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Income Tax Act, 1962 (Act 58 of 1962)

Chapter II: The Taxes

Part I: Normal Tax

24JB. Taxation in respect of financial assets and liabilities of certain persons

[Heading substituted by section 43(1)(a) of Act No. 43 of 2014

 

(1) For the purposes of this section—

 

‘covered person’

means—

(a) any authorised user as defined in section 1 of the Financial Markets Act that is a company, other than any company of which the principal trading activities constitute the activities of a treasury operation;

[Paragraph (a) substituted by section 46(1) of the Taxation Laws Amendment Act, 2016 (Act No. 15 of 2016 - effective 1 January 2017]

(b) the South African Reserve Bank;
(c) any—
(i) bank;
(ii) branch;
(iii) branch of a bank; or
(iv) controlling company,

as defined in section 1 of the Banks Act;

(d) any company or trust that forms part of a banking group as defined in section 1 of the Banks Act, excluding—
(i) a company that is a long-term insurer as defined in section 1 of the Long-term Insurance Act;
(ii) a company that is a short-term insurer as defined in section 1 of the Short-term Insurance Act;
(iii) a company of which more than 50 per cent of the shares are directly or indirectly held by a company contemplated in subparagraph (i) or (ii) if that company does not form part of the same group of companies as a bank;

 

‘derivative’

means a derivative as defined in and within the scope of International Accounting Standard 39 of IFRS or any other International Accounting Standard that replaces International Accounting Standard 39;

 

‘financial asset’

means—

a) a financial asset defined in and within the scope of International Accounting Standard 32 of IFRS or any other International Accounting Standard that replaces International Accounting Standard 32; and
b) a commodity taken into account in terms of IFRS at fair value less cost to sell in profit or loss in the statement of comprehensive income;

 

‘financial instrument’

[Definition deleted by section 43(1)(b) of Act No. 43 of 2014]

 

‘financial liability’

means a financial liability defined in and within the scope of International Accounting Standard 32 of IFRS or any International Accounting Standard that replaces International Accounting Standard 32;

 

‘financial reporting value’

in relation to a financial asset or a financial liability, means the value, as determined for the purposes of financial reporting pursuant to IFRS, of that financial asset or financial liability;

 

‘post-realisation years’

in relation to a covered person, means—

(a) the year of assessment immediately succeeding the realisation year;
(b) the year of assessment immediately succeeding the year of assessment contemplated in paragraph (a); and
(c) the year of assessment immediately succeeding the year of assessment contemplated in paragraph (b);

 

‘realisation year’

in relation to a person, means—

(a) where that person is a covered person, the year of assessment of that person immediately preceding the year of assessment ending on or after 1 January 2014; or
(b) where that person becomes a covered person during any year of assessment ending after 1 January 2014, the year of assessment of that person that precedes the first year of assessment of that person in which that person becomes a covered person;

 

‘tax base’

means tax base as defined in International Accounting Standard 12 of IFRS or any International Accounting Standard replacing International Accounting Standard 12.

 

(2) Subject to subsection (4), there must be included in or deducted from the income, as the case may be, of any covered person for any year of assessment all amounts in respect of financial assets and financial liabilities of that covered person that are recognised in profit or loss in the statement of comprehensive income in respect of financial assets and finanical liabilities of that covered person that are recognised at fair value in profit or loss in terms of International Accounting Standard 39 of IFRS or any other standard that replaces that standard or, in the case of commodities, at fair value less cost to sell in profit or loss in terms of IFRS for that year of assessment, excluding any amount in respect of—
(a) a financial asset that is—
(i) a share;
(ii) an endowment policy;
(iii) an interest held in a portfolio of a collective investment scheme;

[Subsection (2)(a) substituted by section 43(1)(c) of Act No. 43 of 2014]

(iv) an interest in a trust; or

[Subsection (2)(a)(iv) amended by section 43(1)(d) of Act No. 43 of 2014]

(v)        an interest in a partnership,

[Subsection(2)(a)(v) inserted by section 43(1)(e) of Act No. 43 of 2014]

if that financial asset was upon initial recognition designated in terms of International Accounting Standard 39 of IFRS or any other standard that replaces that standard by the covered person at fair value through profit or loss because that financial asset is managed and its performance is evaluated on a fair value basis; or

(b) a dividend or foreign dividend received by or accrued to a covered person.

 

(3) Any amount required to be taken into account in determining the taxable income in terms of any provision of Part I of Chapter II, or in determining any assessed capital loss of a covered person in respect of a financial asset or a financial liability contemplated in subsection (2) must only be taken into account in terms of this section.

[Subsection (3) substituted by section 43(1)(f) of Act No. 43 of 2014]

 

(4) Subsection (2) does not apply to any amount in respect of a financial asset or a financial liability of a covered person where—
(a) a covered person and another person that is not a covered person, are parties to an agreement in respect of a financial asset or financial liability; and

[Subsection (4)(a) amended by section 43(1)(g) of Act No. 43 of 2014]

(b) the agreement contemplated in paragraph (a) was entered into solely or mainly for the purpose of a reduction, postponement or avoidance of liability for tax, which, but for that agreement, would have been or would become payable by the covered person.

 

(5) In addition to any amount included in or deducted from the income of any person in terms of subsection (2), there must be included in or deducted from the income, as the case may be, of any person for the post-realisation years of that person an amount determined in terms of subsection (6).

 

(6) For the purposes of subsection (5)—
(a) if—
(i) the financial reporting values of all financial assets of a nature as described in subsection (2) held by that person as at the end of the realisation year of that person exceed the tax base amount attributed to those financial assets as at the end of the realisation year of that person; or

[Subsection (6)(a)(i) amended by section 43(1)(h) of Act No. 43 of 2014]

(ii) the tax base amount attributed to all financial liabilities of a nature as described in subsection (2) held by that person as at the end of the realisation year of that person exceeds the financial reporting values of those financial liabilities as at the end of the realisation year of that person,

[Subsection (6)(a)(ii) amended by section 43(1)(h) of Act No. 43 of 2014]

one-third of the excess must be included in the income of that person;

(b) if—
(i) the tax base amount attributed to all financial assets of a nature as described in subsection (2) held by that person as at the end of the realisation year of that person exceeds the financial reporting values of those financial assets as at the end of the realisation year of that person; or

[Subsection (6)(b)(i) amended by section 43(1)(i) of Act No. 43 of 2014]

(ii) the financial reporting values of all financial liabilities of a nature as described in subsection (2) held by that person as at the end of the realisation year of that person exceed the tax base amount attributed to those financial liabilities as at the end of the realisation year of that person,

[Subsection (6)(a)(ii) amended by section 43(1)(i) of Act No. 43 of 2014]

one-third of the excess must be deducted from the income of that person.

 

(7) If a person ceases to be a covered person before the expiry of the post-realisation years of that person, the amounts determined in terms of subsection (6) which have not been included in or deducted from, as the case may be, the income of that person, must be included in or deducted from the income of that person in the year of assessment that it ceases to be a covered person.

 

(8) Where a person ceases to be a covered person, that person is deemed to have—
(a) disposed of its financial assets and redeemed its financial liabilities that were subject to tax in terms of subsection (2); and
(b) immediately reacquired those financial assets and incurred those financial liabilities,

at an amount equal to the market value of those financial assets on the last day of the year of assessment of that person before that person ceased to be a covered person.