n Business Tax and Company Law Quarterly - Accountants will govern the taxation of financial instruments from 2014 : section 24JB unpacked

Volume 4, Issue 2
  • ISSN : 2219-1585


For many years taxpayers, particularly in the financial services sector, have recognised gains and losses in respect of financial instruments for tax purposes in accordance with accounting rules applicable to financial assets and financial liabilities. This practice has often disregarded the already promulgated tax rules in respect of specific financial instruments, such as debt instruments, interest-rate agreements and option contracts, scattered throughout the Income Tax Act 58 of 1962. Pressure from various financial institutions as well as a lack of consistency in the applicability of existing tax rules relating to financial instruments, has caused the National Treasury to promulgate new rules which will govern the taxation of gains and losses in relation to financial instruments. The rules are found in the new section 24JB and will apply to gains and losses on 'financial assets' and 'financial liabilities' as defined in International Financial Reporting Standard 9 for years of assessment commencing on or after 1 January 2014.

This article unpacks the new section 24JB in terms of its applicability to specific categories of taxpayers and then considers how the law will be applied to these categories. A transitional adjustment is required to be calculated based on the difference between the tax base and accounting valuations for financial assets and financial liabilities as at the end of years of assessment commencing on or after 1 January 2013.

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