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South Africa: New “doubtful debts” regime

South Africa: New “doubtful debts” regime

Section 11(j) of the 2018 Taxation Laws Amendment Bill, applicable to non-banking taxpayers, would be repealed and replaced in its entirety. The change would be effective from years of assessment beginning on or after 1 January 2019.

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The new provisions would allow the South African Revenue Service (SARS) to issue a directive enabling taxpayers to claim a doubtful debt allowance of up to 85%.

IFRS applied

Those taxpayers that apply International Financial Reporting Standards (IFRS) would be able to claim:

  • A deduction of 40% of the IFRS impairment at an amount equal to the lifetime expected credit loss in respect of debts other than lease receivables (these would generally be classified as stage 2 and stage 3 debts in terms of IFRS). Taxpayers could, however, obtain a directive from SARS allowing for a deduction of up to 85% of such debts.
  • A deduction of 40% of all debts disclosed as bad debts written off for financial reporting purposes that have not been claimed as a bad debt under section 11(i) of the Income Tax Act, provided that the debt has been included in the taxpayer’s income in the current or prior tax years. Taxpayers could obtain a directive from SARS allowing for a deduction of up to 85% of such debts.
  • A deduction of 25% of the remaining IFRS impairment in respect of debts other than lease receivables.

IFRS not applied

Those taxpayers that do not apply IFRS would be able to claim:

  • A deduction of 40% of debts due to the taxpayer that are 120 days or more overdue. Taxpayers could obtain a directive from SARS allowing for a deduction of up to 85% of such debts.
  • A deduction of 25% of debts due to the taxpayer that are 60 days or more overdue.

 

Read an October 2018 report  [PDF 686 KB] prepared by the KPMG member firm in South Africa

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