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Income Tax Act, 1962 (Act 58 of 1962)

Chapter II: The Taxes

Part I: Normal Tax

7C. Loan or credit advanced to a trust by a connected person

 

(1) This section applies in respect of any loan, advance or credit that—
(a) a natural person; or
(b) at the instance of that person, a company in relation to which that person is a connected person in terms of paragraph (d)(iv) of the definition of connected person,

directly or indirectly provides to a trust in relation to which that person or company, or any person that is a connected person in relation to that person or company, is a connected person.

 

(2) No deduction, loss, allowance or capital loss may be claimed in respect of—
(a) a disposal, including by way of a reduction or waiver; or
(b) the failure, wholly or partly, of a claim for the payment,

of any amount owing in respect of a loan, advance or credit referred to in subsection (1).

 

(3) If a trust incurs—
(a) no interest in respect of a loan, advance or credit referred to in subsection (1); or
(b) interest at a rate lower than the official rate of interest as defined in paragraph 1 of the Seventh Schedule,

an amount equal to the difference between the amount incurred by that trust, during a year of assessment as interest in respect of that loan, advance or credit and the amount that would have been incurred by that trust at the official rate of interest must, for purposes of Part V of Chapter II, be treated as a donation made to that trust by the person referred to in subsection (1)(a) on the last day of that year of assessment of that trust.

 

(4) If a loan, advance or credit was provided by a company to a trust at the instance of more than one person that is a connected person in relation to that company as referred to in paragraph (b) of subsection (1), each of those persons must be treated as having donated, to that trust, the part of that amount that bears to that amount the same ratio as the equity shares or voting rights in that company that were held by that person during that year of assessment bears to the equity shares or voting rights in that company held in aggregate by those persons during that year of assessment.

 

(5) Subsections (2) and (3) do not apply in respect of any amount owing by a trust during a year of assessment in respect of a loan, advance or credit referred to in subsection (1) if—
(a) that trust is a public benefit organisation approved by the Commissioner in terms of section 30(3) or a small business funding entity approved by the Commissioner in terms of section 30C;
(b) that loan, advance or credit was provided to that trust by a person by reason of or in return for a vested interest held by that person in the receipts and accruals and assets of that trust and—
(i) the beneficiaries of that trust hold, in aggregate, a vested interest in all the receipts and accruals and assets of that trust;
(ii) no beneficiary of that trust can, in terms of the trust deed governing that trust, hold or acquire an interest in that trust other than a vested interest in the receipts and accruals and assets of that trust;
(iii) the vested interest of each beneficiary of that trust is determined solely with reference and in proportion to the assets, services or funding contributed by that beneficiary to that trust; and
(iv) none of the vested interests held by the beneficiaries of that trust is subject to a discretionary power conferred on any person in terms of which that interest can be varied or revoked;
(c) that trust is a special trust as defined in paragraph (a) of the definition of a special trust;
(d) that trust used that loan, advance or credit wholly or partly for purposes of funding the acquisition of an asset and—
(i) the person referred to in subsection (1)(a) or the spouse of that person used that asset as a primary residence as contemplated in paragraph (b) of the definition of ‘primary residence’ in paragraph 44 of the Eighth Schedule throughout that year of assessment; and
(ii) the amount owed relates to the part of that loan, advance or credit that funded the acquisition of that asset;
(e) that loan, advance or credit constitutes an affected transaction as defined in section 31(1) that is subject to the provisions of that section;
(f) that loan, advance or credit was provided to that trust in terms of an arrangement that would have qualified as a sharia compliant financing arrangement as contemplated in section 24JA, had that trust been a bank as defined in that section; or
(g) that loan, advance or credit is subject to the provisions of section 64E(4).

 

[Section 7C inserted by inserted by section 12(1) of the Taxation Laws Amendment Act, 2016 (Act No. 15 of 2016]