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What’s the Taxation Laws Amendment Bill?  

The Taxation Laws Amendment Bill (TLAB) was released on the 24 October 2018 and contains some notable amendments and provisions.  Some of the notable changes include:

The Bill has also introduced new debt relief provisions which will take effect from 1 January 2019. These ensure that those who undergo debt relief still pay their tax, consider the role of interest, and seek to remove ambiguity with regards to the realisation of these provisions.   The details of the amendment are explored in greater detail below.

Background of Debt Relief Provisions : Problems and Amendments

The debt relief provisions outlined in section 19 and paragraph 12A of the Act were introduced in 2013.  When debt is relieved (by either being reduced or completely waivered), there may still be tax related consequences for the debtor. The newly enacted debt relief provisions seek to incorporate any tax benefits that a relieved debtor might experience into the tax net, especially in situations where the debt was acquired to fund tax-deductible expenses or to fund capital or allowance assets. Ultimately these changes have occurred to tackle tax avoidance and to clarify the circumstances that trigger tax realisation.

Due to government concern over tax avoidance, the above provisions were amended in the 2017 legislative cycle. However, the 2017 changes created some problems with regards to their practical implementation. Most significantly they stated that any change to terms and conditions could result in taxation. This had the unfortunate result of creating a situation where tax could be triggered by ‘unrealised’ events. Thus,  amendments needed to occur to ensure that the new provisions could be practically realised without problems or ambiguity.

 To address these problems, SARS released the Bill on 24 October 2018 and amended the following:

Concessions and Compromises :  Resultant Debt Benefits

Regarding section 19 and paragraph 12A, a “concession or compromise” was originally defined as; “any arrangement of which any term or condition applying in respect of debt is changed or waived.”

This wording was incredibly broad and created practical implementation problems. TLAB amended this wording so that  “concession or compromise” was more methodically defined and only include events that resulted in a “debt benefit” to the debtor, rather than situations where no debt benefits would arise.

 The following scenarios will fall under the definition of “concession or compromise” per section 19 and paragraph 12A of the Act:

Debt Relief Provisions Exclusions

TLAB also amended the exclusion that allowed for the capitalisation of debts through currency conversion or exchange and through applying the proceeds of a share issue to the settlement of a debt. Capitalisation occurs when something is regarded as an asset, rather than as an expense.                                                                                            

The capitalisation exclusion which allows for the capitalisation of debt will no longer be limited to local groups of companies as the exclusion will also apply to the capitalisation of all loan capital.

Since debt relief regulations are relevant to many commercial agreements, it’s important for taxpayers to understand these changes. As this law will work retrospectively, it’s essential to be on board and understand the implications of these provisions.

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