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ENSafrica, Taxand South Africa, explores the new Taxation Laws Amendment Bill, 2017.
The new South African Taxation Laws Amendment Bill, 2017 (the “TLAB 2017”) was released following the public consultation process for the Draft Taxation Laws Amendment Bill, 2017 (the “Draft TLAB 2017”). While some of the changes in the TLAB 2017 following submissions made on the Draft TLAB 2017 are welcome, others are problematic. The significant changes to the debt reduction rules in section 19 of the Income Tax Act, 1962 (the “ITA”) and paragraph 12A of the Eighth Schedule to the ITA discussed below will likely have taxpayers thinking twice before changing existing loan agreements.
The new section 19(2) of the ITA provides that section 19 will apply where “(a) a debt benefit in respect of a debt owed by a person arises by reason or as a result of a concession or compromise in respect of that debt; and (b) the amount of that debt was used by that person to fund, directly or indirectly, any expenditure in respect of which a deduction or allowance was granted in terms of this Act.” The same corresponding changes were made to paragraph 12A of the Eighth Schedule to the ITA.
Discover more: The Taxation Laws Amendment Bill, 2017: far-reaching changes to debt reduction rules
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This will have far-reaching consequences for changes to loan agreements that are normal in the course of business, for example:
Taxpayers must be aware that changes to loan agreements not intended as a concession or compromise may have tax consequences.