Anti-avoidance rules proposed to take effect on 1 January 2014
The 2013 draft Taxation Laws Amendment Bill ("DTLAB") was issued by National Treasury for public comment on 4 July 2013. In accordance with the Explanatory Memorandum to the DTLAB, the tax legislation currently contains an anti-avoidance rule that deals with debt instruments that have equity features ("hybrid debt instruments"). The anti-avoidance rule denies a deduction in respect of any amount paid or payable in terms of a hybrid debt instrument. However, the hybrid debt instrument remains a debt instrument for all other purposes of the Income Tax Act 58 of 1962 (the "Act").
The current anti-avoidance rules apply generally when a hybrid debt instrument is convertible into an equity instrument within a period of three years from the date of issue of that debt instrument. National Treasury have indicated that the deficiencies in the current legislation are:
the limitation of the conversion period to three years; and
that the artificial classification of equity instruments as debt go beyond the conversion features.
Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.