Acts Online
GT Shield

Income Tax Act, 1962 (Act 58 of 1962)

Chapter II: The Taxes

Part I: Normal Tax

8FA. Hybrid interest deemed to be dividends in specie

 

(1)        For the purposes of this section—

 

‘hybrid interest’, in relation to any debt owed by a company in terms of an instrument, means—

(a) any interest where the amount of that interest is—
(i) not determined with reference to a specified rate of interest; or
(ii) not determined with reference to the time value of money; or
(b) if the rate of interest has in terms of that instrument been raised by reason of an increase in the profits of the company, so much of the amount of interest as has been determined with reference to the raised rate of interest as exceeds the amount of interest that would have been determined with reference to the lowest rate of interest in terms of that instrument during the current year of assessment and the previous five years of assessment;

 

‘instrument’

means an instrument as defined in section 8F(1);

[Definition substituted by section 17(1)(a) of the Taxation Laws Amendment Act, 2016 (Act No. 15 of 2016)]

‘interest’

means interest as defined in section 24J(1);

[Definition amended by section 10 of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015]

 

‘issue’

in relation to an instrument, means the creation of a liability to pay or a right to receive an amount in terms of that instrument.

 

(2) Any amount—
(a) that is incurred by a company in respect of interest on or after the date that the interest becomes hybrid interest is—
(i) deemed for the purposes of this Act to be a dividend in specie declared and paid by that company on the last day of the year of assessment of that company during which it was incurred; and
(ii) not be deductible in terms of this Act; and
(b) is deemed for the purposes of this Act to be a dividend in specie that is declared and paid in respect of a share on the last day of the year of assessment of the company contemplated in paragraph (a) to the person to whom that amount accrued.

[Subsection (2) substituted by section 17(1)(b) of the Taxation Laws Amendment Act, 2016 (Act No. 15 of 2016)]

 

(3)        This section does not apply to any interest owed in respect of—

(a)        a debt owed by a small business corporation as defined in section 12E(4);

(b) an instrument that constitutes a tier 1 or tier 2 capital instrument referred to in the regulations issued in terms of section 90 of the Banks Act (contained in Government Notice No. R.1029 published in Government Gazette No. 35950 of 12 December 2012) issued—

(i)        by a bank as defined in section 1 of that Act; or

(ii)        by a controlling company in relation to that bank;

(c)        an instrument of any class that is subject to approval as contemplated—

(i) in the Short-term Insurance Act in accordance with the conditions determined in terms of section 23(1)(a) of that Act by the Registrar defined in that Act, where an amount is owed in respect of that instrument by a short-term insurer as defined in that Act; or
(ii) in the Long-term Insurance Act in accordance with the conditions determined in terms of section 24(1)(a) of that Act by the Registrar defined in that Act, where an amount is owed in respect of that instrument by a long-term insurer as defined in that Act; or

[Subsection (3)(c) substituted by section 17(1)(c) of the Taxation Laws Amendment Act, 2016 (Act No. 15 of 2016) - commenced 1 January 2017]

(d) an instrument that constitutes a linked unit in a company where the linked unit is held by a long-term insurer as defined in the Long-term Insurance Act, a pension fund, a provident fund, a REIT or a short-term insurer as defined in the Short-term Insurance Act, if—
(i) the long-term insurer, pension fund, provident fund, REIT or short-term insurer holds at least 20 per cent of the linked units in that company;
(ii) the long-term insurer, pension fund, provident fund, REIT or short-term insurer acquired those linked units before 1 January 2013; and
(iii) at the end of the previous year of assessment 80 per cent or more of the value of the assets of that company, reflected in the annual financial statements prepared in accordance with the Companies Act for the previous year of assessment, is directly or indirectly attributable to immovable property.
(e) an instrument that constitutes a third-party backed instrument as defined in section 8F(1).

[Subsection (3)(e) inserted by section 17(1)(d) of the Taxation Laws Amendment Act, 2016 (Act No. 15 of 2016)]