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Income Tax Act, 1962 (Act No. 58 of 1962)

Chapter II : The Taxes

Part I : Normal Tax

24O. Incurral of interest in respect of certain debts deemed to be in the production of income

[Section 24O heading substituted by section 46(1) of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015)]

 

(1)        For the purposes of this section—

 

"acquisition transaction"

means any transaction in terms of which a company acquires an equity share—

(a) in another company—
(i) that is an operating company; and
(ii) as a result of which, at the end of the day of that transaction—
(aa) that company is a controlling group company in relation to that other company; and
(bb) that company and that other company form part of the same group of companies as defined in section 41(1); or
(b) in another company—
(i) that is a controlling group company in relation to an operating company that forms part of the same group of companies, as defined in section 41(1), as that controlling group company; and
(ii) as a result of which, at the end of the day of that transaction,
(aa) that company is a controlling group company in relation to that other controlling group company; and
(bb) that company and that other company form part of the same group of companies as defined in section 41(1);

 

"operating company"

means a company of which—

(a) at least 80 per cent of the aggregate amount received by or that accrued to that company during a year of assessment constitutes income in the hands of that company; and

[Paragraph (a) substituted by section 46(1)(a) of the Taxation Laws Amendment Act, 2018 (Act No. 23 of 2018), GG 42172, dated 17 January 2019 - effective 1 January 2019 (section 46(2)]

(b) the income contemplated in paragraph (a) is derived—
(i) from a business carried on continuously by that company; and
(ii) in the course or furtherance of which goods or services are provided or rendered by that company for consideration.

[Paragraph (b)(ii) substituted by section 46(1)(b) of the Taxation Laws Amendment Act, 2018 (Act No. 23 of 2018), GG 42172, dated 17 January 2019 - effective 1 January 2019 (section 46(2)]

 

(2) Subject to subsection (3), where during any year of assessment any interest is incurred by a company in respect of a debt issued, assumed or used by that company—
(a) for the purpose of financing the acquisition by that company, in terms of an acquisition transaction, of an equity share; or
(b) in substitution for a debt issued, assumed or used as contemplated in paragraph (a),

the interest incurred by that company in respect of that debt must, to the extent to which the amount thereof relates to a period during which—

(i) that company held that equity share; and
(ii) that equity share constituted a qualifying interest in an operating company, as determined—
(aa) in the case of an equity share held by that company at the end of that year, at the date on which that year ends; or
(bb) if that equity share was disposed of by that company during that year, at the date of that disposal,

be deemed to have been so incurred in the production of the income of that company and laid out or expended by that company for the purposes of trade.

[Section 24O(2) substituted by section 46(1)(c) of the Taxation Laws Amendment Act, 2018 (Act No. 23 of 2018), GG 42172, dated 17 January 2019 - effective 1 January 2019 (section 46(2)]

 

(3) An equity share in a company constitutes a qualifying interest in an operating company if that equity share is an equity share on the date referred to in subsection (2) in—

[Words preceding section 24O(3)(a) substituted by section 46(1)(d) of the Taxation Laws Amendment Act, 2018 (Act No. 23 of 2018), GG 42172, dated 17 January 2019 - effective 1 January 2019 (section 46(2)]

(a) company that qualified as an operating company in its latest year of assessment that ended prior to or on the date referred to in subsection (2); or

[Section 24O(3)(a) substituted by section 46(1)(e) of the Taxation Laws Amendment Act, 2018 (Act No. 23 of 2018), GG 42172, dated 17 January 2019 - effective 1 January 2019 (section 46(2)]

(b) any other company, to the extent that the value of that equity share is derived from an equity share or equity shares held by that company in a company or companies described in paragraph (a)—

[Words preceding section 24O(3)(b)(i) substituted by section 46(1)(f) of the Taxation Laws Amendment Act, 2018 (Act No. 23 of 2018), GG 42172, dated 17 January 2019 - effective 1 January 2019 (section 46(2)]

(i) in relation to which that company is a controlling group company; and
(ii) that form part, with that company, of a group of companies, as defined in section 41(1): Provided that if at least 90 per cent of the value of that equity share is so derived, that equity share must be treated as an equity share in an operating company.

 

(4) [Section 24O(4) deleted by section 46(1)(g) of the Taxation Laws Amendment Act, 2018 (Act No. 23 of 2018), GG 42172, dated 17 January 2019 - effective 1 January 2019 (section 46(2)]

 

[Section 24O substituted by section 46(1) of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015)]