Acts Online
GT Shield

Income Tax Act, 1962 (Act 58 of 1962)

Chapter II: The Taxes

Part I: Normal Tax

19. Reduction of debt

 

(1)        For the purposes of this section—

 

'allowance asset' means a capital asset in respect of which a deduction or allowance is allowable in terms of this Act for purposes other than the determination of any capital gain or capital loss;

 

'capital asset' means an asset as defined in paragraph 1 of the Eighth Schedule that is not trading stock;

 

'debt' does not include a tax debt as defined in section 1 of the Tax Administration Act;

 

'reduction amount', in relation to a debt owed by a person, means any amount by which that debt is reduced less any amount applied by that person as consideration for that reduction.

 

(2) Subject to subsection (8), this section applies where a debt that is owed by a person is reduced by any amount and—
(a) the amount of that debt was used, directly or indirectly, to fund any expenditure in respect of which a deduction or allowance was granted in terms of this Act; and
(b) the amount of that reduction exceeds any amount applied by that person as consideration for the reduction.

 

(3)        Where—

(a) a debt owed by a person is reduced as contemplated in subsection (2); and
(b) the amount of that debt was used as contemplated in paragraph (a) of that subsection to fund expenditure incurred in respect of trading stock that is held and not disposed of by that person at the time of the reduction of the debt,

the reduction amount in respect of that debt must, to the extent that an amount is taken into account by that person in respect of that trading stock in terms of section 11(a) or 22(1) or (2) for the year of assessment in which the debt is so reduced, be applied to reduce the amount so taken into account in respect of that trading stock.

 

(4)        Where—

(a) a debt owed by a person is reduced as contemplated in subsection (2);
(b) the amount of that debt was used as contemplated in paragraph (a) of that subsection to fund expenditure incurred in respect of trading stock that is held and not disposed of by that person at the time of the reduction of the debt; and
(c) subsection (3) has been applied to reduce an amount taken into account by that person in respect of trading stock as contemplated in that subsection to the full extent of that amount so taken into account,

the reduction amount in respect of that debt must, to the extent that a deduction or allowance was granted in terms of this Act to that person in respect of that expenditure, be deemed, for the purposes of section 8(4)(a), to be an amount that has been recovered or recouped by that person for the year of assessment in which the debt is reduced less any amount of that reduction amount that has been applied to reduce an amount as contemplated in subsection (3).

 

(5)        Where—

(a) a debt owed by a person is reduced as contemplated in subsection (2); and
(b) the amount of that debt was used as contemplated in paragraph (a) of that subsection to fund any expenditure other than expenditure incurred—
(i) in respect of trading stock that is held and not disposed of by that person at the time of the reduction of the debt; or
(i) in respect of an allowance asset,

the reduction amount in respect of that debt must, to the extent that a deduction or allowance was granted in terms of this Act to that person in respect of that expenditure, be deemed, for the purposes of section 8(4)(a), to be an amount that has been recovered or recouped by that person for the year of assessment in which the debt is reduced.

 

(6)        Where—

(a) a debt owed by a person is reduced as contemplated in subsection (2); and
(b) the amount of that debt was used as contemplated in paragraph (a) of that subsection to fund expenditure incurred in respect of an allowance asset,

the reduction amount in respect of that debt must, to the extent that

(i) a deduction or allowance was granted in terms of this Act to that person in respect of that expenditure; and
(ii) paragraph 12Aof the Eighth Schedule has not been applied to reduce the amount of expenditure as contemplated in paragraph 20 of that Schedule in respect of that allowance asset to the full extent of that expenditure,

be deemed, for the purposes of section 8(4)(a), to be an amount that has been recovered or recouped by that person for the year of assessment in which the debt is reduced.

 

(7) Where a debt owed by a person that was used to fund expenditure incurred in respect of an allowance asset is reduced, the aggregate amount of the deductions and allowances allowable to that person in respect of that allowance asset may not exceed an amount equal to the aggregate of the expenditure incurred in the acquisition of that allowance asset, reduced by an amount equal to the sum of—
(a) the reduction amount in respect of that debt; and
(b) the aggregate amount of all deductions and allowances previously allowed to that person in respect of that allowance asset.

[Subsection (7) amended by section 35 of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015]

 

(8) This section must not apply to any debt owed by a person—
(a) that is an heir or legatee of a deceased estate, to the extent that—
(i) the debt is owed to that deceased estate;
(ii) the debt is reduced by the deceased estate; and
(iii) the amount by which the debt is reduced by the deceased estate forms part of the property of the deceased estate for the purposes of the Estate Duty Act.

[Subparagraph (iii) amended by section 30 of Act No. 43 of 2014]

(b) to the extent that the debt is reduced by way of—
(i) a donation as defined in section 55(1); or
(ii) any transaction to which section 58 applies; or
(c) to an employer of that person, to the extent that the debt is reduced in the circumstances contemplated in paragraph 2(h) of the Seventh Schedule.