|Important future tax proposals
The use of share subscription and repurchase schemes in mergers and acquisitions transactions will be the subject of specific anti-avoidance rules.
Certain bargaining councils have been non-tax compliant and, in order to regularise them, a certain level of relief will be considered, where after full compliance will be expected in future.
The foreign employment income tax exemption for South African residents is to be restricted. It is proposed that the exemption will be applicable only to the extent that the foreign employment income is actually subject to tax in the foreign country.
The rules relating to employee share schemes will be reviewed to address the interaction of section 8C and the Eighth Schedule of the Income Tax Act following last years changes that targeted dividend stripping to avoid section 8C tax.
Additional relief for the tax implications of forgiveness of debt will be introduced:
- to align the tax treatment of debt forgone for mining companies with the tax treatment applied to companies in other sectors.
- to provide an expansion of the relief for dormant companies or companies under business rescue within a group of companies.
- to allow conversion of debt into equity (without adverse effects), while unpaid interest so capitalised will be recouped.
- to make short-term shareholding structures seeking to avoid the recoupment triggered by the debt forgiveness rules the subject of anti-avoidance rules.
- to amend the tax rules dealing with low-interest or interest-free loans to explicitly exclude the application of the in duplum rule.
The current dividend stripping rules will be expanded to include circumstances where loans for the purchase of shares are raised from a non-connected person, such as a bank.
Amendments will be made in relation to the definition of contributed tax capital to avoid companies with foreign parents avoiding the payment of dividend tax through contributed tax capital funding and subsequent capital distributions.
The assumption of future contingent liabilities will be considered as an acceptable consideration under the corporate reorganisation rules. This is in line with the approach of the recently released Interpretation Note 94, which deals with, inter alia, the position of the seller who is released from such future contingent liabilities.
The corporate reorganisation rules will be amended to provide for corporate reorganisations involving real estate investment trusts (REITs).
The current treatment of the provision of collateral and securities lending arrangements will be expanded to include listed government bonds.
The definition of qualifying purpose for the purposes of third-party backed shares will be expanded to cover all qualifying purposes (such that the dividends thereon will not be recharacterised as revenue).
Tax treatment of banks and financial institutions:
o Following the replacement of International Accounting Standard 39 with International Financial Reporting Standard (IFRS) 9, it is proposed that the tax treatment of the financial assets and liabilities of banks and other financial institutions under section 24JB of the Income Tax Act be aligned with IFRS 9, except for the treatment of impairments.
o The South African Revenue Service directive on the treatment of doubtful debts for banks will be reviewed and incorporated into the Income Tax Act. Moreover, it is proposed that section 24JB will exclude impairment adjustments in terms of IFRS 9.
o It is proposed that section 8F (which deals with hybrid debt instruments) will override the provisions of section 24JB.
o It is proposed that measures will be introduced that prohibit mismatches on the tax treatment of reduced or waived loans between a financial institution and another company that is part of the same group as that institution.
When a person retires from a retirement fund, the retirement fund lump sum benefit accrues to that person at the date of retirement. There are certain deductions available against the retirement fund lump sum benefit under the Second Schedule of the Income Tax Act to determine the taxable amount of the lump sum benefit, but there is no deduction for amounts that are transferred to another retirement fund when the person has retired from a fund. The proposal is to allow a (presumably tax-free) transfer to a retirement annuity fund when a person retires from a retirement fund.