(1) For the purposes of this section—
"allowance asset"
means a capital asset in respect of which a deduction or allowance is allowable in terms of this Act for purposes other than the determination of any capital gain or capital loss;
"capital asset"
means an asset as defined in paragraph 1 of the Eighth Schedule that is not trading stock;
"concession or compromise"
means any arrangement in terms of which—
| (i) | cancelled or waived; or |
| (aa) | redemption of the claim in respect of that debt by the person owing that debt or by any person that is a connected person in relation to that person; or |
| (bb) | merger by reason of the acquisition by the person owing that debt of the claim in respect of that debt, |
otherwise than as the result or by reason of the implementation of an arrangement described in paragraph (b);
| (b) | a debt owed by a company is settled, directly or indirectly— |
| (i) | by being converted to or exchanged for shares in that company; or |
| (ii) | by applying the proceeds from shares issued by that company; |
[Definition substituted by section 36(1)(a) of the Taxation Laws Amendment Act, 2018 (Act No. 23 of 2018), GG 42172, dated 17 January 2019 - effective 1 January 2018 and apply in respect of years of assessment commencing on or after that date]
"debt"
means any amount that is owed by a person in respect of—
| (a) | expenditure incurred by that person; or |
| (b) | a loan, advance or credit that was used, directly or indirectly, to fund any expenditure incurred by that person, |
but does not include a tax debt as defined in section 1 of the Tax Administration Act;
[Definition substituted by section 36(1)(b) of the Taxation Laws Amendment Act, 2018 (Act No. 23 of 2018), GG 42172, dated 17 January 2019 - effective 1 January 2018 and apply in respect of years of assessment commencing on or after that date]
"debt benefit",
in respect of a debt owed by a person to another person, means—
| (a) | in the case of an arrangement described in paragraph (a)(i) of the definition of "concession or compromise", the amount cancelled or waived; |
| (b) | in the case of the extinction of that debt by means of an arrangement described in paragraph (a)(ii) of the definition of "concession or compromise", the amount by which the face value of the claim in respect of that debt held by the person to whom the debt is owed prior to the entering into of that arrangement exceeds the expenditure incurred in respect of— |
| (i) | the redemption of that debt; or |
| (ii) | the acquisition of the claim in respect of that debt; |
| (c) | in the case of the settling of that debt by means of an arrangement described in paragraph (b) of the definition of "concession or compromise", where the person who acquired shares in a company in terms of that arrangement did not hold an effective interest in the shares of that company prior to the entering into of that arrangement, the amount by which the face value of the claim held in respect of that debt prior to the entering into of that arrangement exceeds the market value of the shares acquired by reason or as a result of the implementation of that arrangement; or |
| (d) | in the case of the settling of that debt by means of an arrangement described in paragraph (b) of the definition of "concession or compromise", where the person who acquired shares in a company in terms of that arrangement held an effective interest in the shares of that company prior to the entering into of that arrangement, the amount by which the face value of the claim held in respect of that debt prior to the entering into of that arrangement exceeds the amount by which the market value of any effective interest held by that person in the shares of that company immediately after the implementation of that arrangement exceeds, solely as a result of the implementation of that arrangement, the market value of the effective interest held by that person in the shares of that company immediately prior to the entering into of that arrangement; |
[Definition substituted by section 36(1)(c) of the Taxation Laws Amendment Act, 2018 (Act No. 23 of 2018), GG 42172, dated 17 January 2019 - effective 1 January 2018 and apply in respect of years of assessment commencing on or after that date]
"group of companies"
means a group of companies as defined in section 41; and
[Definition substituted by section 17(1)(a) of the Taxation Laws Amendment Act, 2021 (Act No. 20 of 2021), Notice No. 770, GG45787, dated 19 January 2022]
"market value"
in relation to shares acquired or held by reason or as a result of implementing a concession or compromise in respect of a debt, means the market value of those shares immediately after the implementation of that concession or compromise.
[Definition inserted by section 36(1)(d) of the Taxation Laws Amendment Act, 2018 (Act No. 23 of 2018), GG 42172, dated 17 January 2019 - effective 1 January 2018 and apply in respect of years of assessment commencing on or after that date]
| (2) | Subject to subsection (8), this section applies where— |
| (a) | a debt benefit in respect of a debt owed by a person arises in respect of a year of assessment by reason or as a result of a concession or compromise in respect of that debt during that year of assessment; and |
| (b) | the amount of that debt is owed by that person in respect of or was used by that person to fund, directly or indirectly, any expenditure in respect of which a deduction or allowance was granted in terms of this Act. |
[Section 19(2) substituted by section 36(1)(e) of the Taxation Laws Amendment Act, 2018 (Act No. 23 of 2018), GG 42172, dated 17 January 2019 - effective 1 January 2018 and apply in respect of years of assessment commencing on or after that date]
| (a) | a debt benefit arises in respect of a debt owed by a person as contemplated in subsection (2); and |
| (b) | the amount of that debt is owed in respect of or was used as contemplated in paragraph(b) of that subsection to fund expenditure incurred in respect of trading stock that is held and not disposed of by that person at the time the debt benefit arises, |
[Section 19(3)(b) substituted by section 36(1)(f) of the Taxation Laws Amendment Act, 2018 (Act No. 23 of 2018), GG 42172, dated 17 January 2019 - effective 1 January 2018 and apply in respect of years of assessment commencing on or after that date]
the debt benefit in respect of that debt must, to the extent that an amount is taken into account by that person in respect of that trading stock in terms of section 11(a) or 22(1) or (2) for the year of assessment in which the debt benefit arises, be applied to reduce the amount so taken into account in respect of that trading stock.
| (a) | a debt benefit arises in respect of a debt owed by a person as contemplated in subsection (2); |
| (b) | the amount of that debt is owed in respect of or was used as contemplated in paragraph (b) of that subsection to fund expenditure incurred in respect of trading stock that is held and not disposed of by that person at the time the debt benefit arises; and |
[Section 19(4)(b) substituted by section 36(1)(f) of the Taxation Laws Amendment Act, 2018 (Act No. 23 of 2018), GG 42172, dated 17 January 2019 - effective 1 January 2018 and apply in respect of years of assessment commencing on or after that date]
| (c) | subsection (3) has been applied to reduce an amount taken into account by that person in respect of trading stock as contemplated in that subsection to the full extent of that amount so taken into account, |
the debt benefit in respect of that debt, less any amount of that debt benefit that has been applied to reduce an amount as contemplated in subsection (3) must, to the extent that a deduction or allowance was granted in terms of this Act to that person in respect of that expenditure, be deemed, for the purposes of section 8(4)(a), to be an amount that has been recovered or recouped by that person for the year of assessment in which the debt benefit arises.
| (a) | a debt benefit arises in respect of a debt owed by a person as contemplated in subsection (2); and |
| (b) | the amount of that debt is owed in respect of or was used as contemplated in paragraph (b) of that subsection to fund any expenditure other than expenditure incurred— |
[Section 19(5)(b) substituted by section 36(1)(g) of the Taxation Laws Amendment Act, 2018 (Act No. 23 of 2018), GG 42172, dated 17 January 2019 - effective 1 January 2018 and apply in respect of years of assessment commencing on or after that date]
| (i) | in respect of trading stock that is held and not disposed of by that person at the time the debt benefit arises; or |
| (ii) | in respect of an allowance asset, |
the debt benefit in respect of that debt must, to the extent that a deduction or allowance was granted in terms of this Act to that person in respect of that expenditure, be deemed, for the purposes of section 8(4)(a), to be an amount that has been recovered or recouped by that person for the year of assessment in which the debt benefit arises.
| (a) | a debt benefit arises in respect of a debt owed by a person as contemplated in subsection (2); and |
| (b) | the amount of that debt is owed in respect of or was used as contemplated in paragraph(b) of that subsection to fund expenditure incurred in respect of an allowance asset, that was not disposed of in a year of assessment prior to that in which that debt benefit arises, |
[Section 19(6)(b) substituted by section 36(1)(h) of the Taxation Laws Amendment Act, 2018 (Act No. 23 of 2018), GG 42172, dated 17 January 2019 - effective 1 January 2018 and apply in respect of years of assessment commencing on or after that date]
the debt benefit in respect of that debt must, to the extent that—
| (i) | a deduction or allowance was granted in terms of this Act to that person in respect of that expenditure; and |
| (ii) | the debt benefit has not been applied as contemplated in paragraph 12A of the Eighth Schedule to reduce the amount of expenditure as contemplated in paragraph 20 of that Schedule in respect of that allowance asset, |
be deemed, for the purposes of section 8(4)(a), to be an amount that has been recovered or recouped by that person for the year of assessment in which the debt benefit arises.
| (a) | a debt benefit arises during any year of assessment in respect of a debt owed by a person as contemplated in subsection (2); and |
| (b) | the amount of that debt is owed in respect of or was used as contemplated in paragraph (b) of that subsection to fund expenditure incurred in respect of an allowance asset that was disposed of in a year of assessment prior to that in which that debt benefit arises, |
that person must, treat the debt benefit in respect of that debt to the extent that—
| (i) | a deduction or allowance was granted in terms of this Act to that person in respect of that expenditure; and |
| (ii) | that debt benefit has not been applied as contemplated in paragraph 12A of the Eighth Schedule to reduce the amount of expenditure as contemplated in paragraph 20 of that Schedule in respect of the allowance asset, |
less any amount, if any, previously determined in respect of that disposal as a recovery or recoupment of a deduction or allowance, as an amount recovered or recouped for purposes of section 8(4)(a) in the year of assessment in which that debt benefit arises.
[Section 19(6A) substituted by section 10(1) of the Taxation Laws Amendment Act, 2022 (Act No. 20 of 2022), Notice No. 1541, GG47826, dated 5 January 2023 - comes into operation on 1 January 2023 and applies in respect of years of assessment commencing on or after that date (section 10(2))]
| (7) | Where a debt benefit arises in respect of a debt owed by a person that was used to fund expenditure incurred in respect of an allowance asset, the aggregate amount of the deductions and allowances allowable to that person in respect of that allowance asset may not exceed an amount equal to the aggregate of the expenditure incurred in the acquisition of that allowance asset, reduced by an amount equal to the sum of— |
| (a) | the debt benefit in respect of that debt; and |
| (b) | the aggregate amount of all deductions and allowances previously allowed to that person in respect of that allowance asset. |
| (8) | This section must not apply to a debt benefit in respect of any debt owed by a person— |
| (a) | that is an heir or legatee of a deceased estate, to the extent that— |
| (i) | the debt is owed to that deceased estate; |
| (ii) | the debt is reduced by the deceased estate; and |
| (iii) | the amount by which the debt is reduced by the deceased estate forms part of the property of the deceased estate for the purposes of the Estate Duty Act; |
| (b) | to the extent that the debt is reduced by way of— |
in respect of which donations tax is payable;
[Section 19(8)(b)(ii) substituted by section 17(1)(b) of the Taxation Laws Amendment Act, 2021 (Act No. 20 of 2021), Notice No. 770, GG45787, dated 19 January 2022]
| (c) | to an employer of that person, to the extent that the debt is reduced in the circumstances contemplated in paragraph 2(h) of the Seventh Schedule; |
| (d) | to another person where the person that owes that debt is a company if— |
| (i) | that company owes that debt to a company that forms part of the same group of companies as that company; and |
| (ii) | that company has not carried on any trade, |
during the year of assessment in which that debt benefit arises as well as during the immediately preceding year of assessment: Provided that this paragraph must not apply in respect of any debt—
| (aa) | incurred, directly or indirectly by that company to fund expenditure incurred in respect of any asset that is disposed of by that company, before or after that debt benefit arises, by way of an asset-for-share, intra-group or amalgamation transaction or a liquidation distribution in respect of which the provisions of section 42, 44, 45 or 47, as the case may be, applied; or |
[Section 19(8)(d)(ii)(aa) of the proviso substituted by section 23(1)(a) of the Taxation Laws Amendment Act, 2023 (Act No. 17 of 2023), Notice No. 4226, GG49894, dated 22 December 2023 - comes into operation on 1 January 2024 and applies in respect of years of assessment commencing on or after that date (section 23(2))]
| (bb) | incurred or assumed by that company in order to settle, take over, refinance or renew, directly or indirectly, any debt incurred by— |
| (A) | any other company that forms part of the same group of companies; or |
Provided further that where a debt benefit arises prior to the disposal of the asset, that debt benefit must be treated as a debt benefit that arose immediately before that disposal
[Section 19(8)(d) further proviso inserted by section 23(1)(b) of the Taxation Laws Amendment Act, 2023 (Act No. 17 of 2023), Notice No. 4226, GG49894, dated 22 December 2023 - comes into operation on 1 January 2024 and applies in respect of years of assessment commencing on or after that date (section 23(2))]
| (e) | to another person where the person that owes that debt is a company that— |
| (i) | owes that debt to a company that forms part of the same group of companies as that company; and |
| (ii) | reduces or settles that debt, directly or indirectly, by means of shares issued by that company: |
Provided that this paragraph must not apply in respect of any debt that was incurred or assumed by that company in order to settle, take over, refinance or renew, directly or indirectly, any debt incurred by another company which—
| (aa) | did not form part of that same group of companies at the time that that other company incurred that debt; or |
| (bb) | does not form part of that same group of companies at the time that that company reduces or settles that debt, directly or indirectly, by means of shares issued by that company; or |
| (f) | to the extent that the debt so owed— |
| (i) | is settled by means of an arrangement described in paragraph (b) of the definition of "concession or compromise"; and |
| (ii) | does not consist of or represent an amount owed by that person in respect of any interest as defined in section 24J incurred by that person during any year of assessment. |
[Section 19(8)(f)(ii) substituted by section 17(1)(c) of the Taxation Laws Amendment Act, 2021 (Act No. 20 of 2021), Notice No. 770, GG45787, dated 19 January 2022 - comes into operation on 1 January 2022 and applies in respect of years of assessment commencing on or after that date (section 17(2))]
[Section 19 substituted by section 32(1) of the Taxation Laws Amendment Act, 2017 (Act No. 17 of 2017) - effective 1 January 2018]
