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Interest-free loans to trusts: Proposed amendments, public comments and National Treasury’s response

Monday, 08 October 2018   (1 Comments)
Posted by: Author: Louis Botha
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Author: Louis Botha (Cliffe Dekker Hofmeyr)

In the 2018 draft Taxation Laws Amendment Bill, 2018 (Draft TLAB), published on 16 July 2018, it was proposed that s7C of the Income Tax Act, No 58 of 1962 (Act) should be further amended, to broaden the scope of the provision. The proposed amendment relates specifically to s7C(1)(ii)(bb).

Section 7C

Currently, the provision in question states that s7C applies in respect of any loan, advance or credit made by a natural person, or a company in relation to which that natural person is a connected person, as defined in paragraph (d)(iv) of the definition of “connected person” in s1 of the Act, to:

  • company, if at least 20% of the equity shares in that company are held, directly or indirectly, by the trust referred to in s7C(1)(i) of the Act, or by a beneficiary of that trust; or
  • a company, if at least 20% of the voting rights in that company can be exercised, by the trust referred to in s7C(1)(i) of the Act, or by a beneficiary of that trust.

The proposed amendment will change the above italicised words so that the provision will apply where 20% of the equity shares are held by a trust alone or jointly with any person that is a connected person in relation to that trust, or where 20% of the voting rights in that company can be exercised alone or jointly with any person that is a connected person in relation to that trust.

Click here to read more.

This article first appeared on cliffedekkerhofmeyr.com.

Comments...

Alfred Slabbert says...
Posted Monday, 16 December 2019
I can understand why SARS want to do this as the companies are not making money and lost of trusts own most of the assets on which the banks are willing to loan money on. My problem is the following now , Sars is demanding interest to be paid to the trust from companies that do not make money and then tax it at 45% resulting in the trust going into bigger debt =. Are we not just killing the economy even more with act This will ensure that companies that are struggling and employing staff will be close and the trusts that supported them going in financial problems We need to be care full not to kill the goose that lay the golden eggs of our economy

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