It was published on 11 July 2012 that the South African National Treasury has released, for public comment prior to their formal introduction in parliament, the draft 2012 Taxation Laws Amendment Bills which give effect to most of the 2012 Budget’s tax proposals.
With regard to individual income tax, the proposed legislation deals with the payment of taxes immediately on variable cash remuneration and the proposal that taxpayers who do not take out their tax free portion on retirement be taxed only on that portion of their retirement annuity income that would have been taxed had they opted for the tax-free lump sum on retirement.
However, it also clarifies the final disclosure requirements under the anti-avoidance rules within the country’s tax code that were originally introduced to facilitate intra-group transactions, with debt-financed acquisitions being identified as problematic in terms of Section 45 of the Income Tax Act.
As part of the two-phased approach announced in the 2012 Budget, the proposed legislation seeks to re-characterize ‘artificial debt’ as shares when the debt contains key share-like features, with effect from 2014.
On the other hand, the proposed legislation will allow interest deductions in respect of debt-financed share acquisitions under the same controlled circumstances currently allowed in the case of section 45 debt-financed acquisitions. Rules aimed at controlling excessive interest deductions will therefore remain an issue for 2013.
