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South Africa: Changes to debt relief provisions

South Africa: Debt relief provisions

Section 19 and paragraph 12A of the Income Tax Act contain rules with tax implications for debtors whose debts are reduced or eliminated for less than the face value of the debt.

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The Taxation Laws Amendment Bill contains amendments that would take effect retroactively from 1 January 2018 (when the 2017 changes became effective) to provide that the 2017 amendments do not negatively affect taxpayers.

The bill also introduced two changes that would become effective for years of assessment beginning on or after 1 January 2019.

Effective retroactively, 1 January 2018

Depending on how the proceeds of a debt were used or the how the debt arose, the provisions could trigger income tax recoupments, a reduction in the tax cost of assets, or both. Subject to exclusions, the debt relief provisions would be triggered when there is a “concession or compromise” in relation to a debt that results in the presence of a “debt benefit.”

 

Read an October 2018 report [PDF 140 KB] prepared by the KPMG member firm in South Africa

Effective 1 January 2019

  • Tightening of exclusion in relation to donations—the exclusion would only apply when the donation or deemed donation results in a donations tax liability.
  • Recoupments and capital gains on assets disposed of—to the extent that the debt benefit exceeds certain such allowances, the tax cost on which future allowances can be claimed would be reduced. 

 

Read an October 2018 report [PDF 131 KB] prepared by the KPMG member firm in South Africa

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