| (1) | Subject to subsection (3), where the circumstances in subsection (2) apply during any year of assessment in respect of any trade carried on by a natural person, any assessed loss incurred during that year in carrying on that trade may not be set off against any income of that person derived during that year otherwise than from carrying on that trade, notwithstanding section 20(1)(b). |
| (2) | Subsection (1) applies where the sum of the taxable income of a person for a year of assessment determined without having regard to the other provisions of this section and any assessed loss and balance of assessed loss which were set off in terms of section 20 in determining that taxable income, equals or exceeds the amount at which the maximum marginal rate of tax chargeable in respect of the taxable income of individuals becomes applicable, and where— |
[Words preceding section 20A(2)(a) substituted by section 27(1) of the Revenue Laws Amendment Act, 2005 (Act No. 31 of 2005)]
| (a) | that person has, during the five year period ending on the last day of that year of assessment, incurred an assessed loss in at least three years of assessment in carrying on the trade contemplated in subsection (1) (before taking into account any balance of assessed loss carried forward); or |
| (b) | the trade contemplated in subsection (1), in respect of which the assessed loss was incurred constitutes— |
| (i) | any sport practised by that person or any relative; |
| (ii) | any dealing in collectibles by that person or any relative; |
| (iii) | the rental of residential accommodation, unless at least 80 per cent of the residential accommodation is used by persons who are not relatives of that person for at least half of the year of assessment; |
| (iv) | the rental of vehicles, aircraft or boats as defined in the Eighth Schedule, unless at least 80 per cent of the vehicles, aircraft or boats are used by persons who are not relatives of that person for at least half of the year of assessment; |
| (v) | animal showing by that person or any relative; |
| (vi) | farming or animal breeding, unless that person carries on farming, animal breeding or activities of a similar nature on a full-time basis; |
| (vii) | any form of performing or creative arts practised by that person or any relative; |
| (viii) | any form of gambling or betting practised by that person or any relative; or |
| (ix) | the acquisition or disposal of any crypto asset. |
[Section 20A(2)(b)(ix) substituted by section 23 of the Taxation Laws Amendment Act, 2020 (Act No. 23 of 2020), GG44083, dated 20 January 2021]
| (3) | The provisions of subsection (1) do not apply in respect of an assessed loss incurred by a person during any year of assessment from carrying on any trade contemplated in subsection (2)(a) or (b), where that trade constitutes a business in respect of which there is a reasonable prospect of deriving taxable income (other than taxable capital gain) within a reasonable period having special regard to— |
| (a) | the proportion of the gross income derived from that trade in that year of assessment in relation to the amount of the allowable deductions incurred in carrying on that trade during that year; |
| (b) | the level of activities carried on by that person or the amount of expenses incurred by that person in respect of advertising, promoting or selling in carrying on that trade; |
| (c) | whether that trade is carried on in a commercial manner, taking into account— |
| (i) | the number of full-time employees appointed for purposes of that trade (other than persons partly or wholly employed to provide services of a domestic or private nature); |
| (ii) | the commercial setting of the premises where the trade is carried on; |
| (iii) | the extent of the equipment used exclusively for purposes of carrying on that trade; and |
| (iv) | the time that the person spends at the premises conducting that business; |
| (d) | the number of years of assessment during which assessed losses were incurred in carrying on that trade in relation to the period from the date when that person commenced carrying on that trade and taking into account— |
| (i) | any unexpected events giving rise to any of those assessed losses; and |
| (ii) | the nature of the business involved; |
| (e) | the business plans of that person and any changes thereto to ensure that taxable income is derived in future from carrying on that trade; and |
| (f) | the extent to which any asset attributable to that trade is used, or is available for use, by that person or any relative of that person for recreational purposes or personal consumption. |
| (4) | Subsection (3) does not apply in respect of a trade contemplated in subsection (2)(b) (other than farming) carried on by a person during any year of assessment where that person has, during the ten year period ending on the last day of that year of assessment, incurred an assessed loss in at least six years of assessment in carrying on that trade (before taking into account any balance of assessed loss carried forward). |
[Section 20A(4) substituted by section 23 of the Taxation Laws Amendment Act, 2019 (Act No. 34 of 2019), GG 42951, dated 15 January 2020]
| (5) | Notwithstanding section 20(1)(a), any balance of assessed loss carried forward from the preceding year of assessment, which is attributable to an assessed loss in respect of which subsection (1) applied in that preceding year or any prior year of assessment, may not be set off against any income derived by that person otherwise than from carrying on the trade contemplated in subsection (1). |
| (6) | For the purposes of this section and section 20, the income derived from any trade referred to in subsections (1) or (5), includes any amount— |
| (a) | which is included in the income of that person in terms of section 8 in respect of an amount deducted in any year of assessment in carrying on that trade; or |
[Section 20A(6)(a) substituted by section 33 of the Taxation Laws Amendment Act, 2009 (Act No. 17 of 2009)]
| (b) | derived from the disposal after cessation of that trade of any assets used in carrying on that trade. |
| (7) | Notwithstanding anything to the contrary contained in this Act, all farming activities carried on by a person shall be deemed to constitute a single trade carried on by that person for the purposes of this section. |
| (8) | Where the provisions of subsection (2) apply during any year of assessment in respect of any trade carried on by a person, that person must indicate the nature of the business in his or her return contemplated in section 66 for that year of assessment. |
| (9) | For the purposes of subsections (2)(a) and (4), any assessed loss incurred in any year of assessment ending on or before 29 February 2004 shall not be taken into account. |
| (10) | For the purposes of this section— |
| (a) | "assessed loss" means "assessed loss" as defined in section 20(2); and |
| (b) | "relative" in relation to a person means a spouse, parent, child, stepchild, brother, sister, grandchild or grandparent of that person |
[Section 20A inserted by section 36(1) of the Revenue Laws Amendment Act, 2003 (Act No. 45 of 2003) - effective 1 March 2004]
