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Revised debt reduction rules

Monday, 21 May 2018   (0 Comments)
Posted by: Author: Annalie Pinch
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Author: Annalie Pinch (ENSafrica)

The debt reduction provisions contained in section 19 of the Income Tax Act, 1962 (the “Act”) and paragraph 12A of the Eighth Schedule to the Act have been amended with effect from 1 January 2018 and are applicable to years of assessment commencing on or after that date. As a result of the changes, the ambit of these provisions has widened significantly, as discussed below, and the additional circumstances to the rules find application are worth noting. 

Subject to the exclusions provided for in section 19(8) and paragraph 12A(6), the debt reduction provisions apply where:

  1. a “debt benefit” in respect of a debt owed by a person arises;
  2. by reason or as a result of a “concession or compromise” in respect of that debt; and
  3. the amount of the debt was used by that person as envisaged in section 19 or paragraph 12A. 

The focus of this discussion is on the phrases “debt benefit” and “concession or compromise” introduced in terms of the latest changes to section 19 and paragraph 12A. 

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