The Taxation Laws Amendment Bill, 2017: far-reaching changes to debt reduction rules
The new South African Taxation Laws Amendment Bill, 2017 (the “TLAB 2017”) was released following the public consultation process for the Draft Taxation Laws Amendment Bill, 2017 (the “Draft TLAB 2017”). While some of the changes in the TLAB 2017 following submissions made on the Draft TLAB 2017 are welcome, others are problematic. The significant changes to the debt reduction rules in section 19 of the Income Tax Act, 1962 (the “ITA”) and paragraph 12A of the Eighth Schedule to the ITA discussed below will likely have taxpayers thinking twice before changing existing loan agreements.
Changes to any terms or conditions applying to existing loan agreements would give rise to a “debt benefit” where the face value of the debt exceeds the market value thereof as a result of the change. The change to the term or condition need not result in a new debt or novation of the existing debt (as per the “or” in the definition of “concession or compromise” between (a)(i) and (a)(ii)), so it can be any change that will result in a change in the market value of the loan.
Taxpayers must be aware that changes to loan agreements not intended as a concession or compromise may have tax consequences.
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