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SARS Guides On Debt Reduction Tax Relief

by Lorys Charalambous, Tax-News.com, Cyprus

25 October 2016


On October 21, the South African Revenue Service (SARS) issued an interpretation note on the revised application of South Africa's Income Tax Act (ITA) to the treatment of debt reduction.

The guidance explains that, during years of tax assessment commencing before January 1, 2013, the reduction of debt (occurring, for example, in insolvency, and formal or informal business rescues) was subject to various taxes that might together have undermined the economic benefit of the debt relief.

Since then, a new, uniform system has been introduced for the taxation of debt reduction. The new rules are aimed at ensuring that a reduction of debt is subject to only one tax: either estate duty, donations tax, income tax on income, income tax on a fringe benefit received by an employee, or capital gains tax, depending on the circumstances.

The ITA has therefore been amended to prevent the recoupment of the same amount, or the reduction of the base cost of an asset, under more than one tax provision when a debt relief is provided. In essence, it is said, these provisions ensure that the same reduction amount of a debt does not result in double taxation.

TAGS: inheritance tax | South Africa | compliance | tax | tax compliance | revenue guidance | corporation tax | tax authority | gift tax | tax breaks | Africa | Tax

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