On 1 August 2024 National Treasury and the South African Revenue Service (SARS) released the draft Taxation Laws Amendment Bill, draft Revenue Laws Amendment Bill, draft Tax Administration Laws Amendment Bill as well as draft Regulations in terms of the Value-Added Tax Act1 and the Carbon Tax Act2 for public comment by 31 August 2024.
We set out below a summary of some of the significant proposed amendments contained in the various draft bills. Following the public comment process, the bills will be tabled in Parliament and enacted into law.
Income Tax Act
Definition of a 'company' and 'trust' to provide for collective investment schemes and similar portfolios
It is proposed that the definition of a 'company' be clarified to include a portfolio of a hedge fund collective investment scheme in terms of which the public holds shares, units or any other participatory interest.
The definition of a 'trust' is proposed to include a portfolio of a collective investment scheme and a portfolio of a hedge fund collective investment scheme.
Relaxation of the definition of 'connected person' relating to a partnership
In an attempt to remove limited partners as connected persons in relation to an en commandite partnership, it is proposed that a member who is a qualifying investor in a partnership or foreign partnership is not considered to be a connected person to that partnership.
Definition of a 'REIT' to include unlisted companies
A REIT is proposed to be expanded to include unlisted companies, where the shares held in these companies meet the conditions of the Financial Sector Conduct Authority after approval by the Director-General of the National Treasury.
Calculation of the section 6quat rebate relating to capital gains
It is proposed that the section 6quat rebate (a provision which allows a taxpayer to credit foreign taxes paid against South African taxes payable on the same income) be clarified to explicitly allow a taxpayer to claim the full foreign tax credit for foreign taxes paid on capital gains against the taxes paid in South Africa on the same gains.
Low interest rate donations to trusts or companies
The section 7C anti-avoidance measure to curb transferring low-interest capital to trusts is proposed to be amended to not apply where the taxpayer has already made a transfer pricing adjustment.
Third-party backed shares
The definition of a 'third-party backed share' (preference shares where the holder of the share has an enforcement right which may be exercised if the entitled person does not receive a dividend or return of capital from the issuer) is proposed to be expanded to include an enforcement right exercisable either by the holder of the relevant share or a connected person in relation to that holder.
It is also favourably proposed that the anti-avoidance provisions of section 8EA will not apply where the funds of the preference share subscription were used to obtain shares in an operating company, and these shares in the operating company are disposed of and the proceeds of the disposal are used to redeem the preference shares and to settle the dividends related to the preference shares.
Local currency of controlled foreign companies (CFC)
The current 'local currency' for a CFC is the functional currency of the CFC. It is proposed that section 9D be amended to allow the local currency of a CFC to be ZAR where the functional currency is subject to an official inflation rate of 100% per tax year.
New section 12V allowance for the production of electric and hydrogen-powered vehicles
It is proposed that a motor vehicle manufacturer be allowed to deduct 150% of the cost of buildings, and improvements thereto, as well as new and unused machinery used in the production of electric or hydrogen-powered vehicles.
Assessed losses for liquidation, winding-up or deregistration
Section 20 is proposed to be amended to exempt companies from the R1 million or 80% limitation applicable to assessed losses per tax year where a company took steps to be liquidated, wound-up or deregistered.
Limitation of interest deductions on reorganisation and acquisitions transactions
It is proposed that the interest limitation formula in respect of section 23N be amended to align with recent amendments to section 23M. This will provide for the calculation of 'adjusted taxable income' to be taxable income before setting off assessed losses, subject to additions and reductions, provided that the result of the calculation may not be less than zero. Section 23M further provides that the calculated 'adjusted taxable income' be multiplied by a fixed percentage of 30% in the interest limitation formula.
Foreign exchange tax implications
The definition of 'exchange item' for purposes of section 24I is proposed to be amended to include a share in a foreign company that is a financial asset for the purposes of the International Financial Reporting Standards (IFRS).
A further proposal is that excess foreign exchange losses will be ring-fenced from assessed losses and will as a result be carried over to off-set against future foreign exchange gains.
Amendments to IFRS 17 - tax consequences for insurers
It is proposed that section 28 relating to short term insurers be amended to include the liability for remaining coverage when calculating the difference between IFRS 4 and IFRS 17 liabilities.
Disposal of shares in foreign companies
The 18-month period contained in paragraph 64B of the Eighth Schedule is proposed to be clarified to confirm that where a group of companies in aggregate held the shares for a period of 18-months the person disposing of the shares may disregard the capital gain.
Value-Added Tax Act
Providing relief on supplies to foreign subsidiaries
It is proposed that the definition of 'resident of the Republic' in section 1(1) be amended to exclude a person who is solely a resident due to having its place of effective management in South Africa.
Input tax may only be deducted from the corresponding output tax in the same VAT period
Section 16(3) is proposed to be amended to limit an input tax deduction to the corresponding output tax occurring in the same VAT period in which the entitlement to the input tax deduction arose, as opposed to the practice where input tax is deducted from any output tax period following five years after that input tax period
Administrative amendments for foreign VAT vendors
It is proposed that foreign VAT vendors be allowed to appoint any VAT vendor as an agent instead of the limitation to only appoint South African VAT vendors as agents.
It is proposed that certain foreign VAT vendors, that are residents to countries which concluded a Double Tax Agreement with South Africa, be exempted from the obligation to open a South African bank account.
Carbon Tax Act
Renewable energy premium deduction
Section 6 is proposed to be amended to allow the energy premium deduction where electricity purchases under power purchase agreements are ceded to the National Transmission Company of South Africa.
Increase to threshold for renewable energy projects eligible for carbon offsets
It is proposed that the carbon offset regulations be amended to increase the eligibility threshold for renewable energy projects to qualify for the allowance in respect of carbon offsets from 15 to 30 Megawatts, whether as part of an IPP bid programme or otherwise.
Employment Tax Incentive Act
Monthly remuneration
In order to curb the abuse of the ETI system the definition of 'monthly remuneration' is proposed to be amended to only allow for cash payments to employees to be used to determine the employment tax incentive.
Mineral and Petroleum Resource Royalty Act
The application of Schedule 2 per section 6A
The proposed amendment aims to clarify that 'gross sales' of a mineral resource transferred below the specified condition will be the amount that would have been received or accrued if the mineral resource had been transferred at the condition specified or the minimum of the range of conditions specified for that mineral resource.
Tax Administration Act
Appearances in the Tax Court
Section 12 is proposed to be amended to allow natural persons, who are not admitted legal practitioners, to appear in the Tax Court on behalf of taxpayers only if the president of the Tax Court is satisfied that they are a fit and proper person.
Extending the period to file an objection
It is proposed that section 104 be clarified so that SARS may extend the period in which an objection must be filed within 30 business days in reasonable circumstances and more than 30 business days in exceptional circumstances, but that the extension may not be more than three years from the date of the assessment or decision.
Introducing alternative dispute resolution at objection stage
A further proposed amendment to section 104 is the introduction of alternative dispute resolution proceedings at the objection stage of a dispute.
Allowing the Tax Court to extend the appeal period
The proposed amendment to section 107 will allow the Tax Court to extend the period in which an appeal must be lodged for up to 120 business days provided that the extension is in the interests of justice.
Directly referring matters to Tax Court
It is proposed that section 109 be amended to provide that a matter will automatically be heard in the tax board if the relevant threshold is not exceeded unless the SARS and the taxpayer agree that the matter be heard in the Tax Court.
Appointment of public officers
It is proposed that public officers must now be appointed on the formation of a company and that the one month period to appoint public officers be removed.
Footnotes
1. Value-Added Tax Act, No. 89 of 1991.
2. Carbon Tax Act, No. 15 of 2019.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.