On 25 September 2016, the National Treasury and the South African Revenue Service (SARS) published further amendments to the 2016 Draft Taxation Laws Amendment Bill (TLAB) for public comment, following the first batch TLAB published on 8 July 2016.
A short summary of the most important proposed amendments are set out herein:
a) Connected person loan or credit to a trust
The application of Section 7C of the Income Tax Act 58 of 1962 (hereafter “the Act”) has been adjusted to include connected companies as well. This will now include a person holding 20% or more shares or voting right in the said company. Thus a loan, any credit, or allowance from such a connected person or company to a trust will trigger donations tax (determined pro rata if more than one connected person is involved). In addition no capital losses may be claimed.
The section will not apply to certain public benefit organisations, vested interests, special trusts, primary resident assets, affected transactions, Shariah compliant financing arrangements or connected person debt.
b) Additional deduction for learnership agreements in Section 12H of the Act
The application of learnership agreement deductions has been extended to 31 March 2022 and will now require a National Qualifications Framework (NQF) qualification to qualify as a deduction.
The primary deduction has been increased to R 40 000.00 and an additional secondary deduction of R 20 000.00 has been introduced if a learner has a NQF 7 to 10 qualification (and a further increase to R 30 000.00 if such a learner has a disability).
c) Taxation of directors and employees on vesting of an equity instrument
Subsection (1A) of Section 8C of the Act has been amended to include dividends, foreign dividends, gains, and losses related to restricted instruments in income. A further subsection namely Section 10(k)(i)(jj) has been introduced to the Act and limits the exemption on certain dividends in respect of Section 8C restricted equity instruments.
Furthermore, the exclusion of Section 8C restricted equity instruments from the exemption of foreign dividends provision has been expanded.
The Bill also contains additional amendments relating to the Employment Tax Incentive (ETI) and the learnership tax incentive, and revised amendments for proposals concerning interest free loans to trusts and restricted equity shares (for employee share schemes).
We recommend that every person or business familiarise themselves with these proposed changes and obtain professional advice on how this will affect them in the future. The public comment deadline for these proposals is the 10th of October 2016.
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