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As most tax-orientated people will be aware, a new income-tax and capital gains tax (CGT) regime has been introduced that deals specifically with debt reduction, by whatever legal means the debt is reduced. Where any debt owed by a person is reduced and that debt was used to fund, whether directly or indirectly, expenditure in respect of which a deduction or allowance was granted in terms of the Income Tax Act 58 of 1962 (the IT Act), and the amount of that reduction exceeds any consideration given by the debtor for such reduction, the provisions of section 19 of the IT Act apply. Depending on the nature of the expenditure, certain income-tax implications are triggered. Should such debt have funded expenditure incurred in respect of assets, paragraph 12A applies and certain CGT implications are triggered. This article briefly discusses the ambit of these two fairly new provisions.
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