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Deemed exchange gains & losses

Thursday, 06 March 2014   (0 Comments)
Posted by: Author: PwC
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Author: PwC

Section 24I(10) of the Income Tax Act 58 of 1962 (ITA) has been replaced by a new provision for years of assessment commencing on or after 1 January 2013. 

Section 24I(10) of the ITA deferred unrealised exchange gains and losses on exchange items between connected persons and groups companies until they were realised. 

However, section 24I(10) has been deleted and replaced with section 24I(10A)with effect from years of 
assessment commencing on or after 1 January 2013. As part of the transition to the new regime, any unrealised exchange items to which the provisions of section 24I(10) apply will be deemed to be realized on the last day of the year of assessment ending on or after 31 December 2013, thereby triggering exchange gains or losses. 

However, section 24I(10A) will also defer certain exchange gains and losses, including the deemed realisations arising from the repeal of section 24I(10), until realisation or until the deferral no longer applies. The amendments will therefore only impact exchange items that fall within section 24I(10), but not within section 24I(10A). 

It should be noted that the range of exchange items covered by section 24I(10A) is significantly narrower than that covered by section 24I(10). Most notably, section 24I(10A) will not apply to any debt that is a current asset or liability for IFRS purposes, any debt that is funded directly or indirectly by any debt owed to an unconnected person, any debt that is hedged by a forward exchange contract or foreign currency option contract or to any such forward exchange contract or foreign currency option contract. 

The deemed realisation of exchange items to which the provisions of section 24I(10) applies may therefore 
result in exchange gains or losses to the extent that those exchange items do not qualify for deferral in 
terms of section 24I(10A) and may have a significant impact on the determination of taxable income for years of assessment ending on or after 31 December 2013. 

Taxpayers should accordingly carefully consider the impact of these changes when making estimates for 
provisional tax purposes.

This article first appeared on



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