Government Notice, No. 20
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GENERAL EXPLANATORY NOTE:
] Words in bold type in square brackets indicate omissions from existing enactments. Words underlined with a solid line indicate insertions in existing enactments.
(English text signed by the President.) (Assented to 3 February 2007.)
ACT To amend the Transfer Duty Act, 1949, so as to provide for the exemption from duty of municipalities; to provide for the exemption from duty of water service providers; and to delete an obsolete provision in relation to the exemption of public benefit organisations from duty; to amend the Estate Duty Act, 1955, SO as to provide for the exemption of property bequeathed to a municipality; to amend the Income Tax Act, 1962, so as to amend, insert and delete certain definitions; to extend the exceptions to the secrecy provisions; to provide for the delegation of powers and performance of duties by the Minister; to provide that the Commissioner may deem a portion of an allowance to be actually expended in respect of subsistence expenses by employees; to further regulate the recoupment of amounts previously allowed as a deduction; to provide for the valuation of shares in a private company; to further regulate the taxation of a resident in relation to foreign companies controlled by the resident; to amend the exemption of foreign states and their institutions and other multinational organisations and their employees; to regulate the exemption of regional electricity distributors, water services providers, mining rehabilitation funds, recreational clubs, interest received or accrued by non-residents, the remuneration of the crew and officers of a ship, scholarships and bursaries, amounts paid by government in respect of assets that are to be destroyed and amounts paid in terms of an o5cial development assistance agreement; to further regulate the deduction of amounts paid to mining rehabilitation funds; to provide for the deduction of advance royalty payments; to provide for increased deductions and allowances in respect of research and development; to further regulate the taxation of small business corporations; to further regulate the deduction of amounts donated to public benefit organisations; to further regulate the deduction of expenditure and allowances and base cost in respect of assets funded by government; to further regulate the double deduction of expenditure for tax purposes; to further regulate the treatment of exchange differences; to further regulate the incurral and accrual of interest; to regulate the tax treatment of mining for oil and gas; to delete obsolete provisions in relation to the long-term insurance industry; to amend the regulation of public benefit organisations, recreational clubs and mining rehabilitation funds; to amend the definition of domestic or foreign financial instrument holding company; to further regulate the treatment of company formation and share for share transactions; to further regulate the disposal by a holding company of a share in a liquidating company; to amend the regulation of a dividend cycle; to insert General Anti-avoidance Rules; to regulate certain administrative provisions of the Act; to regulate the taxation of lump sum benefits in relation to retirement funds; to further regulate the treatment of personal service entities; to exclude public benefit organisations and recreational clubs as provisional taxpayers; to clarify the
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definition of the tax threshold; to regulate the treatment of capital gains in relation to deceased estates; to further regulate the capital gains tax treatment of assets disposed of which are used to produce exempt amounts; to provide for the treatment for capital gains tax purposes of assets disposed of for destruction by the government; to further regulate the treatment for capital gains purposes of exchange differences; to provide for the treatment of the disposal of assets by recreational clubs; to provide for the disposal of assets of a deceased estate in terms of a redistribution agreement; to amend the valuation date to cater for recreational clubs and public benefit organisations; to provide for an extension for the submission of valuations based on market value; to provide that a portion of a capital gain may be attributed to a beneficiary of a trust; to amend certain activities which are classified as public benefit activities; to confirm that donations and bequests to public benefit organisations continue to be disregarded; and to effect certain textual and consequential amendments and to delete certain obsolete provisions; to amend the Customs and Excise Act, 1964; to amend and to specify provisions relating to liability for duty of the master, pilot, any other carrier, terminal operator, combination terminal operator, bulk goods terminal operator, road vehicle terminal operator, transit shed operator, container operator and the container depot operator; to amend provisions regarding the amendment of anti-dumping, countervailing and safeguard duties and to provide for other safeguard measures and the imposition of quotas; to amend the references to items of Schedule No. 6 in respect of refunds of distillate fuel, to delete references to Schedule No. 5 and items of that Schedule and to provide for deductions from the dutiable quantity of unmarked illuminating kerosene or unmarked specified aliphatic hydrocarbon solvents; to effect a textual amendment to a refund provision; to delete the word fine from the order in which instalments paid must be utilised; to delete the word fine from the provisions relating to liens on goods and the order in which amounts recovered must be utilised; to deem that certain amendments in respect of the value for excise duty purposes came into operation on 1 July 2001; to amend Schedule No. 4 and to effect certain textual and consequential amendments; to amend the Stamp Duty Act, 1968, to provide for the exemption of municipalities, traditional communities, regional electricity distribu- tors and water service providers from duty; and to amend Schedule 1; to amend the Finance and Financial Adjustments Consolidations Act, 1977, so as to delete section 9 thereof; to amend the Value-Added Tax Act, 1991, so as to amend definitions in respect of designated entities, foreign donor funded projects, municipalities and welfare organisations; to amend and insert certain deeming provisions; to provide for the valuation of the deeming provisions; to provide for zero-rating of fixed property located in a customs controlled area, and other supplies made to an Industrial Development Zone operator, and payments made by public authorities in respect of the Animal Diseases Act, 1984; to further regulate the zero-rating of international donor funding; to provide for certain exemptions; to further regulate the circumstances where input tax deductions may be claimed; to regulate the adjustments to be made by a customs controlled area enterprise and Industrial Development Zone operator in a customs controlled area; to regulate the provisions of bad debts; to further regulate the issuing of additional assessments; to provide for a de minimus rule for refunds; to amend Schedule 1; to effect certain textual and consequential amendments and to delete certain obsolete provisions; to amend the Uncertificated Securities Tax Act, 1998, so as to amend the definition of person; to provide for the payment of uncertificated securities tax through a participant or member by the person liable for such payment; and to effect certain
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textual and consequential amendments and to delete certain obsolete provisions; to amend the Unemployment Insurance Act, 2001, so as to repeal section 3(l)(e) thereof; and to repeal section 14(u)(i) thereof; to amend the Revenue Laws Amendment Act, 2003, so as to bring certain provisions thereof into operation; and to amend an effective date provision; to amend the Taxation Laws Amendment Act, 2005, so as to extend the date for the conversion of exchanges; and to provide for a date of coming into operation of certain provisions; to amend the Small Business Tax Amnesty and Amendment of Taxation Laws Act, 2006, so as to make textual amendments; to further regulate travel allowances in respect of overseas travel; and to provide for the rates of taxation in respect of recreational clubs or public benefit organisations; and to introduce measures relating to 2010 FIFA World Cup South Africa.
E IT ENACTED by the Parliament of the Republic of South Africa, as B foii0Ws:- Amendment of section 9 of Act 40 of 1949, as amended by section 3 of Act 31 of 1953, section 12 of Act 80 of 1959, section 3 of Act 70 of 1963, section 3 of Act 77 of 1964, section 1 of Act 81 of 1965, section 7 of Act 103 of 1969, section 2 of Act 89 of 1972, section 3 of Act 66 of 1973, section 5 of Act 88 of 1974, section 77 of Act 54 of 1976, section 2 of Act 95 of 1978, section 6 of Act 106 of 1980, section 2 of Act 99 of 1981, section 2 of Act 118 of 1984, section 3 of Act 81 of 1985, section 3 of Act 86 of 1987, section 4 of Act 87 of 1988, section 36 of Act 9 of 1989, section 1 of Act 69 of 1989, section 79 of Act 89 of 1991, section 6 of Act 120 of 1992, section 4 of Act 136 10 of 1992, section 5 of Act 97 of 1993, sectioi 2 of Act 37 of 1995, section 4 of Act 126 of 1998, section 3 of Act 32 of 1999, section 3 of Act 30 of 2000, section 2 of Act 5 of 2001, section 8 of Act 60 of 2001, section 3 of Act 30 of 2002, section 4 of Act 74 of 2002, section 3 of Act 45 of 2003, section 2 of Act 16 of 2004, section 2 of Act 32 of 2004, section 2 of Act 31 of 2005 and section 16 of Act 9 of 2006
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1. Section 9 of the Transfer Duty Act, 1949, is hereby amended- (a) by the substitution in subsection (1) for paragraph (b) of the following
paragraph: “(b) any [rural council, municipal council, town council, village
council, town board, local board, village management board, 20 health committee or any district council or the Far West Rand Dolomitic Water Association formed on the 6 July, 1964, or the Rand Water Board, or the council established under section 2 of the Local Government Affairs Council Act (House of Assembly), 1989 (Act No. 84 of 1989), or the Local Authorities Loans Fund 25 Board established by section 4 of the Local Authorities Loans Fund Act, 1984 (Act No. 67 of 1984), or any regional services council established under section 3 of the Regional Services Councils Act, 1985 (Act No. 109 of 1985), or any joint services board established under section 4 of the KwaZulu and Natal 30 Joint Services Act, 1990 (Act No. 84 of 1990)] ‘municipality’ as defined in section 1 of the Income Tax Act, 1962 (Act No. 58 of
(b) by the substitution in subsection (1) for paragraph (bB) of the following
“(bB) any [irrigation board established under Chapter VI, any water board established under Chapter VI1 or any body established under Chapter VIIA of the Water Act, 1956 (Act No. 54 of 1956$, and any regional water services corporation constituted under section 7 of the Water Services Ordinance, 1963 40 (Ordinance No. 27 of 1963), of Natal] ‘water services provider’ as defined in section 1 of the Income Tax Act, 1962 (Act No. 58 of 1962);”;
1962);”;
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(c) by the substitution in subsection (l)(c) for subparagraph (i) of the following subparagraph:
“(i) a public benefit organisation [which is exempt from tax] contem- plated in paragraph (a) of the definition of ‘public benefit organisation’ in section 30( 1) of the Income Tax Act, 1962 (Act No. 58 of 1962), that has been approved by the Commissioner in terms of section [lO(l)(cN)] 30(3) of [the Income Tax Act, 1962 (Act 58 of 1962)] that Act; or”; and
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(d) by the substitution for subsection (1A) of the following subsection: “(1A) No duty shall be payable in respect of the registration of any 10
property transferred by any public benefit organisation [which is exempt from tax in terms of the provisions of section lO(l)(cN)] contemplated in paragraph (a) of the definition of ‘public benefit organisation’ in section 30( 1) of the Income Tax Act, 1962 (Act No. 58 of 1962), that has been approved by the Commissioner in terms of section 30(3) of [the 15 Income Tax Act, 19621 that Act to any other entity which is controlled by that public benefit organisation [in order to comply with the provisions of the proviso to subsection (3) of section 30 of that Act];”.
Amendment of section 4 of Act 45 of 1955, as amended by section 2 of Act 59 of 1957, section 3 of Act 65 of 1960, section 9 of Act 71 of 1961, section 9 of Act 77 of 20 1964, section 3 of Act 81 of 1965, section 2 of Act 94 of 1967, section 5 of Act 92 of 1971, section 2 of Act 70 of 1975, section 1 of Act 104 of 1976, section 4 of Act 102 of 1979, section 11 of Act 106 of 1980, section 3 of Act 99 of 1981, section 5 of Act 81 of 1985, section 6 of Act 86 of 1987, section 10 of Act 87 of 1988, section 8 of Act 97 of 1993, section 3 of Act 20 of 1994, section 7 of Act 27 of 1997, section 14 of Act 30 25 of 1998, section 8 of Act 30 of 2000, section 4 of Act 30 of 2002, section 5 of Act 74 of 2002 and section 6 of Act 31 of 2005
2. Section 4 of the Estate Duty Act, 1955, is hereby amended by the substitution in
“(iii) the State or any [local authority within the Republic] ‘municipality’ as 30 defined in section 1 of the Income Tax Act, 1962 (Act No. 58 of 1962); or”.
Amendment of section 1 of Act 58 of 1962, as amended by section 3 of Act 90 of 1962, section 1 of Act 6 of 1963, section 4 of Act 72 of 1963, section 4 of Act 90 of 1964, section 5 of Act 88 of 1965, section 5 of Act 55 of 1966, section 5 of Act 95 of 1967, section 5 of Act 76 of 1968, section 6 of Act 89 of 1969, section 6 of Act 52 of 35 1970, section 4 of Act 88 of 1971, section 4 of Act 90 of 1972, section 4 of Act 65 of 1973, section 4 of Act 85 of 1974, section 4 of Act 69 of 1975, section 4 of Act 103 of 1976, section 4 of Act 113 of 1977, section 3 of Act 101 of 1978, section 3 of Act 104 of 1979, section 2 of Act 104 of 1980, section 2 of Act 96 of 1981, section 3 of Act 91 of 1982, section 2 of Act 94 of 1983, section 1 of Act 30 of 1984, section 2 of Act 121 40 of 1984, section 2 of Act 96 of 1985, section 2 of Act 65 of 1986, section 1 of Act 108 of 1986, section 2 of Act 85 of 1987, section 2 of Act 90 of 1988, section 1 of Act 99 of 1988, Government Notice No. R.780 of 14 April 1989, section 2 of Act 70 of 1989, section 2 of Act 101 of 1990, section 2 of Act 129 of 1991, section 2 of Act 141 of 1992, section 2 of Act 113 of 1993, section 2 of Act 21 of 1994, section 2 of Act 21 of 1995, 45 section 2 of Act 36 of 1996, section 2 of Act 28 of 1997, section 34 of Act 34 of 1997, section 19 of Act 30 of 1998, section 10 of Act 53 of 1999, section 13 of Act 30 of 2000, section 2 of Act 59 of 2000, section 5 of Act 5 of 2001, section 3 of Act 19 of 2001, section 17 of Act 60 of 2001, section 9 of Act 30 of 2002, section 6 of Act 74 of 2002, section 33 of Act 12 of 2003, section 12 of Act 45 of 2003, section 3 of Act 16 of 2004, 50 section 3 of Act 32 of 2004, section 3 of Act 32 of 2005 and section 19 of Act 9 of 2006
paragraph (h) for subparagraph (iii) of the following subparagraph:
3. (1) Section 1 of the Income Tax Act, 1962, is hereby amended-
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(a) by the insertion in the definition of “company” after paragraph (b) of the following paragraph:
(b) by the substitution in the definition of “connected person” for subparagraph (i) of paragraph (d) of the following subparagraph:
“(i) [its holding company as defined in section 1 of the Companies Act, 1973 (Act No. 61 of 1973)] any other company that would be part of the same group of companies as that company as if the expression ‘at least 70 per cent’ in paragraphs (a) and (b) of the definition of ‘group of companies’ in this section were replaced by the expression ‘more than 50 per cent’;’’;
(e) by the deletion in paragraph (d) of the definition of “connected person” of subparagraphs (ii) and (iii);
(d) by the insertion after the definition of “controlled foreign company” of the following definition:
“ ‘co-operative’ means a co-operative as defined in section 1 of the Co-operatives Act, 2005 (Act No. 14 of 2005);”;
(e) by the substitution in the definition of “dividend” for paragraph (c) of the following paragraph:
“(c) in the event of [the partial] an^ reduction or redemption (other than as contemplated in paragraph (cA) of this definition) of the capital of a company (other than a portfolio, arrangement or scheme contemplated in paragraph (e) of the definition of ‘company’), including the acquisition of shares in terms of section 85 of the Companies Act, 1973 (Act No. 61 of 1973), so much of the sum of any cash and the value of any asset given to a shareholder as exceeds the cash equivalent of-
(i) the amount by which the nominal value of the shares of that
(ii) the nominal value of the shares so acquired from such
as the case may be; [and]”; by the insertion in the definition of “dividend” after paragraph (c) of the following paragraph:
“(cA) in the event of the reduction of the capital of a company pursuant to that company acquiring its own shares by means of a distribution from any other company, the amount of any reduction of the profits of that company as were available for distribution to shareholders; and”;
(8) by the insertion after the definition of “government grant” of the following
“ ‘government scrapping payment’ means any amount, in cash or otherwise, paid to any person by any department listed in Schedule 1 to the Public Service Act, 1994 (Proclamation No. 103 of 1994) (other than a provincial administration), or any such amount paid by any entity listed in the Schedules to the Public Finance Management Act, 1999 (Act No. 1 of 1999), in respect of an asset of that person supplied to that department or that entity solely for purposes of the scrapping, demolition or destruction of those assets for the purposes of public health and
“(c) any co-operative; or”;
shareholder is reduced; or
shareholder,
@)
definition:
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50 safety; ” ; (h) by the deletion of the definition of “local authority”; (i) by the substitution for the definition of “mining operations” and “mining”
of the following definition: ‘‘ ‘mining operations’ and ‘mining’ include every method or process by which any mineral [(including natural oil)] is won from the soil or 55 from any substance or constituent thereof;”:
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(j) by the insertion after the definition of “Minister” of the following definition: “ ‘municipality’ means a municipality which is within a category listed in section 155(1) of the Constitution of the Republic of South Africa, 1996, and which is an organ of state within the local sphere of government exercising legislative and executive authority within an area determined in terms of the Local Government: Municipal Demarcation Act. 1998 (Act No. 27 of 1998):”:
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( k ) by the substitution in the definition of “pension fund” for subparagraph (ii) of paragraph (a) of the following subparagraph:
“(ii) any superannuation, pension, provident or dependants’ fund or 10 pension scheme established for the benefit of the employees of any municipality or of any local authority (as defined in the definition of ‘local authority’ in section 1 prior to the coming into operation of section 3( l)(h) of the Revenue Laws Amendment Act, 2006, that was established prior to the date that section so came into operation); or”;
by the substitution in paragraph (a)($ of the definition of “pension fund” for the words preceding item (aa) of the following words:
“any fund contemplated in subparagraph (ii), which includes as members employees of any municipal entity created in accordance with the provisions of the Municipal Systems Act, 2000 (Act No. 32 of 2000), over which one or more municipalities or local authorities (as defined in section 1 prior to the coming into operation of section 3(l)(h) of the Revenue Laws Amendment Act, 2006, and that was established prior to the date that section so came into operation) exercise ownership control as contemplated by that Act, where such fund was established-”;
(m) by the substitution in paragraph (a)(iii) of the definition of “pension fund”
“(aa) on or before 14 November 2000, and such employees were employees of a local authority (as defined in section 1 prior to the coming into operation of section 3(1)(h) of the Revenue Laws Amendment Act, 2006, and that was established prior to the date that section so came into operation) immediately prior to becoming employees of such municipal entity; or”;
(n) by the insertion after the definition of “Public Private Partnership” of the following definition:
“ ‘regional electricity distributor’ means an electricity distribution services provider established after 30 June 2005 that is- (a) a public entity regulated under the Public Finance Management Act,
1999 (Act No. 1 of 1999); (b) a wholly owned subsidiary or entity of a public entity contemplated
in paragraph (a) if the operations of the subsidiary or entity are ancillary or complementary to the operations of that public entity; or
(c) a company as contemplated in paragraph (a) of the definition of ‘company’, which is wholly owned by one or more municipali- - ties;”;
(I)
for item (aa) of the following item:
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(0) by the substitution for the definition of “Republic” of the following definition:
“ ‘Republic’ means the Republic of South Africa and, when used in a geographical sense, includes the territorial sea thereof as well as any area outside the territorial sea which has been or may be designated, under international law and the laws of South Africa, as areas within which South Africa may exercise sovereign rights or jurisdiction with regard to the exploration or exploitation of natural resources:”;
(p) by the substitution in the definition of “retirement annuity fund” for subparagraph (x) of paragraph (b) of the following subparagraph:
that a member who discontinues his contributions prematurely shall be entitled to= (aa) an annuity (payable from the date on which he would have
become entitled to the payment of an annuity if he had continued his contributions) determined in relation to his actual contributions [or to];
(hh) be reinstated as a full member under conditions prescribed in the rules of the fund;
(cc) the payment of one or more lump sum benefits where that member’s interest in the fund is less than an amount determined by the Minister by notice in the Gazette from time to time;”;
(4) by the substitution in paragraph (b) of the definition of “retirement annuity fund” for subparagraph (xii) of the following subparagraph:
“(x)
“(xii) that save- (aa) as is contemplated in subparagraph (ii); [or] (bb) for the transfer of any member’s total interest in any approved
retirement annuity fund into another approved retirement annuity fund prior to the member becoming entitled to the payment of an annuity;
(cc) for the benefit contemplated in paragraph (b)(x)(cc); or (dd) as is contemplated in Part V of the Policyholder Protection
Rules promulgated in terms of section 62 of the Long-Term Insurance Act, 1998 (Act No. 52 of 1998),
no member’s rights to benefits shall be capable of surrender, commutation or assignment or of being pledged as security for any loan;”;
by the deletion of the word “or” at the end of paragraph (b) of the definition of “shareholder”, the insertion of the word “or” after paragraph (c) of that definition and the addition to that definition of the following paragraph:
“(d)in relation to any co-operative, means a member of such co-
by the insertion after the definition of “trustee” of the following definition: “‘water services provider’ means a person who provides water supply services and sanitation services and who is- (a ) a public entity regulated under the Public Finance Management Act,
1999 (Act No. 1 of 1999); (b) a wholly owned subsidiary or entity of that public entity contem-
plated in paragraph (a) if a operations of the subsidiary or entity are ancillary or complementary to the operations of that public entity;
(c) a company as contemplated in paragraph (a) of the definition of ‘company’, which is wholly owned by one or more municipalities; or
(d) a board or institution which has powers similar to a water board established in terms of the Water Services Act, 1997 (Act No. 108 of 1997), and would have fallen within the ambit of the definition of ‘local authority’ prior to the coming into operation of section 3( l)(h) of the Revenue Laws Amendment Act, 2006;”.
(2) Paragraphs ( p ) and (4) of subsection (1) shall come into operation on a date to be
( r )
operative;”; and (s)
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determined by the-President by notice in the Gazette. 60
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Amendment of section 5 of Act 58 of 1962, as substituted by section 2 of Act 6 of 1963 and amended by section 5 of Act 90 of 1964, section 6 of Act 88 of 1965, section 7 of Act 55 of 1966, section 6 of Act 95 of 1967, section 6 of Act 76 of 1968, section 7 of Act 89 of 1969, section 7 of Act 52 of 1970, section 5 of Act 88 of 1971, section 5 of Act 90 of 1972, section 5 of Act 65 of 1973, section 5 of Act 103 of 1976, section 5 of Act 113 of 1977, section 3 of Act 104 of 1980, section 4 of Act 96 of 1981, section 4 of Act 91 of 1982, section 3 of Act 94 of 1983, section 3 of Act 121 of 1984, section 3 of Act 65 of 1986, section 3 of Act 90 of 1988, section 3 of Act 129 of 1991, section 5 of Act 21 of 1994, section 4 of Act 21 of 1995, section 7 of Act 5 of 2001, section 5 of Act 19 of 2001, section 10 of Act 30 of 2082 and section 15 of Act 45 of 2003
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4. Section 5 of the Income Tax Act, 1962, is hereby amended- (a) by the substitution for subsection (2) of the following subsection:
“(2) Subject to the provisions of subsections [(2A) and] (3) to (7), inclusive, and the provisions of the Fourth Schedule. the rates of tax chargeable in respect of taxable income shall be fixed annually by 15 Parliament, but the rates fixed by Parliament in respect of any year of assessment or financial year or, if the rates so fixed have been varied by the Minister of Finance by way of an amendment made under subsection (3) which is still in force, the rates as so varied, shall be deemed to continue in force until the next such determination or variation of rates 20 and shall be applied for the purposes of calculating the tax payable in respect of any such taxable income received by or accrued to or in favour of any person during the next succeeding year of assessment or financial year, as the case may be, if in the opinion of the Commissioner the calculation and collection of the tax chargeable in respect of such taxable 25 income cannot without risk of loss of revenue be postponed until after the rates for that year have been determined.”; and
(b) by the deletion in section 5 of subsection (?A).
Amendment of section 8 of Act 58 of 1962, as amended by section 6 of Act 90 of 1962, section 6 of Act 90 of 1964, section 9 of Act 88 of 1965, section 10 of Act 55 of 30 1966, section 10 of Act 89 of 1969, section 6 of Act 90 of 1972, section 8 of Act 85 of 1974, section 7 of Act 69 of 1975, section 7 of Act 113 of 1977, section 8 of Act 94 of 1983, section 5 of Act 121 of 1984, sectian 4 of Act 96 of 1985, section 5 of Act 65 of 1986, section 6 of Act 85 of 1987, section 6 of Act 90 of 1988, section 5 of Act 101 of 1990, section 9 of Act 129 of 1991, section 6 of Act 141 of 1992, section 4 of Act 113 35 of 1993, section 6 of Act 21 of 1994, section 8 of Act 21 of 1995, section 6 of Act 36 of 1996, section 6 of Act 28 of 1997, section 24 of Act 30 of 1998, section 14 of Act 53 of 1999, section 17 of Act 30 of 2000, section 6 of Act 59 of 2000, section 7 of Act 19 of 2801, section 21 of Act 60 of 2001, section 12 of Act 30 of 2002, section 11 of Act 74 of 2002, section 18 of Act 45 of 2003, section 6 of Act 32 of 2004, section 4 of Act 40 9 of 2005 and section 21 of Act 9 of 2006
5. Section 8 of the Income Tax Act, 1962, is hereby amended- (a) by the substitution in subsection (I)(c)(ii) for the words preceding the proviso
of the following words: “for each day or part of a day in the period during which that recipient is 45 absent from his or her usual place of residence, [an] amount in respect of meals and other incidental costs, or incidental costs only, [determined by the Minister] as the Commissioner may determine for a country or region for the relevant year of assessment by way of notice in the Gazette, but limited to the amount of the allowance paid or granted 50 to meet those expenses”: and
(b) by the substitution in subsection (4) for paragraph (k j of the following paragraph:
“ (k j For the purposes of paragraph (a) , where during any year of 55 assessment any person has-
(i) donated any asset;
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(ii) in the case of a company, transferred in whatever manner or form any asset to any shareholder of that company; or
(iii) disposed of any asset to a person who is a connected person in relation to that person,
in respect of which a deduction or an allowance has been granted to such person in terms of any of the provisions referred to in that paragraph, [such] that person shall be deemed to have [recovered or recouped] disposed of that asset for an amount equal to the market value of [such]
asset as at the date of [such] that -donation, transfer or disposal.”.
Amendment of section 8B of Act 58 of 1962, as inserted by section 8 of Act 32 of 2004 and amended by section 11 of Act 31 of 2005
6. (1) Section 8B of the Income Tax Act, 1962, is hereby amended- ( a ) by the substitution in subsection (3) for paragraph (c) of the definition of
“broad-based employee share plan” of the following paragraph: “(c) the persons who acquire the equity shares as contemplated in
[subsection (l)] paragraph (a) are entitled to all dividends and full voting rights in relation to those equity shares; and”; and
(b) by the substitution in subsection ( 3 ) for subparagraphs (ii) and (iii) of paragraph (d) of the definition of “broad-based employee share plan” of the following subparagraphs, respectively:
a right of any person to acquire those equity shares from the person who acquired the equity shares as contemplated in [subsection (l)] paragraph (a ) at market value; or a restriction in terms of which the person who acquired the equity shares as contemplated in [subsection (l)] paragraph (a ) may not dispose of those equity shares for a period, which may not extend beyond five years from the date of grant;”.
(2) Subsection (I) is deemed to have come into operation on 8 November 2005 and applies in respect of any qualifying equity share disposed of on or after that date.
“(ii)
(iii)
Amendment of section 8C of Act 58 of 1962, as inserted by section 8 of Act 32 of 2004 and amended by section 12 of Act 31 of 2005
7. Section 8C of the Income Tax Act, 1962, is hereby amended by the substitution in subsection (7) for the definition of “market value” of the following definition:
‘‘ ‘market value’2 in relation to an equity instrument- (a) of a private company contemplated in section 20 of the Companies Act, 1973
(Act No. 61 of 1973), 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- (i) prescribed in the rules relating to the acquisition and disposal of that
equity instrument; (ii) which is regarded as a proxy for the market value of that equity
instrument for the purposes of those rules; and (iii) used consistently to determine both the consideration for the acquisition
of that equity instrument and the price of the equity instrument repurchased from the taxpayer after it has vested in that taxpayer; or
(b) of any other company, means the price which could be obtained upon the sale of that equity instrument between a willing buyer and a willing seller dealing freely at arm’s length in an open market and, in the case of a restricted equity instrument, had the restriction to which that equity instrument is subject not existed;”.
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Amendment of section 9 of Act 58 of 1962, as amended by section 7 of Act 90 of 1962, section 6 of Act 72 of 1963, section 7 of Act 90 of 1964, section 9 of Act 95 of 1967, section 12 of Act 89 of 1969, section 6 of Act 65 of 1973, section 9 of Act 85 of 1974, section 8 of Act 103 of 1976, section 9 of Act 121 of 1984, section 5 of Act 96 of 1985, section 6 of Act 65 of 1986, section 2 of Act 108 of 1986, section 7 of Act 85 of 1987, section 36 of Act 9 of 1989, section 10 of Act 129 of 1991, section 7 of Act 141 of 1992, section 5 of Act 113 of 1993, section 3 of Act 140 of 1993, section 7 of Act 21 of 1994, section 9 of Act 21 of 1995, section 7 of Act 28 of 1997, section 25 of Act 30 of 1998, section 15 of Act 53 of 1999, section 7 of Act 59 of 2000, section 12 of Act 74 of 2002, section 20 of Act 45 of 2003, section 11 of Act 32 of 2004 and section 13 of 10 Act 31 of 2005
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8. Section 9 of the Income Tax Act, 1962, is hereby amended- (a ) by the substitution in subsection (l)(e) for subparagraph (i) of the following
subparagraph: any services rendered by such person to or work or labour done by 15 such person for or on behalf of any employer in the national or provincial sphere of government or any [local authority] munici- palltV in the Republic or any national or provincial public entity if not less than 80 per cent of the expenditure of such entity is defrayed directly or indirectly from funds voted by Parliament, notwithstand- 20 ing that such services are rendered or that such work or labour is done outside the Republic, provided such services are rendered or such work or labour is done in accordance with a contract of employment entered into with the government or [local authority] municipality or national or provincial public entity; or” ;
(b) by the deletion in subsection (1) of paragraph (fA); and (c) by the substitution in subsection (l)(g) for subparagraph (i) of the following
subparagraph: “(i) by the Government, any provincial administration, or by any [local
authority] municipality in the Republic; or”.
“(i)
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Amendment of section 9D of Act 58 of 1962, as substituted by section 14 of Act 74 of 2002 and amended by section 22 of Act 45 of 2003, section 13 of Act 32 of 2004 and section 14 of Act 31 of 2005
9. (1) Section 9D of the Income Tax Act, 1962, is hereby amended- (a ) by the deletion in subsection (1) of the definition of “business establish- 35
ment”; (b) by the insertion in subsection (1) after the definition of “controlled foreign
company” of the following definition: ‘‘ ‘country of residence’, in relation to a controlled foreign company, means the country where that company has its place of effective 40 management;” ;
(c ) by the insertion in subsection (1) after the definition of “country of residence” of the following definition:
Y
“ ‘foreign business establishment’, in relation to a controlled foreign company, nieans- (a ) a place of business with an office, shop, factory, warehouse or other
structure which is used or will continue to be used by that controlled foreign company for a period of not less than one year, whereby the business of such company is carried on, and where that place of business-
(i) is suitably staffed with on-site managerial and operational employees of that controlled foreign company and which management and employees are required to render services on a full time basis for the purposes of conducting the primary operations of that business;
(ii) is suitably equipped and has proper facilities for such purposes; and
(iii) is located in any country other than the Republic and is used for bona $de business purposes (other than the avoidance, postponement or reduction of any liability for payment of any
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tax, duty or levy imposed by this Act or by any other Act administered by the Commissioner);
any place outside the Republic where prospecting or exploration operations for natural resources are carried on, or any place outside the *Republic where mining or production operations of natural resources are carried on, where that controlled foreign company carries on those prospecting, exploration, mining or production operations; a site outside the Republic for the construction or installation of buildings, bridges, roads, pipelines, heavy machinery or other projects of a comparable magnitude which lasts for a period of not less than six months, where that controlled foreign company carries on those construction or installation activities; agricultural land in any country other than the Republic used for bona $de farming activities directly carried on by that controlled foreign company; or a 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, where that vessel, vehicle, rolling stock or aircraft is used solely outside the Republic for such purposes and is operated directly by that controlled foreign company or by any other company that has the same country of residence as that controlled foreign company and that forms part of the same group of companies as that controlled foreign company;”;
(d) by the substitution in subsection (1) for paragraph (b) of the definition of “foreign financial instrument holding company” of the following para- graph:
“(b) any [financial] instrument [which constitutes a loan, advance or
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debt] as defined in section 24J( 1) entered into between companies which form part of the same associated group of companies;”;
by the addition in subsection (1) to the definition of “foreign financial instrument holding company” of the following further proviso:
“: Provided further that in making any such determination, paragraph (i) of the proviso to the definition of “foreign financial instrument holding company” in section 41 shall not apply;”;
by the substitution in subsection (2A) for paragraph (c) of the following
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paragraph: “(c) no deduction shall be allowed in respect of any interest, royalties,
rental or income of a similar nature paid or payable or deemed to be 40 paid or payable by that company to any other controlled foreign company (including any similar amount adjusted in terms of section 3 1) or any exchange difference determined in terms of section 241 in respect of any exchange item to which that controlled foreign company and other foreign company are parties where that 45 controlled foreign company and that other controlled foreign company form part of the same group of companies,[as contem- plated in subsection (9)(fA),l unles& hJ that resident has elected in terms of subsection (12) that the
provisions of subsection (9) shall not apply in respect of the net 50 income of that other controlled foreign company for the relevant foreign tax year;
(ii) that interest, rental, royalty, other income, adjusted amount or exchange difference is included in the net income of that other controlled foreign company;”; 55
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(g) by the substitution in subsection (9)(b) for the words preceding the proviso of the following words:
“is attributable to any foreign business establishment (including the disposal or deemed disposal of any assets forming part of that foreign business establishment) of that controlled foreign company [in any country other than the Republic]”;
(h) by the substitution in subsection (9)(b)(ii)(bb) for subitems (C) and (D) of the following items, respectively:
“(C) the products are sold by that controlled foreign company to persons who are not connected persons in relation to that controlled foreign 10 company, for physical delivery to customers’ premises situated within the country of residence of that controlled foreign company; or
(D) products of the same or similar nature are sold by that controlled foreign company mainly to persons who are not connected persons 15 in relation to that controlled foreign company for physical delivery to customers’ premises situated within the country of residence of that controlled foreign company;”;
by the substitution in subsection (9)(b)(ii)(cc) for subitems (A) and (B) of the
“(A) such service relates directly to the creation, extraction, production, assembly, repair or improvement of goods utilised within one or more countries outside the Republic; [or] such [services relate] service relates directly to the sale or marketing of goods of a connected person (in relation to that 25 controlled foreign company) who is a resident and those goods are sold to persons who are not connected persons in relation to that controlled foreign company for physical delivery to customers’ premises situated within the country of residence of that controlled
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(i) following subitems, respectively: 20
(B)
, . , foreign company;”; 30
(j) by the addition to subsection (9)(b)(ii)(cc) of the following subitems: “(C)such service is rendered mainly in the country of residence of the
controlled foreign company for the benefit of customers that have premises situated in that country; .or
(D) to the extent no deduction is allowed of any amount paid by that 35 connected person to that controlled foreign company in respect of that service;” ;
(k) by the substitution in subsection (9)(b)(iii)(aa) for the words preceding subitem (A) of the following words:
“to the extent that any income and capital gains attributable to those 40 amounts (other than income or capital gains in respect of which any of the provisions contained in paragraphs (e) to (fs) apply) do not in total exceed ten per cent of the income and capital gains of the controlled foreign company attributable to that foreign business establishment other than income or capital gains-”; 45
(1) by the deletion in subsection (9)(b)(iii)(cc) of subitem (B); (m) by the addition to subsection (9)cfA) of the following proviso:
“: Provided that any such amount may, at the election of any resident contemplated in subsection (2), be so taken into account”;
(n) by the substitution in subsection (9) for paragraph CfB) of the following 50 paragraph:
“(fs) is attributable to the disposal of any asset, as defined in the Eighth Schedule, (other than any financial instrument or intangible asset as defined in paragraph 16 of the Eighth Schedule), where that asset was attributable to any foreign business establishment of any 55 other controlled foreign company, where that company and that other controlled foreign company form part of the same group of companies; or”; and
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(0) by the substitution for subsection (IO) of the following subsection: “(IO) (a) The Cornmissioner may issue a ruling that-
deems a dace of business of a controlled foreign commnv as fulfilling ;he requirements of paragraph (a)(i) &d (ii) Aof *that definition by taking into account the utilisation of employees, equipment and facilities of any company that has the same country of residence as that controlled foreign company where that other company forms part of the same group of companies as the controlled foreign company; disregards the application of subsection (9)(b)(ii) in respect of the sale of goods or performance of services by a controlled foreign company where the foreign business establishment of that con- trolled foreign company situated in that company’s country of residence mainly serves as a central location for the sale or performance of identical or similar goods or services in at least two countries that are contiguous to the country of residence of that company; disregards the application of subsection (9)(b)(ii) to royalties received by or accrued to a controlled foreign company where that company directly and regularly creates, develops, substantially upgrades or adds value to (or provides substantial support services in respect of) intangibles giving rise to those royalties; disregards the application of subsection (9)(b)(ii) or (iii) where- (aa) the Commissioner is satisfied that the income from the sale of
goods or performance of services will be subject to tax on income by any sphere of government of countries other than the Republic; and
(bb) the amount of tax on income contemplated in item (aa) will equal at least two-thirds of the normal tax that would otherwise arise in connection with that income if subsection (9)(b)(ii) or (iii), as the case may be, were to apply in respect of that income after- (A) taking into account any applicable agreements for the
prevention of double taxation, and any credit, rebate or other right of recovery of tax from any sphere of government of any country other than the Republic; and
disregards the business activities of a bank or financier, insurer or broker of a controlled foreign company arising in any country other than that company’s country of residence where- (aa) that business is conducted through a permanent establishment
in that other country; (bb) the income from that business is subject to tax on income by
that other country by virtue of that permanent establishment; and
(cc) the rate of tax imposed by that other country will at least equal the rate of tax that would otherwise be imposed by the country of residence had the income arisen within that country- (A) taking into account any applicable agreements for the
prevention of double taxation, and any credit, rebate or other right of recovery of tax from any sphere of government of any country other than the Republic; and
(B) after disregarding any assessed losses; and
(B) after disregarding any assessed losses: Provided that the Commissioner is satisfied that application of subpara- graphs (i), (ii), (iii), (iv) or (v), as the case may be, will not lead to an unacceptable erosion of the tax base.
(b) Any ruling issued in terms of paragraph (a ) will be subject to the same procedures, terms and conditions as a “binding private ruling” as contemplated in Part IA of Chapter I11 without regard to section 76G( l)(a)(ii).”.
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(2) Subsection (1) is deemed to have come into operation on 2 November 2006 and shall apply in respect of any year of assessment ending on or after that date.
Amendment of section 10 of Act 58 of 1962, as amended by section 8 of Act 90 of 1962, section 7 of Act 72 of 1963, section 8 of Act 90 of 1964, section 10 of Act 88 of 1965, section 11 of Act 55 of 1966, section 10 of Act 95 of 1967, section 8 of Act 76 of 1968, section 13 of Act 89 of 1969, section 9 of Act 52 of 1970, section 9 of Act 88 of 1971, section 7 of Act 90 of 1972, section 7 of Act 65 of 1973, section 10 of Act 85 of 1974, section 8 of Act 69 of 1975, section 9 of Act 103 of 1976, section 8 of Act 113 of 1977, section 4 of Act 101 of 1978, section 7 of Act 104 of 1979, section 7 of Act 104 of 1980, section 8 of Act 96 of 1981, section 6 of Act 91 of 1982, section 9 of Act 94 10 of 1983, section 10 of Act 121 of 1984, section 6 of Act 96 of 1985, section 7 of Act 65 of 1986, section 3 of Act 108 of 1986, section 9 of Act 85 of 1987, section 7 of Act 90 of 1988, section 36 of Act 9 of 1989, section 7 of Act 70 of 1989, section 10 of Act 101 of 1990, section 12 of Act 129 of 1991, section 10 of Act 141 of 1992, section 7 of Act 113 of 1993, section 4 of Act 140 of 1993, section 9 of Act 21 of 1994, section 10 of Act 15 21 of 1995, section 8 of Act 36 of 1996, section 9 of Act 46 of 1996, section 10 of Act 28 of 1997, section 29 of Act 30 of 1998, section 18 of Act 53 of 1999, section 21 of Act 30 of 2000, section 13 of Act 59 of 2000, sections 9 and 78 of Act 19 of 2001, section 26 of Act 60 of 2001, section 13 of Act 30 of 2002, section 18 of Act 74 of 2002, section 36 of Act 12 of 2003, section 26 of Act 45 of 2003, section 8 of Act 16 of 2004, 20 section 14 of Act 32 of 2004, section 5 of Act 9 of 2005, section 16 of Act 31 of 2005 and section 23 of Act 9 of 2006
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10. (1) Section 10 of the Income Tax Act, 1962, is hereby amended- (a) by the substitution in subsection (1) for paragraph (a) of the following
paragraph: any provincial “(a) the receipts and accruals of the Government[,]
(b) by the substitution for paragraph (b) of the following paragraph:
(c) by the insertion in subsection (1) after paragraph (b) of the following paragraph:
administration [or of any other state];”;
“(b) the receipts and accruals of [local authorities] municipalities;”;
“(bA) the receipts and accruals of- (i) any sphere of government of any country other than the
Republic; (ii) any institution or body established by a foreign government to
the extent the institution or body has been appointed by that government to administer its responsibilities and functions in terms of an official development assistance agreement which is binding in terms of section 231(3) of the Constitution of the Republic of South Africa, 1996, and that agreement provides that those receipts and accruals of that institution or body must be exempt; or
(iii) any multinational organisation providing foreign donor fund- ing in terms of an official development assistance agreement that is binding in terms of section 231(3) of the Constitution of the Republic of South Africa Act, 1996, to the extent- (aa) the receipts and accruals are derived pursuant to the
organisation supplying goods or rendering services in relation to projects that are approved by the Minister after consultation with the Minister of Foreign Affairs;
(bb) that agreement provides that those receipts and accruals of that organisation must be exempt; and
(cc) the Minister announces that those receipts and accruals are exempt by notice in the Gazette.”;
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(d) by the insertion in subsection (1) after subparagraph (v) of paragraph ( c ) of the following subparagraph:
“(vi) any salary and emoluments payable to any person that is a subject of a foreign state and who is not a resident to the extent that that salary or those emoluments are paid by- (aa) an institution or body contemplated in subsection (l)(bA)(ii)
in respect of any agreement contemplated therein; or (bb) an organisation contemplated in subsection (l)(bA)(iii) in
respect of services rendered in relation to a project contem- plated therein. ” ;
(e) by the substitution in subsection (1) for the words preceding item (aa) of subparagraph (i) of paragraph (cA) of the following words:
“any institution, board or body (other than a company registered or deemed to be registered under the Companies Act, 1973 (Act No. 61 of 1973), or under any law repealed by that Act and any co-operative [formed and incorporated or deemed to be formed and incorporated under the Co-operatives Act, 1981 (Act No. 91 of 1981)], and any close
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corporation and any trust, and any water services provider, and any Black tribal authority, community authority, Black regional authority or Black territorial authority contemplated in section 2 of the Black Authorities 20 Act, 1951 (Act No. 68 of 1951)) established by or under any law and which, in the furtherance of its sole or principal object-”;
(f) by the deletion in subsection (1) of paragraph (cH); (8) by the substitution in subsection (1) for subparagraph (v) of paragraph (cM) of
the following subparagraph: 25 “(v) the business directly connected with the sole or principal object was
previously carried on by a [municipal council] municipality and the control of the company is exercised by such [municipal council] municipality; and” ;
(h) by the substitution in subsection (1) for item (bb) of subparagraph (vi) of 30 . - . paragraph (cM) of the following item:
“(bb) a [local authority] municipality to utilise such assets for the same objects as the aforesaid company:”;
by the substitution in subsection (1) for paragraph (b) of the proviso to subparagraph (vi) of paragraph (cM) of the following paragraph:
“(b) where the Commissioner has withdrawn his approval of such company, it shall, within two months from the date of such withdrawal, transfer, or take reasonable steps to transfer, its remaining assets to any company which is exempt from tax under this paragraph or to a [local authority] municipality to utilise such assets for the same objects as the aforesaid company;”;
(1) after paragraph (cN) of the following
“(c0) the receipts and accruals of any recreational club approved by the Commissioner in terms of section 30A, to the extent that the receipts and accruals are derived- (i) in the form of membership fees or subscriptions paid by its
(ii) from any business undertaking or trading activity that-
(i)
( j ) by the insertion in subsecti paragraphs:
members;
(aa) is integral and directly related to the provision of social and recreational amenities or facilities for the members of that club;
(bb) is carried aut on a basis substantially the whole of which is directed towards the recovery of cost; and
(cc) does not result in unfair competition in relation to taxable entities;
(iii) from any fundraising activities of that club, which are of an occasional nature and undertaken substantially with assistance on a voluntary basis without compensation; and
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(iv) from any other source and do not in total exceed the greater of- (aa) five per cent of the total membership fees and subscrip-
tions due and payable by its members during the relevant year of assessment; or
(hb) R.50 000; (cP) the receipts and accruals of a company or ~mst contemplated in
(k) by the deletion in subsection (1) of item (aa) of subparagraph (iv) of
(I) by the substitution in subsection (1) for the words preceding subparagraph (i) of paragraph (h ) of the following words:
“(h) interest as defined in section 24J(1) or deemed interest as contemplated in section 8E(2), which is received or accrued during any year of assessment by or to any person who is not a resident, unless that person-”;
(m) by the substitution in subsection (1) for item (bb) of subparagraph (i) of
“(bb) in the prospecting, exploration or mining (including surveys and other [exploratory] work of a similar nature) for,[or the mining of,] or production of, any minerals (including natural oils) from the seabed outside the [continental shelf of the Republic as contemplated in section 8 of the Maritime Zones Act, 1994 (Act No. 15 of 1994)J Republic, where such officer or crew member is employed on board such ship solely for purposes of the ‘passage’ of such ship, as defined in the Marine Traffic Act, 1981 (Act No. 2 of 1981),”;
(n) by the substitution in paragraph ( p ) of subsection (1) for the following paragraph:
“(p) any amount received by or accrued to any person who is not a resident, for services rendered or work or labour done by him outside the Republic for or on behalf of any employer in the national or provincial sphere of Government or any [local authority] municipality in the Republic or any national or provincial public entity if not less than 80 per cent of the expenditure of such entity is defrayed directly or indirectly from funds voted by Parliament, if such amount is chargeable with income tax in the country in which he is ordinarily resident and the income tax so chargeable is borne by himself and is not paid on his behalf by the Government, the [local authority] municipality concerned or such public entity;”;
(0) by the substitution in subsection (1) for paragraph ( 9 ) of the following paragraph:
“(9) any bonaJFide scholarship or bursary granted to enable or assist any person to study at a recognised educational or research institution: Provided that if any such scholarship or bursary has been so granted by an employer or an associated institution (as respectively defined in paragraph 1 of the Seventh Schedule) to an employee (as defined in the sdd paragraph) or to a relative of such employee [in circumstances indicating that the scholarship or bursary concerned would not have been granted had that employee not been an employee of that employer], the exemption under this paragraph shall not apply-
(i) [if any remuneration to which the employee was entitled or might in the future have become entitled was in any manner whatsoever reduced or forfeited as a result of the grant of such scholarship or bursary] in the case of a scholarship or bursary granted to so enable or assist any such employee, unless the employee agrees to reimburse the employer for any scholarship or bursary granted to that employee if that employee fails to complete his or her studies for reasons other than death, ill-health or injury;
section 37A;”;
paragraph (4;
paragraph (0) of the following item:
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(ii) in the case of a scholarship or bursary granted to enable or assist any such relative of an employee so to study= (aa) if the remuneration derived by the employee during the
year of assessment exceeded R60 000; and [(iii)] (bb) to so much of any scholarship or bursary contemplated in
[paragraph (ii)] t h t h h as in the case of any such relative exceeds [R2 0001 R3 000 during the year of assessment; ” ;
( p ) by the insertion in subsection (1) after subparagraph (vi) of paragraph ( t ) of
of any traditional council as contemplated in the Communal Land Rights Act, 2004 (Act No. 11 of 2004): Provided that the Minister I
5
the following subparagraphs: 10 “(vii)
may by notice in the Gazette determine that those receipts and accruals shall not be exempt with effect from any year of assessment commencing on or after a date to be determined by the Minister in such notice; of any regional electricity distributor that is wholly owned by any person that is exempt from normal tax during any year of assessment commencing before 1 January 2014, or before a later date that may be determined by the Minister by notice in the Gazette;
(ix) of any water services provider;”;
“: Provided that all entities contemplated in this paragraph comply with such reporting requirements as the Commissioner may determine;”;
( r ) by the substitution in subsection (1) for the words preceding subparagraph (i) of paragraph ( y ) of the following words:
“any government grant or government scrapping payment received [by] or accrued [to or in favour of a person] in terms of any programme or scheme which has been approved in terms of the national annual budget process and has been identified by the Minister by notice in the Gazette with effect from a date specified by the Minister in that notice (including any date that precedes the date of such notice) for purposes of this paragraph, having regard to-”;
(s) by the substitution in subsection (1) for subparagraph (iii) of paragraph ( y ) of the following subparagraph:
“(iii) the financial implications for government should government grants or government scrapping payments in terms of that programme or scheme be exempt from tax; and”;
by the substitution in subsection (1) for paragraph (iv) of paragraph ( y ) of the following subparagraph:
“(iv) whether the tax implications were taken into account in determining the appropriation or payment in respect of that programme or scheme;”; and
(u) by the insertion in subsection (1) after paragraph ( y ) of the following paragraph:
“(yA) any amount received by or accrued to any person in respect of goods or services provided to beneficiaries in terms of an official development assistance agreement that is binding in terms of section 231(3) of the Constitution of the Republic of South Africa, 1996, to the extent-
(aa) that amount is received or accrued in relation to projects that are approved by the Minister after consultation with the Minister of Foreign Affairs;
(viii)
(4) by the insertion in subsection (1) of the following proviso to paragraph ( t ) :
( t )
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(bb) that agreement provides that those receipts and accruals of that person must be exempt; and
(cc) the Minister announces that those receipts and accruals are exempt by notice in the Gazette.”.
(2) Paragraph (” of subsection (1) and paragraph ( j ) of subsection (l), to the extent 5 that it inserts paragraph (cP) into subsection (l), are deemed to have come into operation on 2 November 2006 and apply in respect of any year of assessment commencing on or after that date.
(3) Paragraph (j) of subsection (l), to the extent that it inserts paragraph ( c 0 ) into subsection (l), and paragraph (1) of subsection (1) shall come into operation on 1 April 10 2007 and shall apply in respect of any year of assessment commencing on or after that date.
Amendment of section 11 of Act 58 of 1962, as amended by section 9 of Act 90 of 1962, section 8 of Act 72 of 1963, section 9 of Act 90 of 1964, section 11 of Act 88 of 1965, section 12 of Act 55 of 1966, section 11 of Act 95 of 1967, section 9 of Act 76 15 of 1968, section 14 of Act 89 of 1969, section 10 of Act 52 of 1970, section 10 of Act 88 of 1971, section 8 of Act 90 of 1972, section 9 of Act 65 of 1973, section 12 of Act 85 of 1974, section 9 of Act 69 of 1975, section 9 of Act 113 of 1977, section 5 of Act 101 of 1978, section 8 of Act 104 of 1979, section 8 of Act 104 of 1980, section 9 of Act 96 of 1981, section 7 of Act 91 of 1982, section 10 of Act 94 of 1983, section 11 20 of Act 121 of 1984, section 46 of Act 97 of 1986, section 10 of Act 85 of 1987, section 8 of Act 90 of 1988, section 8 of Act 70 of 1989, section 11 of Act 101 of 1990, section 13 of Act 129 of 1991, section 11 of Act 141 of 1992, section 9 of Act 113 of 1993, section 5 of Act 140 of 1993, section 10 of Act 21 of 1994, section 12 of Act 21 of 1995, section 9 of Act 36 of 1996, section 12 of Act 28 of 1997, section 30 of Act 30 of 1998, 25 section 20 of Act 53 of 1999, section 22 of Act 30 of 2000, section 15 of Act 59 of 2000, section 10 of Act 19 of 2001, section 27 of Act 60 of 2001, section 14 of Act 30 of 2002, section 19 of Act 74 of 2002, section 27 of Act 45 of 2003, section 9 of Act 16 of 2004, section 16 of Act 32 of 2004, section 6 of Act 9 of 2005 and section 18 of Act 31 of 2005 30
11. (1) Section 11 of the Income Tax Act, 1962, is hereby amended- (a ) by the substitution for paragraph (gB) of the following paragraph:
“(gB) expenditure (other than expenditure which has qualified in whole or in part for deduction or allowance under any of the other provisions of this section) actually incurred by the taxpayer 35 during the year of assessment in obtaining the grant of any patent or the restoration of any patent, or the extension of the term of any patent under the Patents Act, 1978 (Act No. 57 of 1978), or the registration of any design, or the extension of the registration period of any design under the Designs Act, 1993 (Act No. 195 of 40 1993), or the renewal of the registration of any trade mark under the Trade Marks Act, 1993 (Act No. 194 of 1993), or under similar laws of any other country, if such patent, design, or trade mark is used by the taxpayer in the production of his income or income is derived by him therefrom[: Provided that no 45 deduction shall be allowed under this paragraph in respect of any expenditure incurred during any year of assessment commencing on or after 1 January 20041;”;
(b) by the substitution for paragraph (hA) of the following paragraph: “(hA) so much of any amount (other than an amount in respect of which 50
any deduction or allowance has been or will be granted under any other provision of this Act) paid in cash during any year of assessment commencing before 2 November 2006 by a taxpayer engaged in mining, prospecting, quarrying or similar operations to a company, society, association of persons or trust referred to 55
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in section 10( l)(cH) to be used for the purposes contemplated in that section as does not exceed an amount determined in accordance with the formula:
A-B+C D
in which formula in respect of each mine- “A” represents the amount determined by a person designated
by the Minister of Minerals and Energy of the estimated costs to be incurred at the time that or after operations on the mine or part of the mine are discontinued in order to discharge the obligations imposed in terms of any law which regulates mining operations (other than costs which were required in terms of any law to be incurred on an ongoing basis during the life of that mine or part of that mine;
“B” means the market value of the assets held by the company, society, association or trust in respect of that mine on the date of the determination of the estimated costs in symbol “A”;
“C” means the amount paid in cash by that taxpayer to such company, such association company, society or trust at any time before the date contemplated in symbol “B” which has not been allowed as a deduction in terms of this paragraph in any year of assessment; and
“D” represents the estimated remaining life of that mine in number of years as determined by a person contemplated in symbol “A”:
Provided that so much of the amount so paid in cash by that taxpayer as exceeds the deduction allowable in terms of this paragraph shall, for the purposes of this paragraph, be deemed to be an amount paid by the taxpayer in cash to that company, society, association or trust in the immediately succeeding year of assess- ment to be used for the purpose contemplated in sections lO(l)(cH) or 37A;”; and
(c) by the insertion after subsection (hA) of the following subsection: “(hB) an allowance in respect of 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 in respect of any existing consideration, contrac- tual royalty, future consideration or compensation that accrued to that community or natural person as contemplated in Item 11 of Schedule I1 of the Petroleum Resources Development Act, 2002 (Act No. 28 of 2002): Provided that for any year of assessment, the allowance shall not exceed an amount equal to the expendi- ture incurred and paid divided by the number of years for which all consideration, royalties or compensation otherwise payable has been discharged;”.
(2) Paragraph (a) of subsection (1) is deemed to have come into operation on 2 November 2006 and applies in respect of expenditure incurred on or after that date.
(3) Paragraph (b) of subsection (1) is deemed to have come into operation on 2 November 2006 and shall apply to any payment in respect of any year of assessment commencing on or after that date.
(4) Paragraph (c) of subsection (1) is deemed to have come into operation on 31 December 2006 and shall apply in respect of any year of assessment commencing on or after that date.
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Amendment of Section 11B of Act 58 of 1962, as inserted by section 29 of Act 45 of 2003 and amended by section 10 of Act 16 of 2004 and section 17 of Act 32 of 2004
12. Section 11B of the Income Tax Act, 1962, is hereby amended- (a ) by the deletion in subsection (2) of paragraph (b); and (b) by the insertion after subsection (6) of the following subsection:
“(7) Notwithstanding any other provision of this section. no deduction shall be allowed under this section in respect of any expenditure contemplated in subsection (2), or any cost contemplated in subsection (3), if- (a) the expenditure was incurred on or after 2 November 2006; or (b) the building, machinery, plant, implement, utensil and article was
brought into use for the first time on or after that date.”.
Insertion of section 11D in Act 58 of 1962
13. (1) The following section is hereby inserted in the Income Tax Act, 1962:
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“Deductions in respect of scientific or technological research and 15 development
11D. (1) There shall be allowed as a deduction during any year of assessment an amount equal to 150 per cent of so much of any expenditure actually incurred by a taxpayer in that year of assessment (other than costs contemplated in subsection (2)) directly in respect of activities undertaken in the Republic for purposes of- (a ) the discovery of novel, practical and non obvious information of a
scientific or technological nature; or (b) the devising, developing, or creating of any invention as defined in
section 1 of the Patents Act, 1978 (Act No. 57 of 1978), any design as defined in section 1 of the Designs Act, 1993 (Act No. 195 of 1993), or any computer program as defined in section 1 of the Copyright Act, 1978 (Act No. 98 of 1978), or other similar property of a scientific or technological nature.
(2) There shall be allowed as a deduction by a taxpayer in respect of any building, machinery, plant, implement, utensil and article brought into use by that taxpayer for purposes contemplated in subsection (l), an allowance equal to 50 per cent of the cost to the taxpayer to acquire that building, machinery, plant, implement, utensil and article in the year of assessment that it is brought into use for the first time by that taxpayer and 30 per cent in the first succeeding year of assessment and 20 per cent in the second succeeding year of assessment: Provided that where any building was used partly for those purposes and partly for other purposes in the same year of assessment, the allowance for that year of assessment shall be limited to an amount which bears to the full amount of the allowance for that year, the same ratio as the use of that building for those purposes bears to the total use of that building in that year of assessment.
(3) For the purposes of this section, the cost to the taxpayer of any building, machinery, implement, utensil and article shall be deemed to be the lesser of the actual cost to the taxpayer in respect of the acquisition thereof or the cost which a person would, if he or she had acquired that building, machinery, plant, implement, utensil and article under a cash transaction concluded at arms length on the date on which the transaction for the acquisition thereof was in fact included, have incurred in respect of the direct cost of such acquisition, including the direct cost of the
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installation or erection thereof or, where the building, machinery, plant, implement, utensil or article has been acquired to replace an asset which has been damaged or destroyed, such cost less any amount which has been recovered or recouped in respect of the damaged or destroyed asset and has been excluded from the taxpayer’s income in terms of section 8(4)(e), whether in the current or any previous year of assessment.
(4) Notwithstanding any other provision of this section, any building or any part thereof shall be deemed not to have been used for purposes contemplated in subsection (2) unless such building or part is regularly used for those purposes and is specifically equipped for such use.
(5) Notwithstanding any other provision of this section, no deduction shall be allowed in terms of subsections (1) or (2) in respect of expenditure or costs relating to- (a) exploration or prospecting; (b) management or internal business processes; (c) trade marks; (d) the social sciences or humanities; or ( e ) market research, sales or marketing promotion.
(6) The allowance contemplated in this section shall apply in lieu of any other deduction or allowance granted under any other provision of this Act.
(7) Where any amount (other than a government grant) is received by, or accrues to, a taxpayer to fund expenditure that is otherwise eligible for deduction under subsection (l), the deduction for that expenditure shall be limited to 100 per cent in lieu of 150 per cent to the extent of that amount.
(8) Where any government grant is received by, or accrues to, a taxpayer to fund expenditure that is otherwise eligible for a deduction under subsection (l), the deduction for that expenditure shall be limited to 100 per cent in lieu of 150 per cent to the extent of twice that amount (except to the extent that expenditure is disallowed in terms of section 23(n)).
(a) recovers or recoups any expenditure in respect of which a deduction was allowed in terms of subsection (1) during that year or any previous year, such deduction shall be included in the income of that taxpayer;
(b) ceases to use any building or part thereof for purposes contemplated in subsection (l), there shall be included in the income of the taxpayer all deductions allowed in terms of subsection (2) in respect of that building or part in any year of assessment, limited to 100 per cent of the cost to the taxpayer of that building or part, less 10 per cent for each year that the building or part was regularly used for such purposes.
(10) The provisions of section 8(4)(a) and ll(o) shall not apply to so much of the amount of any allowance contemplated in subsection (2) as has been included in the taxpayer’s income under the provisions of subsection (9), whether in the current or any previous year of assessment.
(1 1) In respect of each year of assessment during which any taxpayer is eligible for any deduction contemplated in subsections (1) or (2), or would be so eligible were it not for the provisions of subsection (8), that taxpayer must submit to the Minister of Science and Technology such information as that Minister may require in such form and manner (including electroni- cally) and at such place as that Minister may from time to time prescribe.
(12) The Minister of Science and Technology shall annually and in anonymous form submit to Parliament a report advising Parliament of the direct benefits of the activities contemplated in subsection (1) in terms of economic growth, employment and other broader government objectives and the aggregate expenditure in respect of such activities.
(9) Where a taxpayer during any year of assessment-
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(13) Other than as may be required by subsection (12), the Minister of Science and Technology and every person employed or engaged by him or her in carrying out the provisions of this section shall preserve and aid in preserving secrecy with regard to all matters that may come to his or her knowledge in the performance of his or her duties in connection with those provisions, and shall. not communicate any such matter to any person whatsoever other than the Commissioner or the taxpayer concerned or his or her lawful representative nor suffer or permit any such person to have access to any records in the possession of that Minister or person except in the performance of his or her duties as required by the laws of the Republic or by order of a competent court.
(14) Every person employed or engaged as contemplated in subsection (13) shall, before acting under this section, take and subscribe before a magistrate or justice of the peace or a commissioner of oaths, such oath or solemn declaration, as the case may be, of fidelity or secrecy as may be prescribed as contemplated in section 4(2)(a).
(15) The provisions of subsection (13) shall not apply in respect of information relating to any person, where that person has consented in writing that such information may be published or made known to any other person.
(16) Any person who contravenes the provisions of subsection (13) shall be guilty of an offence and liable on conviction to a fine or to imprisonment for a period not exceeding 12 months.
(17) Any person who contravenes the provisions of subsection (1 1) or (14) shall be guilty of an offence and liable on conviction to a fine of R50 for each day that he or she is in contravention or to imprisonment without the option of a fine for a period not exceeding 12 months.”.
(2) Subsection (1) is deemed to have come into operation on 2 November 2006 and shall apply in respect of expenditure actually incurred, or buildings, machinery, plant, implements, utensils and articles of a capital nature brought into use for the first time on or after that date.
Amendment of section 12E of Act 58 of 1962, as inserted by section 12 of Act 19 of 2001 and amended by section 17 of Act 30 of 2002, section 21 of Act 74 of 2002, section 37 of Act 12 of 2003, section 31 of Act 45 of 2003, section 9 of Act 9 of 2005, section 21 of Act 31 of 2005 and section 24 of Act 9 of 2006
14. Section 12E of the Income Tax Act, 1962, is hereby amended- (a) by the substitution in subsection (4) for the words preceding subparagraph (i)
of paragraph (a ) of the following words: “ ‘small business corporation’ means any close c o r p o r a t i o n s operative or company registered as a private company in terms of the Companies Act, 1973 (Act No. 61 of 1 9 7 3 ) A the [entire shareholding] shareholders of which [is] are at all times during the year of assessment [held by shareholders or members that are] natural persons, where-”;
(b) by the insertion in subsection (4) after item (cc) of subparagraph (ii) of paragraph (a ) of the following subitems:
“(dd) a social or consumer co-operative or a co-operative burial society as defined in section 1 of the Co-operatives Act, 2005 (Act No. 14 of 2005), or any other similar co-operative if all of the income derived from the trade of that co-operative during any year of assessment is solely derived from its members; or any friendly society as defined in section 1 of the Friendly Societies Act, 1956 (Act No. 25 of 1956);”;
(c) by the substitution in subsection (4) for subparagraph (i) of paragraph (c ) of the following subparagraph:
any income in the form of dividends, royalties, rental derived in respect of immovable property, annuities or income of a similar nature;”; and
(ee)
“(i)
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(d) by the substitution in subsection (4) for subparagraph (ii) of paragraph (d) of the following subparagraph:
that company or close corporation does not throughout the year of assessment employ [at least four] three or more full-time employ- ees (other than any employee who is a shareholder of the company or member of the close corporation, as the case may be, or who is a connected person in relation to a shareholder or member), who are on a full-time basis engaged in the business of that company or close corporation of rendering that service.”.
“(ii)
Amendment of section 15 of Act 58 of 1962, as amended by section 20 of Act 55 of 1966, section 18 of Act 129 of 1991, section 16 of Act 141 of 1992 and section 24 of Act 31 of 2005
15. Section 15 of the Income Tax Act, 1962, is hereby amended by the substitution for
“(b) any expenditure incurred by the taxpayer during the year of assessment on prospecting operations (including surveys, boreholes, trenches, pits and other prospecting [exploratory] work preliminary to the establishment of a mine) in respect of any area within the Republic together with any other expenditure which is incidental to such operations:”.
paragraph (b) of the following paragraph:
Amendment of section 18A of Act 58 of 1962, as inserted by section 15 of Act 52 of 1970 and substituted by section 16 of Act 96 of 1981 and amended by section 14 of Act 91 of 1982, section 16 of Act 94 of 1983, section 16 of Act 121 of 1984, section 15 of Act 90 of 1988, section 17 of Act 101 of 1990, section 20 of Act 129 of 1991, section 11 of Act 36 of 1996 and substituted by section 24 of Act 30 of 2000 and amended by section 20 of Act 30 of 2002, section 34 of Act 45 of 2003 and section 26 of Act 31 of 2005
16. Section 18A of the Income Tax Act, 1962, is hereby amended- (a) by the substitution in subsection (1) for subparagraph (i) of paragraph (a) of
the following subparagraph: “(i) public benefit organisation contemplated in paragraph (a)(i) of the
definition of ‘public benefit organisation’ in section 30( 1) approved by the Commissioner under section 30; or”;
(b) by the substitution in subsection (I) for paragraph (b) of the following paragraph: - -
“(b) any public benefit organisation contemplated in paragraph (a)(i) of the definition of ‘public benefit organisation’ in section 30( 1) approved by the Commissioner under section 30, which provides funds or assets to any public benefit organisation, institution, board or body contemplated in paragraph (a); or”;
(c) by the substitution in subsection (1) for paragraph (c) of the following paragraph:
“(c) the Government, any provincial administration or [local authority] municipality as contemplated in section 10( I)(a) or (b) to be used for the purpose of any activity contemplated in Part I1 of the Ninth Schedule,” ;
(d) by the substitution for subsection (1A) of the following subsection: “( 1A) The Minister may, by regulation, prescribe additional require-
ments with which a public benefit organisation, institution, board or body or the government, provincial administration or [local authority] municipality carrying on any specific public benefit activity identified by the Minister in the regulations, must comply before any donation made to that public benefit organisation, institution, board or body or the government, provincial administration or [local authority] municipality shall be allowed as a deduction under subsection (l).”;
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( e ) by the substitution in subsection (1C) for the words preceding paragraph (a) of the following words:
“The constitution or founding document of a public benefit organisation carrying on the activity contemplated in paragraph 4@ of Part LI of the Ninth Schedule, must expressly provide that the 5 organisation-” ;
(f3 by the substitution in subsection (2) for the words preceding paragraph (a) of the following words:
“Any claim for a deduction in respect of any donation under subsection (1) shall not be allowed unless supported by a receipt issued 10 by the public benefit organisation, institution, board or body or the government, provincial administration or [local authority] municipality concerned, on which the following details are given, namely-” ;
(8) by the substitution in subsection (2) for paragraph (c) of the following paragraph: 15
“(c) the name of the public benefit organisation, institution, board or body or the government, provincial administration or [local authority] municipality which received the donation, together with an address to which enquiries may be directed in connection therewith;”; 20
(h) by the substitution in subsection (2) for paragraph (f) of the following paragraph:
‘‘V) a certification to the effect that the receipt is issued for the purposes of section 18A of the Income Tax Act, 1962, and that the donation has been or will be used exclusively for the object of the public 25 benefit organisation, institution, board or body concerned or, in the case of the government, provincial administration or [local author- ity] municipality in carrying on the relevant public benefit activity.” ;
by the substitution in subsection (2A) for the words preceding paragraph (a) 30 of the following words:
“A public benefit organisation, institution, board, body, government, provincial administration or [local authority] municipality may only issue a receipt contemplated in subsection (2) in respect of any donation to the extent that-”; 35
by the substitution in subsection (2A) for paragraph (c) of the following paragraph:
“(c) in the case of the government, provincial administration or [local authority] municipality, that donation will be utilised solely in carrying on activities contemplated in Part LI of the Ninth 40 Schedule.”; and
( i)
( j )
( k ) by the substitution for subsection (2C) of the following subsection: “(2C) The Accounting Authority contemplated in the Public Finance
Management Act, [1997] 1999, (Act No. 1 of 1999) for the government, provincial administration or [local authority] municipality which issued 45 any receipts in terms of subsection (2), must on an annual basis submit an audit certificate to the Commissioner confirming that all donations received or accrued in the year in respect of which receipts were so issued were utilised in the manner contemplated in subsection (2A).”.
Amendment of section 23 of Act 58 of 1962, as amended by section 18 of Act 65 of 50 1973, section 20 of Act 121 of 1984, section 23 of Act 129 of 1991, section 20 of Act 141 of 1992, section 18 of Act 113 of 1993, section 15 of Act 21 of 1994, section 28 of Act 30 of 2000, section 21 of Act 30 of 2002, section 38 of Act 45 of 2003, section 13 of Act 16 of 2004 and section 28 of Act 31 of 2005
17. Section 23 of the Income Tax Act, 1962, is hereby amended- 55 (a) by the deletion of paragraph (j); (b) by the substitution in paragraph (k) for the words after subparagraph (iii) of
the following words: “other than any expense which constitutes an amount paid or payable to any employee of such labour broker, company or trust for services 60 rendered by such employee, which is or will be taken into account in the
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determination of the taxable income of such employee and, in the case of such personal service company or personal service trust, any expense, deduction or contribution contemplated in paragraphs (c), (i) and (2) of section 11, expenses in respect of premises, finance charges, insurance, repairs and fuel and maintenance in respect of assets, if such premises or assets are used wholly and exclusively for purposes of trade;”; and
(c) by the substitution for paragraph (n) of the following paragraph: “(n) any deduction or allowance in respect of any asset or expenditure to the
(i) is granted or paid to the taxpayer and is exempt from tax in terms of 10 section 10(l)(y) or (yA) [is granted to the taxpayer by the Government, which-
(i) is not subject to tax;] and - (ii) is granted or paid for purposes of the acquisition of that asset 5
funding of that expenditure: 15 Provided that the provisions of this paragraph shall not apply if the grant or payment is in respect of programmes or schemes that the Minister has identified by notice in the Gazette for purposes of this paragraph;”.
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Amendment of section 23B of Act 58 of 1962, as inserted by section 25 of Act 129 of 1991, amended by section 16 of Act 21 of 1994, section 29 of Act 30 of 2000 and 20 section 39 of Act 45 of 2003
18. Section 23B of the Income Tax Act, 1962, is hereby amended- (a) by the substitution for subsection (1) of the following subsection:
“( 1) Where, but for the provisions of this subsection, an amount- (a) qualifies or has qualified for a deduction or an allowance; or (b) is otherwise taken into account in determining the taxable income of
any person, under more than one provision of this Act, [such] amount or any portion thereof, shall not be allowed or taken into account more than once [as a deduction or allowance] in the determination of the taxable 30 income of any person.”; and
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(b) by the substitution for subsection (3) of the following subsection: “ ( 3 ) No deduction shall be allowed under section ll(a) in respect of
any expenditure or loss of a type for which a deduction or allowance may be granted under any other provision of this Act, notwithstanding that- 35 (a) such other provision may impose any limitation on the amount of
such deduction or allowanceE (b) that deduction or allowance in terms of that other provision may be
granted in a different year of assessment.”.
Amendment of section 241 of Act 58 of 1962 as inserted by section 21 of Act 113 of 40 1993
19. (1) Section 241 of the Income Tax Act, 1962, is hereby amended by the insertion
“(11A) An amount shall not be included in or deducted from the income of a resident in terms of this section in respect of any exchange difference arising from any forward exchange contract or foreign currency option contract entered into by that resident to hedge the acquisition of the equity shares of a company by that resident, or by any other resident forming part of the same group of companies as that resident, to the extent- (a) that resident, or that other resident, as the case may be, acquires or is entitled
to acquire, no less than 20 per cent of the equity shares of that company; (b) that company will, after that acquisition, be a controlled foreign company (as
defined in section 9D( 1)) in relation to that resident or that other resident, as the case may be; and
after subsection (1 1) of the following subsection:
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(c) (i) in the case of an acquisition by that resident, that amount is not included in the income statement of that resident utilised for financial reporting purposes pursuant to International Financial Reporting Standards, or
(ii) in the case of an acquisition by another resident forming part of the same group of companies as that resident, that amount is not included in the income statement of that resident utilised for financial reporting purposes pursuant to International Financial Reporting Standards if that income statement forms part of the group financial statements in terms of which that resident is viewed as part of a group for purposes of those
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Standards.”. (2) Subsection ( I ) shall come into operation on 3 1 December 2006 and shall apply in
respect of an acquisition of equity shares occurring during any year of assessment ending on or after that date.
Amendment of section 245 of Act 58 of 1962, as inserted by section 21 of Act 21 of 1995 and amended by section 14 of Act 36 of 1996, section 19 of Act 28 of 1997, section 27 of Act 53 of 1999, section 24 of Act 32 of 2004 and section 10 of Act 9 of 2005
20. Section 245 of the Income Tax Act, 1962, is hereby amended- (a) by the substitution in subsection (5) for the words preceding paragraph (a) of
the following words:
(b) by the substitution in subsection (5) for paragraph (a) of the following paragraph:
“(a) paid by any person in terms of an instrument is to be taken into account in the determination of any accrual amount in relation to [such an] instrument or any other amount determined in accordance with an alternative method in relation to [such] @ instrument which accrual amount or other amount is to be dealt with in terms of the provisions of subsection (2), no account shall for the purposes of section 11 be taken of any such [interest] amount so actually paid, save by way of the operation of such subsection;”; and
(c) by the substitution in subsection (5) for paragraph (b) of the following paragraph:
“(b) received by any person in terms of an income instrument is to be taken into account in the determination of any accrual amount in relation to [such] that income instrument or any other amount determined in accordance with an alternative method in relation to [such] income instrument which accrual amount or other amount is to be dealt with in terms of the provisions of subsection ( 3 ) , no account shall for the purposes of the definition of ‘gross income’ in section 1 be taken of any such [interest] amount so actually received, save by way of the operation of such subsec- tion.”.
“Where any [interest] amount actually-”;
Insertion of section 26B in Act 58 of 1962
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21. The following section is hereby inserted in the Income Tax Act, 1962, after section 26A:
“Taxation of oil and gas companies
26B. (1 ) The taxable income of any oil and gas company, as defined in the Tenth Schedule, shall be determined in accordance with the provisions 1 50 of this Act but subject to the provisions of that Schedule.
(2) The tax imposed on the net amount of any dividend declared by an oil and gas company, as defined in the Tenth Schedule, as derived from profits attributable to its oil and gas income (as defined in that Schedule) shall be determined in accordance with the provisions of this Act but subject to the provisions of the Tenth Schedule.
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(3) Part IIA of Chapter IJ.I of this Act applies to the Tenth Schedule notwithstanding any provision to the contrary contained in subsections (1) and (2).”.
Repeal of section 29 of Act 58 of 1962
22. Section 29 of the Income Tax Act, 1962, is hereby repealed.
Amendment of section 29A of Act 58 of 1962, as inserted by section 30 of Act 53 of 1999 and amended by section 36 of Act 59 of 2000, section 15 of Act 5 of 2001, section 15 of Act 19 of 2001, section 39 of Act 60 of 2001, section 30 of Act 74 of 2002 and section 16 of Act 16 of 2004
23. Section 29A of the Income Tax Act, 1962, is hereby amended- (a) by the deletion of the proviso to subsection (3); (b) by the deletion of subsection (15); and (c) by the deletion of subsection (16).
Amendment of section 30 of Act 58 of 1962, as inserted by section 35 of Act 30 of 2000 and amended by section 16 of Act 19 of 2001, section 22 of Act 30 of 2002, section 31 of Act 74 of 2002, section 45 of Act 45 of 2003, section 28 of Act 32 of 2004 and d o n 36 of Act 31 of 2005
24. (1) Section 30 of the Income Tax Act, 1962, is hereby amended- (a) by the substitution in subsection (1) for paragraph (a) of the definition of
“public benefit organisation” of the following paragraph: “(a) which is-
(iJ a company formed and incorporated under section 21 of the Companies Act, 1973 (Act No. 61 of 1973), or a trust or an association of persons that has been incorporated, formed or established in the Republic; or
(ii) any agency or branch within the Republic of any company, association or trust incorporated, formed or established in terms of the laws of any country other than the Republic that is exempt from tax on income in that other country;”;
(b) by the substitution in subsection (1) for the words preceding subparagraph (i) in paragraph (b) of the definition of “public benefit orgkisation” of the following words:
“of which the sole or principal object is carrying on one or more public benefit activities [(including any undertakings or activities which are not prohibited under subsection (3)(b)(iv))], where-”;
(c) by the deletion in subsection (1) of subparagraphs (ii) and (iii) of paragraph (c) of the definition of “public benefit ~rganisation~’;
(d) by the substitution in subsection (3)(b) for subparagraph (ii) of the following subparagraph:
“(ii) prohibited from directly or indirectly distributing any of its funds to any person (otherwise than in the course of undertaking any public benefit activity) and is required to utilise its funds solely for the object for which it has been established[, or to invest such funds- (uu) with a financial institution as defined in section 1 of the
Financial Services Board Act, 1990 (Act No. 97 of 1990); (bb) in any listed financial instrument of a company contem-
plated in paragraph (a) of the definition of “listed company”; or
(cc) in such other prudent investments in financial instruments
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consultation with the Executive Officer of the Financial Services Board and the Director of Non-Profit Organisations] ” ;
(e) by the substitution in subsection (3)(b)(iii) for the words precedmg item (aa) of the following words: 5
“in the case of a public benefit organisation contemplated in paragraph (a)(i) of the definition of “public benefit organisation” in subsection
cf) required on disso6tion to-transfer its assets to-”;
by the insertion in subsection (3) after subparagraph (iii) of paragraph (b) of the following subparagraph: “(iiiA) in the case of an agency or branch of a public benefit organisation
contemplated in paragraph (a)($ of the definition of ‘public benefitbrganisation’ in subsection (l), is required on termination of its activities in the Republic to transfer the assets of such agency or branch to- (aa) any public benefit organisation contemplated in paragraph
(a)(i) of the definition of ‘public benefit organisation’ in subsection (1) which has been approved in terms of this section;
(bb) any institution, board, body, department or administration contemplated in subsection (3)(b)(iii)(bb) or (cc); or
(cc) any person if the branch paid for the asset out of funds derived from a source outside the Republic;”;
by the deletion of subsection (3)(g); by the insertion after subsection (3B) of the following subsection:
“(3C) Notwithstanding any other provision of this section, the Director of Nonprofit Organisations designated in terms of section 8 of the Nonprofit Organisations Act, 1997 (Act No. 71 of 1997), may, in respect of any organisation that has been convicted of an offence under that Act, request the Commissioner to withdraw the approval of that organisation in terms of subsection (5) and the Commissioner may pursuant to that request withdraw such approval.”;
by the substitution in subsection (4) for the words preceding paragraph (a) of the following words:
“Where the constitution, will or other written instrument does not comply with the provisions of subsection (3)(b), it shall be deemed to so comply[-]. ” ;
by the deletion in subsection (4) of paragraphs (a) and (b); by the substitution in subsection (6) for the words preceding paragraph (a) of the following words:
“Where the Commissioner has so withdrawn his approval of such organisation, such organisation shall, within [three] months or such longer period as the Commissioner may allow after the date of such withdrawal, transfer, or take reasonable steps to transfer, its remaining assets to any other organisation which is-”; and
by the substitution for subsection (7) of the following subsection: “(7) [Where any such] organisation fails [so] to transfer, or [so]
to take reasonable steps to transfer, its [remaining] assets[, the accumulated net revenue which has not been distributed in terms of
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this section shall] as contemplated in subsection (6) an amount equal to 50 the market value of those assets which have not been transferred, less an amount equal to the bona .fide liabilities of the organisation, must for [the] purposes of this Act be deemed to be an amount of taxable income which accrued to such organisation during the year of assessment [referred to in subsection (S)] in which approval was withdrawn.”.
(2 ) Subsection (1) is deemed to have come into operation on 2 November 2006 and 55
applies in respect of any year of assessment commencing on or after that date.
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Insertion of section 30A in Act 58 of 1962
25. (1) The following section is hereby inserted in the Income Tax Act, 1962:
“Recreational clubs
30A. (1) For purposes of this Act, “recreational club“ means any company contemplated in section 21 of the Companies Act, 1973 (Act No. 61 of 1973), society or other association of which the sole or principal object is to provide social and recreational amenities or facilities for the members of that company, society or other association.
(2) The Commissioner must approve a recreational club for the purposes of section 10( l)(cO J, if- (a) that club has submitted to the Commissioner a copy of the constitution
or other written instrument in terms of which it is established and which provides that-
its activities must be carried on in a non-profit manner; it is prohibited from directly or indirectly distributing any surplus funds to any person, other than in terms of subpara- graph (iii); it is required on dissolution to transfer its assets and funds to any other recreational club which is approved by the Commis- sioner in terms of this section or to a public benefit organisation contemplated in paragraph (a)(i) of the definition of a ‘public benefit organisation’ in section 30( 1) which has been approved in terms of section 30(3); it may not pay any remuneration to any person which is excessive, having regard to what is generally considered reasonable in the sector and in relation to the service rendered, nor may any remuneration be determined as a percentage of any amounts received or accrued to that recreational club; all members must be entitled to annual or seasonal member- ship; and members are not allowed to sell their membership rights or any entitlement in terms thereof;
(b) the club undertakes to submit to the Commissioner a copy of any amendment to the constitution or other written instrument under which it is established; and
(c) the Commissioner is satisfied that the club is or was not knowingly a party to, or does not knowingly permit, or has not knowingly permitted, itself to be used as part of any transaction, operation or scheme of which the sole or main purpose is or was the reduction, postponement or avoidance of liability for any tax, duty or levy which, but for such transaction, operation or scheme, would have been or would have become payable by any person under this Act or any other Act administered by the Commissioner.
(3) Where the constitution or other written instrument under which the club is established does not comply with the provisions of paragraph (a ) of subsection (2), it shall be deemed to so comply if a person responsible in a fiduciary position for the funds and assets of such club furnishes the Commissioner with a written undertaking by such club that such club will be administered in compliance with the provisions of this section.
(4) Where a club applies for approval before the later of 3 1 March 2009 or the last day of its first year of assessment, then the Commissioner may approve that club for purposes of this section, or for the purposes of any provision contained in section 10 prior to its amendment by section 10( 1)(Z) of the Revenue Laws Amendment Act, 2006, with retrospective effect.
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( 5 ) Where the Commissioner is- (a) satisfied that any recreational club approved under subsection (2) has
during any year of assessment in any material respect; or (6 ) during any year of assessment satisfied that any such recreational club
has on a continuous or repetitive basis, failed to comply with the provisions of this section, or the constitution or other written instrument under which it was established to the extent that it relates to the provisions of this section, the Commissioner shall notify the recreational club that he or she intends to withdraw the approval of that recreational club if no corrective steps are taken by that club within a period stated in that notice.
(6) If no corrective steps are taken by a recreational club as contemplated in subsection (5) , the Commissioner must withdraw approval of that club with effect from the commencement of the year of assessment contem- plated in subsection (5).
(7) If the Commissioner has withdrawn the approval of a recreational club, that club must within six months after the date of that withdrawal (or such longer period as the Commissioner may allow) transfer or take reasonable steps to transfer its remaining assets to another recreational club approved in terms of this section or to a public benefit organisation approved in terms of paragraph (a)(i) of the definition of public benefit organisation that is exempt from normal tax in terms of section 10(l)(cN) and which club or organisation is not a connected person in relation to that club.
(8) If the recreational club fails to transfer, or to take reasonable steps to transfer, its assets as contemplated in subsection (7) an amount equal to the market value of those assets which have not been transferred less the bona $de liabilities of that recreational club must for purposes of this Act be deemed to be an amount of taxable income which accrued to that recreational club during the year of assessment in which approval was withdrawn.”.
(2) Subsection (1) shall come into operation on 1 April 2007 and shall apply in respect of any year of assessment commencing on or after that date.
Amendment of section 36 of Act 58 of 1962, as amended by section 12 of Act 72 of 1963, section 15 of Act 90 of 1964, section 20 of Act 88 of 1965, section 23 of Act 55 of 1966, section 16 of Act 95 of 1967, section 14 of Act 76 of 1968, section 26 of Act 89 of 1969, section 21 of Act 65 of 1973, section 28 of Act 85 of 1974, section 20 of Act 104 of 1980, section 25 of Act 94 of 1983, section 16 of Act 96 of 1985, section 14 of Act 70 of 1989, section 26 of Act 101 of 1990, section 30 of Act 129 of 1991, section 24 of Act 141 of 1992, section 29 of Act 113 of 1993, section 17 of Act 36 of 1996, section 41 of Act 60 of 2001 and section 31 of Act 32 of 2004
.
26. Section 36 of the Income Tax Act, 1962, is hereby amended- (a) by the substitution in subsection (11) for paragraph (a) of the following
paragraph: “(a) expenditure (other than interest or finance charges) on shaft sinking
and mine equipment (other than expenditure referred to in paragraph (d)) [and, in the case of a natural oil mine, the cost of laying pipelines from the mining block to the marine terminal or the local refinery, as the case may be]; and”;
(b) by the substitution in subsection (1 1) for the words in paragraph (c) preceding subparagraph (i) of the following words:
“(c) in the case of any post-1973 gold mine, any other deep level gold mine[,] 0’ any post-1990 gold mine [or any natural oil mine], a capital allowance calculated at the rate of 10 per cent per annum in the case of a post-1973 gold mine or any other deep level gold mine or 12 per cent per annum in the case of any post-1990 gold mine [or any natural oil mine] on the amount of the aggregate of-”;
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(c) by the substitution in subsection (11) for subparagraph (i) of paragraph (c) of the definition of “capital expenditure” of the following subparagraph:
“(i) the expenditure referred to in paragraphs ( a ) and (b), excluding any interest and other charges on loans referred to in paragraph (b), if the mine is a post-1973 gold mine[,] a post-1990 gold mine [or a natural oil mine], or the expenditure referred to in paragraph (a), if the mine is any other deep level gold mine;”; and
(d) by the substitution in subsection (11) for the words following subparagraph (v) of paragraph (c) of the definition of “capital expenditure” and preceding
“if the mine is a post-1973 gold mine, a post-1990 gold mine [or a natural oil mine], for the period from the end of the month in which the expenditure is actually incurred up to the end of the year of assessment immediately preceding the first year of assessment in respect of which the determination of the taxable income derived from the working of 15 such mine does not result in an assessed loss or nil, and, if the mine is any other deep level gold mine for a period of 10 years from the commencement of the year of assessment during which the mine is recognised as any other deep level gold mine”.
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the proviso to that paragraph of the following words: 10
Insertion of section 37A of Act 58 of 1962 20
27. The following section is hereby inserted in the Income Tax Act, 1962, is hereby amended by the insertion after section 37 of the following section:
“Closure rehabilitation company or trust
37A. (1) For purposes of determining the taxable income derived by a person carrying on any trade, any cash paid during any year of assessmen1 commencing on or after 2 November 2006 by that person to a company 01 trust shall be deducted from that person’s income if- (a) the sole object of that company or trust is 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 in terms of any permit right, reservation or permission contemplated in paragraph (d)(i)(aa, to restore one or more areas to their natural or predetermined state, 01 to a land use which conforms to the generally accepted principle oi sustainable development;
(6) that company or trust holds assets solely for purposes contemplated in subsection (a);
(c) that company or trust makes distributions solely for purposes contemplated in subsection (a); and
(d) that person- (i) (aa) holds a permit or right in respect of prospecting,
exploration, mining or production, an old order right or OP26 right as defined in item 1 of Schedule 11 or any reservation or permission for the right to the use of the surface of land as contemplated in item 9 of Schedule I1 of the Mineral and Petroleum Resources Development Act, 2002 (Act No. 28 of 2002); or
(bb) is engaged in prospecting, exploration, mining or produc- tion in terms of any permit, right, reservation or permission as contemplated in item (aa); or
after approval by the Commissioner, paid any cash to that company or trust and that payment was not part of any transaction, operation or scheme designed solely or mainly for purposes of shifting the deduction contemplated in this subsection from another person to that person.
(ii)
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(2) The company or trust contemplated in subsection (1) may only hold- ( a ) financial instruments issued by any-
(i) collective investment scheme as regulated in terms of the Collective Investment Schemes Control Act, 2002 (Act No. 45 of 2002): lorig-term insurer as regulated in terms of the Long-Term Insurance Act, 1998 (Act No. 52 of 1998); bank as regulated in terms of the Banks Act, 1990 (Act NO. 94 of 1990); or mutual bank as regulated in terms of the Mutual Banks Act, 1993 (Act No. 124 of 1993);
those financial instruments are issued by a person contem- plated in paragraph (d); or those financial instruments are issued by a person that is a connected person in relation to a person contemplated in
(c ) financial instruments issued by any sphere of government in the Republic; or
( d ) any other investments which were held by that company or trust before 18 November 2003.
(3) To the extent that the Minister of Minerals and Energy is satisfied that all of the areas in terms of any permit, right, reservation or permission contemplated in subsection (l)(d)(i)(aa) that have been rehabilitated as contemplated in subsection (l)(a), the company or trust in respect of those areas must be wound-up or liquidated and its assets remaining after the satisfaction of its liabilities must be transferred to- (a) another company or trust established in terms of this section as
approved of by the Commissioner; or (b) if no such company or trust has been established, to an account or trust
prescribed by the Minister of Minerals and Energy as approved of by the Commissioner if the Commissioner is satisfied that such company or trust satisfies the objects of subsection (I)(a).
(4) If the Minister of Minerals and Energy is satisfied that a company or trust established for the purposes contemplated in section (l)(u)- (a) will be able to satisfy all of the liabilities of that company or trust; and (b) such company or trust has sufficient assets to rehabilitate and restore,
as contemplated in subsection (l)(a), all areas to which any permit, right, reservation or permission contemplated in subsection (l)(d)(i)(aa) relates, as the case may be,
that company or tivst may transfer assets not required for purposes of paragraphs (a ) and (b) to another company or trust established in terms of this section as approved by the Commissioner.
(5) The constitution of a company or the instrument establishing a trust contemplated in this section must incorporate the provisions of this section and any amendments thereto.
(6) If a company or trust contemplated in this section contravenes any provision of subsection (2) during any year of assessment by holding property other than property contemplated in that subsection- (a) an amount of taxable income is deemed to accrue equal to the market
value of that other property on the first date that company or trust held that other property; and
(h) the deemed amount contemplated in paragraph (a) shall be included in the income for the year of assessment of a person contemplated in subsection (l)(d) to the extent that other property is (directly or indirectly) derived from cash paid by that person to that company or trust.
(7) If the company or trust contemplated in this section contravenes any provision of subsection (l)(a) during any year of assessment by distributing property from that company or trust for a purpose other than-
(ii)
(iii)
(iv)
(b) financial instruments of a listed company unless- (i)
(ii)
paragraph (4;
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(a) rehabilitation upon premature closure; (b) decommissioning and final closure; (c) post closure coverage of any latent or residual environmental impacts;
or (d) transfer to another company, trust, or account established for the
purposes contemplated in subsection (l)(a)- (i) an amount of taxable income is deemed to accrue equal to the
market value of that other property on the first date that company or trust distributes that other property; and
(ii) the deemed amount contemplated in paragraph (a) shall be included in the income for the year of assessment of a person contemplated in subsection (I)(d) to the extent that other property is (directly or indirectly) derived from cash paid by that person to that company or trust.
(8) Where the Commissioner is satisfied that a company or trust contemplated in this section has contravened any provision of this section during any year of assessment, the Commissioner may- (a) include an amount equal to twice the market value of all of the
property held in that company or trust on the date of that contravention as taxable income; and
(b) the amount contemplated in paragraph (a) shall be included in the income for the year of assessment of a person contemplated in subsection (l)(d) to the extent that property is (directly or indirectly) derived from cash paid by that person to that company or trust:
Provided that the Commissioner may reduce the amount of taxable income contemplated under this subsection as the Commissioner may think fit.”.
Amendment of section 41 of Act 58 of 1962, as inserted by section 44 of Act 60 of 2001 and substituted by section 34 of Act 74 of 2002 and amended by section 49 of Act 45 of 2003, section 32 of Act 32 of 2004 and section 37 of Act 31 of 2005
28. (1) Section 41 of the Income Tax Act, 1962, is hereby amended- (a) by the substitution in subsection (1) for subparagraph (bb) of paragraph (ii) of
the proviso to the definition of “domestic financial instrument holding company” of the following subparagraph:
“(bb) influenced companies in relation to that company; [and]”; (b) by the substitution in subsection (1) for paragraph (iii) of the proviso to the
definition of “domestic financial instrument holding company” of the following paragraph:
a market value [of which is] equal to [its] base cost other than a financial instrument contem- plated in paragraphs (a), (b) and (c) of this definition; a&”;
(c) by the addition in subsection (1) to the proviso to the definition of “domestic financial instrument holding company” of the following paragraph:
“(iv) any instrument defined in section 24J with a term of less than 12 months other than a financial instrument contemplated in para- graphs (a), (b) and (c) of this definition.”;
“(iii) any financial instrument [the]
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by the substitution in subsection (1) for the words preceding subparagraph (i) of paragraph (b) of the definition of “foreign financial instrument holding company” of the following words:
“any financial instrument arising from the principal trading activities of that foreign company, or of any influenced company in relation to that foreign company! which is a banker or financier, insurer[, dealer] or broker that [mainly] conducts E business in the country of residence of that foreign company, or in the country of residence of that influenced company, as the case may be, than in any other single country and that company-”;
by the substitution in subsection (1) for subparagraph (i) of paragraph (b) of the definition of “foreign financial instrument holding company” of the following subparagraph:
“(i) regularly accepts deposits or premiums or makes loans, issues letters of credit, provides guarantees or effects similar transactions for the account of clients, or receives commissions from clients, who are not connected persons in relation to that company; and”;
by the substitution in subsection (1) for subparagraph (ii) of paragraph (b) of the definition of “foreign financial instrument holding company” of the following subparagraph:
“(ii) derives more than 50 per cent of its income or gains from principal trading activities with respect to those clients; [or]”;
by the substitution in subsection (1) for item (B) of subparagraph (bb) of paragraph (i) of the proviso to the definition of “foreign financial instrument holding company” of the following item:
by the substitution in subsection (1) for subparagraph (cc) of paragraph (i) of the proviso to the definition of “foreign financial instrument holding company” of the following subparagraph:
“(cc) any financial instrument [the] with a market value [of which is] equal to [its] base cost other than a financial instrument contem- plated in paragraphs (a), (b) and (c) of this definition; @”;
by the insertion in subsection (1) after subparagraph (cc) of paragraph (i) of the proviso to paragraph (c) of the definition of “foreign financial instrument holding company” of the following subparagraph:
“(dd) any instrument defined in section 24J with a term of less than 12 months other than a financial instrument contemplated in para- graphs (a), (b) and (c) of this definition.”; and
“(B) influenced companies in relation to that company; [and]”;
by the substitution for subsection (2) of the following subsection: “(2) The provisions of this Part must, subject to subsection (5), apply
in respect of a company formation transaction, a share-for-share transaction, an amalgamation transaction, an intra-group transaction, ar! unbundling transaction and a liquidation distribution as contemplated in sections 42, 43, 44, 45, 46 and 47, respectively, notwithstanding any provision to the contrary contained in the Act, other than sections 24B(2) and (3)[,] and 103 and Part IIA of Chapter III.”.
ragraphs (a) to (h) are deemed to have come into operation on 8 November 2005 and shall apply in respect of any year of assessment ending on or after that date.
Amendment of section 42 of Act 58 of 1962, as inserted by section 44 of Act 60 of 2001 and substituted by section 34 of Act 74 of 2002 and amended by section 50 of Act 45 of 2003, section 33 of Act 32 of 2004 and section 38 of Act 31 of 2005
29. Section 42 of the Income Tax Act, 1962, is hereby amended by the substitution in subsection (5) for the words after paragraph (6) of the following words:
“that person must be deemed to have disposed of that share as trading stock extent that any amount received by or accrued to that person in respect of the disposal of that share is less than or equal to the market value of that share at the beginning of such period of 18 months.”.
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Amendment of section 43 of Act 58 of 1962, as inserted by section 44 of Act 60 of 2001 and substituted by section 34 of Act 74 of 2002 and amended by section 51 of Act 45 of 2003, section 34 of Act 32 of 2004 and section 39 of Act 31 of 2005
30. Section 43 of the Income Tax Act, 1962, is hereby amended by the substitution in
“(ii) in any other case, the acquiring company after that dffposal and any other share for share transaction entered into in terms of any offer made on the same terms as that transaction and which is accepted within a period of 90 days after that disposal holds more than 50 per cent of the equity shares of the target
subsection (I)(c) for subparagraph (ii) of the following subparagraph: 5
company; and”. 10
Amendment of section 47 of Act 58 of 1962, as repealed by section 25 of Act 21 of 1995 and inserted by section 34 of Act 74 of 2002 and amended by section 55 of Act 45 of 2003, section 37 of Act 32 of 2004 and section 43 of Act 31 of 2005
31. Section 47 of the Income Tax Act, 1962, is hereby amended by the substitution for
“ ( 5 ) Where a holding company disposes of any equity share in a liquidating company as a result of the liquidation, winding up or deregistration of that liquidating company, that holding company must disregard that disposal for purposes of determining its taxable income [or], assessed loss, aggregate capital
subsection ( 5 ) of the following subsection: 15
gain or aggregate capital loss.”. 20
Amendment of section 64B of Act 58 of 1962, as inserted by section 34 of Act 113 of 1993 and amended by section 12 of Act 140 of 1993, section 24 of Act 21 of 1994, section 29 of Act 21 of 1995, section 21 of Act 36 of 1996, section 13 of Act 46 of 1996, section 25 of Act 28 of 1997, section 35 of Act 53 of 1999, section 39 ofAct 30 of 2000, section 42 of Act 59 of 2000, section 18 of Act 5 of 2001, section 48 of Act 60 of 2001, 25 section 25 of Act 30 of 2002, section 36 of Act 74 of 2002, section 58 of Act 45 of 2003, section 40 of Act 32 of 2004 and section 47 of Act 31 of 2005
32. Section 64B of the Income Tax Act, 1962, is hereby amended- (a) by the substitution in subsection (1) for the words following subparagraph (iv)
of paragraph (a) of the definition of “dividend cycle” of the following words: 30 “and ending on the date on which such first dividend accrues to the shareholder concerned or on which the amount is deemed to have been [distributed] declared as contemplated in section [64C(2)] 64C(6);”;
(b) by the substitution in subsection (13) for paragraph (a) of the following paragraph: 35
“(a) where the company has established or deemed to have established separate funds as contemplated in section 129 or] 29A, to dividends accrued on shares constituting an asset in its corporate fund; or”;
(c) by the deletion in subsection (13) of paragraph (b); and (d) by the deletion of subsection (14). 40
Amendment of section 79 of Act 58 of 1962, as amended by section 26 of Act 69 of 1975, section 23 of Act 91 of 1982, section 32 of Act 21 of 1995, section 23 of Act 36 of 1996, section 26 of Act 5 of 2001 and section 14 of Act 34 of 2004
33. Section 79 of the Income Tax Act, 1962, is hereby amended- fl
(a) by the substitution in subsection (1) for the words after paragraph (c) 45 preceding the proviso of the following words:
“he shall raise an assessment or assessments in respect of the said amounts, notwithstanding that an assessment or assessments may have been made upon the person concerned in respect of the year or years of assessment in respect of which the amount or amounts in question is or 50 are assessable, and notwithstanding the provisions of sections 8 1(5)2 [and] 83( 18) and 83A (12):”; and
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(b) by the substitution in subsection (1) for paragraph (iv) of the proviso of the
“(iv) in respect of any amount, if any previous assessment made on the person concerned has in respect of that amount been amended or reduced pursuant to [any order made by a special court for hearing income tax appeals constituted under the provisions of this Act,]- (m) any decision made by the Tax Board constituted under this
Act;
following paragraph:
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(bb) any order, excluding any order made in terms of section 83(13)(a)(iii) made by the tax court constituted under this Act;
(cc) the Commissioner conceding an appeal as prescribed in terms of the rules contemplated in section 107A(2) of this Act;
(dd) a dispute being resolved in terms of the alternative dispute resolution procedures prescribed in the rules contemplated in section 107A(2) of this Act; or
(ee) the settlement of a dispute in terms of Part IIIA of Chapter 111 of this Act, unless the Commissioner is satisfied that the decision, order, concession or resolution of the dispute or settlement in question was obtained by fraud or misrepresen- tation or non-disclosure of material facts; or”.
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Insertion of Part IIA in Chapter 111 of Act 58 of 1962
34. (1) The following Part is hereby inserted in Chapter I11 of the Income Tax Act, 1962, after Part 11:
“Part ZZA 25
Impermissible tax avoidance arrangements
8OA. An avoidance arrangement is an impermissible avoidance arrange- ment if its sole or main purpose was to obtain a tax benefit and- (a) in the context of business-
(i) it was entered into or carried out by means or in a manner which would not normally be employed for bona fide business purposes, other than obtaining a tax benefit; or it lacks commercial substance, in whole or in part, taking into account the provisions of section 80C;
(b) in a context other than business, it was entered into or carried out by means or in a manner which would not normally be employed for a bonafide purpose, other than obtaining a tax benefit; or
(ii)
(c) in any context- (i) it has created rights or obligations that would not normally be
created between persons dealing at arm’s length; or (ii) it would result directly or indirectly in the misuse or abuse of
the provisions of this Act (including the provisions of this
Tax consequences of impermissible tax avoidance
SOB. (1) The Commissioner may determine the tax consequences under this Act of any impermissible avoidance arrangement for any party by- (a) disregarding, combining, or re-characterising any steps in or parts of
the impermissible avoidance arrangement; (b) 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;
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(c) deeming persons who are connected persons in relation to each other to be one and the same person for purposes of determining the tax treatment of any amount;
(d) reallocating any gross income, receipt or accrual of a capital nature, expenditure or rebate amongst the parties;
(e ) re-characterising any gross income, receipt or accrual of a capital nature of expenditure; or
(f) 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 of the case the Commissioner deems appropriate for the prevention or diminution of the relevant tax benefit.
(2) Subject to the time limits imposed by section 79, 79A(2)(a) and 8 1(2)(b), the Commissioner must make compensating adjustments that he or she is satisfied are necessary and appropriate to ensure the consistent treatment of all parties to the impermissible avoidance arrangement.
Lack of commercial substance
SOC. (1) For purposes of this Part, an avoidance arrangement lacks commercial substance if it would result in a significant tax benefit for a party (but for the provisions of this Part) but doesaot 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 provisions of this Part.
(2 ) For purposes of this Part, characteristics of an avoidance arrangement that are indicative of a lack of commercial substance include but are not limited t o - (a) the legal substance of the avoidance arrangement as a whole is
inconsistent with, or differs significantly from, the legal form of its individual steps; or
(b) the inclusion or presence of- (i) round trip financing as described in section SOD; or
(ii) an accommodating or tax indifferent party as described in section 80E; or
(iii) elements that have the effect of offsetting or cancelling each other.
Round trip financing
SOD. (1) Round trip financing includes any avoidance arrangement in which- (a) funds are transferred between or among the parties (round tripped
amounts); and (b) the transfer of the funds would-
(i) result, directly or indirectly, in a tax benefit but for the provisions of this Part; and
(ii) significantly reduce, offset or eliminate any business risk incurred by any party in connection with the avoidance arrangement.
( 2 ) This section applies to any round tripped amounts without regard to- (a) whether or not the round tripped amounts can be traced to funds
transferred to or received by any party in connection with the avoidance arrangement;
(b) the timing or sequence in which round tripped amounts are transferred or received; or
(c) the means by or manner in which round tripped amounts are transferred or received.
(3) For the purposes of this section, the term ‘funds’ includes any cash, cash equivalents or any right or obligation to receive or pay the same.
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Accommodating or tax-indifferent parties
80E. (1) A party to an avoidance arrangement is an accommodating or tax-indifferent party if- (a) any amount derived by the party in connection with the avoidance
arrangement is either- (i)
(ii) not subject to normal tax; or significantly offset either by any expenditure or loss incurred by the party in connection with that avoidance arrangement or any assessed loss of that party; and
as a direct or indirect result of the participation of that party an amount that would have- (aa) been included in the gross income (including the
recoupment of any amount) or receipts or accruals of a capital nature of another party would be included in the gross income or receipts or accruals of a capital nature of that party;
(bh) constituted a non-deductible expenditure or loss in the hands of another party would be treated as a deductible expenditure by that other party;
(cc) constituted revenue in the hands of another party would be treated as capital by that other party; or
(dd) given rise to taxable income to another party would either not be included in gross income or be exempt from normal tax; or
the participation of that party directly or indirectly involves a prepayment by any other party.
(2) A person may be an accommodating or tax-indifferent party whether or not that person is a connected person in relation to any party.
(3) The provisions of this section do not apply if either- (a) 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 the Republic that are subject to tax in another country which is equal to at least two-thirds of the amount of normal tax which would have been payable in connection with those amounts had they been subject to tax under this Act; or
(b) 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 18 months: Provided 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 as defined in section 9D(1) if it were located outside the Republic and the party in question were a controlled foreign company.
(4) For the purposes of subsection (3)(a), the amount of tax imposed by another country must be determined after taking into account any applicable agreements for the prevention of double taxation and any assessed loss, credit or rebate to which the party in question may be entitled or any other right of recovery to which that party or any connected person in relation to that party may be entitled.
(b) either- (i)
(ii)
Treatment of connected persons and accommodating or tax-indifferent parties
8OF. For the purposes of applying section 80C or determining whether or not a tax benefit exists for purposes of this Part, the Commissioner may- (a) treat parties who are connected persons in relation to each other as one
and the same person; or
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party for tax under section 80B, give the party notice that he or she believes that the provisions of this Part may apply in respect of an arrangement and must set out in the notice his or her reasons therefor.
(2) A party who receives notice in terms of subsection (1) may, within 60 days after the date of that notice or such longer period as the Commissioner may allow, submit reasons to the Commissioner why the provisions of this Part should not be applied.
(3) The Commissioner must within 180 days of receipt of the reasons or the expiry of the period contemplated in subsection (2)- (a) request additional information in order to determine whether or not
this Part applies in respect of an arrangement; (b) give notice to the party that the notice in terms of subsection (1) has
been withdrawn; or (c) determine the liability of that party for tax in terms of this Part.
(4) If at any stage after giving notice to the party in terms of subsection (I), additional information comes to the knowledge of the Commissioner, he or she may revise or modify his or her reasons for applying this Part or,
I (b) disregard any accommodating or tax-indifferent party or treat any accommodating or tax-indifferent party and any other party as one and the same person.
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Presumption of purpose
806. (1) An avoidance arrangement is presumed to have been entered into or carried out for the sole or main purpose of obtaining a tax benefit unless and until the party obtaining a tax benefit proves that, reasonably considered in light of the relevant facts and circumstances, obtaining a tax benefit was not the sole or main purpose of the avoidance arrangement.
(2) The purpose of a step in or part of an avoidance arrangement may be different from a purpose attributable to the avoidance arrangement as a whole.
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Application to steps in or parts of an arrangement
SOH. The Commissioner may apply the provisions of this Part to steps in or parts of an arrangement. 15
Use in the alternative
801. The Commissioner may apply the provisions of this Part in the alternative for or in addition to any other basis for raising an assessment.
Notice
Interest
80K. Where the Commissioner has applied this Part in determining a party’s liability for tax, the Commissioner may not exercise his or her discretion in terms of section 89quat (3) or (3A) to direct that interest is not payable in respect of that portion of any tax which is attributable to the application of this Part.
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Definitions
SOL. For purposes of this Part- ‘arrangement’ means any transaction, operation, scheme, agreement or understanding (whether enforceable or not), including all steps therein or parts thereof, and includes any of the foregoing involving the alienation of property; ‘avoidance arrangement’ means any arrangement that results in a tax benefit; ‘impermissible avoidance arrangement’ means any avoidance arrange- ment described in section 80A; ‘party’ means any- (a ) person; (b) permanent establishment in the Republic of a person who is not a
resident; (c) permanent establishment outside the Republic of a person who is a
resident; ( d ) partnership; or ( e ) joint venture, who participates or takes part in an arrangement; ‘tax’ includes any tax, levy or duty imposed by this Act or any other law administered by the Commissioner; ‘tax benefit’ includes any avoidance, postponement or reduction of any liability for tax.”.
(2) Subsection (1) is deemed to have come into operation on 2 November 2006 and applies to any arrangement (or any steps therein or parts thereof) entered into on or after that date.
Amendment of section 102 of Act 58 of 1962, as substituted by section 28 of Act 69 of 1975 and amended by section 27 of Act 91 of 1982, section 44 of Act 30 of 1998 and section 61 of Act 60 of 2001 and substituted by section 30 of Act 30 of 2002
35. Section 102 of the Income Tax Act, 1962 is hereby amended- (a ) by the substitution in subsection (1) for the words preceding paragraph (a) of
the following words: “( 1) Any amount paid by any person in terms of the provisions of this
Act shall be refundable, subject to the provisions of section 102A, to the extent that such amount exceeds-”;
(b) by the substitution in subsection (2) for paragraph (a ) of the following paragraph:
“(a) that amount was paid in accordance with the practice generally prevailing at the date of the payment; [or]”;
(c) by the additioin to subsection (2) of the following paragraphs: “ ( c ) the amount to be refunded is less than RlOO or less than such other
amount as the Commissioner may determine by Notice in the Gazette; c‘r:
(d) that person has failed to furnish a return for any year of assessment as required by this Act, until that person has furnished such return as required.”; and
(d) by the addition after subsection (3) of the following subsection: “(4) Where the amount that would be refunded under subsection (1) is
determined to be less than RlOO or less than such other amount as the Commissioner may determine by Notice in the Gazette, the amount so determined shall not be refunded in respect of that year of assessment but shall be carried forward to the immediately succeeding year of assessment.”.
Amendment of section 103 of Act 58 of 1962, as amended by section 14 of Act 101 of 1978, section 37 of Act 121 of 1984, section 19 of Act 70 of 1989, section 29 of Act 36 of 1996, section 45 of Act 30 of 1998, section 52 of Act 59 of 2000, section 33 of Act 5 of 2001 and section 42 of Act 32 of 2004
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36. (1) Section 103 of the Income Tax Act, 1962, is hereby amended-
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(a) by the deletion of subsections (1) and (3); (b) by the substitution for subsection (4) of the following subsection:
“(4) Any decision of the Commissioner under subsection [(l),] (2) [or (3)] shall be subject to objection and appeal, and whenever in proceedings relating thereto it is proved that the [transaction, opera- tion, scheme,] agreement or change in shareholding or members’ interests or trustees or beneficiaries of the trust in question would result in the avoidance or the postponement of liability for payment of any tax, duty or levy imposed by this Act or any previous Income Tax Act or any other law administered by the Commissioner, or in the reduction of the 10 amount thereof, it shall be presumed, until the contrary is proved[- (a) in the case of any such transaction, operation or scheme, that it
was entered into or carried out solely or mainly for the purposes of the avoidance or the postponement of such liability or the reduction of the amount of such liability; or
(b)] in the case of any such agreement or change in shareholding or members’ interests or trustees or beneficiaries of such trust, that it has been entered into or effected solely or mainly for the purpose of utilising the assessed loss, balance of assessed loss, capital loss or assessed capital loss in question in order to avoid or postpone such 20 liability or to reduce the amount thereof.”;
(c) by the substitution in subsection (5) for subparagraph (i) of paragraph (a ) of the following subparagraph:
any taxpayer has ceded the right to receive any amount [of income] in exchange for any amount of dividends; and”; and
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(d) by the deletion of subsection (7). (2) Subsection (1) is deemed to have come into operation on 2 November 2006 and
shall apply to any transaction entered into on or after that date.
Amendment of paragraph 5 of the Second Schedule to Act 58 of 1962, as amended by section 31 of Act 90 or 1962, section 21 of Act 72 of 1963, section 25 of Act 90 of 30 1964, section 35 of Act 88 of 1971, section 35 of Act 69 of 1975, section 27 of Act 113 of 1977, section 28 of Act 104 of 1980, section 48 of Act 94 of 1983 and section 25 of Act 65 of 1986
37. (1) Paragraph 5 of the Second Schedule to the Income Tax Act, 1962, is hereby
“(1) The deduction to be allowed in determining the amount required to be included in the taxpayer’s gross income for any year of assessment in terms of paragraph 2 shall, if the lump sum benefits in question= (aJ have been derived in consequence of or following upon the taxpayer’s
retirement [or]; 40 (bJ are deemed to have accrued to him immediately prior to his death [,I- (c) accrued subsequent to his retirement and in consequence of or following upon
an event contemplated by the rules of the pension fund, provident fund or retirement annuity fund or as a result of the approval of a scheme in terms of section 15B of the Pension Funds Act, 1956 (Act No. 24 of 1956), other than 45
be an amount (not exceeding the aggregate value of such lump sum benefits) equal to the [greater of the following amounts] amount [, namely- (a) an amount] determined in accordance with formula B in relation to such
taxpayer, but subject to the provisions of sub-paragraph (2); [or (b) an amount equal to the sum of the amounts which would have been
allowed to be deducted in terms of paragraph (b)ter of the definition of ‘gross income’ in section seven of the Income Tax Act, 1941, prior to its amendment by the Income Tax Act, 1961 (Act No. 80 of 1961), if such lump sum benefits had been received by or had accrued to such taxpayer 55 on the fourteenth day of March, 1961, and had been required to be
amended by the substitution for subparagraph (1) of the following subparagraph: 35

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included in his gross income in terms of said paragraph, less the aggregate of any deductions which may have been allowed to the taxpayer under this subparagraph or sub-paragraph (1) of paragraph 5 of the Fourth Schedule to the Income Tax Act, 1941, in respect of any
(2) Subsection (1) shall be deemed to have come into operation on 1 January 2006. years of assessment preceding the year of assessment in question].”. 5
Amendment of paragraph 6 of the Second Schedule to Act 58 of 1962, as substituted by section 26 of Act 90 of 1964 and amended by section 18 of Act 104 of 1979, section 5 of Act 30 of 1984, section 32 of Act 141 of 1992 and section 51 of Act 30 of 1998 10
38. (1) Paragraph 6 of the Second Schedule to the Income Tax Act, 1962, is hereby amended by the substitution in subparagraph 6 for the words preceding item (a) of the following words:
“The deduction to be allowed in determining the amount required to be included in the taxpayer’s gross income for any year of assessment in terms of paragraph 2 15 shall, if the lump sum benefits in question= - (1) have been derived in consequence of or following upon his withdrawal or
resignation from any pension funds, provident funds or retirement annuity funds or the winding up of any such f u n d s s
(2) accrued subsequent to his withdrawal or resignation from any pension funds, 20 provident funds or retirement annuity funds or the winding up of any such funds and in consequence of or following upon an event contemplated by the rules of any such fund or as a result of the approval of a scheme in terms of section 15B of the Pension Funds Act, 1956 (Act No. 24 of 1956), other than an event contemplated in paragraph (1) of this subparagraph, 25
be the sum of the following amounts, namely-”. (2) Subsection (1) shall be deemed to have come into operation on 1 January 2006.
Amendment of paragraph 1 of the Fourth Schedule to Act 58 of 1962, as added by section 19 of Act 6 of 1963 and amended by section 22 of Act 72 of 1963, section 44 of Act 89 of 1969, section 24 of Act 52 of 1970, section 37 of Act 88 of 1971, section 30 47 of Act 85 of 1974, section 6 of Act 30 of 1984, section 38 of Act 121 of 1984, section 20 of Act 70 of 1989, section 44 of Act 101 of 1990, section 44 of Act 129 of 1991, section 33 of Act 141 of 1992, section 48 of Act 113 of 1993, section 16 of Act 140 of 1993, section 37 of Act 21 of 1995, section 34 of Act 36 of 1996, section 44 of Act 28 of 1997, section 52 of Act 30 of 1998, section 52 of Act 30 of 2000, section 53 of Act 35 59 of 2000, section 19 of Act 19 of 2001, section 32 of Act 30 of 2002, section 46 of Act 32 of 2004, section 49 of Act 31 of 2005 and section 28 of Act 9 of 2006
39. Paragraph 1 of the Fourth Schedule to the Income Tax Act, 1962, is hereby amended-
(a) by the substitution for subparagraph (b) of the definition of “personal service 40 company” of the following subparagraph:
“(b) such person or such company is subject to the control or supervision of such client as to the manner in which[, or hours during which,] the duties are performed or are to be performed in rendering such service and must be mainly performed at the premises of the client; 45
(b) by the deletion of paragraph (c) of the definition of “personal service company”;
(c) by the substitution for the words after paragraph (d) of the definition of “personal service company” of the following words:
“except where such company throughout the year of assessment, employs [more than three] three or more full-time employees who are on a full-time basis engaged in the business of such company of rendering any such service, other than any employee who is a shareholder or member of the company or is a connected person in 55 relation to such person;” ;
(d) by the substitution for subparagraph (b) of the definition of “personal service trust” of the following subparagraph:
or”;
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“(b) such person or such trust is subject to the control or supervision of such client as to the manner in which[, or hours during which,] the duties are performed or are to be performed in rendering such service and those duties must be mainly performed at the premises
( e ) by the deletion of paragraph (c) of the definition of “persona1 service trust”; cf) by the substitution for the words after paragraph (d) of the definition of
“personal service trust” of the following: “except where such trust throughout the year of assessment, employs [more than three] three or more full-time employees who are on a 10 full-time basis engaged in the business of such trust of rendering any such service, other than any employee who is a connected person in relation to such person or trust;”;
(8) by the substitution for paragraph (a) of the definition of “provisional taxpayer” of the following paragraph:
“(a) any person (other than a company) who derives by way of income
(i) remuneration in terms of the definition of that expression as
(ii) an allowance or advance contemplated in section 8( 11,
of the client; or”; 5
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any amount which does not constitute-
defined in this paragraph; or 20
\ ,
but shall exclude for a period of three ;ears as from the first year of assessment commencing on or after 1 April 2007- (an) any public benefitorganisation as contemplated in paragraph
(a) of the definition of ‘public benefit organisation’ in section 30( 1) that has been approved by the Commissioner in terms of section 30(3); and
(bb) any recreational club as contemplated in the definition of ‘recreational club’ in section 30A(1) that has been approved by the Commissioner in terms of section 30A(2):
Provided that the Commissioner may extend the periods as contemplated in subparagraph (aa) and (bb) to such later date as he may determine by notice in the Gazette;”; and
(h) by the substitution for the definition of “tax threshold” of the following
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definition: “ ‘tax threshold’ in relation to a natural person means the maximum 35 amount of taxable income of that person in respect of a year of assessment which would result in no tax payable when the rates of tax contemplated in section 5 of this Act and the rebates contemplated in section 6 of this Act for that year of assessment [is] are applied to the taxable income of that person.”. 40
Amendment of paragraph 2 of the Fourth Schedule to Act 58 of 1962, as added by section 19 of Act 6 of 1963 and amended by section 23 of Act 72 of 1963, section 29 of Act 55 of 1966, section 38 of Act 88 of 1971, section 48 of Act 85 of 1974, section 28 of Act 113 of 1977, section 40 of Act 90 of 1988, section 21 of Act 70 of 1989, section 45 of Act 101 of 1990, section 45 of Act 129 of 1991, section 38 of Act 21 of 45 1995, section 45 of Act 28 of 1997, section 53 of Act 30 of 2000, section 54 of Act 59 of 2000, section 20 of Act 19 of 2001 and section 21 of Act 16 of 2004
40. Paragraph 2 of the Fourth Schedule to the Income Tax Act, 1962, is hereby
“(1A) Notwithstanding the provisions of subparagraph (l), a person shall not be 50 required to deduct or withhold employee’s tax solely by virtue of paragraph (d) of the definition of ‘personal service company’ or paragraph (d) of the definition of
amended by the insertion after subparagraph (I) of the following subparagraph:
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3ersonal service trust’ where the company or trust has provided that person with an affidavit or solemn declaration stating that the relevant paragraphs do not apply and that person relied on that affidavit or declaration in good faith.”.
Amendment of paragraph 9 of the Fourth Schedule to Act 58 of 1962 as amended by section 32 of Act 103 of 1976
41. Paragraph 9 of the Fourth Schedule to the Income Tax Act, 1962, is hereby
“(3) The amount to be deducted or withheld in respect of employees’ tax from any lump sum to which paragraph (d) or (e) of the definition of “gross income” in section 1 of this Act or section 7A thereof applies, shall be ascertained by the employer from the Commissioner before paying out such lump sum, and the Commissioner’s determination of the amount to be so deducted or withheld shall be final: Provided that no amount shall be so deducted or withheld in respect of any lump sum payment contemplated in paragraphs 5(l)(c) or 6(2) of the Second Schedule that is received by or accrues to the employee on or before 10 November 2006 or such later date that the Minister may determine by notice in the Gazette.”.
Amendment of paragraph 11 of the Fourth Schedule to Act 58 of 1962, as substituted by section 39 of Act 21 of 1995 and section 84 of Act 45 of 2003
amended by the substitution for subparagraph (3) of the following subparagraph:
42. Paragraph 11 of the Fourth Schedule to the Income Tax Act, 1962, is hereby amended by the substitution in subparagraph (a) for the words after item (ii) of the following words:
“in order to alleviate hardship to that employee due to circumstances outside the control of the employee [or where the remuneration constitutes commission] or to correct any error in regard to the calculation of employees’ tax, or in the case of remuneration constituting commission or where the remuneration is received by a personal service company or a personal service trust and [the employer must comply with] that directive must be complied with; or”.
Amendment of paragraph 11B of the Fourth Schedule to Act 58 of 1962, as inserted by section 41 of Act 90 of 1988, as amended by section 22 of Act 70 of 1989, section 47 of Act 101 of 1990, section 46 of Act 129 of 1991, section 34 of Act 141 of 1992, section 3 of Act 168 of 1993, section 40 of Act 21 of 1995, section 35 of Act 36 of 1996, section 48 of Act 28 of 1997, section 53 of Act 30 of 1998, section 56 of Act 59 of 2000, section 33 of Act 30 of 2002, section 56 of Act 74 of 2002, section 22 of Act 16 of 2004
43. Paragraph 11B of the Fourth Schedule to the Income Tax Act, 1962, is hereby amended by the substitution in subparagraph (I) for paragraph (h) of the definition of “net remuneration” of the following paragraph:
“(h) the amount of any allowance or advance contemplated in [paragraph] paragraphs (c) and (cAl of the definition of ‘remuneration’ in paragraph 1;”.
Amendment of paragraph 11 of the Eighth Schedule to Act 58 of 1962, as amended by section 71 of Act 60 of 2001
44. Paragraph 11 of the Eighth Schedule to the Income Tax Act, 1962, is hereby
“(b) by a company in respect of the issue or cancellation of a share or member’s interest in the company, or by a company in respect of the granting of an option to acquire a share, member’s interest or debenture in that company;”
amended by the substitution in subparagraph (2) for item (b) of the following item:
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Amendment of paragraph 20 of the Eighth Schedule to Act 58 of 1962, as inserted by section 38 of Act 5 of 2001 and amended by section 26 of Act 19 of 2001, section 75 of Act 60 of 2001, section 71 of Act 74 of 2002, section 95 of Act 45 of 2003, section 58 of Act 32 of 2004 and section 68 of Act 31 of 2005
45. (1) Paragraph 20 of the Eighth Schedule to the Income Tax Act, 1962, is hereby amended-
(a) by the insertion in subparagraph (1) after subitem (iv) of item (h) of the following subitem:
I
“(v) an asset which was acquired by a resident by way of inheritance from the deceased estate of a person who at the time of his or her death was not resident- (aa) the market value of that asset immediately before the death of
that deceased person; and (bb) any expenditure contemplated in this paragraph incurred by
the executor of that deceased estate in respect of that asset in the process of liquidation or distribution of that deceased estate:
Provided that this subitem does not apply in respect of any asset so acquired which constituted an asset of that deceased person as contemplated in paragraph 2(l)(b).”;
(b) by the substitution in subparagraph (1) for the proviso to item (h) of the following proviso:
“Provided that where subitem (i), (ii)(bb) or (dd) applies, that person must for purposes of this paragraph disregard any expenditure actually incurred by that person in respect of that asset prior to the date on which- @ the market value or value placed on the asset under the Seventh
Schedule, as the case may be, is determined[,]; or f’bJ the asset was disposed of, where the amountreceived or accrued
from the disposal is taken into account in determining the gain or loss in terms of section 8C.”;
(c) by the substitution in subparagraph (3) for item (b) of the following paragraph:
“(b) has for any reason been reduced or recovered or become recover- able from or has been paid by any other person (whether prior to or after the incurral of the expense to which it relates), to the extent which such amount is not taken into account as a recoupment in terms of section 8(4)(a) or paragraph (j) of the definition of ‘gross income’ of an amount contemplated in item (a)[.]&’;
(d) by the addition to Subparagraph (3) of the following item: - - . “(c) is exempi from tax in terms of section lO(l)(y) or (yA) and is
granted or paid for purposes of the acquisition of that asset: Provided that the provisions of items (b) and (c) shall not apply in respect of a government grant or government scrapping payment that is provided in respect of programmes or schemes that the Minister has identified by notice in the Gazette for purposes of this subparagraph.”; and
(e) by the addition of the following subparagraph: “(4) Expenditure incurred by a person in respect of the acquisition of
an asset shall be reduced by the amount of any foreign exchange gain as contemplated in section 241, or increased by the amount of any foreign exchange loss as so contemplated, if that gain or loss is not included in or deducted from the income of that person, or any other person forming part of the same group of companies as that person, in terms of section 241(11A).”.
(2) Paragraph (e) of subsection (1) shall be deemed to have come into operation on 3 1
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55 December2006 and shall apply in respect of any year of assessment ending on or after that date.
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Amendment of paragraph 24 of the Eighth Schedule to Act 58 of 1962, as inserted by section 38 of Act 5 of 2001, amended by section 76 of Act 60 of 2001, section 72 of Act 74 of 2002 and section 69 of Act 31 of 2005
46. Paragraph 24 of the Eighth Schedule to the Income Tax Act, 1962, is hereby amended by the substitution for subparagraph (4) of the following subparagraph:
“(4) The provisions of this paragraph do not apply in respect of any asset of a person who became a resident before [valuation date] 1 October 2001.”.
Amendment of paragraph 29 of the Eighth Schedule to Act 58 of 1962, as inserted by section 38 of act 5 of 2001, amended by section 81 of Act 60 of 2001, section 38 of Act 30 of 2002 and section 76 of Act 74 of 2002
47. Paragraph 29 of the Eighth Schedule to the Income Tax Act, 1962, is hereby amended-
( a ) by the substitution for subparagraph (3) Of the following subparagraph: “ (3) For the purposes of this paragraph[-
(a) the last price quoted for a specific day means the average of the buying and selling prices quoted at close of business on that day; and
(b)] ‘controlling interest’ in a company, means an interest in more than 35 per cent of the equity share capital of that company.”;
(b) by the substitution for subparagraph (4) of the following subparagraph: “(4) For the purposes of paragraphs 26(1)(a) and 27(3), a person may
only adopt or determine the market value as the valuation date value of that asset if- (a) in the case where the valuation date is 1 October 2001-
(i) that person has valued that asset [within two years after valuation date] on or before 30 September 2004;
@.) the price of that asset has been published by the Commissioner in terms of this paragraph in the Gazette; or
O that person has acquired that asset from that person’s spouse as contemplated in paragraph 67 and the transferor spouse had adopted or determined a market value in terms of this Paragraph, and for this purpose the transferee spouse must be treated as having adopted or %determined that Same market
,. . v a l u e s
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(b) in the case-where the valuation date is after 1 October 2001- 35 (i) that person has valued that asset within two years after 1
valuation date; or (ii) that asset is one contemplated in paragraph 31(l)(a) or (c)(i)
and the market value of that asset on valuation date is 40 determined in terms of one of those paragraphs.”; (c) by the substitution in subparagraph (5) for the words after item (c) of the
following words: “that person may only adopt the market value as the valuation date value of that asset if that person has furnished proof of that valuation to the Commissioner In the form as the Commissioner may prescribe, with the 45 first return submitted by that person after the period contemplated in subparagraph (4) or, if it was not submitted with that return, within such period as the Commissioner may allow if proof is submitted that the valuation was performed within the period prescribed.”; and
“(8) [The period contemplated in subparagraph (4) may be extended by the Minister by notice in the Gazette] Where the valuation date of a person is after 1 October 2001 the provisions of subparamaph ( I ) (a) , (I)(b)(i), (21, (2A), (3), (5) and (6)(a) do not apply.”.
(d) by the substitution for subparagraph (8) of the following subparagraph: 50
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Amendment of paragraph 30 of the Eighth Schedule to Act 58 of 1962, as inserted by section 38 of Act 5 of 2001 and amended by section 82 of Act 60 of 2001, section 77 of Act 74 of 2002, section 98 of Act 45 of 2003 and section 70 of Act 31 of 2005
48. Paragraph 30 of the Eighth Schedule to the Income Tax Act, 1562, is hereby
“(b) any part of the expenditure contemplated in paragraph 20(l)(a), (c) or (e) incurred before, on or after valuation date [which] is or was allowable as a deduction in determining the taxable income of that person before the inclusion of any taxable capital gain; and”.
amended by the substitution in paragraph (3) for item (b) of the following item: 5
Amendment of paragraph 31 of the Eighth Schedule to Act 58 of 1962, as inserted 10 by section 38 of act 5 of 2001, amended by section 83 of Act 60 of 2001 and section 78 of act 74 of 2002
49. Paragraph 31 of the Eighth Schedule to the Income Tax Act, 1562, is hereby amended-
(a) by the substitution in subparagraph (1) for the words preceding item (a ) of the 15 following words:
“(1) The market value of an asset on a specified date is in the case of-”;
“(a)an asset which is a financial instrument listed on a recognised 20 exchange and for which a price was quoted on that exchange, [is] the ruling price in respect of that financial on the last business day before [disposal of that financial instrument] that date;”; and
(c) by the substitution in subparagraph (1) for subitems (i) and (ii) of item (c) of the following subitems: 25
“(i) any company contemplated in paragraph (e)(i) of the definition of ‘company’ in section 1 of the Act, or any portfolio comprised in any collective investment scheme in property contemplated in Part V of the Collective Investment Schemes Control Act, 2002, carried an in the Republic, the price at 30 which a participatory interest can be sold to the management company of the scheme on [the]
(ii) any arrangement or scheme contemplated in paragraph (e)@) of the definition of ‘company’, the price at which a participa- tory interest can be sold to the management company of the 35 scheme on [the] that date [of disposal] or where there is not a management company the price which 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 0” that date;”; and 40
(d) by the substitution in subparagraph (l)(fl for the words preceding subitem (i) of the following words:
“[in the case ofJ any asset which constitutes immovable property on which a bona fide farming undertaking is being carried on, subject to
(b) by the substitution in subparagraph (1) for item (a) of the following item:
date [of disposal]; or
subparagraph (4), either-”. 45
Amendment of paragraph 40 of the Eighth Schedule to Act 58 of 1962, as inserted by section 38 of Act 5 of 2001 and amended by section 89 of Act 60 of 2001 and section 82 of Act 74 of 2002
50. Paragraph 40 of the Eighth Schedule to the Income Tax Act, 1962, is hereby amended by the substitution in paragraph (2) for the words preceding item (a) of the 50 following words:
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“Subject to [subparagraph] paragraph 12(5), where an asset is disposed of by a deceased estate to an heir or legatee (other than the surviving spouse of the deceased person as contemplated in paragraph 67(2)(a) or an approved public benefit organisation as contemplated in paragraph 62) or a trustee of a trust-”.
Amendment of paragraph 43 of the Eighth Schedule to Act 58 of 1962, BS inserted by section 38 of Act 5 of 2001 and amended by section 91 of Act 60 of 2001 and substituted by section 84 of Act 74 of 2002 and amended by section 101 of Act 45 of 2003 and section 75 of Act 31 of 2005
51. Paragraph 43 of the Eighth Schedule to the Income Tax Act, 1962, is hereby amended by the substitution in subparagraph (2) for the words preceding item (a) of the following words:
“(2) Where a person disposes of an asset, (other than an asset contemplated in subparagraph (1) or (4)), for proceeds which are either received or accrued or denominated for purposes of financial reporting of a permanent establishment of that person in any currency (hereinafter referred to as the ‘currency of disposal’) after having incurred expenditure in respect of that asset which is either actually incurred or so denominated in another currency (hereinafter referred to as the ‘currency of expenditure’), that person must for purposes of determining the capital gain or capital loss on the disposal of that asset-”.
Amendment of paragraph 62 of the Eighth Schedule to Act 58 of 1962, as inserted by section 38 of Act 5 of 2001 and substituted by section 103 of Act 45 of 2003.
52. Paragraph 62 of the Eighth Schedule to the Income Tax Act, 1962, is hereby amended-
(a) by the substitution for subparagraph (b) of the following subparagraph: “(b) a public benefit organisation [exempt from tax in terms of section
lO(l)(cN)] contemplated in paragraph (a) of the definition of ‘public benefit organisation’ in section 30( 1) that has been approved b~ the Commissioner in terms of section 30(3);”;
(b) by the deletion of the word “or” at the end of subparagraph (c) and the addition of the word “or” at the end of subparagraph id); and
( e ) by the addition of the following subparagraph: “(e) a recreational club which is a company, society or other
organisation as contemplated in the definition of ‘recreational club’ in section 30A(1) that has been approved by the Commissioner in terms of section 30A.”.
Insertion of paragraph 63A in the Eighth Schedule to Act 58 of 1962
53. The Eighth Schedule to the Income Tax Act, 1962, is hereby amended by the insertion after paragraph 63 of the following paragraph:
“63. A Public benefit 0rganisations.-A public benefit organisation approved by the Commissioner in terms of section 30(3) must disregard anv _. J capital gain 07 czpital loss determined in respect of the disposal of an asset if- (a) that public benefit organisation did not use that asset on or after
valuation date in carrying on any business undertaking or trading activity; or
(bl substantially the whole of the use of that asset by that public benefit organisation on or after valuation date was directed at-
(i) a purpose other than carrying on a business undertaking or trading activitv; or
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(ii) carrying on a business undertalung or trading activity contern- I 50 plated in section lO(l)(cN)(ii)(aa), (bb) or (cc)”.
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“65B. Disposal by recreational club.- (1) A recreational club approved in terms of section 30A may elect that this paragraph applies in respect of the disposal of an asset the whole of which was used mainly for purposes of providing social and recreational facilities and amenities for members of that club, where- (a) proceeds accrue to that club in respect of that disposal; (b) those proceeds are equal to or exceed the base cost of that asset; (c) (i) an amount at least equal to the receipts and accruals from that
disposal has been or will be expended to acquire one or more replacement assets all of which will be used mainly for such purposes;
(ii) the contracts for the acquisition of the replacement asset or assets have all been or will be concluded within 12 months after the date of the disposal of that asset; and
(iii) the replacement asset or assets will all be brought into use within three years of the disposal of that asset:
Provided that the Commissioner may extend the period within which the contract must be concluded or asset brought into use by no more than six months if all reasonable steps were taken to conclude those contracts or bring those assets into use; and
Amendment of paragraph 64 of the Eighth Schedule to Act 58 of 1962, as inserted by section 38 of Act 5 of 2001 and substituted by section 78 of Act 31 of 2005
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54. The Eighth Schedule to the Income Tax Act, 1962, is hereby amended by the substitution for paragraph 64 of the following paragraph:
“64. Asset used to produce exempt income.- A person must disregard any capital gain or capital loss in respect of the disposal of an asset[- (a) ]which is used by that person solely to produce amounts which are
exempt from normal tax in terms of section 10, other than receipts and accruals contemplated in paragraphs LcN), (cO), (i)(xv), (k) and (m) of
(b) where substantially the whole of the use of that asset from the valuation date by that person, which is a public benefit organisation approved by the Commissioner in terms of section 30(3), is in carrying on a public benefit activity].”.
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subsection (1) thereof[; or 10
Amendment of paragraph 64A of the Eighth Schedule to Act 58 of 1962, as inserted 15 by section 92 of Act 74 of 2002
55. The Eighth Schedule to the Income Tax Act, 1962, is hereby amended by the substitution for paragraph 64A of the following paragraph:
“MA. Awards in terms of the Restitution of Land Rights Act government scrapping payments- A person must disregard any capital 20 gain or capital loss in respect of the disposal that resulted in that person receiving= @zJ restitution of a right to land, an award or compensation in terms of the
Restitution of Land Rights Act, 1994 (Act No. 22 of 1 9 9 4 ) s (b) a vovernment scrapping payment, if the Minister has by Notice in the 25
Gazette identified the programme or scheme for purposes of this paragraph.”.
Insertion of paragraph 65B in Eighth Schedule to Act 58 of 1962
100 No. 29603 GOVERNMENT GAZE’ITE, 7 FEBRUARY 2007
(d) that asset is not deemed to have been disposed of and to have been reacquired by that club.
(2) Where a club has elected in terms of subparagraph (1) that this paragraph must apply in respect of the disposal of an asset, any capital gain determined in respect of that disposal must, subject to subparagraphs (3), (4) and ( 5 ) be disregarded when determining that club’s aggregate capital gain or aggregate capital loss.
(3) Where a club acquires more than one replacement asset as contemplated in subparagraph (l), that club must, in applying subpara- graphs (4) and (5 ) , apportion the capital gain derived from the disposal of that asset to each replacement asset in the same ratio as the receipts and accruals from that disposal respectively expended in acquiring each of those replacement assets bear to the total amount of those receipts and accruals expended in acquiring all those replacement assets.
(4) Where a club during any year of assessment disposes of a replacement asset and any portion of the disregarded capital gain which is apportioned to that asset, has not otherwise been treated as a capital gain in terms of this paragraph, that club must treat that portion of disregarded capital gain as a capital gain from the disposal of that replacement asset in
(5) Where a club fails to conclude a contract or fails to bring any replacement asset into use within the period prescribed in subparagraph (l)(d)(iii), that club must- (a) treat the capital gain Contemplated in subparagraph (2) as a capital
gain on the date on which the relevant period ends; (b) determine interest at the prescribed rate on that capital gain from the
date of that disposal to the date contemplated in item (a); and (c) treat that interest as a capital gain on the date contemplated in item (a)
when determining that club’s aggregate capital gain or aggregate capital loss.”.
that year of assessment.
Act No. 20,2006 REVENUE LAWS AMENDMENT ACT, 2006
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Amendment of paragraph 67 of Eighth Schedule to Act 58 of 1962, as inserted by section 38 of Act 5 of 2001 and amended by section 104 of Act 60 of 2001 and section 108 of Act 45 of 2003
57. Paragraph 67 of the Eighth Schedule to the Income Tax Act, 1962, is hereby amended- 35
(a) by the substitution in subparagraph (1) for item (b) of the following item: “(b) The transferee must be treated as having-
(i)
(ii)
acquired the asset on the same date that such asset was acquired by the transferor; [acquired the asset for] incurred an amount of expenditure equal to 40 the expenditure contemplated in paragraph 20 that was incurred by that transferor [prior to that disposal] and the executor of the deceased estate of the transferor in respect of that asset; incurred that expenditure on the same date and in the same currency that it was incurred by the transferor or the executor of the deceased 45 estate of the transferor; and
(iv) used [the] @t asset in the same manner that it was used by the transferor [in respect of the period prior to that disposal] and the executor of the deceased estate of the transferor.”; and
(b) by the substitution in subparagraph (2) for item (a) of the following item:
(iii)
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his or her surviving spouse, if ownership of that asset [accrues to that surviving spouse upon the death of that person] is acquired by that surviving spouse by ab intestato or testamentary succession or as a result of a re-distribution agreement between the heirs and 55 legatees of that deceased person in the course of liquidation or distribution of the deceased estate of that deceased person; or”.
102 No. 29603 . GOVERNMENT GAZETTE, 7 FEBRUARY 2007
Act No. 20,2006 REVENUE LAWS AMENDMENT ACT, 2006
Amendment of paragraph 80 of Eighth Schedule to Act 58 of 1962, as inserted by section 38 of Act 5 of 2001 and amended by section 108 of Act 60 of 2001
58. Paragraph 80 of the Eighth Schedule to the Income Tax Act, 1962, is hereby amended by the substitution in subparagraph (2) for the words preceding item (a) of the following words:
“(2) Subject to paragraphs 68,69,71 and 72, where a capital gain arises in a trust in a year of assessment during which a trust beneficiary who is a resident has a vested interest or acquires a vested interest (including an interest caused by the exercise of a discretion) in that capital gain but not in the asset, the disposal of which gave rise to the capital gain, the whole or the portion of the capital gain vested-”.
Amendment of paragraph 92 of the Eighth Schedule to Act 58 of 1962, as substituted by section 100 of Act 74 of 2002 and amended by section 128 of Act 45 of 2003
59. Paragraph 92 of the Eighth Schedule to the Income Tax Act, 1962, is hereby
“(b) increasing that amount by any capital loss determined in terms of this Schedule in respect of the disposal of that foreign currency asset (otherwise than in terms of the application of this Part), which was taken into account in determining that amount.”.
amended by the substitution for item (b) of the following item:
Amendment of Paragraph 3 of Part I of the Ninth Schedule to Act 58 of 1962, as inserted by section 41 of Act 30 of 2002, and amended by section 125 of Act 45 of 2003
60. Part 1 of The Ninth Schedule to the Income Tax Act, 1962, is hereby amended- (a) by the substitution in paragraph 3 for subparagraph (a) of the following
subparagraph: “(a) The development, construction, upgrading, conversion or pro-
curement of housing units for the benefit of persons whose monthly household income [falls within the housing subsidy eligibility require- ments] is equal to or less than R3 500 or any greater amount determined by the Minister of Finance by notice in the Gazette after consultation with the Minister of Housing [of the National Housing Code published pursuant to section 4 of the Housing Act, 1997 (Act No. 107 of 1997)l.”; and
(b) by the substitution in paragraph 3 for subparagraph (f) of the following subparagraph:
‘‘V) Granting of loans for purposes of subparagraph (a) or (b), and the provision of security or guarantees in respect of such loans, subject to such conditions as may be prescribed by the Minister by way of regulation.”.
Amendment of Paragraph 4 of Part I1 of the Ninth Schedule to Act 58 of 1962
61. Part I1 of the Ninth Schedule to the Income Tax Act, 1962, is hereby amended by
“4. [The establishment and management of a transfrontier area, involving two or more countries, which-]
the substitution for paragraph 4 of the following paragraph:
[is or will fall under a unified or coordinated system of management without compromising national sovereignty; and] Engaging in the conservation, rehabilitation or protection of the natural environment, including flora, fauna or the biosphere. [has been established with the explicit purpose of supporting the conservation of biological diversity, job creation, free movement of animals and tourists across the international boundaries within the peace park, and the building of peace and understanding hetween the nations concerned.1 The care of
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animals, inclukng the rehabilitation or treatment of animals.
104 No.29603 GOVERNMENT GAZETTE, 7 FEBRUARY 2007
Act No. 20, uw)6 REVENUE LAWS AMENDMENT ACT, 2006
1. For purposes of this Schedule, unless the context otherwise indi- cates- ‘exploration’ means the acquisition, processing and analysis of geological and geophysical data or other related activity for purposes of defining a trap to be tested by drilling together with well drilling, logging and testing (including extended well testing) up to and including the well appraisal stage; ‘gas’ means any subsoil combustible gas consisting primarily of hydrocar- bons, consisting primarily of hydrocarbons, other than hydrocarbons converted from bituminous shales or other stratified deposits of solid hydrocarbons; ‘OW means any subsoil combustible liquid consisting primarily of hydrocarbons, other than hydrocarbons converted from bituminous shales or other stratified deposits of solid hydrocarbons; ‘oil and gas company’ means any company- (a) that-
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(i) holds any oil and gas right; (ii) engages in exploration or production in terms of any oil and
gas right; or (iii) engages in refining of gas derived in respect of any oil and gas
right held by that company; and (b) engages in no trade other than any of the activities contemplated in
item (a);
(c) The promotion of, and education and training programmes relating to, environmental awareness, greening, clean-up or sustainable development projects.
(d) The establishment and management of a transfrontier area, involv- ing two or more countries, which-
(i) does or will fall under a unified or coordinated system of management without compromising national sovereignty; and
(ii) has been established with the explicit purpose of supporting the conservation of biological diversity, job creation, free movement of animals and tourists across the international boundaries of the peace park, and the building of peace and understanding between the nations concerned.”.
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Amendment of Paragraph 5 of Part I1 of the Ninth Schedule to Act 58 of 1962, as added by section 130 of Act 45 of 2003
62. Part I1 of the Ninth Schedule to the Income Tax Act, 1962. is herebv amended bv the substitution in paragraph 5 for subparagraph (a) of the following su