was used, directly or indirectly, to fund any expenditure incurred by that
person, does not include a tax debt as defined in s 1 of the Tax Administration Act, 2011.
‘Reduction amount’, in relation to a debt owed by a person, means any amount by which that debt is
reduced less any amount applied by that person as consideration for that reduction.
And the ‘market value’ of shares acquired or held by reason or as a result of the implementation of a
concession or compromise in respect of a debt means the market value of those shares immediately
after the implementation of the concession or compromise.
Disposal of certain debt claims
A special rule applies when:
• you dispose of an asset during a tax year, but all the proceeds of the disposal will not accrue to you in
that tax year;
• you subsequently dispose of a right to claim payment in respect of the disposal; and
• the claim includes any amount that has not yet accrued to you at the time of the disposal of the claim.
Any part of the consideration that you derive from the disposal of the claim mentioned above that is
attributable to an amount that has not yet accrued to you from the disposal of the asset must be treated
as an amount of consideration that accrues to you in respect of the disposal of the asset.
You must then disregard any part of the capital gain or capital loss on your disposal of the right to claim
payment that is attributable to an amount that has not yet accrued to you.
21.11 Time of disposal
8th Sch paras 13, 36, 75
There are special timing rules for the disposal of assets. The time of disposal is also regarded as the time
of acquisition of the asset by the person to whom it is disposed of.
The general rule is that the time of disposal of an asset by means of a change of ownership effected or to
be effected from one person to another because of an event, act or forbearance or by operation of law
will depend on whether the agreement for the disposal of the asset is or is not subject to a suspensive
condition. If it is subject to a suspensive condition, the time of disposal will be the date on which the
condition is satisfied. If it is not subject to a suspensive condition, the time of disposal will be the date on
which the agreement is concluded. This date will usually be the date when the offer to acquire the asset
is accepted by the seller.
Other specific times of disposal are dealt with in the paragraphs that follow. When none of them applies,
the date of disposal will be the date on which ownership of the asset changes.
Distribution by trustee
The time of disposal on the distribution of an asset by a trustee to a beneficiary is the date on which the
interest vests to the extent that the beneficiary has a vested interest in the asset.
The time of disposal on the granting by a trust to a beneficiary of an equity instrument (see 5.3) is the
time that the equity instrument vests in the beneficiary (see 5.3).
Donations
The time of disposal of a donated asset is the date of compliance with all the legal requirements for a
valid donation.
Expropriated assets
The time of the disposal of an asset that is expropriated is the date on which the taxpayer receives the
full compensation for the expropriation that is agreed to or finally determined by a competent tribunal
or court. It should be noted that the full compensation must be received before the disposal is deemed to
occur.
Conversion of assets
The time of disposal of an asset that is converted is the date of conversion.
Options
When an option is granted, renewed or extended, the time of disposal will be the date on which it is
granted, renewed or extended.
When an option is exercised, the time of disposal is the date on which it is exercised.
When an option that is granted by a company to a person to acquire a share, participatory interest or
debenture of the company terminates, the time of disposal is the date of the termination of the option.
Forfeiture of assets
The time of disposal of an asset that is extinguished, including by way of forfeiture, termination,
redemption, cancellation, surrender, discharge, relinquishment, release, waiver, renunciation, expiry or
abandonment is the date of the extinction of the asset.
Scrapping, loss or destruction
The time of an asset that is scrapped, lost or destroyed is the date when the full compensation is
received. If no compensation is payable, the time of disposal will be the later of the date when the
scrapping, loss or destruction is discovered or when it is established that no compensation will be
payable. Again, the full compensation must be received before the disposal is deemed to occur.
Distribution of asset to shareholder
When an asset is distributed to a holder of shares by a company, the time of disposal is the ‘date of
distribution’ (see 21.28).
Value-shifting arrangements
When a person’s interest in (up to 31 December 2013 a company), trust or partnership is decreased as a
result of a ‘value-shifting arrangement’ (see 21.22), the time of disposal will be the date on which the
value of the interest decreases.
Deemed disposals
When the following deemed disposals occur, the time of disposal is the day immediately before the date
of the happening of the relevant event:
• A resident (see 1.1) ceases to be a resident.
• An asset of a non-resident becomes an asset of his or her permanent establishment otherwise than by
way of an acquisition or ceases to be an asset of his or her permanent establishment otherwise than by
way of a disposal.
• Capital assets becoming trading stock (see 10.62).
• A person’s personal-use assets (see above) cease to be held by him or her as personal-use assets
otherwise than by way of a disposal.
• An asset used by a person otherwise than as a personal-use asset commences to be held by him or her
as a personal-use asset (see above).
• Assets held by a person as trading stock (see 10.65) cease to be held by him as trading stock, otherwise
by way of a disposal.
• A non-resident becomes a resident (see 1.1) or a company ceases to be a CFC (see 15.2).
Partner’s interest
The proceeds from the disposal of a partner’s interest in an asset of a partnership are deemed to have
accrued to him at the time of the disposal. This means that each partner will have to account for the
capital gain or capital loss on the disposal of his or her share in the asset when it is disposed of.
21.12 Disregarded gains and losses

and special rollovers
Sch paras 1, 15–18, 52–56, 57A,
8th 58–63, 63A, 63B, 64, 64A, 64B, 64C, 64D, 64E,
65B, 67A, 67B, 67C, 67D
The capital gains and capital losses of the following persons or from the following disposals must be
disregarded:
Personal-use assets (para 53)
A natural person and a special disabled trust must disregard a capital gain or a capital loss determined
in respect of the disposal of a personal-use asset (see 21.10).
Primary residence
A natural person and a special disabled trust must disregard a capital gain or a capital loss on a primary
residence to the extent that it does not exceed R2 million (see 21.13).
They must also disregard a capital gain (but not a capital loss) on the disposal of a primary residence if
the proceeds from the disposal do not exceed R2 million, unless the person concerned or the beneficiary
of the special trust or their spouse was not ordinarily resident in the residence throughout the period
commencing on or after the valuation date during which the person or special trust held the interest or
used the residence or a part of it for the purposes of carrying on a trade for any portion of the period
commencing on or after the valuation date during which the person or special trust held the interest.
If the Minister of Finance announces in the annual budget speech a change in the abovementioned limit
(currently R2 million) with effect as from a certain date or certain dates, the change will come into effect
on that date or those dates and continue to apply for a period of twelve months subject to Parliament’s
passing legislation giving effect to the announcement within that twelve-month period.
Lump-sum retirement benefits (para 54)
A person must disregard capital gains and capital losses determined in respect of a disposal that
resulted in his or her receiving:
• a lump-sum benefit from a pension, pension preservation, provident, provident preservation or

retirement annuity fund; or
• a lump-sum benefit from a fund, arrangement or instrument situated outside the Republic that
provides similar benefits under similar conditions to a pension, pension preservation, provident,
provident preservation or retirement annuity fund approved in terms of the Act.
Long-term assurance policies (para 55)

A person must disregard capital gains or capital losses determined on the following policies: (1) An
amount under a ‘long-term policy’ as defined in the Long-term Insurance Act received by or accruing to:
• the original beneficial owner or one of the original beneficial owners of the policy; or
• the spouse, nominee, dependant (as contemplated in the Pension Funds Act 24 of 1956) or the
deceased estate of the original beneficial owner of the policy, as long as no amount was paid, is payable
or will become payable, directly or indirectly, in respect of any cession of the policy from the beneficial
owner of the policy to the spouse, nominee or dependant; or
• the former spouse of the original beneficial owner. But then the policy must have been ceded to that
spouse in consequence of a divorce order or a qualifying agreement of division of assets that has been
made an order of court.
(2) A policy when the person concerned is or was an employee or director whose life was insured in
terms of that policy and any premiums paid by his or her employer were deducted for income tax under
the deduction for premiums paid on policies of the lives of employees (see 10.6).
(3) A ‘buy-and-sell’ type policy, that is, a policy that was taken out to insure against the death, disability
or illness of the person concerned (the life assured) by any other person who was a partner of the
person making the disposal (the taxpayer) or who held any share or similar interest in a company in
which the taxpayer held a share or similar interest, for the purpose of enabling that other person to
acquire, upon the death, disability or illness of the life assured, the whole or part of the life assured’s
interest in the partnership concerned or his or her share or similar interest in the company and any
claim by him or her against it. This type of policy will, however, qualify only if no premium on the policy
was paid or borne by the life assured while that other person was the beneficial owner of the policy.
(4) A policy originally taken out on the life of a person that is provided to him or her or his or her
dependant by or in consequence of his or her membership of a pension, pension preservation, provident,
provident preservation or retirement annuity fund.
(5) A risk policy with no cash value or surrender value.
(6) If the amount received or accrued under the policy qualifies for certain exemptions from income tax
accorded to certain employment-related policies (see 10.6).
Collective investment schemes (para 61)
A portfolio of a collective investment scheme other than in securities (see 16.7) must disregard any
capital gain or capital loss. The holders of participatory interests in the portfolio are not, however,
exempt from tax on their capital gains when they dispose of their participatory interests and may offset
them against their capital losses. But they are required to determine their capital gains or capital losses
on their participatory interests in the collective investment scheme only when they dispose of their
participatory interests, having regard to the proceeds from the disposal and the base cost of the
participatory interests disposed of.
Public benefit organizations and other exempt bodies (paras 62–64)

A person must disregard capital gains or capital losses determined in respect of donations or bequests of
assets to the government of South Africa in the national, provincial or local sphere, an approved exempt
public benefit organization and certain other exempt bodies.
Exempt bodies, all of whose gross income of whatever nature would have been exempt from income tax
were it to be received by or accrue to them may disregard their capital gains and capital losses.
Also to be disregarded are capital gains and capital losses made by a person on the disposal of assets
that are used solely by him or her to produce amounts that are exempt from normal tax (see 1.2), except
certain amounts derived by public benefit organisations and recreational clubs, dividends and interest
exempt under the basic dividend and interest exemption (see 7.2), exempt dividends (see 9.1), certain
exempt royalties from copyrights (see 16.3) and exempt amounts from certified emission reductions
(see 10.30).
Also to be disregarded are capital gains and capital losses made by a public benefit organization on the
disposal of an asset when substantially the whole of the use of the asset from 1 October 2001 by that
organization is in the carrying on of a public benefit activity. Approved public benefit organisations must
also disregard capital gains and capital losses on the disposal of certain assets not used in carrying on
business undertakings or trading activities.
Options (paras 18, 58)
A person must disregard a capital gain or capital loss determined in respect of the exercise of an option
when, as a result of the exercise by him or her of the option, he or she acquires or disposes of an asset in
respect of which the option was granted. For example, a person may buy the option to acquire an asset.
Since the option will effectively terminate when it is exercised and the asset is acquired, a capital loss
will arise. Any capital gain or capital loss on the exercise of the option must be disregarded.
A person entitled to exercise an option to acquire an asset not intended to be used wholly and
exclusively for business purposes or to dispose of an asset not used wholly and exclusively for such
purposes must also disregard any capital loss that he or she suffers on abandoning the option, allowing
it to expire or disposing of it in any other manner (other than by exercising it).
This rule does not apply and the capital loss is allowable if the option is to acquire or dispose of an asset
that is:
• A coin made mainly from gold or platinum whose market value is mainly attributable to the material
from which they are minted or cast.
• Immovable property other than a person’s intended primary residence or his or her primary residence
(see 21.13) that he or she has the option to dispose of.
• A financial instrument (see 21.8).
• A right or interest in any of these assets.
Compensation for personal injury, illness or defamation (para 59)

A person must also disregard a capital gain or capital loss determined in respect of compensation for
personal injury, illness or defamation. This provision applies only to compensation for personal injury to
natural persons and beneficiaries of special trusts.
Gambling, games and competitions (para 60)
A natural person must disregard a capital gain or capital loss determined in respect of a disposal relating
to any form of gambling, game or competition, as long as the particular form of gambling, game or
competition is authorised by and conducted in terms of the laws of the Republic.
Companies, trusts and other non-natural persons must disregard all their capital losses, but will be taxed
on all their capital gains from any gambling, games or competitions, whether local or foreign and
whether lawful or unlawful.
Personal-use aircraft, boats and certain rights (para 15)
A capital loss must be disregarded on certain assets to the extent that they are used for purposes other
than carrying on a trade. It is clear, therefore, that when an asset is used for both trade and other
purposes, the capital loss that is attributable to the trade use of the asset will be allowable
while the balance of the capital loss must be disregarded and an apportionment will, therefore, have to
be made in these circumstances.
The assets in question are:
• Aircraft with an empty mass exceeding 450 kg.
• ‘Boats’, as defined, exceeding 10 metres in length.
• Fiduciary, usufructuary or other similar interests, the value of which decreases over time.
• Leases of immovable property.
• Time-sharing interests as defined in s 1 of the Property Time-sharing Control Act 75 of 1983 with a
fixed life and the value of which decreases over time.
• Shares in a share block company as defined in s 1 of the Share Blocks Control Act with a fixed life and
the value of which decreases over time.
• Rights or interests of whatever nature in any of the above assets.
Intangible assets (para 16)
A capital loss on the disposal of certain intangible assets acquired before 1 October 2001 must be
disregarded if the asset was:
• acquired by the person from his or her connected person (see 10.26); or
• associated with a business that was taken over by him or his or her connected person.
An ‘intangible asset’ is defined for this purpose as:

• goodwill;
• patents, designs, trademarks and copyrights as defined under the relevant legislation, rights
recognised under the Plant Breeders’ Rights Act 15 of 1976, models, patterns, plans, formulae, processes
or other property or rights of a similar nature;
• intellectual property rights or similar property or rights in respect of which a proprietary interest may
be established in terms of the common law of the Republic; or
• any other intangible property, except financial instruments.
This rule applies only to intangible assets acquired from a connected person or associated with a
business taken over by a person or his or her connected person before 1 October 2001. While capital
losses on these intangible assets must be disregarded, they may be claimed on other intangible assets
acquired before 1 October 2001, for example, intangible assets that were created by the person
concerned. He or she will also be liable to tax on capital gains that he or she makes on any intangible
assets, even though the capital losses on those assets must be disregarded.
Forfeited deposits (para 17)
Capital losses arising from the forfeiture of a deposit made in order to acquire an asset not intended to
be used wholly and exclusively for business purposes must be disregarded. The capital loss suffered on
the forfeiture of deposits made in order to acquire the following assets are, however, allowable, even
though they may not be used for business purposes:
• Coins made mainly from gold or platinum whose market value is mainly attributable to the material
from which they are minted or cast.
• Immovable property not intended to be the person’s primary residence.
• Financial
instruments.
• Rights or interests in any of the above assets.
Debt disposals (para 56)
When a creditor disposes of a debt owed by a debtor who is his or her connected person, he or she must
disregard any capital loss on the disposal. This provision does not apply to a capital loss
determined in consequence of the disposal by a creditor of a debt owed by a debtor to the extent that the
amount of the debt disposed of represents:
• An amount that is applied to reduce the expenditure on the debtor’s asset or that is taken into account
by the debtor as a capital gain (see 21.3).
• An amount that the creditor proves must be or was included in the gross income of the acquirer of the
debt.
• An amount that must be or was included in the gross income or income of the debtor or taken into
account in the determination of the balance of assessed loss of the debtor as a compromise benefit (see
10.66).
• A capital gain that the creditor proves must be or was included in the determination of the aggregate
capital gain or aggregate capital loss of an acquirer of the debt.
Awards under land restitution programmes and land reform measures (para 64A) A person must
disregard any capital gain or capital loss on a disposal that resulted in that person’s receiving restitution
of a right to land or an award or compensation in terms of the Restitution of Land Rights Act 22 of 1994
or land or a right to land by virtue of the measures as contemplated in Chapter 6 of the National
Development Plan Vision 2030 of 11 November 2011.
Recreational clubs (para 65B)
Approved recreational clubs may choose to disregard capital gains and capital losses on the disposal of
qualifying assets the whole of which were used mainly for the purposes of providing social and
recreational facilities and amenities for their members.
This choice is available to a club when proceeds accrue to it for the disposal, those proceeds are equal to
or exceed the base cost of the asset, an amount at least equal to the receipts and accruals from the
disposal has been or will be expended to acquire one or more replacement assets all of which will be
used mainly for qualifying purposes, the contracts for the acquisition of the replacement asset or assets
have all been or will be concluded within twelve months after the date of the disposal of the asset and
the replacement asset or assets will all be brought into use within three years of the disposal of the
original asset and the asset is not deemed to have been disposed of and to have been reacquired by the
club under one of the special deeming provisions (see 21.10).
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 the contracts or bring
the assets into use.
When a club disposes of a replacement asset during a tax year and any portion of the disregarded capital
gain apportioned to that asset has not otherwise been treated as a capital gain under these rules, it must
treat that portion of the disregarded capital gain as a capital gain from the disposal of the replacement
asset in that tax year.
A club that acquires more than one replacement asset must, in applying this rule, apportion the capital
gain derived from the disposal of the asset to each replacement asset in the same ratio as the receipts
and accruals from the disposal respectively expended in acquiring each of the replacement assets bear
to the total amount of the receipts and accruals expended in acquiring all the replacement assets.
A club that fails to conclude a contract or fails to bring a replacement asset into use within the
prescribed period must treat the previously disregarded capital gain as a capital gain on the date on
which the relevant period ends. At the same time it must determine interest at the prescribed rate on the
capital gain from the date of the original disposal to the end of the prescribed period and treat the
interest as a capital gain when determining its aggregate capital gain or aggregate capital loss.
Equity shares in foreign companies (para 64B)

A person, other than a headquarter company (see 16.37), must disregard any capital gain or capital loss
determined on the disposal of an equity share (see 14.7) in a foreign company (see below) (other than
an interest in immovable property situated in South Africa held indirectly by a non-resident through a
holding of equity shares in a company (see 21.2), if that person either alone or together with any other
person forming part of the same group of companies as that person; see 22.1) immediately before that
disposal held at least 10% of the equity shares and voting rights in that foreign company.
For this provision to apply, the 10% interest must have been held for a period of at least eighteen
months prior to being disposed of, unless the person concerned is a company and the interest was
acquired by it from any other company that forms part of the same group of companies and the
companies concerned in aggregate held that interest for more than eighteen months.
The other requirement for this provision to apply is that the interest must have been disposed of to a
person other than a resident or a controlled foreign company (CFC) (see 21.10) or to a person that is a
connected person (see 10.27) in relation to the person disposing of the interest for an amount that is
equal to or exceeds the market value of the interest.
A headquarter company must disregard a capital gain or capital loss determined on the disposal of an
equity share in a foreign company (other than an interest in immovable property situated in South
Africa held indirectly by a non-resident through a holding of equity shares in a company – see 21.2, if the
headquarter company (whether alone or together with another person forming part of the same group
of companies as the headquarter company) immediately before the disposal held at least 10% of the
equity shares and voting rights in the foreign company.
The capital gain on the disposal by a person of an interest in the equity shares in a foreign company that
is or was disregarded in any tax year in terms of the above rules must in certain circumstances be added
to his or her net capital gain (see 21.3), with the result that it may not be set off against capital losses for
the current year or assessed capital losses from a previous year. This rule applies to a capital gain
determined on the disposal of equity shares in the foreign company on or before 31 December 2012 by a
person that was disregarded under the rules set out above or below in any tax year if the following
factors are present:
• The foreign company prior to the disposal was a CFC in relation to that person or any other company in
the same group of companies as that person.
• The equity share in the foreign company was disposed of to a connected person of that person before
or after the disposal.
• The interest must have been disposed of for no consideration or for a consideration that does not
reflect an arm’s length price. (Excluded is a distribution described in the next bullet).
• The interest in the equity shares in the foreign company must have been disposed of by means of a
distribution, unless the distribution was made to a company that forms part of the same group of
companies as that person or the full amount of the distribution was included in the income of a holder of
shares in the distributing foreign company or would have been so included but for certain income tax
exemptions for foreign dividends or dividends paid or declared by headquarter companies (see 10.6).
• The person disposed of any consideration received or accrued from the disposal of the equity shares
(or any amount received in exchange) in terms of a transaction, operation or scheme of which the
disposal of the equity shares formed a part for no consideration or for consideration that does not reflect
an arm’s length price (excluding a distribution described in the following bullet) or by means of a
distribution by a company, unless the full amount of that distribution was included in the income of a
holder of shares in the distributing company or would have been so included, but for certain income tax
exemptions for foreign dividends or dividends paid or declared by headquarter companies (see 10.6).
In addition, the foreign company must in terms of the transaction, operation or scheme have ceased to
be a CFC in relation to the person concerned or any other company in the same group of companies as
that person, regard being had solely to his or her right to participate directly or indirectly in the share
capital, share premium, current or accumulated profits or reserves of the company (whether or not of a
capital nature).
A person must disregard a capital gain determined on a foreign return of capital (see 21.28) received by
or accrued from a ‘foreign company’ as defined in the controlled foreign company rules (see 15.2) or
other than a qualifying interest) when the person either alone or together with any other person
forming part of the same group of companies (see 22.1) held at least 10% of the equity shares and voting
rights in that foreign company.
These rules do not apply to a capital gain or capital loss determined on the disposal of equity shares of
an equity unit trust and on a distribution dealt with in the previous paragraph by an equity unit trust.
Restricted equity instruments (para 64C, 64E)
You must disregard a capital gain or capital loss determined on the disposal of a restricted equity
instrument in a sheltered exchange or related-party transaction (see 5.3).
When a capital gain is determined on the disposal of an asset by a trust and a trust beneficiary has a
vested right to that capital gain, the trust must disregard so much of the capital gain as must be
included in the income of that trust beneficiary as an amount received or accrued in respect of a
restricted equity instrument or taken into account in the determination of the gain or loss in the hands
of the trust beneficiary on the vesting of a restricted equity instrument.
Land reform donations (para 64D)
You must disregard a capital gain or capital loss on the donation of land or rights to land by virtue of
measures as contemplated in Chapter 6 of the National Development Plan: Vision 2030 of 11 November
2011 released by the National Planning Commission, Presidency of the Republic of South Africa.
Share blocks (para 67B)
When a company that operates a share block scheme transfers immovable property to a person who
holds shares in the company, the company must disregard any capital gain or capital loss determined in
respect of the disposal of the property. The person to whom the property is transferred must, in turn,
disregard any capital gain or capital loss determined in respect of the disposal of his or her share to the
company.
He or she must be treated as having:
• acquired the immovable property for an amount equal to the base cost expenditure incurred by him or
her in acquiring the share;
• effected improvements to the property for an amount equal to the base cost expenditure incurred by
him or her in effecting improvements to the immovable property of which he or she had a right of use as
a result of his or her ownership of the share;
• acquired the property on the date that he or she acquired the share;
• incurred the base cost expenditure on the same date that it was incurred by him or her to acquire the
share and improve the immovable property;
• used the unit in the same manner as he or she used the immovable property of which he or she had a
right of use as a result of ownership of the share; and
• adopted or determined the valuation date market value of the immovable property as an amount equal
to the market value adopted or determined by him or her for the share.
A ‘share’ is defined for this purpose as a share as defined in s 1 of the Share Blocks Control Act.
And a ‘share block company’ is defined as a share block company as defined in the same Act.
Mineral rights conversions and renewals (para 67C)
There is no disposal when any old order right or OP26 right as defined in Schedule II of the Mineral and
Petroleum Resources Development Act 28 of 2002 wholly or partially continues in force or is wholly or
partially converted into a new right pursuant to the same Schedule, or any prospecting right, mining
right, exploration right, production right, mining permit, retention permit or reconnaissance permit (as
defined in s 1 of that Act) is wholly or partially renewed in terms of that Act, and the continued,
converted or renewed right or permit will for CGT purposes be treated as one and the same asset as the
right or permit before continuation, conversion or renewal.
Micro businesses (para 57A)
A registered micro business (see 16.15) must disregard a capital gain or capital loss on the disposal by it
of any asset used mainly for business purposes.
Communication licence conversions (para 67D)
A special rollover comes into play when existing licences referred to in Chapter 15 of the Electronic
Communications Act 36 of 2005 are converted to new licences in terms of s 93 of that Act. The licensee
of an existing licence or existing licences is deemed to have disposed of the existing licence or licences
for an amount equal to their base cost on the date of the conversion. The licensee of the new licence or
licences is, in turn, deemed to have acquired the new licence or licences at a cost for base-cost purposes
(see 21.5) equal to the expenditure incurred on the existing licence or licences and is deemed to have
incurred this cost on the day immediately after the conversion.
Small business funding entities (para 63B)
An approved small business funding entity (see 16.3) must disregard any capital gain or capital loss
determined on the disposal of an asset if:
• it did not use the asset in carrying on a business undertaking or trading activity; or
• substantially the whole of its use of the asset was directed at a purpose other than carrying on a
business undertaking or trading activity or at carrying on a qualifying business undertaking or trading
activity.
21.13 Primary
residence
8th Sch paras 44–50
A natural person and a special disabled trust must disregard capital gains and capital losses to the extent
that they do not exceed R2 million and arise from the disposal of a primary residence. When more than
one natural person or special trust jointly hold an interest in a primary residence at the same time, the
total capital gain or capital loss to be disregarded on the disposal of the residence by all of them
collectively may not exceed R2 million. They will, therefore, have to apportion the exclusion of R2
million among them.
They must also disregard a capital gain (but not a capital loss) on the disposal of a primary residence if
the proceeds from the disposal do not exceed R2 million, unless the person concerned or the beneficiary
of the special trust or their spouse was not ordinarily resident in the residence throughout the period
commencing on or after the valuation date during which the person or special trust held the interest or
used the residence or a part of it for the purposes of carrying on a trade for any portion of the period
commencing on or after the valuation date during which the person or special trust held the interest.
If the Minister of Finance announces in his annual budget speech a change in the abovementioned limit
(currently R2 million) with effect as from a certain date or certain dates, the change will come into effect
on that date or those dates and continue to apply for a period of twelve months
subject to Parliament’s passing legislation giving effect to the announcement within that twelve-month
period.
Only one residence may be a primary residence of a natural person or a special disabled trust for a
period during which he or she or it holds an interest in more than one residence. This means, for
example, that a holiday residence that is not a person’s main residence will not qualify as his or her
primary residence. There is one exception to this rule, when he or she moves from one residence to
another in certain circumstances (see below).
Meaning of primary residence
The term ‘primary residence’ is defined as one in which a natural person or a special disabled trust
holds an ‘interest’ (see below). In addition, the natural person or a beneficiary of the special disabled
trust or the spouse of the person or beneficiary must:
• ordinarily reside or have resided in the residence as his or her main residence; and
• use or have used it mainly for domestic purposes.
It is clear from the definition that if a company, close corporation, ordinary trust or special will trust
owns a residence, it will not qualify as a primary residence, even if it is occupied as his or her residence
by a shareholder of the company, member of the close corporation or beneficiary of the trust.
A ‘residence’ is defined as:
‘any structure, including a boat, caravan or mobile home, which is used as a place of residence by a
natural person, together with any appurtenance belonging thereto and enjoyed therewith.’
An ‘interest’ is defined as:
‘( a) any real or statutory right; or
( b) a share owned directly in a share block company as defined in the Share Blocks Control Act or a
share or interest in a similar entity that is not a resident; or
( c) a right of use or occupation,
but
excluding—
(i) a right under a mortgage bond; or
(ii) a right or interest of whatever nature in a trust or an asset of a trust, other than a right of a lessee
who is not a connected person in relation to that trust.’
This means that a person may hold an interest in a residence by owning it, by holding shares in a share
block company or even by holding a mere right to occupy the residence.
Qualifying size
When a person disposes of a primary residence together with the land on which it is situated, the
exclusion of the capital gain or capital loss will apply only to so much of the land (including
unconsolidated adjacent land) as:
• does not exceed two hectares;
• is used mainly for domestic or private purposes together with the residence; and
• is disposed of at the same time and to the same person as the residence.
Interrupted and deemed ordinary residence
An adjustment must be made when a person has occupied a residence as his or her primary residence
for only a part of the period during which it was held after 1 October 2001. The amount of R2 million
(see above) will then apply only to the portion of the capital gain or capital loss on the disposal of the
primary residence that is attributable to the period on or after 1 October 2001 during which the person
concerned, beneficiary or spouse was ordinary resident in the residence.
There is an exception to this rule when a residence remains unoccupied in special circumstances.
A natural person or a beneficiary of a special disabled trust must be treated as having been ordinary
resident in a residence for a continuous period of up to two years if he or she does not reside in it during
this period for any of the following reasons:
• The residence was offered for sale while it was his or her primary residence and he or she vacated it
due to the acquisition of a new primary residence.
• The residence was being erected on land acquired in order to be used as his or her primary residence.
• His or her residence was accidentally rendered uninhabitable.
• His or her death.
Non-residential use
An apportionment of the R2 million exclusion is required when an interest in a primary residence that
was used for trade purposes for any period after 1 October 2001 is disposed of.
The portion of the capital gain or capital loss to be disregarded in terms of the R2 million exclusion must
be determined with reference to:
• the period on or after 1 October 2001 during which the person, beneficiary or spouse concerned used
the residence for domestic purposes as well as;
• the part of the residence used by him or her mainly for purposes other than the carrying on of a trade.
An exception to this rule applies in certain circumstances where the trade use is the temporary letting of
the property (see below).
Temporary letting
A person will be treated as having used a residence for domestic purposes, even though he or she is
absent from it for a continuous period of up to five years while it is being let. This means that the
adjustment usually required when there has been trade use need not be made. This concession applies
if:
• the person concerned resided in the residence as a primary residence for a continuous period of at
least one year prior to and after the period of letting;
• no other residence was treated as the primary residence of the person concerned or beneficiary of the
special trust concerned during the period of letting; and
• he or she was either temporarily absent from South Africa during the period of letting or was
employed or engaged in carrying on business in South Africa at a location further than 250 kilometres
from the residence during the relevant period.
21.14 Trusts
8th Sch paras 64C, 64E, 80–82
The capital gains of a trust may be taxed:
• in the hands of the beneficiaries;
• in the trust; or
• in the hands of the person who donated assets to the trust.
When an asset of a trust vests in a beneficiary in terms of the trust deed or when the trustees exercise
their discretion to award the asset to the beneficiary, this will amount to a disposal of the asset by the
trust to the beneficiary. The capital gain on the disposal must be calculated by deducting the base cost of
the asset to the trust from its market value at the time when it vests, but the gain must be disregarded in
the trust and must instead be taken into account in taxing the beneficiary in whose hands the asset vests,
as long as the beneficiary is a resident, and is not the Government in the national, provincial or local
sphere, or a public benefit organisation or other qualifying exempt
body (see 21.11) or a person who acquires the asset as a qualifying equity instrument (see 5.3). It will,
therefore, be taxed in the hands of the beneficiary rather than the trust as long as he or she is a resident
of South Africa. If the beneficiary is not a resident of South Africa, the capital gain would be taxed in the
hands of the trust and not in the beneficiary’s hands.
If a beneficiary does not acquire a vested right in the asset itself but has or acquires a vested right to an
amount derived from a capital gain made by the trust on the disposal of an asset, say as a result of the
trustees’ exercising of their discretion to distribute the gain, so much of the amount of the capital gain as
vest in the beneficiary must, again, be disregarded in the trust but taken into account in taxing the
beneficiary who is entitled to the amount, but again only if the beneficiary concerned is a resident of
South Africa and is not the Government, a provincial administration, or a public benefit organisation or
other qualifying exempt body (see 21.11). If not, the capital gain would be taxed in the hands of the trust
and not in the beneficiary’s hands. When a beneficiary of a trust holds a qualifying equity instrument
(see 5.3), this paragraph is inapplicable to a capital gain that is vested in the beneficiary by the trust by
reason of the vesting of the equity instrument in the beneficiary or the disposal of the equity instrument
by the beneficiary in certain circumstances (see 5.3).
The above rules apply, as from 1 March 2019, even if the trust is not a resident, if a capital gain would
have had to be determined on the relevant disposals had the trust been a resident. In the determination
whether an amount would have constituted a capital gain had the trust been a resident, certain
provisions that require that capital gains on the disposal of equity shares in foreign companies be
disregarded in certain circumstances (see 21.12) must themselves be disregarded if more than 50% of
the total ‘participation rights’ (see 15.2) or of the voting rights in the company are directly or indirectly
held or are exercisable by the trust, whether alone or together with any one or more persons that are
connected persons of the trust and to the extent to which that amount is not derived from an amount
that must be included in the income of or attributed to the resident to whom an amount is attributed in
terms of the rules above or a resident who is a connected person of that resident.
The position set out above does not apply when the attribution rules set out in 21.20 deem a capital gain
to vest in another person, such as a donor of the asset that gives rise to the capital gain.
Restricted equity instruments (para 64C, 64E)
You must disregard a capital gain or capital loss determined on the disposal of a restricted equity
instrument in a sheltered exchange or related-party transaction (see 5.3).
A capital gain is determined on the disposal of an asset by a trust and if a trust beneficiary has a vested
right to that capital gain, the trust must disregard so much of the capital gain as must be
included in the income of that trust beneficiary as an amount received or accrued in respect of a
restricted equity instrument or taken into account in the determination of the gain or loss in the hands
of the trust beneficiary on the vesting of a restricted equity instrument. (See also 21.12.) Base cost of
interest in discretionary trust
A person’s interest in a discretionary trust must be treated as having a base cost of nil.
Death of beneficiary of a special disabled trust
When the beneficiary of a special disabled trust (see 21.3) dies, the trust must continue to be treated as a
special disabled trust for the purposes of the tax on capital gains until the earlier of the following dates:
• The date of disposal of all the assets held by the trust.
• Two years after the date of death of the beneficiary.
Capital distributions by offshore discretionary trust
It may happen that a resident is a potential beneficiary of a non-resident discretionary trust and as such
has a ‘contingent’ right to the capital of the trust. When during any year of assessment he or she acquires
a vested right to an amount representing capital of such a trust, the amount must be
taken into account for the purposes of the calculation of his aggregate capital gain or aggregate capital
loss for that year. This will happen when the capital arose from:
• a capital gain of the trust; or
• an amount that would have constituted a capital gain of the trust had it been a resident, determined in
any previous tax year during which the resident had a contingent right to the capital.
This provision applies as long as the capital gain has not been subject to tax in South Africa.
Since it applies only to capital gains of the trust and amounts that would have constituted capital gains
had the trust been a resident, it applies only to capital gains made by the trust from the disposal or
deemed disposal of assets on or after 1 October 2001.
21.15 Death of a taxpayer
8th Sch paras 40, 41, 67 (prior to 1 March 2016),
ss 9HA, 25 (as from 1 March 2016)
Special rules apply on the death of a taxpayer. They are set out below.
The deceased’s final assessment
A deceased person must be treated as having disposed of his or her assets for an amount received or
accrued equal to their market value on the date of his or her death. If an asset is transferred to his or her
estate, the estate is treated as having acquired the asset for a cost equal to the same market value, which
cost must be treated as an amount of expenditure actually incurred and paid for the purposes of the
determination of the base cost of the asset to the estate. But if an asset is transferred directly to an heir
or legatee, the heir or legatee is treated as having acquired it for a cost equal to the same market value,
which cost must be treated as an amount of expenditure actually incurred and paid for the purposes of
the determination of the base cost of the asset to the heir or legatee. This rule does not, however, apply
to assets accruing to the surviving spouse, qualifying long-term insurance policies and interests in
pension, pension preservation, provident, provident preservation or retirement annuity funds. Nor does
it apply, in tax years commencing prior to 1 January 2013, when the provision deeming a gain to arise
when a debt has been reduced or discharged applies (see 21.10). The assets in question must be valued
on the basis set out in 21.8.
How the estate is taxed
When the estate disposes of assets to an heir or legatee (other than the surviving spouse), it will be
treated as having disposed of them for an amount equal to the deductible expenditure incurred by the
deceased on the asset or for proceeds equal to their base cost to the estate (that is, the market value on
the date of death), while they will be deemed to have acquired the assets at a cost equal to the same
amount, which cost must be treated as an amount of expenditure actually incurred and paid for the
purposes of the determining the base cost of the asset. There will, therefore, be no capital gain or capital
loss on the disposal of the assets by the estate to an heir or legatee.
If, however, any assets are disposed of to anyone else (for example, an independent buyer), there will be
a capital gain or capital loss equal to the difference between the proceeds of the sale and the base cost of
the assets to the estate (that is, their market value on the date of death).
For the purposes of the CGT, the disposal of an asset by the deceased estate of a natural person must be
treated in the same manner as if it had been disposed of by the deceased himself. This means that the
estate is entitled to the same exemptions and reliefs as would have been available to the deceased before
his or her death, for example, on the sale of what was his or her primary residence or personal-use
assets. The Commissioner takes the view that it also means that the estate must be taxed at the same
rate and enjoys the same inclusion rate and exclusions that the deceased would have enjoyed if he or she
had disposed of the assets himself or herself.
How the heirs and legatees are taxed
Except for the surviving spouse, the heirs and legatees will be treated as having acquired the assets for a
base cost equal to their base cost to the estate, that is, the market value on the date of death.
This cost must be treated as an amount of expenditure actually incurred and paid for the purposes of the
determining the base cost of the asset. When they subsequently dispose of the assets, they will,
accordingly, realise a capital gain or capital loss equal to the difference between the proceeds of disposal
and the base cost to the estate (that is, the market value on the date of death).
The surviving spouse, if a resident, will, however, be treated as having acquired the assets that accrue to
him or her if ownership of those assets is acquired by him or her by intestate or testamentary
succession or as a result of a re-distribution agreement between the heirs and legatees of the deceased
spouse in the course of the liquidation or distribution of his or her estate or in settlement of a claim
arising under s 3 of the Matrimonial Property Act 88 of 1984. For the purposes of the determination of
the amounts of allowances or deductions to which the surviving spouse is entitled or any recoupments
to be included in his or her income or the amounts of any capital gains or losses on the disposal of the
assets by the surviving spouse and the deceased person and deceased estate must be treated as one and
the same person with respect to the date of acquisition of the asset by the deceased person, the
valuation of the asset by the deceased person, the amount of expenditure and the date and the currency
in which the expenditure was incurred on the asset by the deceased person and the deceased estate,
their manner of use of the asset and allowances or deductions allowable for the asset to the deceased
person or deceased estate. The deceased estate must be treated as having disposed of any trading stock,
farming livestock or produce in the tax year ending on the date of his death for an amount equal to the
amount deducted on its acquisition and any other asset for its base cost at the date of death.
A person whose spouse dies must be treated as having disposed of an asset to that spouse immediately
before the death of that spouse if ownership of the asset is acquired by that spouse’s deceased estate in
settlement of a claim arising under s 3 of the Matrimonial Property Act 88
of 1984.
When tax is payable by an heir of a deceased estate (s 25(6))
A special concession applies when the tax relating to the taxable capital gain of a deceased person
exceeds 50% of the net value of the estate for estate duty purposes, before the tax itself is taken into
account as a debt due by the estate. The ‘net value’ of an estate for estate duty purposes is the amount of
the net assets of the estate before the primary abatement permitted by the Estate Duty Act (see 20.4) is
taken into account.
If the executor of the estate is required to dispose of any asset for the purposes of paying the tax on the
capital gain, the heir or legatee who would have been entitled to the asset if there had been no liability
for tax, may choose to have the asset distributed to him or her, subject to the condition that he or she
undertakes to pay the amount of tax that exceeds 50% of the net value of the estate within three years
after the date on which the executor obtained permission to distribute the assets of the estate.
The amount of tax payable by the heir will be regarded as a debt due to the State and will be treated as
an amount of tax chargeable under the Income Tax Act that is due by the person concerned. In other
words, the Commissioner will recover the tax due from the heir or legatee and not the estate when this
provision applies.
21.16 Insolvent
estates
s 25C, 8th Sch para 83
When the estate of a natural person has been voluntarily or compulsorily sequestrated, his or her estate
before sequestration and his or her insolvent estate will be treated as one and the same person for
income tax purposes, as will his or her insolvent estate and his or her estate after the sequestration
order has been set aside. However, he or she is expressly prohibited from carrying forward any assessed
capital loss incurred prior to the date of sequestration.
The disposal of any assets by a person’s insolvent estate is treated in the same manner as if it had been
disposed of by the person himself. The effect of this provision is that the insolvent estate will be entitled
to disregard and exclude the same amounts that the insolvent would have been entitled to disregard or
exclude had he or she disposed of the assets of the insolvent estate.
21.17 Donations and disposals not at arm’s length
8th Sch para 38

When a person disposes of an asset to anyone by means of a donation or for a consideration not
measurable in money or to his or her connected person for a consideration that does not reflect an arm’s
length price, he or she is treated as having disposed of it for an amount received or accrued equal to the
market value on the date of the disposal. At the same time, the person who acquires it from him or her is
treated as having acquired it for a base cost equal to its market value on the date of the disposal, which
cost must be treated as an amount of expenditure actually incurred and paid for the purposes of the
determining the base cost of the asset.
This provision does not apply to a disposal of:
• a right to acquire marketable securities (see 5.9);
• an asset in the circumstances when the exemption is available for amounts derived under share-
incentive schemes (see 5.15);
• a qualifying equity share (see 5.2) by an employer, associated institution or any other person by
arrangement with the employer to an employee;
• an asset acquired in exchange for shares issued by a company (see 10.1); and
• land from the date on which it becomes ‘declared land’ (see 10.31).
21.18 Capital losses on disposals to connected
persons
8th Sch para 39
When a person disposes of an asset to a person who was his or her connected person immediately
before the disposal, or immediately after the disposal is a member of the same group of companies (see
22.1) as that person or is a trust with a beneficiary that is a member of the same group of companies as
that person, he or she must disregard any capital gain or capital loss on the disposal. The disregarded
capital loss may be deducted only from his or her capital gains arising from disposals of assets to the
same person, either during the same or a later tax year, as long as the other person to whom the disposal
is made is still the first person’s connected person at the time when he or she makes the subsequent
disposals. For the purposes of this rule when a company redeems its shares the holder of the shares
must be treated as having disposed of the shares to the company.
This rule does not apply to the disposal by a trust of a qualifying right or marketable security (see 5.2) or
equity instrument (see 5.3) to a beneficiary of the trust, if the right, marketable security or equity
instrument is disposed of to the beneficiary by virtue of his or her employment with an employer,
directorship of a company or services rendered or to be rendered by him or her as an employee to an
employer or as a result of the exercise, cession, release, conversion or exchange by him or her of the
right, marketable security or equity instrument and the trust is an associated institution (see 5.4) in
relation to the employer or company for fringe benefits purposes.
The definition of a ‘connected person’ is qualified for this purpose. While relatives of a natural person
usually qualify as connected persons, the only relatives who qualify as connected persons for this
purpose are the person’s parent, child, stepchild, brother, sister, grandchild or grandparent.
The different funds of a long-term insurer are not regarded as connected persons of each other for the
purposes of disposals of assets between them.
21.19 Transfer of assets to a spouse
s 9HB
A person (referred to as ‘the transferor’) must disregard any capital gain or capital loss determined in
respect of the disposal of an asset to his or her spouse (referred to as ‘the transferee’). A form of
‘rollover relief’ is available in that the transferee is treated as having:
• acquired the asset on the same date on which it was acquired by the transferor;
• incurred an amount of expenditure equal to the expenditure incurred by the transferor in respect of
the asset;
• incurred that expenditure on the same date and in the same currency that it was incurred by the
transferor;
• used the asset in the same manner that it was used by the transferor; and
• received amounts equal to any amounts received by or accrued to the transferor on the asset that
would have constituted proceeds on the disposal of the asset had the transferor disposed of it to a
person other than the transferee. This means that when the transferee subsequently disposes of the
asset, he or she will determine a capital gain or capital loss in the same manner as the transferor would
have. It also means that if the asset is, say, a personal-use asset (see 21.10) of the transferor, it will also
be treated as such an asset of the transferee, but presumably only if he or she continues to use it in a
manner that will ensure its continued qualification as such an asset.
This relief will be unavailable if the asset is disposed of to a spouse who is not a resident, unless the
asset is an asset that remains in the tax net for non-residents (see 21.2).
A person whose spouse dies must be treated as having disposed of an asset to that spouse immediately
before the death of that spouse if ownership of the asset is acquired by that spouse’s deceased estate in
settlement of a claim arising under s 3 of the Matrimonial Property Act 88 of 1984. A person must be
treated as having disposed of an asset to his or her spouse if it is transferred to the spouse in
consequence of a divorce order or an agreement of division of assets that has been made an order of
court.
21.20 Attribution of capital gains
ss 7, 90, 8th Sch paras 68–73
Capital gains made by a person are deemed to accrue to another person in the following circumstances:
Capital gains attributed to a spouse
When a capital gain is made by a person or a capital gain vests or is treated as having vested in him
during a year of assessment (for example, through a trust) and it may be attributed wholly or partly to a
donation, settlement or other disposition made by his or her spouse or a transaction, operation or
scheme made, entered into or carried out by him or her, it will be deemed to be made by the spouse, if
the transaction, settlement or disposition was entered into or carried out mainly for the purpose of
reducing, postponing or avoiding the spouse’s liability for any tax, duty or levy that would otherwise
have become payable under any Act administered by the Commissioner. In other words, the spouse who
initiated the transaction is made liable to the tax on the capital gain.
A special rule applies when a person derives a capital gain:
• from a trade carried on by him or her in partnership or association with his or her spouse or that is in
any way connected with a trade carried on by his or her spouse; or
• from his or her spouse or a partnership or private company at a time when his or her spouse was a
member of the partnership or the sole, main or one of the principal shareholders of the company,
To the extent that the capital gain derived by him or her exceeds the amount to which he or she would
reasonably be entitled, regard being had to the nature of the relevant trade, the extent of his
or her participation in it, the services rendered by him or her or any other relevant factor, it must be
disregarded by him or her and must instead be taken into account by the other spouse.
The spouse who is liable to the tax is entitled to recover it from the other spouse who is actually entitled
to the proceeds on the disposal of the asset.
Capital gains made by a minor child
If a capital gain is made by, or vests in, or is treated as vesting in, or is used for the benefit of, a minor
child during the year of assessment in which it arises and it can be attributed wholly or partly to a
donation, settlement or other disposition made by a parent of the child, it will be taxed in the hands of
the parent rather than the minor child. This rule also applies when the minor child’s capital gain may be
attributed wholly or partly to a donation made by another person in return for a donation or some other
consideration made or given by the parent of the child in favour directly or indirectly of the person
concerned or his family.
The parent who is liable to the tax is entitled to recover it from the minor child who is actually entitled
to the proceeds on the disposal of the asset.
Conditional donations
Another attribution rule applies when a person makes a donation, subject to a stipulation or condition
imposed by him or her or anyone else, in terms of which a capital gain or portion of a capital gain that is
attributable to the donation will not vest in all or some of the beneficiaries until some fixed or contingent
event occurs. As long as the capital gain or any portion of it has not vested in any beneficiary who is a
resident during the tax year and the person who made the donation is a resident throughout the year,
the capital gain or portion of it will be taxed in the hands of the donor and disregarded when
determining the aggregate capital gain or capital loss made by the other person.
The donor who is liable to the tax is entitled to recover it from the trust that is actually entitled to the
proceeds on the disposal of the asset.
Revocable donations
Another anti-avoidance rule applies when a donation confers upon a beneficiary who is a resident the
right to receive a capital gain or portion of a capital gain attributable to the donation, subject to the
donor’s right to revoke the right or confer it upon another person. Any capital gain or portion of a capital
gain that has vested in a beneficiary during a tax year in terms of the right must be dis-regarded by the
beneficiary and instead taken into account by the person who made the donation.
This rule will apply as long as the person who made the donation is, first, a resident throughout the
relevant tax year and, secondly, retains the powers of revocation.
The donor who is liable to the tax is entitled to recover it from the beneficiary who is actually entitled to
the proceeds on the disposal of the asset.
Donations to a non-resident
When a resident makes a donation, settlement or other disposition to a non-resident (but not an entity
that is similar to a public benefit organization (see 16.25)), any capital gain or any amount that would
have constituted a capital gain had the person concerned been a resident, attributable to the donation
that has arisen and has vested in or is treated as having vested in the non-resident during the tax year
must be disregarded by him or her and taken into account instead by the resident who made the
donation. This provision does not apply to donations to bodies that are the resident’s
‘controlled foreign companies’ (see 15.2).
The above rules apply, as from 1 March 2019, even if the trust is not a resident, if a capital gain would
have had to be determined on the relevant disposals had the trust been a resident. In the determination
whether an amount would have constituted a capital gain had the person concerned been a resident,
certain provisions that require that capital gains on the disposal of equity shares in
foreign companies be disregarded in certain circumstances (see 21.12) must themselves be disregarded
in respect of an amount derived by the person concerned, directly or indirectly, from the disposal of an
equity share in a foreign company if:
• more than 50% of the total ‘participation rights’(see 15.2) or of the voting rights in the company are
directly or indirectly held or are exercisable by the person concerned, whether alone or together with
any one or more persons that are connected persons (see 10.24) of the person concerned,
• the resident who made the donation, settlement or disposition or any person that is a connected
persons of that resident is a connected person of the non-resident; and
• to the extent to which that amount is not included in the income of or attributed as a capital gain to the
resident who made the donation, settlement or other disposition or that resident’s connected person.
The resident who is liable to the tax is entitled to recover it from the non-resident who is actually
entitled to the proceeds on the disposal of the asset.
Attribution of income and capital gains
There are certain provisions that deem income diverted by one person to another to have accrued to the
first person in certain circumstances (see 11.7). A special rule comes into play when both an amount of
income and a capital gain are derived by reason of or are attributable to a donation, settlement or other
disposition. It limits the total amount of the income that is deemed to accrue to the donor and the gain to
be attributed to him or her to ‘the amount of the benefit derived from that donation, settlement or other
disposition’. For this purpose the benefit derived from a donation means ‘the amount by which the
person to whom that donation, settlement or other disposition was made, has benefited from the fact
that it was made for no or an inadequate consideration, including consideration in the form of interest’.
21.21 Reacquired financial instruments
8th Sch paras 20, 42
When a person makes a capital loss on the disposal of a financial instrument and he or she or his or her
connected person then acquires, or enters into a contract to acquire, a financial instrument of the same
kind and of the same or equivalent quality within a period that starts 45 days before the date of the
disposal and ends 45 days after that date, he or she is treated as having disposed of the asset for
proceeds equal to its base cost. This provision does not apply to a financial instrument dealt with under
the mark-to-market taxation of long-term insurers (see 16.13). This means that he or she will be
regarded as not having made a capital loss on the disposal of the asset. At the same time, the connected
person who acquires the replacement asset must be treated as having acquired it at a cost equal to the
total of his or her allowable base cost expenditure plus the amount of the capital loss actually incurred
by the other person on the initial disposal of the asset. This cost must be treated as expenditure actually
incurred and paid in the determination of the base cost of the asset.
The only relatives who will qualify as connected persons for this purpose are a person’s parent, child,
stepchild, brother, sister, grandchild or grandparent. The different funds of a long-term insurer are not
regarded as connected persons of each other for the purposes of disposals of assets between them.
There are special rules governing the 91-day period in which the financial instrument is reacquired. In
working out the period of 91 days, the person concerned must ignore any days in which he:
• had an option to sell, was under a contractual obligation to sell or had made (and not closed) a short
sale of a financial instrument of the same kind and of the same or equivalent quality;
• was the grantor of an option to buy a financial instrument of the same kind and of the same or
equivalent quality; or
• has otherwise diminished the risk of loss on the financial instrument by holding one or more contrary
positions with respect to a financial instrument of the same kind and of the same or equivalent quality.
These provisions do not apply to an asset for which the weighted-average method of determination of
their base cost is used (see 21.8) or assets allocated to a policyholder fund of a long-term insurer (see
16.13).
21.22 Value-shifting
arrangements
s 1, 8th Sch paras 1, 11(1)( g), 28, 35(2)
A ‘value-shifting arrangement’ is defined as an arrangement by which a person retains an interest in a

company, trust or partnership, but the market value of his or her interest decreases following a change
in the rights or entitlements of the interests in the company, trust or partnership (other than as a result
of a disposal at market value), while the value of his or her connected person’s (see 10.25) direct or
indirect interest in it increases or his or her connected person acquires a direct or indirect interest in it.
A typical example of a value-shifting arrangement is where a parent who owns all the shares in a
company issues additional shares to his children at a discount, thereby reducing the value of his or her
own shares. He or she has effectively shifted value from himself or herself to his or her children.
The decrease in value of a person’s interest is regarded as a deemed disposal by him or her. The
proceeds are deemed to be the amount by which the market value of his or her interest has decreased as
a result of the arrangement and this amount is treated as having been received by or accrued to him or
her.
The base cost of the interest disposed of will be determined by applying the formula: Y =
(A – C) × B
In this formula
‘Y’ = the amount to be determined.
‘A’ = the market value of the person’s interest immediately prior to the disposal.
‘B’ = the person’s base cost of the interests calculated immediately prior to the disposal.
‘C’ = the market value of the person’s interests immediately after the disposal.
This formula may be represented as follows:

Reduction in market value × base cost before arrangement
Market value before arrangement
The other person, who benefits from the arrangement, must increase the base cost of his or her interest
by the same amount.
21.23 Disposal of shares in company or interest
8th Sch para 37
in trust
In certain circumstances when a natural person disposes of an interest in a trust or a company holding
certain types of assets that have decreased in value, a portion of capital loss may be disallowed. The
assets in question are assets that would be treated as personal-use assets if owned by the person
directly, as well as the following assets if not used for the purposes of carrying on a trade:
• Aircraft with an empty mass exceeding 450 kg.
• ‘Boats’ exceeding 10 metres in length.
• Fiduciary, usufructuary or other like interests, the value of which declines over time.
• Leases of immovable property.
• Rights or interests in the above assets.
If these assets have decreased in value while held by the trust or company after the person acquired his
interest in it, he or she is effectively precluded from deducting any capital loss attributable to the
decrease in value of the assets in question. This result is achieved because he or she is deemed to have
disposed of his or her interest in the trust or company for proceeds equal to its market value,
determined as if the relevant assets had not decreased in value.
No adjustment is required when more than 50% of the assets of the trust or company consist of assets
used wholly and exclusively for trading purposes.
21.24 Deferment of tax on involuntary
s 3(4), 8th Sch para 65
disposals
You may choose to defer the CGT when you dispose of an asset (other than a financial instrument) by
way of operation of law, theft or destruction and proceeds accrue to you by way of compensation in
respect of the disposal that are equal to or exceed the base cost of the asset. If you satisfy the
Commissioner that:
• an amount at least equal to the receipts and accruals from the disposal has been or will be expended to
acquire one or more assets (referred to as the replacement asset or assets);
• all the replacement assets constitute certain immovable property and assets attributable to a
permanent establishment in South Africa;
• the contracts for the acquisition of the replacement asset or assets have all been or will be concluded
within twelve months after the date of disposal of the asset; and
• the replacement asset or assets will be brought into use within three years of the disposal of the asset.
You may apply to the Commissioner to have the periods of one year and three years extended by a
maximum of six months if you have taken all reasonable steps to conclude a contract or bring the
replacement asset or assets into use. The Commissioner’s decision is made subject to objection and
appeal (see 18.6).
This election is available as long as the asset is not deemed to have been disposed of and to have been
reacquired by you under one of the CGT rollover provisions.
When you make the election under these rules, any capital gain determined in respect of the disposal
must be disregarded when determining your aggregate capital gain or aggregate capital loss.
If you make the election and acquire more than one replacement asset, you must allocate the capital gain
on the disposal of the original asset to each replacement asset in the same ratio as the receipts and
accruals from that disposal expended on each particular replacement asset bear to the total amount of
those receipts and accruals expended in acquiring all the replacement assets.
When a replacement asset is a ‘depreciable asset’ (see 10.7), you must treat a certain portion of the
disregarded capital gain determined on the disposal of the original asset as a capital gain in each tax year
during which the replacement asset is being depreciated. The amount to be treated as a capital gain in
any year will be so much of the disregarded capital gain as bears to the total amount of the disregarded
capital gain apportioned to the replacement asset the same ratio as the amount of any deduction or
allowance allowed in that year for the replacement asset bears to the total amount of the deduction or
allowance (determined with reference to the cost or value of the
asset at the time of its acquisition) allowable for all years of assessment in respect of the replacement
asset. For example, if the replacement asset is to be depreciated over four years, the disregarded capital
gain will effectively be brought to account over the four years in which the replacement asset is
depreciated.
If the full amount of the previously disregarded capital gain apportioned to a depreciable asset has not
yet been treated as a capital gain by the time of the tax year in which the replacement asset is disposed
of, you must treat the amount of the deferred capital gain not yet regarded as a capital gain, as a capital
gain from the disposal of the replacement asset in that tax year.
If you fail to conclude a contract or bring a replacement asset into use within the prescribed period, you
must treat the deferred capital gain as a capital gain on the date on which the prescribed period ends. In
addition, you must determine interest at the ‘prescribed rate’ (see 18.5) on the capital gain from the date
of the disposal to the end of the prescribed period. The interest so determined must then be treated as
an additional capital gain made on the last day of the prescribed period.
These rules do not apply when a replacement asset or assets constitute personal-use assets (see 21.10).
21.25 Reinvestments in similar assets
s 3(4), 8th Sch para 66
You may choose to defer the capital gain that arises when you replace an asset that qualified for certain
capital allowances for income tax purposes. The deferment takes the form of the spreading of the capital
gain over a period.
The replaced asset or assets must qualify for the depreciation (wear-and-tear) allowance (see 10.26),
the allowance for research and development (see 10.53), ‘50/30/20’ depreciation (see 10.66), the
straight-line depreciation allowance (see 10.62), the allowance for rolling stock (see 10.56), the 100%
depreciation allowance for small business corporations (see 16.33), the special capital allowances for
certain ships or aircraft (see 16.1 and 16.32) or the deduction for environmental expenditure (see
10.30). If the proceeds received or accruing on the disposal are equal to or exceed the base cost of the
asset, the taxation of the capital gain may be spread over several years as long as:
• an amount at least equal to the receipts and accruals from the disposal has been or will be expended in
acquiring one or more replacement assets, all of which will qualify for the depreciation (wear-and-tear)
allowance, the allowance for research and development, ‘50/30/20’ depreciation, the straight-line
depreciation allowance, the allowance for rolling stock, the 100% depreciation allowance for small
business corporations or the deduction for environmental expenditure;
• all the replacement assets constitute certain immovable property and, depending upon whether you
are a resident of South Africa, assets attributable to a permanent establishment in South Africa;
• you have concluded or will conclude a contract or contracts for the acquisition of the replacement
asset or assets within twelve months after the disposal of the replaced asset; and
• the replacement asset or assets have been or will be brought into use within three years after the
disposal of the asset.
You may apply to the Commissioner to extend the periods of twelve months and three years by a
maximum of six months if all reasonable steps were taken to conclude the contracts or bring the
replacement assets into use. The Commissioner’s decision is made subject to objection and appeal (see
18.6).
This election is available as long as the asset is not deemed to have been disposed of and to have been
reacquired by you under one of the CGT rollover provisions.
If you have elected that these rules must apply to the disposal of an asset, any capital gain determined on
the disposal must be disregarded when determining your aggregate capital gain or aggregate capital
loss.
If you have made the election and acquire more than one replacement asset, you must allocate the
capital gain on the disposal of the original asset to each replacement asset in the same ratio as the
receipts and accruals from the disposal expended on each particular replacement asset bear to the total
amount of those receipts and accruals expended in acquiring all the replacement assets.
You must treat a certain portion of the disregarded capital gain determined on the disposal of the
original asset as a capital gain in each tax year during which the replacement asset is being depreciated.
The amount to be treated as a capital gain in any year will be so much of the disregarded capital gain as
bears to the total amount of the disregarded capital gain apportioned to the replacement asset the same
ratio as the amount of any qualifying capital deduction or allowance allowed in that year for the
replacement asset bears to the total amount of the qualifying capital deduction or allowance
(determined with reference to the cost or value of the asset at the time of its acquisition) allowable for
all tax years in respect of that replacement asset. For example, if the replacement asset is to be
depreciated over four years, the disregarded capital gain will effectively be brought to account over the
four years in which the replacement asset is depreciated.
If the full amount of the previously disregarded capital gain apportioned to a depreciable asset has not
yet been treated as a capital gain by the time of the tax year in which the replacement asset is disposed
of, the person concerned must treat the amount of the deferred capital gain not yet regarded as a capital
gain as a capital gain from the disposal of the replacement asset in that tax year.
If you cease to use the replacement asset for the purposes of your trade in a particular tax year, any
portion of the deferred capital gain apportioned to that asset that has not yet been taxed will be treated
as a capital gain in that tax year.
If you fail to conclude a contract by the end of the prescribed period of twelve months, or to bring the
replacement asset into use within the three-year period, you must treat the deferred capital gain as a
capital gain on the date on which the prescribed period ends. You must then determine interest at the
‘prescribed rate’ (see 18.5) on the capital gain from the date of the disposal to the end of the prescribed
period and treat the interest as a capital gain on the last day of the prescribed period.
21.26 Disposal of small business assets
8th Sch para 57
There is a special concession when a capital gain is made on the disposal of small business assets.
A ‘small business’ is defined as a business where the market value of all its assets does not exceed R10
million as at the date of disposal of its assets or interests.
The concession, which is available only to a natural person, requires that a person disregard any capital
gain, subject to a maximum benefit of R1,8 million (see below), made on the disposal of:
• an active business asset of a small business owned by him or her as a sole proprietor; or
• an interest in each of the active business assets of a partnership qualifying as a small business upon his
withdrawal from the partnership, to the extent of his or her interest in the partnership; or
• an entire direct interest, which consists of at least 10% of the equity of a company qualifying as a small
business, in as far as that interest relates to assets of that small business qualifying as active business
assets.
An ‘active business asset’ is defined as an asset that constitutes immovable property, to the extent that
it is used for business purposes. It also includes any other asset used or held wholly and exclusively for
business purposes, but it excludes:
• financial instruments; and
• assets held in the course of carrying on the business mainly to derive annuities, rental income, foreign
exchange gains, royalties or similar income.
For a person to qualify for this concession, he or she must at the time of disposal of the relevant asset or
interest have held it for his or her own benefit for a continuous period of at least five years prior to the
disposal. In addition, he must have been substantially involved in the operations of the business of the
small business during that period and have attained the age of 55 years or, if younger, have disposed of
the asset or interest in consequence of his or her ill-health, other infirmity, superannuation or death. A
further requirement is that all his or her qualifying capital gains must be realised within a period of
twenty-four months, commencing on the date of his or her first qualifying disposal.
The amount to be disregarded is limited to R1,8 million during a person’s lifetime. This means that,
although he or she may qualify for the concession more than once, the aggregate amount to be
disregarded over his or her lifetime may not exceed R1,8 million.
If he operates more than one small business by way of a sole proprietorship, partnership interest or
direct interest of at least 10% in the equity of a company, he or she may include all these businesses in
the lifetime exemption of R1,8 million, but the exemption will be unavailable if the total market value of
all the active business assets of all his or her small businesses exceeds R10 million.
If the Minister of Finance announces in his annual budget speech changes in any of the various amounts
mentioned above with effect as from a certain date or certain dates, the changes will come into effect on
that date or those dates and continue to apply for a period of twelve months subject to Parliament’s
passing legislation giving effect to the announcement within that twelve-month period.
21.27 Dividend
stripping
s 1, 8th Sch para 19
There is an anti-tax-avoidance provision aimed at countering tax avoidance through so-called dividend-
stripping. What happens is that a person buys shares in a local company, extracts a dividend from the
company, which is exempt from normal tax in his or her hands, and then disposes of the shares at a loss,
since their value has been diminished by the extraction of the dividend. This provision requires that a
portion of a capital loss be disregarded in these circumstances if the company has distributed so-called
extraordinary dividends to a person within a certain period prior to his or her disposing of the shares.
When a person disposes of a share in a company as a result of the acquisition by the company from the
person of that share or as part of the liquidation, winding-up or deregistration of the company, the
person must disregard so much of any capital loss resulting from the disposal as does not exceed any
exempt dividends received by or accrued to him or her on the share within a period of eighteen months
prior to or as part of the disposal. See also 21.4.
‘Exempt dividend’ is defined for this purpose as any dividend or foreign dividend to the extent that it is
not subject to the dividends tax (see 9.4) and is exempt from normal tax (see 9.2 and 9.4).
When a person disposes of a share in a company in other circumstances, he or she must disregard so
much of any capital loss resulting from the disposal as does not exceed any ‘extraordinary exempt
dividends’ received by or accrued to him or her on the share within a period of eighteen months prior to
or as part of the disposal. Excluded is a deemed disposal under the mark-to-market taxation of long-
term insurers (see 16.13).
‘Extraordinary exempt dividends’ are defined as so much of the amount of the aggregate of any
exempt dividends received or accrued within the period of eighteen months prior to or as part of the
disposal of the shares as exceeds 15% of the proceeds received or accrued from the disposal of the share
and has not been taken into account as an extraordinary dividend (see 21.4).
The period of eighteen months within which the share must be disposed of to trigger the application of
this provision excludes any days during which the person concerned:
• had an option to sell, was under a contractual obligation to sell, or had made (and not closed) a short
sale of, substantially similar financial instruments;
• was the grantor of an option to buy substantially similar financial instruments; or
• otherwise diminished the risk of loss on the share by holding one or more contrary provisions with
respect to substantially similar financial instruments.
21.28 Distribution of assets to shareholders
s 1, 8th Sch paras 35(3)( a),
74–76B
The company’s perspective
When a ‘company’ makes a ‘distribution’ of an asset in specie to a shareholder, including an interim

dividend, it must be treated as having disposed of the asset to the shareholder on the date of distribution
for an amount received or accrued equal to its market value on that date.
The person concerned, in turn, must be treated as having acquired the asset on the date of distribution
for base cost expenditure equal to its market value on that date.
The ‘date of distribution’, in relation to a distribution, means, to the extent that the distribution does
not consist of a distribution of an asset in specie, when the company that makes the distribution is a
listed company, the date on which the distribution is paid. When the company that makes the
distribution is not a listed company, it is the earlier of the date on which the distribution is paid or
becomes due and payable. And, to the extent that the distribution consists of a distribution of an asset in
specie, it is the earlier of the date on which the distribution is paid or becomes due and payable.
Since the market value of these assets may also be included in the company’s income or taxable income
for income tax purposes as trading stock 10.7), a suitable adjustment would have to be made (see 21.4)
to reduce the deemed proceeds for the purposes of taxing the capital gains by these amounts already
subjected to normal tax.
The shareholder’s perspective

When a shareholder who receives or to whom there accrues a return of capital or foreign return of
capital by way of a distribution of cash or assets in specie but not a distribution of a share in terms of an
unbundling transaction (see 22.6) in respect of a share from a company and the date of distribution of
the cash or asset occurs before 1 October 2001, he or she must reduce the expenditure actually incurred
before that date in respect of the share by the amount of the cash or the market value of the asset. When
the date of distribution of the cash or asset occurs on or after 1 October 2001, but before 1 October
2007, and the share is disposed of by the shareholder on or before 31 March 2012, the shareholder must
treat the amount of the cash or the market value of the asset as proceeds when the share is disposed of.
And when the cash or asset is distributed on or after 1 October 2007 but before 1 April 2012, the
shareholder must treat the amount of the cash or the market value of the asset as proceeds when the
share is partly disposed of (see below).
If the shareholder uses the weighted-average method for shares that are identical assets and a return of
capital or foreign return of capital by way of a distribution of cash or assets in specie (other than a
distribution of a share in terms of an unbundling transaction; see 22.6) is received by or accrues to him
or her on or after 1 October 2001, the weighted-average base cost of the shares must be determined by
deducting the amount of the cash or the market value of the asset from the base cost of the shares held
when the return of capital or foreign return of capital was received or accrued and dividing the result by
the number of shares held when that return of capital or foreign return of capital was received or
accrued.
A company that makes a distribution to any other person and every person that pays a distribution to
any other person on behalf of a company must by the time of the distribution or payment notify the
other person in writing of the extent to which the distribution or payment constitutes a return of capital.
Disposal and part disposals
A shareholder must be treated as having disposed of part of a share on the date of receipt or accrual of a
return of capital or foreign return of capital by way of a distribution of cash or an asset in specie (other
than a share distributed under a qualifying unbundling transaction; see 22.6) and the return of capital or
foreign return of capital is received by or accrues to the shareholder on or after 1 October 2007 and
before 1 April 2012.
When a return of capital or foreign return of capital by way of a distribution of cash or an asset in specie
(other than a share distributed in terms of an unbundling transaction; see 22.6) is received by or accrues
to a shareholder in respect of a share, the return of capital or foreign return of capital is received by or
accrues to the shareholder on or after 1 October 2001 but before 1 October 2007, and the share is not
disposed of before 1 April 2012, the return of capital or foreign return of capital must be treated as
having been distributed on 1 April 2012. This rule applies subject to the weighted-average provision.
When the shareholder uses the weighted-average method of valuation of shares that are identical assets
and the base cost of those shares is a negative amount at the end of 31 March 2012, he or she must be
treated as having a capital gain equal to that negative amount on 31 March 2012 and the base cost of
those shares at the end of 31 March 2012 must be treated as nil.
For the purposes of the rules governing part disposals of assets (see 21.5), the market value of the part
disposed of under the above rules must be treated as being equal to the amount of the cash or the
market value of the asset received or accrued by way of a return of capital or foreign return of capital.
is received by or accrues to a holder of a share in respect of that share, the return of capital or foreign
return of capital is received by or accrues to the holder of the share on or after 1 April 2012 and prior to
the disposal of the share, and the share constitutes a pre-valuation date asset of the holder of the share,
for the purposes of the determination of the date of acquisition of the share and the base-cost
expenditure on the cost of acquisition of the share, the holder of the share must be treated as having
disposed of the share at a time immediately before the return of capital or foreign return of capital is
received or accrues for an amount equal to its market value at that time and having immediately
reacquired it at that time at an expenditure equal to that market value. The market value must for this
purpose be reduced by any capital gain that would have been determined had the share been disposed
of at market value at that time and increased by any capital loss that would have been determined had
the share been disposed of at market value at that time.
This expenditure must be treated as expenditure actually incurred for base-cost purposes. The market
value of a listed share for this purpose is equal to the sum of the ruling price of the share at the close of
business on the last business day before the accrual of the return of capital or foreign return of capital
and the amount of the return of capital or foreign return of capital.
is received by or accrues to a holder of a share in respect of that share and the return of capital or
foreign return of capital is received by or accrues to the holder of a share on or after 1 April 2012 and
prior to the disposal of the share, the holder of the share must reduce the expenditure in respect of the
share by the amount of that cash or the market value of the asset on the date that the asset or cash is
received by or accrues to the holder of the share.
Where the amount of a return of capital or foreign return of capital contemplated above exceeds the
expenditure in respect of the share in respect of which that return of capital or foreign return of capital
is received or accrues, the amount of the excess must be treated as a capital gain in the determination of
the shareholder’s aggregate capital gain or aggregate capital loss for the tax year in which the return of
capital or foreign return of capital is received by or accrues to the holder of the share.
A ‘return of capital’ is defined as any amount transferred by a company that is a resident for the benefit
or on behalf of any person in respect of any share in the company to the extent that the transfer results
in a reduction of contributed tax capital of the company. It applies when the amount is transferred by
way of a distribution made by or as consideration for the acquisition of any share in, the company, but
does not include any amount so transferred to the extent that the amount transferred constitutes shares
in the company or an acquisition by the company of its own securities by way of a general repurchase of
securities as contemplated in sub-para ( b) of para 5.67(B) of s 5
of the JSE Limited Listings Requirements, when that acquisition complies with any applicable
requirements prescribed by paras 5.68 and 5.72 to 5.81 of s 5 of the JSE Limited Listings Requirements.
A ‘foreign return of capital’ is defined as any amount that is paid or payable by a foreign company in
respect of any share in the foreign company when that amount is treated as a distribution or similar
payment (other than an amount that constitutes a foreign dividend) by the foreign company for the
purposes of the laws relating to tax on income on companies of the country in which the foreign
company has its place of effective management or companies of the country in which that foreign
company is incorporated, formed or established, when the country in which the foreign company has its
place of effective management does not have any applicable laws relating to tax on income, but does not
include any amount so paid or payable to the extent that the amount so paid or payable is deductible by
that foreign company in the determination of any tax on income of companies of the country in which
the foreign company has its place of effective management or constitutes shares in the foreign company.
21.29 Matching contributions and distributions
8th Sch para 79
In certain circumstances, the rules regarding capital distributions (see 21.28) will fall away if they were
made before 1 October 2007 and the shareholder must, instead, treat the amount of a capital
distribution of cash or assets in specie as a capital gain. This will happen when:
• he or she is a connected person (see 10.26) of the company making the distribution;
• the company received consideration from a new or different shareholder in respect of the issue of one
or more shares by it within two years before making the capital distribution; and
• the contribution (the issue of the shares) and the capital distribution were part of a scheme to reduce,
avoid or postpone any tax payable on the disposal of the shares under the Act or any other Act
administered by the Commissioner on the disposal of the shares.
21.30 Winding-up, liquidation and deregistration
8th Sch para 77
A holder of shares in a company that is being wound up, liquidated or deregistered must be treated as
having disposed of all his shares held in the company on a certain date. This date will be the earliest of
the following dates:
• The date of dissolution or deregistration.
• With a liquidation or winding-up, the date when the liquidator declares in writing that no reasonable
grounds exist to believe that the holders of shares in the company (or holders of shares holding the same
class of shares) will receive any further distributions in the course of the liquidation or winding-up of
the company.
When a return of capital or foreign return of capital by way of a distribution of cash or assets in specie is
received by or accrued to a holder of shares in respect of a share that is treated as having been disposed
of in terms of the above rules and the return of capital or foreign return of capital is received by or
accrues to the holder after the date of deemed disposal in terms of the above rules, the return of capital
or foreign return of capital must be treated as a capital gain for the tax year.
21.31 Foreign currency transactions
8th Sch paras 1, 43, 43B
When, during a tax year a person that is a natural person or a trust that is not carrying on a trade
disposes of an asset for proceeds in a foreign currency after having incurred expenditure in respect of
that asset in the same currency, he or she must determine the capital gain or capital loss on the disposal
in that currency and the capital gain or capital loss must be translated to the local currency at the
average exchange rate (see below) for the tax year in which the asset was disposed of or by the
application of the spot rate on the date of disposal of the asset. This rule applies subject to what is said
below.
For example, say a natural person acquires an asset for a base cost of US$1 000 and then eventually
disposes of the asset for US$1 200. The average exchange rate in the year of assessment in which the
asset is disposed of is, say, R10 to the dollar. To determine his or her capital gain, he or she must first
determine the capital gain in dollars and then translate this gain into rands at the average exchange rate
of R10 to the dollar. The capital gain expressed in dollars would be US$200.
The rand equivalent at the exchange rate of R10 to the dollar would be R2 000. His or her capital gain
would, therefore, be R2 000. Alternatively, he or she may apply the spot rate on the date of disposal of
the asset.
When, during a tax year, a person disposes of an asset (other than a disposal dealt with above) for
proceeds in a foreign currency or after having incurred expenditure on the asset in a foreign currency,
the person must, for the purposes of determining the capital gain or capital loss on the disposal of that
asset, translate the proceeds into the local currency at the average exchange rate for the tax year in
which the asset was disposed of or at the spot rate on the date of disposal of the asset and must translate
the expenditure incurred on the asset into the local currency at the average exchange rate for the tax
year during which the expenditure was incurred or at the spot rate on the date on which the expenditure
was incurred. If a capital gain or capital loss has been determined on the exchange item under the
income tax provision dealt with in 10.75, the capital gain or loss under the current provision must be
taken into account only to the extent that it exceeds the amount determined under that income tax
provision.
When a person is treated as having derived an amount of proceeds from the disposal of an asset and the
expenditure incurred to acquire that asset is determined in a foreign currency, both the amount of the
proceeds and the base cost of the asset must be treated as being denominated in the currency of the
expenditure incurred. This rule affecting base cost applies for the purposes of the determination of
deemed disposals and acquisitions (see 21.10), disposals by way of donation or for a consideration not
measurable in money and transactions between connected persons not at an arm’s length price (see
21.17), disposals by deceased persons (see 21.15) and disposals to and from deceased estates (see
21.15).
When a person has adopted the market value as the valuation date (1 October 2001) value of any asset
dealt with here, that market value must be determined in the currency of the expenditure on that asset
and must be translated to the local currency by the application of the spot rate on 1 October 2001.
Definitions
The following definitions apply for the purposes of the above provisions: The definition of ‘average
exchange rate’ reads as follows:
‘ “Average exchange rate” in relation to a year of assessment means the average determined by using
the closing spot rates at the end of daily or monthly intervals during that year of assessment which must
be consistently applied within that year of assessment.’
And ‘spot rate’ means:
‘the appropriate quoted exchange rate at a specific time by any authorized dealer in foreign exchange for
the delivery of currency.’

‘ “Foreign currency” means currency other than local currency.’
‘ “Foreign equity instrument” means—
( a) a share or depository receipt in respect of a share listed on any—
(i) stock exchange contemplated in paragraph (b) of the definition of “listed company”; (ii) any national,
regional or local exchange outside the Republic which is comparable to a stock exchange contemplated
in subparagraph (i); or
(iii) any interdealer quotation system outside the Republic that regularly publishes or releases firm buy
or sell quotations by identified brokers or dealers by electronic means or otherwise;
( b) a participatory interest in an arrangement or scheme contemplated in paragraph (e)(ii) of the

definition of “company” in section 1;
( c) any other contractual right or obligation which derives its value from any specified index outside the
Republic; or
( d) any coin made mainly from gold or platinum,
and any option, future or contract relating to such share, participatory interest, investment or
contractual right or obligation or coin.’
‘ “Listed company” means a company where its shares or depository receipts in respect of its shares
are listed on—
( a) an exchange as defined in section 1 of the Securities Services Act, 2004 (Act No. 36 of 2004) and
licensed under section 10 of that Act; or
( b) a stock exchange in a country other than the Republic which has been recognized by the Minister as
contemplated in paragraph ( c) of the definition of “recognized exchange” in paragraph 1 of the Eighth
Schedule.’
‘ “Local currency” means—
( a) in relation to a permanent establishment of a person, the functional currency of that permanent

establishment (other than the currency of any country in the common monetary area); ( b) in relation to
a headquarter company, in respect of amounts which are not attributable to a permanent establishment
outside the Republic, the functional currency of that headquarter company;
( c) in relation to a domestic treasury management company, in respect of amounts which are not
attributable to a permanent establishment outside the Republic, the functional currency of that domestic
treasury management company;
( d) in relation to an international shipping company defined in section 12Q, in respect of amounts which
are not attributable to a permanent establishment outside the Republic, the functional currency of that
international shipping company; or
( e) in any other case, the currency of the Republic.’

Headquarter companies are discussed in 16.37, while the term ‘functional currency’ is defined in 15.2.
Corporate restructuring
reliefs
22.1 General
rules
ss 1, 41
A number of lengthy and complex reliefs cater for various forms of corporate restructuring identified as
‘asset-for-share transactions’, ‘substitutive share-for-share transactions’, ‘amalgamation transactions’,
‘intra-group transactions’, ‘unbundling transactions’ and ‘termination distributions’. These are designed
to reduce the fiscal transaction costs involved in a corporate restructuring. They – and the various reliefs
they offer – are described in this chapter.
Being directed at persons (see 1.1), the reliefs, at least in appropriate circumstances, embrace
individuals. But, for the sake of convenience, in this chapter the person involved is usually treated as
being an artificial person.
Many of the reliefs deal with the capital gains tax (see Chapter 21), which is referred to here as the ‘CGT’.
Tax avoidance (s 41(2))
The rules governing the reliefs override the whole of the Income Tax Act, barring the provisions listed
below, which notably include the most important of the anti-tax avoidance provisions:
• The rules governing transactions involving the acquisition of assets as consideration for the issue of
shares (see 10.4).
• The rules for establishing gains or losses on foreign exchange transactions (see 10.75).
• The rules for establishing the aggregate capital gain or aggregate capital loss of a REIT or a controlled
company (see 16.30).
• The anti-avoidance provisions mostly concerned with the abuse of assessed losses (see 18.8
and 17.14).
• The general anti-avoidance provisions (see 18.8).
• The CGT anti-avoidance measures involving value-shifting arrangements (see 21.22).
• The rules for establishing an adjusted gain on transfer or redemption of an instrument and an adjusted
loss on transfer or redemption of an instrument (see 7.5).
Tax avoidance (s 41(3))
The reliefs do not apply to transactions under which assets are disposed of to a long-term insurer and
are to be held in its untaxed policyholder fund (see 16.13).
Required steps for liquidations and deregistrations (s 41(4))
For purposes of the corporate restructuring reliefs, the liquidation, winding-up or deregistration of a
company (see 14.1) is required to be carried out in a particular manner. The required steps are
described here.
In the first instance, a company must be deemed to have taken steps to liquidate or wind up if:
• It has lodged a resolution authorising its voluntary winding-up for registration under s 80(2) of the
Companies Act 71 of 2008, if s 80(2) applies to it, under Regulation 21 of the Regulations under the Co-
operatives Act 14 of 2005, published under s 95 of that Act in GN R 366 of 30 April 2007, if it is a co-
operative, or under a similar foreign law relating to the liquidation of companies incorporated outside
South Africa, if that foreign law requires such a registration.
441
442 CORPORATE RESTRUCTURING RELIEFS
• The manager, trustee or custodian of the portfolio of the collective investment scheme in property has,
on or after 24 October 2013, under s 102(1) or (2) of the Collective Investment Schemes Control Act
applied for the winding up of the portfolio.
• It has disposed of all of its assets and has settled all of its liabilities, other than assets required to
satisfy its reasonably anticipated liabilities to any sphere of government of any country and the costs of
administration relating to the liquidation or winding-up.
In the second instance, a company must be deemed to have taken steps to deregister if:
• It has lodged a request for its deregistration in the prescribed form and manner with the Companies
and Intellectual Property Commission under s 82(3)( b)(ii) of the Companies Act 71 of 2008, or it has
filed a notice of amalgamation or merger in the prescribed form and manner with the Companies and
Intellectual Property Commission under s 116 of the Companies Act. If it is incorporated in some other
country, it must have lodged a request or notice with a person who, under a similar foreign law,
exercises the powers and performs the duties assigned to the Companies and Intellectual Property
Commission, but only if the foreign law requires such a submission.
Further requirements are to be fulfilled in addition to one of these first two: A company must be deemed
to have taken steps to liquidate, wind up or deregister if:
• it has submitted a copy of the required resolution or the request or notice to the Commissioner for
SARS; and
• all its returns or information required to be submitted or furnished to the Commissioner under any Act
administered by him must, presumably by the end of the relevant period within which the required
steps must be taken, have been submitted or furnished, or arrangements must have been made with him
for the submission of any outstanding returns or furnishing of information.
Reporting obligations (s 41(5))
The Commissioner for SARS may prescribe the circumstances under which someone entering into a
corporate restructuring qualifying for the reliefs must furnish a return to him of the transaction or
distribution involved.
Deemed recoupments (s 41(7))

Mining ‘excess recoupments’ (see 16.20) and amounts included in gross income upon the disposal of a
plantation (see 12.11) are for the purposes of the corporate restructuring reliefs deemed to be
allowances recovered or recouped.
Deferments (s 41(9))
A company that has chosen to defer the taxation of a capital gain under the special deferment rules (see
21.25 and 21.26) disposes of or distributes a replacement asset under one of the corporate restructuring
reliefs, it must disregard any capital gain or amount recovered or recouped (see 10.7) that was
apportioned to the asset under the deferment rules and which otherwise would have had to be brought
to account at the time of the disposal or distribution, while it and the company acquiring the
replacement asset must be treated as one and the same person for the purposes of the income tax (see
10.7) and CGT (see 21.25 and 21.26) deferment rules.
Other concessions
These forms of corporate restructuring are also favoured by transfer duty and stamp duty reliefs.
Words defined for general purposes of the Income Tax Act retain their defined meanings for purposes of
the restructuring reliefs, while the following definitions apply specifically to all forms of corporate
restructuring dealt with in this chapter. (When the terms defined here are used in this chapter no cross-
references or other forms of identification are provided in the text).
CORPORATE RESTRUCTURING RELIEFS 443
An ‘allowance asset’ is a capital asset qualifying for a deduction or allowance under the Income Tax Act
other than in the determination of a capital gain or a capital loss (see 21.3) or a debt qualifying for the
deduction for bad debts (see 10.25) or the allowance for doubtful debts (see 10.25).
An ‘asset’ is an asset as defined for CGT purposes (see 21.2).
‘Base cost’ is the base cost as defined for CGT purposes (see 21.5). But when the base cost of an asset as
at a specific date is to be determined for CGT purposes, its amount must, for purposes of asset-for-share
transactions (see 22.2) or amalgamation transactions (see 22.4), be determined as if the asset had been
disposed of on that date for an amount received or accrued equal to its market value as at that date.
A ‘capital asset’ is an asset as defined for CGT purposes that does not constitute trading stock (see
10.66).
A ‘company’ does not include a headquarter company (see 16.37). For the purposes of asset-for-share
(see 22.2) and amalgamation (see 22.4) transactions the term includes a collective investment scheme in
securities or a hedge fund collective investment scheme (see 16.7) (unit trusts).
The ‘date of acquisition’ is the date of acquisition as determined for CGT purposes or, when someone
acquires an asset under a transaction dealt with in this chapter, the deemed date of acquisition by it of
that asset as described in this chapter.
‘Debt’ includes any contingent liability. And a contingent liability is deemed to be a debt actually
incurred.
A ‘disposal’ is a disposal as defined for CGT purposes (see 21.9) and any deemed disposal under the
corporate restructuring reliefs.
An ‘equity share’, for the purposes of asset-for-share (see 22.2) and amalgamation (see 22.4)
transactions, includes a participatory interest in a collective investment scheme in securities or in a
portfolio of a hedge fund collective investment scheme (see 16.7).
A ‘group of companies’ is made up of two or more companies in which one company, the ‘controlling
group company’, directly or indirectly holds shares in at least one other company, a
‘controlled group company’, to the extent that at least 70% of the equity shares of each controlled
group company are directly held by the controlling group company, one or more other controlled group
companies, or any combination of such holdings, as long as the controlling group company directly holds
at least 70% of the equity shares in at least one controlled group company.
This definition is qualified for the purposes of the corporate restructuring reliefs:
• A company that would otherwise form part of a group of companies will not form part of that group of
companies if it is a co-operative; an association formed in South Africa to serve a specified purpose,
beneficial to the public or a section of the public; the foreign equivalent of a unit trust in participation
bonds or equities; a ‘non-profit company’ as defined in s 1 of the Companies Act 71 of 2008; a company
capable of deriving an amount constituting gross income of whatever nature that would be exempt from
income tax; an approved public benefit organisation (see 16.25) or recreational club (see 16.26); a
foreign company that has its place of effective management outside South Africa; or any other company
that has its place of effective management outside South Africa.
• Any share that would otherwise be an equity share will be deemed not to be an equity share if it is held
as trading stock or any person is under a contractual obligation to sell or purchase it or has an option to
sell or purchase it, unless that obligation or option provides for its sale or purchase at its market value at
the time of the sale or purchase.
A ‘listed company’ is a company whose shares or depository receipts for its shares are listed on a
‘stock exchange’ as defined in the Securities Services Act 36 of 2004 and licensed under s 10 of that Act
or a stock exchange in a foreign country recognised by the Minister of Finance for CGT
purposes.
The ‘market value’ of an asset is the price that could be obtained upon its sale between a willing buyer
and a willing seller dealing at arm’s length in an open market.
For purposes of asset-for-share transactions, amalgamation transactions, intra-group transactions and

liquidation distributions, ‘trading stock’ includes a farmer’s livestock or produce (see Chapter 12).
References to provisions governing ordinary trading stock are required to be construed as references to
provisions governing a farmer’s livestock or produce.
An ‘unlisted company’ is a company that is not a ‘listed company’ (see above).
22.2 Asset-for-share
transactions
s 42
There are two types of an asset-for share transaction.
The first type of ‘asset-for-share transaction’ is a transaction under which:
• A person disposes of an asset (but not a restraint of trade or personal goodwill) to a company (see
14.1) that is a resident (see 1.1) in exchange for the issue of an equity share (see 14.7) in that company.
At the close of the day on which the asset is disposed of, that person must hold a qualifying interest in
the company or be a natural person who will be engaged on a full-time basis in the business of that
company or its controlled group company in rendering a service. If the person held the asset as a capital
asset, its market value must equal or exceed its base cost at the date of its disposal. If the person held the
asset as trading stock (see 10.66), its market value must equal or exceed the amount taken into account
under the so-called general deduction formula (its cost; see 10.14) or the trading-stock provisions
(referred to here as its closing-stock value) (see 10.66).
• If that person holds the asset as trading stock, the company must acquire it from that person as trading
stock. If that person holds the asset as a capital asset, the company must acquire it from that person as a
capital asset. If that person holds the asset as a capital asset and the person and the company do not
form part of the same group of companies, the company must acquire it from that person as trading
stock.
Excluded is a transaction meeting the requirements of the first bullet point under which a person
disposes of an equity share in a listed company or in an equity unit trust or hedge fund unit trust to
another company and, after that disposal, together with any other transaction that is concluded on the
same terms as that transaction; and within a period of ninety days after that disposal, the other company
holds at least 35% of the equity shares of the listed company or unit trust or at least 25%
of the equity shares of the listed company or unit trust if no person other than the other company holds
an equal or greater amount of equity shares in the listed company or unit trust or disposes of an asset to
a hedge fund unit trust.
The second type of ‘asset-for-share transaction’ is a transaction under which:
• A person that is a company disposes of an asset constituting an equity share held by it in a foreign
company (see 15.2) as a capital asset, the market value of which is equal to or exceeds its base cost on
the date of the disposal, to another foreign company in exchange for the issue of an equity share in that
other foreign company, and, immediately before the asset is disposed of under the transaction, that
person and the other foreign company form part of the same group of companies and the other foreign
company is a controlled foreign company (see 15.2) in relation to any company that is a resident and
that forms part of that group of companies. For this purpose, a group of companies is not such a group as
defined in 22.1 but as defined in 14.1, that is, as defined in 22.1 but without the qualifications.
• At the close of the day on which the asset is disposed of under the transaction more than 50% of the
equity shares in the foreign company must be directly or indirectly held by a resident (whether
alone or together with any company forming part of the same group of companies as the resident), or at
least 70% of the equity shares in the other foreign company must be directly or indirectly held by a
resident (whether alone or together with any other company forming part of the same group of
companies as the resident).
A person’s ‘qualifying interest’ is:
• an equity share held by that person in a company that is a listed company or will become one within
twelve months after the transaction as a result of which that person holds that share;
• an equity share held by that person in a collective investment scheme in securities (see 16.7);
• equity shares held by that person in a company constituting at least 10% of the equity shares and that
confer at least 10% of the voting rights of a company;
• an equity share held by that person in a company forming part of the same group of companies as that
person; or
• an equity share held by that person in a hedge fund unit trust.
Rollovers for persons disposing of assets (s 42(2))
The relief for an asset-for-share transaction applies when a person disposes of an asset to a company
under such a transaction.
The person disposing of an asset is deemed:
• Under the first type of asset-for-share transaction, to have disposed of it for an amount equal to its
base cost on the date of its disposal if it is a capital asset or at its cost or closing-stock value if it is trading
stock.
• Under the second type of asset-for-share transaction, to have disposed of it for an amount equal to its
base cost on the date of its disposal.
• To have acquired the company’s equity shares on the date that it acquired the asset it disposed of to
the company (except, when it is not an equity share, for the purpose of determining whether an asset
had been held for at least three years for the purpose of determining whether it is a capital asset; see
16.31).
• To have acquired the equity shares in the company at a deemed cost.
If the asset disposed of was a capital asset, the deemed cost of the equity shares is the cost equal to the
expenditure incurred by it on that asset allowable as the asset’s base cost for CGT purposes (see 21.5),
referred to here as its ‘CGT base cost’. Furthermore, that deemed costs is deemed to have been incurred
at the date of incurral of the original expenditure.
If the asset disposed of was trading stock, the deemed cost of the equity shares is its cost or closing-stock
value for trading-stock purposes.
If the equity shares are acquired as capital assets, their deemed cost is deemed to have been actually
incurred and paid by that person for purposes of their CGT base cost. If they were acquired as trading
stock, their deemed cost is deemed to be their cost or closing-stock value for trading-stock purposes.
Rollovers for acquiring company (s 42(2))
In the determination of the taxable income (see 1.1) derived by the company from a trade (see 10.14)
carried on by it or of a capital gain (see 21.3) or capital loss (see 21.3) arising upon the disposal by it of
the asset, it and the person must be deemed to be one and the same person for certain purposes: Capital
asset to capital asset
If the asset is acquired by the company as a capital asset from a person who disposes of it as a capital
asset:
• Its date of acquisition by that person.
• The amount and date of incurral by that person of its CGT base cost.
• The opening valuation of the asset effected by the person within the two-year period allowed under
the CGT (see 21.6).
Trading stock to trading stock
If the asset is acquired by the company as trading stock from a person who disposes of it as trading
stock:
• The amount and date of incurral by that person of its cost or closing-stock value.
Capital asset to trading stock
If the asset is acquired by the company as trading stock from a person who disposes of it as a capital
asset:
• The amount and date of incurral by that person of its CGT base cost.
• The opening market value of the asset determined for CGT purposes.
The amount of the person’s CGT base cost is deemed to be the company’s cost or closing-stock value of
the asset.
These rules do not apply to an asset-for-share transaction under which a person disposes of an equity
share (see 14.7) in a listed company or in an equity unit trust to another company when, after the
disposal, together with any other asset-for-share transaction that is concluded on the same terms as that
asset-for-share transaction and within a period of ninety days after that disposal, the other company
holds at least 35% of the equity shares of the listed company or unit trust, or, if no person other than the
other company holds an equal or greater amount of equity shares in the listed company or unit trust, at
least 25% of the equity shares of the listed company or unit trust.
Rollovers for both parties, allowance assets (s 42(3))
Allowance asset to allowance asset
If a person disposes of an asset constituting an allowance asset in its hands to a company as part of an
asset-for-share transaction and the company acquires it as an allowance asset or the company is a REIT
or a controlled company (see 16.30) that acquires the asset as a capital asset or an allowance asset:
• No allowance on the asset allowed to that person is recovered or recouped by it or included in its
income for the year of the transfer if, up until 17 December 2017, the company is not a REIT or a
controlled company (see 16.30).
• That person and the company are deemed to be one and the same person in the determination of the
amount of an allowance or a deduction on the asset to which the company may be entitled or that is to
be recovered or recouped by or included in its income on account of the asset.
Allowance asset to trading stock
If a person disposes of an asset constituting an allowance asset in its hands to a company as part of an
asset-for-share transaction and the company acquires it as trading stock:
• No allowance on the asset allowed to that person is recovered or recouped by it or included in its
income for the year of the transfer.
Rollovers for both parties, future-expenditure allowance (s 42(3))
If a person, as part of a disposal of a business as a going concern in an asset-for-share transaction,

disposes of a contract to a company under which a debtors’ allowance (see 10.24), a future-expenditure
allowance (see 10.32) or an allowance for future repairs to certain ships (see 16.32) was allowable to
that person for that contract in the year preceding that in which the contract is
transferred or would have been allowable to it in the year of the transfer had that contract not been
transferred:
• None of those allowances allowed to that person is included in its income for the year of the transfer.
• The person and the company are deemed to be one and the same person for purposes of the
determination of the amount of those allowances to which the company may be entitled or that is to be
included in its income.
Contributed tax capital (s 42(3A))
For purposes of the definition of contributed tax capital, if an asset is disposed of by a person to a
company under the first type of asset-for-share transaction and that person at the close of the day on
which that asset is disposed of holds a qualifying interest in that company under the 10% rule (equity
shares held by that person in a company constituting at least 10% of the equity shares and voting rights
of a company; see above), or is a natural person who will be engaged on a full-time basis in the business
of that company or a controlled group company of that company in rendering a service, the amount
received by or accrued to the company for the issue of the shares is deemed to be equal to:
• if the asset is trading stock, the amount taken into account by that person as a deduction under the
general deduction provision (see 10.14) or as trading stock (see 10.66); or
• if the asset is an asset other than trading stock, its base cost determined at the time of its disposal by
that person.

This contributed-tax-capital rule does not apply to an asset-for-share transaction under which a person
disposes of an equity share in a listed company or in an equity unit trust to any other company if, after
the disposal, together with any other asset-for-share transaction that is concluded on the same terms
and within a period of 90 days after the disposal, the other company holds at least 35% of the equity
shares of the listed company or portfolio or, if no person other than that other company holds an equal
or greater amount of equity shares in the listed company or portfolio, at least 25% of the equity shares
of the listed company or portfolio or disposes of an asset to a hedge fund unit trust.
Mixed consideration (s 42(4))
If a person disposes of an asset to a company under an asset-for-share transaction and becomes entitled,
in exchange for the asset, to a consideration in addition to equity shares issued to it by the company, the
disposal of the asset to the company is:
• to the extent that equity shares are issued by the company to that person, deemed to be a disposal
under an asset-for-share transaction; and
• to the extent that the person becomes entitled to any other consideration, deemed to be a disposal of
part of that asset other than under an asset-for-share transaction (referred to here as a ‘normal
transaction’).
What then happens is that the amount to be determined of:
• the base cost of a capital asset at the time of its disposal;
• the amount of the allowances on an allowance asset allowed to the person; or
• the cost or closing-stock value of trading stock,
that must be attributed to the part of the asset deemed to have been disposed of under a normal
transaction must bear the same ratio to the respective amounts of the base cost, amount or cost or
closing-stock value as the market value of the consideration not consisting of equity shares issued by the
company bears to the market value of the total consideration for the asset.
This rule does not apply to a consideration taking the form of a debt assumed by the company under the
‘assumed debt’ claw-back described below.
Limited claw-back – subsequent disposal of equity share by person who disposed of assets is
disposal of trading stock (s 42(5))
A person that acquired an equity share in a company under an asset-for-share transaction and disposes
of it within a period of eighteen months after the date of its acquisition must include that amount in his
or her income to the extent that any amount received by or accrued to that person upon the disposal of
the share is less than or equal to its market value at the beginning of the period of eighteen months.
In order for this rule to apply, immediately before the disposal, more than 50% of the market value of all
the assets disposed of by that person to the company under any form of corporate restructuring eligible
for relief must be attributable to allowance assets, trading stock, or both allowance assets and trading
stock.
This rule does not apply to an intra-group transaction (see 22.5), an unbundling transaction (see 22.6), a
termination distribution (see 22.8), an involuntary disposal for CGT purposes (see 21.24) or the person’s
death.
Limited claw-back – failure by person who disposed of assets to continue holding a qualifying
interest or render full-time services (s 42(6))
If a person disposed of an asset to a company under the first type of asset-for-share transaction and,
within eighteen months after the date of that disposal, ceases, whether or not as a result of the disposal
of share in that company, to hold a qualifying interest under the 10% rule (equity shares held by that
person in a company constituting at least 10% of the equity shares and voting rights of a company) or
the group-holding rule (an equity share held by that person in a company forming part of the same
group of companies as that person) in it or to be engaged on a full-time basis in the company’s business
or that of its controlled group company in rendering services, that person is, for purposes of the
eighteen-month claw-back, the trading stock provisions and the CGT, deemed to have:
• Disposed of all the equity shares acquired under the asset-for-share transaction that are still held
immediately after that person ceased to hold a qualifying interest or to be engaged as envisaged above,
for an amount equal to their market value as at the beginning of the eighteen-month period.
• Immediately re-acquired all of the same equity shares after it ceased to hold a qualifying interest, at a
cost equal to the same amount.
This rule does not apply when that person ceases to hold a qualifying interest in the company under an
intra-group transaction, an unbundling transaction, a termination distribution, an involuntary disposal
for CGT purposes (had the asset not been a financial instrument) or as the result of the person’s death.
Limited claw-back – failure by person who disposed of assets to continue holding shares in
foreign company (s 42(6))
If a person disposed of an equity share to a foreign company under the second type of asset-for-share
transaction and, within a period of eighteen months after the date of the disposal and whether or not as
a result of the disposal, that person ceases to hold a qualifying interest appropriate to the second type of
asset-for-share transaction in the foreign company or the foreign company ceases to be that person’s
controlled foreign company or ceases to form part of the same group of companies as that person, that
person is, for purposes of the eighteen-month claw-back, the trading stock provisions and the CGT,
deemed to have:
• Disposed of all the equity shares acquired under the asset-for-share transaction that are still held
immediately after that person ceased to hold a qualifying interest, for an amount equal to their market
value as at the beginning of the eighteen-month period.
• Immediately re-acquired all of the same equity shares after it ceased to hold a qualifying interest, at a
cost equal to the same amount.
This rule does not apply when that person ceases to hold a qualifying interest in the company under an
intra-group transaction, an unbundling transaction, a termination distribution, an involuntary disposal
for CGT purposes (had the asset not been a financial instrument).
Limited claw-back – subsequent disposal of capital asset by acquiring company (s 42(7)) If a
company disposes of a capital asset within a period of eighteen months after acquiring it under an asset-
for-share transaction, so much of any capital gain determined upon its disposal as does not exceed the
amount that would have been determined had it been disposed of at the beginning of the eighteen-
month period for proceeds equal to its market value as at that date may not be taken into account in the
determination of the company’s net capital gain (see 21.3) or assessed capital loss (see 21.3). Instead, it
is treated for CGT purposes in its own right as a taxable capital gain (see 21.3) derived from that gain.
Moreover, this taxable capital gain may not be set-off against the company’s assessed loss or balance of
assessed loss (see 10.71).
This rule does not apply to an asset that comprises immovable property of a company that is a REIT or
controlled company at the time of the disposal, a share or a linked unit in a company that is a REIT at the
time of the disposal, or a share or a linked unit in a company that is a property company at the time of
the disposal (see 16.30).
Limited claw-back – subsequent disposal of trading stock by acquiring company (s 42(7)) If a

company disposes of trading stock within a period of eighteen months after acquiring it under an asset-
for-share transaction, so much of the amount derived upon its disposal as does not exceed its market
value as at the beginning of the eighteen-month period and so much of the amount taken into account as
its cost or closing-stock value under the asset-for-share transaction must be deemed to be attributable
to a separate trade carried on by it. This rule does not apply to an asset that constitutes trading stock
that is regularly and continuously disposed of by the company.
Moreover, the taxable income from that deemed trade may not be set off against the company’s assessed
loss or balance of assessed loss.
Limited claw-back – subsequent disposal of allowance asset by acquiring company (s 42(7)) If a

company, other than a REIT or a controlled company (see 16.30) disposes of an allowance asset within a
period of eighteen months after acquiring it under an asset-for-share transaction, so much of an
allowance on that asset that is recovered or recouped by it or included in its income as a result of the
disposal as does not exceed the amount that would have been recovered had the asset been disposed of
at the beginning of the eighteen-month period for an amount equal to its market value as at that date
must be deemed to be attributable to a separate trade carried on by the company.
Moreover, the taxable income from that deemed trade may not be set off against the company’s assessed
loss or balance of assessed loss.
Indefinite claw-back – disposal of shares by person who disposed of assets: assumed debt (s
42(8))
A person disposing of an asset securing a targeted debt to a company under an asset-for-share

transaction must, if the company assumes that debt or an equivalent amount of debt secured by the
asset, upon the disposal of any equity share acquired by it under the asset-for-share transaction:
• When the equity share is held as a capital asset, treat so much of the face value of the debt as relates to
that equity share as a return of capital by way of a distribution of cash (see 21.28) arising from the
equity share and accruing to that person immediately after the acquisition by that person of the equity
share under the asset-for-share transaction.

• When the equity share is held as trading stock, treat so much of the face value of the debt as relates to
that equity share as income to be included in its income for the year of assessment during which the
equity share is acquired by that person under the asset-for-share transaction.
This result will ensue even if the person may be liable as surety for the payment of the debt.
This rule will apply only when the person incurred the debt:
• more than eighteen months before the disposal of the asset;
• within a period of eighteen months before the disposal, if the debt was incurred at the same time as it
acquired the asset; or
• within a period of eighteen months before the disposal, to the extent that the debt constitutes the
refinancing of a debt of the type envisaged in the two preceding items.
Indefinite claw-back – disposal of shares by person who disposed of assets: going-concern debts
(s 42(8))
A person disposing of a business undertaking as a going concern to a company under an asset-for-share

transaction must, if the disposal includes an amount of debt attributable to and that arose in the normal
course of the business undertaking, upon the disposal of any equity share acquired by it under the asset-
for-share transaction:
• When the equity share is held as a capital asset, treat so much of the face value of the debt as relates to
that equity share as an amount received or accrued for the equity share that accrues to the person in
respect of the disposal of the equity share.
• When the equity share is held as trading stock, treat so much of the face value of the debt as relates to
that equity share as an amount to be included in its income for the tax year during which the equity
share is disposed of.
This result will ensue even if the person may be liable as surety for the payment of the debt.
When inapplicable (s 42(8A))
The rules governing asset-for-share transactions do not apply to the disposal of an asset by a person to a
company if the person and the company agree in writing that it should not apply and the disposal would
not be taken into account for purposes of the determination of that person’s taxable income or assessed
loss or the proportional amount of the net income of a controlled foreign company included in a
resident’s income.
22.3 Substitutive share-for-share transactions
s 43
Rollovers – pre-valuation date asset (s 43(1A))
When a person disposes of an equity share in a company that constitutes a pre-valuation date asset and
acquires another equity share in that company in terms of a substitutive share-for-share transaction, for
the purposes of determining the date of acquisition of the equity share and the expenditure on the cost
of its acquisition, the person must be treated as having disposed of the equity share at the time
immediately before the substitutive share-for-share transaction, for an amount equal to the market
value of the equity share at that time and immediately reacquired it at that time at an expenditure equal
to that market value less any capital gain, and increased by any capital loss, that would have been
determined had the equity share been disposed of at market value at that time. This expenditure must
be treated as an amount of base-cost expenditure actually incurred at that time for CGT purposes.
Rollovers for person disposing of asset (s 43(2))
The rollover relief applies when a person disposes of an equity share interest in a company and acquires
another equity share in the same company under a substitutive share-for-share transaction. The person
is deemed to have disposed of the equity share for an amount equal to its base cost if it is a capital asset
or at its cost or closing-stock value if it is trading stock. The person is then
deemed to have acquired the other equity share acquired on the latest date on which the person
acquired any share comprising the equity share disposed of for a cost equal to the expenditure incurred
by the person as contemplated above and on the date contemplated above. This cost must, if the share is
acquired as a capital asset, be treated as base cost expenditure actually incurred and, prior to 1 April
2013, paid by the person for CGT purposes for the equity share acquired if it is acquired as a capital
asset, or at its cost if it is acquired as trading stock.
Valuation rule (s 43(3))
Any valuation of a share interest disposed of under a substitutive share-for-share transaction that was
done by the person disposing of the share interest within the prescribed period for CGT purposes (see
21.6) is, prior to 4 July 2013, deemed to have been done by the person in respect of the share interest
acquired by the person under the substitutive share-for-share transaction.
Shares plus other consideration (s 43(4))
Special rules apply when a person disposes of an equity share in a company under a substitutive share-
for-share transaction and becomes entitled, in exchange for the equity share, to any consideration other
than a dividend, foreign dividend or another equity share.
First, the above rollover relief and valuation rules do not apply to the part of the equity share disposed
of that relates to the other consideration.
Disposal of capital asset
When the equity share is disposed of as a capital asset, the base cost at the time of the disposal of the
part of the equity share relating to the other consideration is deemed to be equal to an amount that
bears to the base cost of the equity share disposed of the same ratio as the market value of that
consideration bears to the sum of the market value of that consideration and the market value of the
equity share acquired by the person under the substitutive share-for-share transaction.
Disposal of trading stock
When the equity share is disposed of as trading stock, the amount to be taken into account as the cost or
closing-stock value of the part of the equity share relating to the other consideration is deemed to be
equal to an amount that bears to the total amount taken into account for the cost or closing-stock value
of the equity share so disposed of the same ratio as the market value of the consideration bears to the
sum of the market value of the consideration and the market value of the equity share acquired by the
person under the substitutive share-for-share transaction.
If an equity share is issued in terms of a substitutive share-for-share transaction, the issue price of the
linked unit disposed of in terms of the transaction is deemed to be contributed tax capital in respect of
the class to which the equity share so acquired relates.
Definitions
‘Equity share’ includes a linked unit.
‘Substitutive share-for-share transaction’ means a transaction between a person and a company in

terms of which the person disposes of an equity share in the form of a linked unit in the company and
acquires an equity share other than a linked unit in the company.
22.4 Amalgamation
transactions
s 44
An ‘amalgamation transaction’ is a transaction under which a company (see 14.1), the ‘amalgamated
company’, which is a resident, disposes of all of its assets to another company, the ‘resultant company’,
that is a resident (see 1.1) by means of an amalgamation, a conversion or a
merger, as a result of which the amalgamated company’s existence will be terminated. It need not
dispose of assets that it elects to use to settle any debts incurred by it in the ordinary course of its trade
(see 10.14) or assets required to satisfy any reasonably anticipated liabilities to any sphere of
government of any country and the costs of administration relating to the liquidation or winding up.
Alternatively, it is a transaction under which an amalgamated company that is a foreign company (see
15.2) disposes of all of its assets to a resultant company that is a resident by means of an amalgamation,
a conversion or a merger, as a result of which the amalgamated company’s existence will be terminated.
Again, it need not dispose of assets that it elects to use to settle any debts incurred by it in the ordinary
course of its trade or assets required to satisfy any reasonably anticipated liabilities to any sphere of
government of any country and the costs of administration relating to the liquidation or winding up. But,
immediately before the transaction, any shares in the amalgamated company must be held as capital
assets.
Alternatively, it is a transaction under which an amalgamated company that is a foreign company

disposes of all its assets (other than those it chooses to use to settle any debts incurred by it in the
ordinary course of its trade and assets required to satisfy any reasonably anticipated liabilities to any
sphere of government of any country and the costs of administration relating to the liquidation or
winding up) to a resultant company that is a foreign company by means of an amalgamation, conversion
or merger if immediately before the transaction the amalgamated company and the resultant company
form part of the same group of companies (leaving out the place-of-effective-management qualification;
(see 22.1), the resultant company is a controlled foreign company (see 15.2) in relation to a resident that
is part of the group of companies contemplated above, and any shares in the amalgamated company that
are directly or indirectly held by the resultant company are held as capital assets. Immediately after the
transaction, more than 50% of the equity shares in the resultant company must be directly or indirectly
held by a resident, either alone or together with another person that is a resident and forms part of the
same group of companies as the resident. In addition, the transaction must result in the termination of
the existence of the amalgamated company.
1. Rollovers for amalgamated company disposing of asset (s 44(2))
Capital asset to capital asset
An amalgamated company disposing of a capital asset under an amalgamation transaction to a resultant

company acquiring it as a capital asset must be deemed:
• To have disposed of it for an amount equal to its base cost on the date of its disposal.
This rule does not apply to an asset disposed of under the second type of amalgamation transaction
above if, on the date of the disposal, the market value of the asset is less than its base cost.
An amalgamated company disposing of an asset held by it as trading stock under an amalgamation

transaction to a resultant company acquiring it as trading stock must be deemed:
• To have disposed of that asset for an amount equal to the amount taken into account by the
amalgamated as its cost or closing-stock value.
above if, on the date of the disposal, the market value of the asset is less than its cost or closing-stock
2. Rollovers for resultant company (s 44(2))
In the determination of a capital gain (see 21.3) or capital loss (see 21.3) arising upon the disposal of the
asset by the resultant company acquired by it as a capital asset from an amalgamated
company under an amalgamation transaction and disposed of by it as a capital asset, it and the
amalgamated company are deemed to be one and the same person for these purposes:
• The date of acquisition of the asset by the amalgamated company.
• The amount and date of incurral by the amalgamated company of the asset’s CGT base cost.
• The opening valuation of the asset effected by the amalgamated company within the period allowed
under the CGT (see 21.6).
above if, on the date of the disposal the market value of the asset is less than its base cost.

In the determination of the taxable income (see 1.1) derived by the resultant company from a trade
carried on by it, it and the resultant company are deemed to be one and the same person for these
purposes:
• The date of acquisition of the asset by the amalgamated company.
• The amount and date of incurral by the amalgamated company of the asset’s cost or closing-stock
value.
above if, on the date of the disposal, the market value of the asset is less than its cost or closing-stock
3. Rollovers for both parties, allowance assets (s 44(3))
If an amalgamated company disposes of an asset constituting an allowance asset in its hands to a

resultant company as part of an amalgamation transaction and the resultant company acquires it as an
allowance asset or the resultant company is a REIT or a controlled company (see 16.30) that acquires
the asset as a capital asset or an allowance asset:
• No allowance on the asset allowed to the amalgamated company is recovered or recouped by the
amalgamated company or included in its income for the year of the transfer.
• The amalgamated company and the resultant company are deemed to be one and the same person in
the determination of the amount of any allowance on the asset to which the resultant company may be
entitled or that is to be recovered or recouped by or included in its income, except if, up until 17
December 2017, it is a REIT or a controlled company (see 16.30), on account of the asset.
4. Rollovers for both parties, future expenditure allowance (s 44(3)) When, as part of a disposal of
a business as a going concern under an amalgamation transaction, an amalgamated company disposes of
a contract to a resultant company and a debtors’ allowance (see 10.24), a future expenditure allowance
(see 10.32) or allowance for future repairs to certain ships (see 16.32) was allowable to it for the
contract in the year preceding that in which the contract is transferred, or would have been allowable to
it in the year of the transfer had the contract not been transferred:
• Neither of those allowances allowed to the amalgamated company must be included in its income for
the year of the transfer.
• The amalgamated company and the resultant company must be deemed to be one and the same person
for purposes of the determination of the amount of the allowances to which the resultant company may
be entitled or that is to be included in its income on account of those allowances.
Application (s 44(4))
These four rollover rules will not apply to a disposal of an asset by an amalgamated company to a
resultant company as part of an amalgamation transaction to the extent that the asset is so disposed of
in exchange for a consideration not comprising:
• an equity share or shares in the resultant company; or

• the assumption by the resultant company of the amalgamated company’s debt.
The actual law is confused but it appears that such debt must be qualifying debt, in the sense that, in the
first place, it must not have been incurred by the amalgamated company for the purpose of procuring,
enabling, facilitating or funding the acquisition by the resultant company of any asset under the
amalgamation transaction. Secondly, it must have been incurred by the amalgamated company more
than eighteen months before the disposal. Nevertheless, even if it was incurred within that eighteen-
month period, it will qualify if it constitutes the refinancing of a debt incurred more than eighteen
months before the disposal or is attributable to and arose in the ordinary course of a business
undertaking disposed of as a going concern to the resultant company as part of the amalgamation
transaction.
A special rule applies for the purposes of the definition of ‘contributed tax capital’.
When a resultant company issues shares in exchange for the disposal of an asset under an amalgamation
transaction, the amount received by or accrued to it as consideration for the issue of the shares is
deemed to be equal to an amount which bears to the contributed tax capital of the amalgamated
company at the time of its termination the same ratio as the value of the shares held in the amalgamated
company at that time by shareholders other than the resultant company bears to the value of all shares
held in the amalgamated company at that time.
When the amalgamated company is a portfolio of a collective investment scheme in property, the price
at which the participatory interests were issued must be added to the contributed tax capital of the class
of shares issued by the resultant company.
Limited claw-back – subsequent disposal of capital asset by resultant company (s 44(5)) If a

resultant company disposes of an asset qualifying for one of the four rollover reliefs and constituting a
capital asset in its hands within a period of eighteen months after acquiring it from the amalgamated
company under an amalgamation transaction, so much of any capital gain determined upon its disposal
as does not exceed the amount that would have been determined had it been disposed of at the
beginning of the eighteen-month period for proceeds equal to its market value as at that date may not be
taken into account in the determination of any net capital gain (see 21.3) or assessed capital loss (see
21.3) of the resultant company. Instead, it is treated for CGT purposes in its own right as a taxable
capital gain (see 21.3) derived from that gain. Moreover, this taxable capital gain may not be set off
against the resultant company’s assessed loss or balance of assessed loss (see 10.67).
Disregarded loss
On the other hand, so much of any capital loss (see 21.3) determined upon its disposal as does not
exceed the amount that would have been determined had it been disposed of at the beginning of the
eighteen-month period for proceeds equal to its market value as at that date must be disregarded in the
determination of the aggregate capital gain (see 21.3) or aggregate capital loss (see 21.3) for CGT
purposes of the resultant company. Nevertheless, the amount of the capital loss

disregarded in this manner may be deducted from the amount of any capital gain arising from the
disposal, during that year or any subsequent tax year, of any other asset acquired by the resultant
company from the amalgamated company under the amalgamation transaction.
Limited claw-back – subsequent disposal of trading stock by resultant company (s 44(5)) If a

resultant company disposes of an asset qualifying for one of the four rollover reliefs and constituting
trading stock in its hands within a period of eighteen months after acquiring it from the amalgamated
company under an amalgamation transaction, so much of the amount derived upon its disposal as does
not exceed its market value as at the beginning of the eighteen-month period and so much of the amount
taken into account as its cost or closing-stock value under the amalgamation transaction must be
deemed to be attributable to a separate trade carried on by it.
Moreover, the taxable income or assessed loss from that deemed trade may not be set off against or
added to the resultant company’s assessed loss or balance of assessed loss.
These rules do not apply to an asset that constitutes trading stock that is regularly and continuously
disposed of by the resultant company.
Limited claw-back – subsequent disposal of allowance asset by resultant company (s 44(5)) If a

resultant company, but not one that is a REIT or a controlled company (see 16.30), disposes of an asset
qualifying for, one of the four rollover reliefs and constituting an allowance asset in its hands within a
period of eighteen months after acquiring it from the amalgamated company under an amalgamation
transaction, so much of an allowance on that asset that is recovered or recouped by the resultant
company or included in its income (see 14.3) as a result of the disposal as does not exceed the amount
that would have been recovered had the asset been disposed of at the beginning of the eighteen-month
for an amount equal to its market value as at that date must be deemed to be attributable to a separate
trade carried on by the company.
Moreover, the taxable income or assessed loss from that deemed trade may not be set-off against or
added to the resultant company’s assessed loss or balance of assessed loss.
Qualifying transaction: exchange of shares in amalgamated company for shares in resultant

company (s 44(6))
This rule applies when a person who holds an equity share in an amalgamated company acquires equity
shares in the resultant company by virtue of the shareholding and pursuant to an amalgamation
transaction and those equity shares are acquired:
• As either capital assets or trading stock when the equity share in the amalgamated company is held as
a capital asset.
• As trading stock when the equity share in the amalgamated company is disposed of as trading stock.
The person concerned is deemed to have disposed of the equity share in the amalgamated company for
an amount equal to the base cost expenditure incurred by it for CGT purposes or the amount taken into
account by it as its cost or closing-stock value and to have acquired the shares in the resultant company
on the date on which it acquired the equity shares in the amalgamated company for a cost equal to the
same amount.
Moreover, it is deemed to have incurred that cost on the date on which it incurred the expenditure on
the equity share in the amalgamated company. This cost must be treated as an expenditure actually
incurred and paid by it for the equity shares in the resultant company for CGT purposes if they are
acquired as capital assets or the amount to be taken into account by it for those equity shares as their
cost or closing stock if they are acquired as trading stock. At the same time, any valuation of the equity
share in the amalgamated company that was done for CGT purposes by the person concerned within the
prescribed period is deemed to have been done by it in relation to the equity shares in the resultant
company.
An equity share in the resultant company that is acquired by the person mentioned above is deemed not
to be an amount transferred or applied by the amalgamated company for the benefit or on behalf of that
person in respect of the share held by that person in the amalgamated company.
When the person concerned becomes entitled to any consideration other than an equity share in the
resultant company, the rollover relief must not apply to that part of the equity share held by the person
in the amalgamated company that bears the same ratio to that share as the amount of the other
consideration bears to the amount of the full consideration for the share.
When the person concerned becomes entitled, by virtue of the equity share held by that person in the
amalgamated company, to any consideration other than equity shares in the resultant company, so much
of the amount of that other consideration as does not exceed the market value of all the assets of the
amalgamated company immediately before the amalgamation, conversion or merger less the liabilities
and the sum of the contributed tax capital of all the classes of shares of the amalgamated company
immediately before the amalgamation, conversion or merger must, for the purposes of the definitions of
‘dividend’, ‘foreign dividend’, ‘foreign return of capital’ and ‘return of capital’ in s 1, be deemed to be an
amount transferred or applied by the amalgamated company for the benefit or on behalf of that person
in respect of the share held by the person in the amalgamated company.
Mixed consideration (s 44(7))
If a person disposes of an equity share in an amalgamated company and becomes entitled, in exchange
for that share, to a consideration in addition to equity shares in the resultant company, the disposal of
the share to the amalgamated company must:
• to the extent that the person becomes entitled to equity shares in the resultant company, be deemed to
be a disposal under a qualifying transaction as described here; and
• to the extent that the person becomes entitled to any other consideration, be deemed to be a disposal
of part of that share other than under such a qualifying transaction, that is, as non-qualifying transaction.
What then happens is that the amount to be determined of:
• the base cost of the share, if it was disposed of as a capital asset, at the time of its disposal; or
• the cost or closing-stock value of the share, if it was disposed of as trading stock, that must be
attributed to the part of the share deemed to have been disposed of in a non-qualifying transaction must
bear the same ratio to the respective amounts of the base cost or cost or closing-stock value as the
market value of the total consideration not consisting of equity shares in the resultant company bears to
the market value of the full consideration for the share.
Disregarded disposal (s 44(8))
If an amalgamated company disposes of equity shares in a resultant company acquired by it under an

amalgamation transaction subject to one or more of the four rollover reliefs to its shareholder as part of
the amalgamation transaction, it must disregard that disposal for purposes of determining its taxable
income or assessed loss.
Relief denied when steps not taken (s 44(13))
The amalgamation transactions reliefs do not apply if the amalgamated company has not, within a
period of thirty-six months (eighteen months up to 31 December 2012) after the date of the
amalgamation transaction or a further period allowed by the Commissioner, taken the required steps
(see 22.1) to liquidate, wind up or deregister or has at any stage withdrawn any step taken to liquidate,
wind up or deregister, or does anything to invalidate any step so taken, with the result that the company
will not be liquidated, wound up or deregistered.
Any tax that becomes payable as a result of the application of this denial of relief may be recovered from
the resultant company.
Reliefs denied in other circumstances (s 44(14))
The amalgamation transactions reliefs are inapplicable to a transaction if:
• The transaction constitutes a liquidation distribution (see 22.8).
• The resultant company is a co-operative (see 16.8) or an unincorporated association formed in South
Africa to serve a specified purpose, beneficial to the public or a section of the public.
• The resultant company is a unit trust in securities and the amalgamated company is not such a unit
trust.
• The resultant company is a hedge fund unit trust and the amalgamated company is not such a unit
trust.
• The resultant company is a ‘non-profit company’ as defined in s 1 of the Companies Act 71
of 2008.
• The resultant company is an association, corporation or company incorporated under the law of a
foreign country or a body corporate formed or established under such law or a foreign unit trust that
does not have its place of effective management in South Africa.
• If any amount constituting gross income (see 1.1) of whatever nature would be exempt from income
tax were it to be received by or to accrue to the resultant company.
• The resultant company is an approved public benefit organisation or recreational club (see 16.29).
The amalgamation transactions reliefs are inapplicable to a disposal of an asset by an amalgamated

company to a resultant company upon an elective basis, as long as the amalgamated company, the
resultant company and the person disposing of equity shares jointly so elect and the circumstances fit
either one of the following descriptions:
• Amalgamated company is a local company: The resultant company and the person disposing of the
equity shares form part of the same group of companies immediately before and after the disposal.
• Amalgamated company is a foreign company: The resultant company and the person disposing of the
equity shares form part of the same group of companies (leaving out the place-of-effective-management
qualification) immediately before and after that disposal.
22.5 Intra-group
transactions
s 45
An ‘intra-group transaction’ is a transaction under which:
• An asset is disposed of by one company (see 14.1), the ‘transferor company’, to another company that
is a resident (see 1.1), the ‘transferee company’, and both companies form part of the same group of
companies as at the end of the day of the transaction.
• If the transferor company holds the asset as a capital asset, the transferee company acquires it from
the transferor company as a capital asset.
• If the transferor company holds the asset as trading stock; the transferee company acquires it from the
transferor company as trading stock.
Alternatively, it is a transaction under which an asset that constitutes an equity share held by a
transferor company as a capital asset in a foreign company is disposed of by the transferor company to a
transferee company in exchange for the issue of debt or shares other than equity shares by the
transferee company as a result of which the transferee company acquires the asset from the transferor
company as a capital asset.
It applies if, immediately before and as at the end of the day of the transaction, the transferor company
and the transferee company form part of the same group of companies (leaving out the place-of-
effective-management qualification; 22.1), the transferor company is a resident or is a
controlled foreign company (see 15.2) in relation to one or more residents that form part of that group
of companies and the transferee company is a resident or is a controlled foreign company in relation to
one or more residents that form part of that group of companies.
Rollovers for transferor company disposing of asset (s 45(2))
A transferor company disposing of a capital asset under an intra-group transaction to a transferee

company acquiring it as a capital asset is deemed:
• To have disposed of the asset for an amount equal to its base cost on the date of its disposal.
A transferor company disposing of an asset held by it as trading stock under the first type of intra-group
transaction described above to a transferee company acquiring it as trading stock is deemed:
• To have disposed of that asset for an amount equal to the amount taken into account by the transferor
company as its cost or closing-stock value.
Rollovers for transferee company (s 45(2))
In the determination of a capital gain (see 21.3) or capital loss (see 21.3) arising upon the disposal of an
asset by the transferee company acquired by it as a capital asset from a transferor company under an
intra-group transaction that disposes of it as a capital asset, it and the transferor company are deemed
to be one and the same person for the following purposes:
• The date of acquisition of the asset by the transferor company.
• The amount and date of incurral by the transferor company of the asset’s CGT base cost.
• The opening valuation of the asset effected by the transferor company within the two-year period
allowed under the CGT (see 21.6).
For the alternative type of intra-group transaction described above, this rollover rule does not apply to
an asset that constitutes an equity share disposed of by a transferor company to a transferee company
under the intra-group transaction if the transferor company is a controlled foreign company (see 15.2)
in relation to a resident, the transferee company is a resident, and the base cost of the equity share
exceeds its market value at the time of the disposal.
In the determination of the taxable income (see 1.1) derived by the transferee company from a trade
(see 10.14) carried on by it, it and the transferor company are deemed to be one and the same person
for the following purposes:
• The date of acquisition of the asset by the transferor company.
• The amount and date of incurral by the transferor company of the asset’s cost or closing-stock value.
If a transferor company transfers an asset constituting an allowance asset for the company to a
transferee company as part of an intra-group transaction (as from 1 January 2013, only the first type of
intra-group transaction described above) and the transferee company acquires it as an allowance asset
or, as from 18 December 2017, the transferee company is a REIT or a controlled company (see 16.30)
that acquires the asset as a capital asset or an allowance asset.
• No allowance on the asset allowed to the transferor company is recovered or recouped by the
transferor company or included in its income for the year of the transfer.
• The transferor company and the transferee company are deemed to be one and the same person in the
determination of the amount of an allowance or a deduction on the asset to which the transferee
company may be entitled or that is to be recovered or recouped by or included in the transferee
company’s income on account of the asset, but, up until 17 December 2017, not if the transferee
company is a REIT or a controlled company (see 16.30).
Rollovers for both parties, future expenditure allowance (s 45(3))
If a transferor company, as part of a disposal of a business as a going concern in an intra-group

transaction (as from 1 January 2013, only the first type of intra-group transaction described above),
disposes of a contract to a transferee company and a debtors’ allowance (see 10.24), a future
expenditure allowance (see 10.32) or an allowance for future expenditure on repairs (see 16.30) was
allowable to it for the contract in the year preceding that in which the contract is transferred or would
have been allowable to the transferor company in the year of that transfer had the contract not been
transferred:
• Neither of those allowances must be included in the transferor’s income for the year of the transfer.
• The transferor company and the transferee company are deemed to be one and the same person for
purposes of the determination of the amount of those allowances to which the transferee company may
be entitled or that is to be included in the transferee company’s income on account of those allowances.
Acquisition funded by debt instrument or non-equity share (s 45(3A)) Special rules apply when an
asset is acquired by a transferee company from a transferor company under an intra-group transaction
and ( a) an amount incurred by the transferee company as consideration for the acquisition of the asset
from the transferor company is funded directly or indirectly by the issue of a debt or share that does not
qualify as an equity share, while ( b) the debt or share is issued:
• by a company forming part of the same group of companies as the transferee company or the
transferor company; and
• or used for the purposes of directly or indirectly facilitating or funding the intra-group transaction.
First, the holder of such a debt or share that is part of the same group of companies as its issuer is, for
the purposes of the asset’s base cost for CGT purposes (see 21.5), deemed to have acquired it for an
amount of expenditure of nil and, for the purposes of its cost or closing-stock value if it is trading stock,
deemed to have acquired it for an amount of expenditure or cost of nil.
Secondly, when an amount (but not interest or an amount previously taken into account as interest) is
received by or accrues to the holder of such a debt from a company forming part of the same group of
companies as the holder and the amount is applied by the holder in settlement of the amount
outstanding on the debt, the amount is disregarded in the determination of the holder’s aggregate
capital gain (see 21.3) or taxable income to the extent that the amount reduces the issuer’s liability to
the holder.
Thirdly, when an amount (but not a dividend or an amount previously taken into account as a dividend;
see 9.2) is received by or accrued to a holder on such a share from a company forming part of the same
group of companies (see 14.1) as the holder and the amount is applied in reduction of the capital
subscribed for the share, the amount is again disregarded in the determination of the holder’s aggregate
capital gain or taxable income.
Indefinite claw-back – failure to continue, indefinitely, as group of companies (s 45(4)) A special

rule applies to a transferee company that has acquired an asset either ( a) by way of a disposal by a
transferor company under an intra-group transaction or ( b) by way of one or more disposals
subsequent to such an initial disposal in which, thanks to the restructuring reliefs described in this
chapter, no capital gain or capital loss was determined. But it does not apply to an

asset constituting trading stock that is regularly and continuously disposed of by the transferee
company.
The following consequences will ensue should a transferee company, while not having disposed of such
an asset and within six years after its acquisition, cease to form part of a group of companies in relation
to the transferor company or a controlling group company in relation to the transferor company:
• An amount equal to the lesser of ( a) the greatest capital gain that would have been determined on a
disposal of the asset under an intra-group transaction within the period of six years preceding the date
on which the transferee company ceased to form part of the group of companies had the relevant
rollover provision not applied to that disposal and ( b) the capital gain that would have been determined
if the asset was disposed of on the date on which the transferee company ceased to form part of the
group of companies for an amount equal to its market value on that date is deemed to be a capital gain of
the transferee company for the current tax year, while the asset’s base cost is increased by the same
amount. If the asset is an allowance asset, its cost or value must be increased by 80% of that amount.
This rule does not apply to an asset that comprises immovable property of a company that is a REIT
or controlled company at the time of the disposal, a share or a linked unit in a company that is a REIT at
the time of the disposal, or a share or a linked unit in a company that is a property company at the time
of the disposal (see 16.30).
• An amount equal to the greater of ( a) the greatest amount that would have been included in its income
as mining ‘excess recoupments’ (see 16.22) or general recoupment (see 10.7) as a result of a disposal of
the asset under an intra-group transaction within the period of six years preceding the date on which
the transferee company ceased to form part of the group of companies had the relevant rollover
provision not applied on that disposal and ( b) the amount that would have been included in income as a
mining or general recoupment if the asset was disposed of on the date on which the transferee company
ceased to form part of the group of companies for an amount equal to asset’s market value on that date
is included in the transferee company’s gross income for the current tax year, while the asset’s cost or
value for purposes of any deductions allowable on the asset (other than excluded deductions on
qualifying industrial assets; see 10.34 and 10.63) is increased by the same amount. When such an
amount is included in gross income the cost or value is deemed to be so increased immediately before
any subsequent disposal of the asset.
• An amount equal to the lesser of ( a) the greatest amount of taxable income (but not a taxable capital
gain or taxable income derived as a mining or general recoupment included in gross income) that would
have been determined on the asset’s disposal under an intra-group transaction within the period of six
years preceding the date on which the transferee company ceased to form part of the group of
companies had the relevant rollover provision not applied to that disposal and ( b) the taxable income
(but not a taxable capital gain or taxable income derived as a mining or general recoupment included in
gross income) that would have been determined if the asset was disposed of on the date on which the
transferee company ceased to form part of the group of companies for an amount equal to the asset’s
market value on that date is included in the transferee company’s taxable income for the current tax
year, while the asset’s cost is increased by the same amount.
When the transferor company or transferee company contemplated above is liquidated, wound up or
deregistered at a time when a company that is a resident (the holding company) holds at least 70% of
the equity shares of the company that is liquidated, wound up or deregistered, the holding company and
the company that is liquidated, wound up or deregistered must be deemed to be one and the same
company for the purposes of the previous paragraph.
A special rule applies when a transferee company contemplated in the alternative part of the definition
of ‘intra-group transaction’ described above that has acquired an asset that constitutes an
equity share ceases within a period of six years after the acquisition to form part of a group of
companies (leaving out the place-of-effective-management qualification; 22.1) in relation to the
transferor company or a controlling group company of such a group of companies in relation to the
transferor company, or to be a controlled foreign company (see 15.2) in relation to a resident that is part
of any such group of companies and at the time of so ceasing, the transferee company has not disposed
of the equity share. An amount equal to the lesser of the greatest capital gain that would have been
determined on a disposal of the equity share under an intra-group transaction within the period of six
years preceding the date on which the transferee company ceased to form part of the group of
companies as contemplated above had the relevant rollover rule not applied to the disposal and the
capital gain that would be determined if the asset was disposed of on the date on which the transferee
company ceases to form part of the group of companies or on the date before the transferee company
ceases to be a controlled foreign company for an amount equal to the market value of the equity share
on that date, must be deemed to be a capital gain of the transferee company for the tax year in which it
ceased to form part of the group of companies or on the date before the transferee company ceased to be
a controlled foreign company and applied to increase the base cost of the equity share.
When the transferor company or transferee company contemplated above is liquidated, wound up or
deregistered at a time when a company (the holding company), which is a resident or a controlled
foreign company (see 15.2) in relation to a resident, holds at least 70% of the equity shares of the
company that is liquidated, wound up or deregistered, the holding company and the company that is
liquidated, wound up or deregistered must be deemed to be one and the same company for purposes of
the previous paragraph.
Exclusion (s 45(4A))
These rules are inapplicable to an asset disposed of before 21 February 2008 when the transferee
company and the transferor company ceased to form part of a group of companies because of the change
to the definition of a ‘group of companies’ that came into effect on that date or to an asset disposed of on
or after 1 January 2011 when the transferee company and the transferor company cease to form part of
a group of companies because of the replacement of the definition of ‘equity share capital’ by the
definition of ‘equity shares’ that came into effect on that date.
Deemed cessation (s 45(4B))
The transferee company and transferor company concerned are deemed to have ceased to form part of a
group of companies in relation to each other if the disposal in question forms part of a transaction,
operation or scheme under which any consideration received or accrued under the disposal or more
than 10% of any amount derived directly or indirectly from that consideration has, within two years of
the disposal, been disposed of by the transferor company or by any other company forming part of the
same group of companies as the transferor company to a person not forming part of the same group of
companies as the transferor company for no consideration, for a consideration not reflecting an arm’s-
length price, or by means of a distribution (see 21.28).
When either the transferor company or the transferee company is liquidated, wound up or deregistered
at a time when a company that is a resident (see 1.1) (referred to as the ‘holding company’) holds at
least 70% of the equity shares of the company in question, the holding company and the company in
question are deemed to be one and the same company for the purposes of this claw-back.
Limited claw-back – subsequent disposal of capital asset by transferee company (s 45(5)) If a
transferee company disposes of an asset constituting a capital asset within a period of eighteen months
after acquiring it under an intra-group transaction, so much of any capital gain determined upon its
disposal as does not exceed the amount that would have been determined had it been disposed of at the
beginning of the eighteen-month period for proceeds equal to its market value as at that date may not be
taken into account in the determination of any net capital gain (see 21.3) or
assessed capital loss (see 21.3) of the company. Instead, it is treated for CGT purposes in its own right as
a taxable capital gain derived from that gain. Moreover, this taxable capital gain may not be set off
against the transferee company’s assessed loss or balance of assessed loss (see 10.71).
It also does not apply to an involuntary disposal for CGT purposes (see 21.24) or a disposal that would
have been such an involuntary disposal had the asset not been a financial instrument (see 21.8).
Disregarded loss
On the other hand, so much of any capital loss (see 21.3) determined upon the disposal of the asset as
does not exceed the amount that would have been determined had it been disposed of at the beginning
of the eighteen-month period for proceeds equal to its market value as at that date is disregarded in the
determination of the transferee company’s aggregate capital gain (see 21.3) or aggregate capital loss
(see 21.3) for CGT purposes. Nevertheless, the amount of the capital loss disregarded in this manner
may be deducted from the amount of any capital gain arising from the disposal, during that year or any
subsequent tax year, of any other asset acquired by the transferee company from the transferor
company under an intra-group transaction.
Limited claw-back – subsequent disposal of trading stock by transferee company (s 45(5)) If a

transferee company disposes of an asset constituting trading stock in its hands within a period of
eighteen months after acquiring it under an intra-group transaction, so much of the amount derived
upon its disposal as does not exceed its market value as at the beginning of the eighteen-month period
and so much of the amount taken into account as its cost or closing-stock value under the intra-group
transaction must be deemed to be attributable to a separate trade carried on by it.
Moreover, the taxable income or assessed loss from that deemed trade may not be set-off against or
added to the transferee company’s assessed loss or balance of assessed loss.
This rule does not apply to an asset constituting trading stock that is regularly and continuously
disposed of by the transferee company.
It also does not apply if, subsequent to the acquisition of an asset by a transferee company from a
transferor company under an intra-group transaction in the manner described immediately above in
relation to a capital asset (this provision is unintelligible, or close to being so), the claw-back described
above was applied to an asset, on account of a failure to continue, indefinitely, as a group of companies.
Limited claw-back – subsequent disposal of allowance asset by transferee company (s 45(5)) If a

transferee company, other than a transfer company that is a REIT or a controlled company (see 16.30),
disposes of an asset constituting an allowance asset in its hands within a period of eighteen months after
acquiring it under an intra-group transaction, so much of an allowance on that asset that is recovered or
recouped by the transferee company or included in its income (see 14.3) as a result of the disposal as
does not exceed the amount that would have been recovered had the asset been disposed of at the
beginning of the eighteen-month for an amount equal to its market value as at that date must be deemed
to be attributable to a separate trade carried on by the transferee company. Moreover, the taxable
income or assessed loss from that deemed trade may not be set-off against or added to the transferee
company’s assessed loss or balance of assessed loss.
This rule does not apply if, subsequent to the acquisition of an asset by a transferee company from a
transferor company under an intra-group transaction in the manner described immediately
above in relation to a capital asset (this provision is unintelligible, or close to being so), the claw-back
described above was applied to an asset, on account of a failure to continue, indefinitely, as a group of
companies.
Reliefs denied in disqualified circumstances (s 45(6))
The intra-group transactions reliefs are inapplicable to the disposal of an asset if:
• All the receipts and accruals of the transferee company are exempt from tax under specific exemptions
in the law.
• The asset was disposed of by the transferor company in exchange for equity shares issued by the
transferee company.
• The asset constitutes a share that is distributed by the transferor company to the transferee company.
• The asset was disposed of by the transferor company to the transferee company under a liquidation
distribution (see 22.7), regardless whether an election has been made for the provisions of that relief to
apply and regardless whether the transferee company acquired the asset as a capital asset or as trading
stock.
• The asset constitutes a share in the transferee company.
• At the time of the asset’s disposal, the transferor company and the transferee company agree in writing
that these reliefs do not apply to the disposal.
22.6 Unbundling
transactions
s 46
An ‘unbundling transaction’ is, in the first instance, a transaction under which all the equity shares of a
company (referred to as the ‘unbundled company’) that is a resident (see 1.1) held by a company
(referred to as the ‘unbundling company’) that is also a resident are distributed by the unbundling
company to any shareholder in the unbundling company in accordance with the shareholder’s effective
interest in the unbundling company’s shares. But it amounts to such a transaction only to the extent to
which the equity shares are distributed in this manner:
• If the unbundling company is a listed company and the unbundled company’s equity shares are listed
shares or will become listed shares within twelve months after the distribution – to the share-holders of
the unbundling company.
• If the unbundling company is an unlisted company – to any shareholder of the unbundling company
forming part of the same group of companies as the unbundling company.
• Under an order under the Competition Act 89 of 1998 made by the Competition Tribunal or the
Competition Appeal Court – to the shareholders of the unbundling company.
Moreover, these distributed equity shares must constitute:
• More than 25% of the unbundled company’s equity shares, if the unbundled company is a listed
company immediately before the distribution and no shareholder of the unbundled company other than
the unbundling company holds the same number of equity shares as or more equity shares than the
unbundling company of the unbundled company.
• At least 35% of the unbundled company’s equity shares, if the unbundled company is a listed company
immediately before the distribution and any shareholder in the unbundled company other than the
unbundling company holds the same number of equity shares as or more equity shares than the
• More than 50% of the unbundled company’s equity shares, if the unbundled company is an unlisted
company immediately before the distribution.
Alternatively, an ‘unbundling transaction’ is a transaction under which all the equity shares of an
unbundled company that is a foreign company held by an unbundling company that is a resident or a
controlled foreign company (see 15.2) are distributed by the unbundling company to any of the
unbundling company’s shareholders in accordance with the shareholder’s effective interest in the
unbundling company’s shares. But it amounts to such a transaction only to the extent to which those
shares are distributed in this manner to any shareholder of the unbundling company, which, if it is a
resident, forms part of the same group of companies (leaving out the place-of-effective-management
qualification; 22.1) as the unbundling company, or if the shareholder is not a resident, is a controlled
foreign company (see 15.2) in relation to any resident that forms part of the same group of companies as
the unbundling company, if, immediately before the distribution of the equity shares of an unbundled
company by an unbundling company to any shareholder of the unbundling company:
• the unbundling company holds more than 50% of the equity shares of the unbundled company;
• each of the equity shares of the unbundled company are held by the unbundling company as a capital
asset;
• when the unbundling company is a foreign company, the unbundling company is a controlled foreign
company in relation to a resident that forms part of the same group of companies as the unbundling
company.
In addition, immediately after the distribution of the equity shares of an unbundled company by an
unbundling company, more than 50% of the equity shares of the unbundled company must be directly
or indirectly held by a resident (whether alone or together with another resident that forms part of the
same group of companies as the resident) when that unbundling company is a foreign company.
An ‘unbundling transaction’ is, in the first instance, a transaction under which the equity shares in a
company (referred to as the ‘unbundled company’) that is a resident (see 1.1) held by a company
(referred to as the ‘unbundling company’) that is also a resident are all distributed by the unbundling
company to any shareholder in the unbundling company in accordance with the shareholders’ effective
interests in the unbundling company’s shares. But it amounts to such a transaction only if:
• All the equity shares of the unbundled company are listed shares or will become listed shares within
twelve months after the distribution.
• The shareholder to which the distribution is made by the unbundling company forms part of the same
group of companies as the unbundling company.
• The distribution is made pursuant to an order under the Competition Act 89 of 1998 made by the
Competition Tribunal or the Competition Appeal Court.
Moreover, these distributed equity shares must constitute:
• More than 25% of the unbundled company’s equity shares, if the unbundled company is a listed
company immediately before the distribution and no shareholder of the unbundled company other than
the unbundling company holds the same number of equity shares as or more equity shares than the
• At least 35% of the unbundled company’s equity shares, if the unbundled company is a listed company
immediately before the distribution and any shareholder in the unbundled company other than the
unbundling company holds the same number of equity shares as or more equity shares than the
• More than 50% of the unbundled company’s equity shares, if the unbundled company is an unlisted
company immediately before the distribution.
Alternatively, an ‘unbundling transaction’ is a transaction under which all the equity shares in an
unbundled company that is a foreign company held by an unbundling company that is a resident or a
controlled foreign company (see 15.2) are all distributed by the unbundling company to any of the
unbundling company’s shareholders in accordance with the shareholder’s effective interest in the
unbundling company’s shares. But it amounts to such a transaction only if the shareholder is a resident
and forms part of the same group of companies (leaving out the place-of-effective-management
qualification; 22.1) as the unbundling company, or if the shareholder is not a resident, it is a controlled
foreign company (see 15.2) in relation to any resident that forms part of the same group of companies as
the unbundling company, if, immediately before the distribution of the equity shares of an unbundled
company by an unbundling company to any shareholder of the unbundling company:
• the unbundling company holds more than 50% of the equity shares of the unbundled company; and
• each of the equity shares of the unbundled company are held by the unbundling company as a capital
asset.
Rollovers for unbundling company disposing of shares (s 46(2))
An unbundling company distributing shares under an unbundling transaction must disregard the
distribution in determining its taxable income (see 1.1) or assessed loss (see 10.71) or its net income
under the rules dealing with controlled foreign companies (see 15.2).
Rollovers for shareholder acquiring shares (s 46(3))
The shareholder acquiring equity shares (referred to as ‘unbundled shares’) under an unbundling
transaction must allocate a portion of the expenditure and any market value attributable to the equity
shares held in the unbundling company (referred to as the ‘unbundling shares’) to the unbundled
shares in accordance with the ratio that the market value of the unbundled shares, as at the end of the
day after the distribution, bears to the sum of the market value, as at the end of that day, of the
unbundling shares and of the unbundled shares. It must then reduce the expenditure and market value
attributable to the unbundling shares by the amount so allocated to the unbundled shares. The
unbundled shares are then deemed to have been acquired on the same date as the unbundling shares,
except for the purpose of determining whether a share has been held for at least three years (see 16.31).
The unbundled shares must be deemed to have been acquired as trading stock, if the unbundling shares
were held as trading stock, and as capital assets, if the unbundling shares were held as capital assets.
And any expenditure allocated to the unbundled shares is deemed to have been incurred on the date on
which the expenditure was incurred on the unbundling shares.
The following definitions apply for the purposes of this rule:
‘Expenditure’ is, in relation to unbundled shares acquired as trading stock, the amount taken into
account as the cost or closing-stock value of the unbundling shares before the unbundling transaction.
For capital assets, it is the base cost expenditure allowable for CGT purposes (see 21.5) incurred before
the unbundling transaction.
And ‘market value’ in relation to unbundling shares acquired before 1 October 2001 means the market
value adopted or determined by the shareholder of those shares within the period prescribed for CGT
purposes (see 21.6).
When shares are distributed under an unbundling transaction the contributed tax capital (see 14.11) of
the unbundling company and the unbundled company is determined under special rules:
• For the unbundling company, immediately after the distribution it is deemed to be an amount that
bears to the company’s contributed tax capital immediately before the distribution the same ratio as the
aggregate market value of the shares in the company, immediately after the distribution bears to the
aggregate market value of the shares immediately before the distribution.
• And for the unbundled company, immediately after the distribution it is deemed to be an amount equal
to the sum of ( a) an amount that bears to the unbundling company’s contributed tax capital
immediately before the distribution the same ratio as the aggregate market value of the distributed

shares before the distribution bears to the aggregate market value of the unbundling company’s shares
immediately before the distribution and ( b) an amount that bears to the unbundling company’s
contributed tax capital immediately before the distribution the same ratio as the shares held in the
company immediately before the distribution by persons other than the unbundling company bear to all
shares held in the company immediately before the distribution.
Right to acquire marketable securities (s 46(4))
If shares are distributed by an unbundling company to a shareholder under an unbundling transaction

and the shareholder previously held the unbundling shares as a result of the exercise, by the
shareholder, of an employment-related right to acquire marketable securities (see 5.9), a portion of any
gain made by the shareholder in the exercise of that right to acquire the unbundling shares must be
included in the shareholder’s income:
• In the tax year during which the shareholder becomes entitled to dispose of the shares. The portion is
an amount bearing to the gain the same ratio as the market value of the shares bears, as at the close of
the day after the date of the disposal, to the sum of the market values, as at the close of that day, of the
previously held shares and of the shares.
• In the tax year during which that person becomes entitled to dispose of the unbundling shares.
The portion must be calculated by the reduction of the gain by the amount determined or that is to be
determined in the manner detailed immediately above.
Dividends tax (s 46(5))
If shares are distributed by an unbundling company to a shareholder under an unbundling transaction

its distribution of the shares must be disregarded in the determination of any liability for the dividends
tax (see 9.4).
Inapplicability of CGT provision (s 46(5A))
When shares are distributed by an unbundling company to a shareholder in terms of an unbundling

transaction, the CGT rule dealing with the reduction of the base cost of shares as a result of distributions
(see 21.28) does not apply to the distribution.
Inapplicability of REIT provision (s 46(6A))
These provisions dealing with unbundling transactions do not apply to an unbundling transaction when
the unbundling company is a REIT (see 16.30) or a controlled company as defined in the provision
dealing with the taxation of REITs (see 16.30).
Relief denied when disqualified persons hold shares (s 46(7))
The unbundling transactions reliefs are unavailable for the first kind of unbundling transaction
described above if, immediately after a distribution of shares under an unbundling transaction, 20%
or more of the shares in the unbundled company are held by a disqualified person either alone or
together with its connected person that is also a disqualified person. A ‘disqualified person’ for this
purpose is:
• A person that is not a resident,
Current law

• An approved public benefit organization (see 16.27).
• An approved recreational club (see 16.29).
• A closure rehabilitation company or trust (see 16.23).
• A pension fund, pension preservation fund, provident fund, provident preservation fund, retirement
annuity fund, ‘beneficiary fund’, or benefit fund.
• Identified other persons or bodies that are exempt from income tax.
Election against reliefs (s 46(8))
A shareholder to whom an unlisted unbundling company disposes of shares in an unlisted unbundled

company that is the shareholder’s controlled group company immediately before and after the disposal
and the unbundling company may agree in writing that the transaction will not be treated as an
unbundling transaction subject to reliefs.
22.7 Capped expenditure on shares held in an
s 46A
unbundling company
A taxpayer acquiring a share in an unbundled company from an unbundling company under an

unbundling transaction (see 22.6) is subject to a special rule if:
• a share in the unbundling company was, within a period of two years before the acquisition, held by
the taxpayer’s connected person (see 10.27) at any time during that period; and
• any amount received by or accrued to the person upon the disposal of the share at any time during that
period would not have been subject to normal tax or would not have been taken into account for
purposes of the determination of the person’s net income under the rules dealing with controlled foreign
companies (see 15.2).
In such circumstances, and for the purposes of the entire Income Tax Act, the expenditure incurred by
the taxpayer on any share held in the company may not exceed the sum of:
• the cost of the equity share to the connected person that first held that share, less the sum of all
deductions that have been allowed on the share to any connected person that held that share during the
specified period;
• any general recoupment (see 10.7) that is required to be included in the income of any connected
person that held that share during the period arising as a result of the disposal of the share by any such
person; and
• any capital gain (see 21.3) of any connected person that held that share during the period arising as a
result of the disposal of the share by any such person.
22.8 Liquidation
distributions
s 47
A ‘liquidation distribution’ is a transaction under which a company, the ‘liquidating company’,

distributes all its assets (other than assets it elects to use to settle any debts incurred by it in the
ordinary course of its trade) to its shareholders in anticipation of or in the course of its liquidation,
winding up or deregistration, and other than assets required to satisfy any reasonably anticipated
liabilities to any sphere of government of any country and costs of administration relating to the
liquidation or winding up, but only to the extent to which those assets are so disposed of to another
company, the ‘holding company’, that is a resident and which on the date of the disposal forms part of
the same group of companies as the liquidating company.
Alternatively, a ‘liquidation distribution’ is a transaction under which a liquidating company that is a

controlled foreign company (see 15.2) disposes of all its assets to its shareholders in anticipation of or in
the course of the liquidation, winding up or deregistration of the company. It need not dispose of assets
that it elects to use to settle any debts incurred by it in the ordinary course of its trade (see 10.14). This
provision applies to the extent that the assets are so disposed of to a holding
company that is a resident forming part of the same group of companies as the liquidating company
immediately before the distribution or is a controlled foreign company (see 15.2) in relation to any
resident, if immediately before the transaction, each of the shares held by the holding company in the
liquidating company is held as a capital asset and immediately after the transaction, when the holding
company is a controlled foreign company (see 15.2), more than 50% of the equity shares in the holding
company are directly or indirectly held by a resident (either alone or together with another resident that
forms part of the same group of companies as the resident).
Rollovers for liquidating company disposing of asset (s 47(2))
A liquidating company that disposes of a capital asset under a liquidation distribution to its holding
company that acquires it as a capital asset is deemed:
• To have disposed of the asset for an amount equal to its base cost on the date of its disposal.
A liquidating company that disposes of an asset held by it as trading stock under a liquidation
distribution to its holding company that acquires it as trading stock is deemed:
• To have disposed of that asset for an amount equal to the amount taken into account by the liquidating
company as its cost or closing-stock value.
In the determination of the capital gain (see 21.3) or capital loss (see 21.3) arising upon the disposal of
the asset by the holding company acquired by it as a capital asset from the liquidating company under a
liquidation distribution that disposed of it as a capital asset, it and the liquidating company are deemed
to be one and the same person for these purposes:
• The date of acquisition of the asset by the liquidating company.
• The amount and date of incurral by the liquidating company of the asset’s CGT base cost.
• The opening valuation of the asset effected by the liquidating company within the two-year period
allowed under the CGT (see 21.6).
In the determination of the taxable income (see 1.1) derived by the holding company from a trade (see
10.14) carried on by it, it and the liquidating company are deemed to be one and the same person for
these purposes:
• The date of acquisition of the asset by the liquidating company.
• The amount and date of incurral by the liquidating company of the asset’s cost or closing-stock value.
For the alternative part of the definition of a liquidation distribution above, these rollover provisions do
not apply to any asset disposed of under the liquidation distribution to a holding company that is a
resident and forms part of the same group of companies as the liquidating company if the asset
constitutes:
• a capital asset acquired by the holding company as a capital asset and the base cost of the asset exceeds
the market value of the asset at the time of the disposal; or
• trading stock acquired by the holding company as trading stock and the amount taken into account for
the asset as its cost or closing-stock value exceeds the market value of the asset at the time of the
disposal.
If a liquidating company disposes of an asset constituting an allowance asset for the liquidating company
to its holding company as part of a liquidation distribution and the holding company acquires it as an
allowance asset or, as from 18 December 2017, the holding company is a REIT or a controlled company
(see 16.30) that acquires the asset as a capital asset or an allowance asset:
• No allowance allowed to the liquidating company on the asset is recovered or recouped by the
liquidating company or included in its income for the year of the transfer.
• The liquidating company and the holding company are deemed to be one and the same person in the
determination of the amount of any allowance to which the holding company may be entitled on the
asset or that is to be recovered or recouped by or included in the holding company’s income on account
of the asset, except, up until 17 December 2017, if the holding company is a REIT or a controlled
company (see 16.30).
Rollovers for both parties, future expenditure allowance (s 47(3))

If a liquidating company, as part of a disposal of a business as a going concern in a liquidation
distribution, disposes of a contract to its holding company and a debtors’ allowance (see 10.24) or a
future expenditure allowance (see 10.33) was allowable to it for the contract in the year preceding that
in which that contract is transferred, or would have been allowable to the liquidating company for the
year of that transfer had that contract not been transferred:
• Neither of those allowances allowed to the liquidating company on that obligation must be included in
its income for the year of the transfer.
• The liquidating company and the holding company are deemed to be one and the same person for
purposes of the determination of the amount of those allowances to which the holding company may be
entitled or that is to be included in the holding company’s income for those allowances.
Rollover relief denied (s 47(3A))
The rollover reliefs apply to a disposal of an asset by a liquidating company to its holding company
under a liquidation distribution only to the extent that equity shares held by the holding company in the
liquidating company are disposed of as a result of the liquidation, winding up or deregistration of the
liquidating company, as long as the holding company has not assumed any debt of the liquidating
company that was incurred by the liquidating company within a period of eighteen months before the
disposal. An exception arises when the debt constitutes the refinancing of any debt incurred more than
eighteen months before the disposal or is attributable to and arose in the normal course of a business
undertaking disposed of, as a going concern, to the holding company as part of the liquidation
distribution.
Limited claw-back – subsequent disposal of capital asset by holding company (s 47(4)) If a holding
company disposes of an asset constituting a capital asset in its hands within a period of eighteen months
after acquiring it from the liquidating company under a liquidation distribution, so much of any capital
gain determined upon its disposal as does not exceed the amount that would have been determined had
it been disposed of at the beginning of the eighteen-month period for proceeds equal to its market value
as at that date may not be taken into account in the determination of any net capital gain (see 21.3) or
assessed capital loss (see 21.3) of the holding company.
Instead, it is treated for CGT purposes in its own right as a taxable capital gain (see 21.3) derived from
that gain. Moreover, this taxable capital gain may not be set off against the holding company’s assessed
loss or balance of assessed loss (see 10.71).
Disregarded loss
On the other hand, so much of any capital loss (see 21.3) determined upon the disposal of an asset as
does not exceed the amount that would have been determined had it been disposed of at the beginning
of the eighteen-month period for proceeds equal to its market value as at that date is disregarded in the
determination of the aggregate capital gain (see 21.3) or aggregate capital loss (see 21.3) for CGT
purposes of the holding company. Nevertheless, the amount of the capital loss disregarded in this
manner may be deducted from the amount of any capital gain arising from the disposal, during that year
or any subsequent tax year, of any other asset acquired by the holding company from the liquidating
company under the amalgamation transaction.
Limited claw-back – subsequent disposal of trading stock by holding company (s 47(4)) If a

holding company disposes of an asset constituting trading stock in its hands within a period of eighteen
months after acquiring it from the liquidating company under a liquidation distribution, so much of the
amount derived upon its disposal as does not exceed its market value as at the beginning of the
eighteen-month period and so much of the amount taken into account as its cost or closing stock value
under the liquidation distribution is deemed to be attributable to a separate trade carried on by it.
Moreover, the taxable income or assessed loss from that deemed trade may not be set off against or
added to the holding company’s assessed loss or balance of assessed loss. This rule does not apply to an
asset constituting trading stock that is regularly and continuously disposed of by the transferee
company.
Limited claw-back – subsequent disposal of allowance asset (s 47(4)) If a holding company, other
than a REIT or a controlled company (see 16.30), disposes of an asset constituting an allowance asset in
its hands within a period of eighteen months after acquiring it from the liquidating company under a
liquidation distribution, so much of an allowance on that asset that is recovered or recouped by the
holding company or included in its income (see 14.3) as a result of the disposal as does not exceed the
amount that would have been recovered had the asset been disposed of at the beginning of the eighteen-
month period for an amount equal to its market value as at that date is deemed to be attributable to a
separate trade carried on by the company. Moreover, the taxable income or assessed loss from that
deemed trade may not be set-off against or added to the holding company’s assessed loss or balance of
assessed loss.
Disregarded disposal for holding company (s 47(5))
A holding company that, as a result of the liquidation, winding up or deregistration of the liquidating
company, disposes of an equity share in the liquidating company must disregard that disposal in
determining its taxable income (see 1.1) or assessed loss (see 10.71). Similarly, when, in anticipation of
or in the course of the liquidation, winding up or deregistration of the liquidating company, a return of
capital by way of a distribution of cash or an asset in specie by that company is received by or accrues to
the holding company, the holding company must disregard the disposal or return of capital in
determining its taxable income or assessed loss.
When reliefs denied (s 47(6))
The liquidation distribution reliefs do not apply when:
• The holding company is an approved public benefit organisation (see 16.27), an approved recreational
club (see 16.29) or a qualifying exempt body.
• The holding company and the liquidating company agree in writing that the reliefs should not apply.
• The liquidating company has not, within a period of thirty-six months after the date of the liquidation
distribution or a further period that the Commissioner allows, taken the required steps (see 22.1) to
liquidate, wind up or deregister.
• The liquidating company at any stage withdraws any such step or does anything to invalidate any step
so taken, with the result that it will not be liquidated, wound up or deregistered.
Any tax that becomes payable as a result of this denial of relief is recoverable from the holding company,
or, when the holding company is a controlled foreign company, from any resident that directly or
indirectly holds any participation rights in the controlled foreign company under the rules dealing with
controlled foreign companies.
Income Tax Tables
Natural Persons Under 65
Tax year commencing on or after 1 March 2019
Taxable Tax Marginal
Average
Taxable
income payable Rate
rate Income
RRR
80,000
180
18%
1%
80,000
96,000
3,060
18%
3%
96,000
108,000
5,220
18%
5%
108,000
120,000
7,380
18%
6%
120,000
150,000
12,780
18%
9%
150,000
180,000
18,180
24%
10%
180,000
240,000
32,512
28%
14%
240,000
360,000
66,420
31%
18%
360,000
480,000 103,620
39%
22% 480,000
600,000
150,987
39%
25%
600,000
720,000
198,021
41%
28%
720,000
960,000
296,421
41%
31%
960,000
1,200,000
394,821
41%
33%
1,200,000
1,400,000
476,821
41%
34%
1,400,000
1,500,000
517,821
45%
35%
1,500,000
Each R over
Each R over
1,500,000
45%
– 1,500,000
Notes
(1) The figures in the table are for persons under 65 years of age. Apart from the primary rebate
mentioned in note 2 below, there is a secondary rebate of R7 794 for persons aged 65 years or over at
the end of the tax year, and a tertiary rebate of R2 601 for persons aged 75 years or over.
(2) The primary rebate of R14 220 has been taken into account in the calculation of the tax payable and
the marginal and average rates of tax in the first table. The secondary, ‘over 65’ rebate of R7 794 and the
tertiary ‘over 75’ rebate of R2 601 have not been taken into account.
(3) If you qualify for the secondary, ‘over 65’ rebate or the tertiary ‘over 75’ rebate, you may determine
your liability for tax in the manner described in Chapter 2.
(4) The rebates are available only to natural persons. They are therefore not available to companies,
close corporations, trusts or the estates of deceased or insolvent persons.
472
INCOME TAX TABLES 473
(5) The marginal rate of tax is the rate of tax you pay on the increase in taxable income from one level to
the next level in the table. For example, in the table on a taxable income of R240 000
you pay tax of R32 512. If your taxable income increases to R360 000, you pay tax of R66 420, an
additional R33 908, or, in other words, a marginal rate of 28% on the extra R120 000 of taxable income.
(6) The average rate of tax is the rate of tax you pay on your total taxable income. For example, in the
table if you derive a taxable income of R180 000, you pay tax of R18 180, or, in other words, at an
average rate of 10%.
(7) Special trusts and the estates of deceased or insolvent persons pay the same rates of tax as natural
persons but are not entitled to the primary, secondary or tertiary rebates. Their liability for tax may
therefore be determined from the first table simply by adding an amount of R14 220
to the tax payable according to that table at each level of taxable income.

SA Income Tax Guide - Unknown

Uploaded by

Copyright:

Available Formats

You might also like

SA Income Tax Guide - Unknown

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

SA Income Tax Guide - Unknown

Uploaded by

Copyright:

Available Formats

Table of Contents

Members of the LexisNexis Group worldwide

First Floor, Great Westerford, 240 Main Road, Rondebosch, 7700

CHATSWOOD, New South Wales

LexisNexis Verlag ARD Orac, VIENNA

LexisNexis Benelux, AMSTERDAM

LexisNexis Canada, MARKHAM, Ontario

LexisNexis, HONG KONG

LexisNexis Poland, WARSAW

LexisNexis, DAYTON, Ohio

Print ISBN: 978 0 639 01020 5

eBook ISBN: 978 0 639 01021 2

Editor: Angela Rowe

Technical Editor: Yagan Naidoo

About this book

• Primary, secondary and tertiary rebates for natural persons increased.

• Some changes affecting the tax treatment of variable remuneration.

• Amendments affecting the deduction of interest repaid to SARS.

• Some changes affecting the tax treatment of travelling allowances.

• An amendment to the definition of a ‘broad-based employee share plan’.

• Some changes affecting controlled foreign companies.

• Amendments to the doubtful debts allowance.

• The repeal of the exemption of certified emission reductions.

• The extension of the deduction for energy efficiency savings.

• Amendments affecting special economic zones.

• An amendment affecting the valuation of trading stock.

• A change affecting the deduction for certain intellectual property.

• Amendments affecting the taxation of gains or losses on foreign exchange transactions.

• Changes affecting public benefit organisations and recreational clubs.

• Some amendments affecting the taxation of international transactions.

• Some amendments affecting corporate restructuring transactions.

• An amendment affecting farmers.

• More changes affecting retirement funds.

• Some amendments affecting short-term insurers.

• Various amendments affecting the taxation of dividends.

viii IMPORTANT CHANGES

• Amendments affecting the taxation of REITS.

• Amendments to the provisions dealing with PAYE and provisional tax.

• Numerous amendments to the capital gains tax.

About this book ................................................................................................................................ v Important

1.1 Who is liable to tax? ........................................................................................................... 1

1.2 What taxes are payable? ................................................................................................... 3

1.3 What is taxable? ................................................................................................................. 4

1.4 Taxable incomes that are free of tax ................................................................................. 5

1.5 Capital vs income .............................................................................................................. 5

2 How to calculate your taxes

2.1 The year of assessment ..................................................................................................... 7

2.2 Period of assessment less than a year .............................................................................. 7

2.3 Calculating your taxable income ....................................................................................... 7

2.4 Tax-free portion of purchased annuities ............................................................................ 7

2.8 Your rebates at a glance .................................................................................................... 12

2.10 Persons 65 or over – secondary rebate ............................................................................. 12

2.11 Persons 75 or over – tertiary rebate ................................................................................... 12

2.12 Rebates – period of assessment less than a year ............................................................. 12

2.15 Example – how to calculate tax liability ............................................................................. 13

2.16 Example – how to calculate tax liability ............................................................................. 13

2.17 Tax liability and marginal and average rates ..................................................................... 13

3 Husband and wife

3.2 A spouse’s income ............................................................................................................. 14