The final Taxation Laws Amendment Bill 2017 (the TLAB) was introduced in the National Assembly on 25 October 2017 for ratification and signature by the President which is expected by early January 2018.
Anti-avoidance legislation now not only covers share buy-back / dividend stripping transactions but certain preference share transactions as well
- Specific anti-avoidance legislation has been introduced to curb share buy-back and other dividend stripping transactions which previously allowed corporate taxpayers to divest on a tax-free basis
- Surprisingly, these anti-avoidance provisions now also apply to preference share transactions where the dividend rate exceeds 15 percent
- The amendments will come into effect from 19 July 2017, which means that taxpayers may already have triggered these provisions
Complete overhaul of debt reduction/forgiveness provisions
- The debt reduction provisions have been completely overhauled with the introduction of the concept of a "concession or compromise" that results in a "debt benefit".
- The definition of a "concession or compromise" has been drafted in wide terms and even a simple change to a term of a loan will "concession or compromise" (i.e. whether or not it is a beneficial or unbeneficial change for the debtor). Taxpayers will then have to determine whether that "concession or compromise" results in a "debt benefit", which is where the fun starts.
The tax consequences of section 8F and 8FA loans now unclear
Amendments have been made to deeming provisions in section 8F and 8FA of the Act, which can be interpreted as applying only to the company that incurred the interest. If that is the case, the company incurring the interest would not be entitled to the tax deduction whereas the holder of the instrument would still be subject to tax on the interest.
Some reprieve for South Africans rendering services in foreign countries
Section 10(1)(o)(ii) of the Act will no longer be deleted entirely. Instead, with effect from 2020, the section 10(1)(o)(ii) exemption will still apply to remuneration earned in a foreign country that does not exceed R1 million in that tax year. Thereafter, taxpayers will have to consider whether any other relief is available.
Predicted increase in withholding (and other) tax rates
Amendments have been made throughout the TLAB that would lead one to believe that sudden increases in all of the withholding tax rates to at least 20 percent as well as possible increase in the donations tax rate are to be expected - much like the dividend withholding tax rate this year.