n Business Tax and Company Law Quarterly - Highlighted 2016 tabled tax amendments : their application

Volume 7, Issue 4
  • ISSN : 2219-1585


The 2016 Taxation Laws Amendment Bill includes a number of proposed amendments pursuant to the 2016/2017 Budget Speech delivered by the Minister of Finance in February 2016. This year's Bill contains a number of amendments that have been recently flagged by the Davis Tax Committee as well as National Treasury. The amendments referred to in particular are the deemed donations tax rules in respect of interest-free or low-interest yield loans to related-party trusts and remedying the currently favourable tax consequences of perpetual employee share schemes. A new provision, section 7C of the Income Tax Act, 1962 ('the Act'), introduces rules with effect from 1 March 2017 that deem interest-free or low interest- bearing loans to related-party trusts as a donation for donation tax purposes. The deemed donation is calculated based on the difference, per tax year, of interest on related party loans to trusts and the 'official interestrate' and is determined on the last day of the year of assessment of the trust. Various exemptions apply to the deemed donations tax liability most notably trusts that qualify as Public Benefit Organisations in terms of section 30 of the Act and loans to trusts that are funded by a natural person or his or her spouse to acquire a primary residence for use, wholly or partly, by that natural person or his or her spouse. Various amendments have been proposed to sections 8C and 10(1)(k) of the Act that deem returns on perpetual employee share schemes to be taxed at the recipients' marginal rate of tax. The main amendments are proposed to section 10(1)(k) of the Act with the introduction of proviso (jj) to the said section. The proviso applies to dividends in respect of Restricted Equity Instruments ('REI') defined in section 8C of the Act. The tax exemption of dividend income will not apply to dividends derived (i) in respect of share buy-backs or share redemptions, (ii) amounts derived in anticipation of or in the course of the winding up, liquidation or de-registration of a company, or (iii) dividends constituting non-REI's that vest in terms of section 8C of the Act. The latter proviso seems inequitable as it appears to include the dividend constituting the non REI in taxable income as well as taxing the gain upon the vesting of the non-REI in terms of section 8C.

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