Income Tax Act, 1962 (Act No. 58 of 1962)Chapter II : The TaxesPart I : Normal Tax8FA. Hybrid interest deemed to be dividends in specie |
(1) For the purposes of this section—
"hybrid interest",
in relation to any debt owed by a company in terms of an instrument, means—
| (a) | any interest where the amount of that interest is— |
| (i) | not determined with reference to a specified rate of interest; or |
| (ii) | not determined with reference to the time value of money; or |
| (b) | if the rate of interest has in terms of that instrument been raised by reason of an increase in the profits of the company, so much of the amount of interest as has been determined with reference to the raised rate of interest as exceeds the amount of interest that would have been determined with reference to the lowest rate of interest in terms of that instrument during the current year of assessment and the previous five years of assessment; |
means an instrument as defined in section 8F(1);
[Definition substituted by section 17(1)(a) of the Taxation Laws Amendment Act, 2016 (Act No. 15 of 2016) - effective 24 February 2016]
means interest as defined in section 24J(1);
[Definition substituted by section 10 of the Taxation Laws Amendment Act, 2015 (Act No. 25 of 2015)]
"issue"
in relation to an instrument, means the creation of a liability to pay or a right to receive an amount in terms of that instrument.
| (2) | Any amount that is incurred by a company or accrues to a person in respect of interest on or after the date that the interest becomes hybrid interest is— |
| (a) | deemed to be a dividend in specie in respect of a share that is declared and paid by that company to the person to whom that amount accrued on the last day of the year of assessment of that company during which it was incurred; |
| (b) | not deductible; and |
| (c) | deemed to be a dividend in specie in respect of a share that accrues to that person on the date contemplated in paragraph (a). |
[Section 8FA(2) substituted by section 9(1) 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 [2023] 2024 and applies in respect of amounts incurred on or after that date - deemed to have come into operation on 12 December 2013 (section 36(1) and (2)) of the Taxation Laws Amendment Act 2022 (Act No. 20 of 2022), Notice No. 1541, GG47826, dated 5 January 2023]
| (3) | This section does not apply to any interest owed in respect of— |
| (a) | a debt owed by a small business corporation as defined in section 12E(4); |
| (b) | an instrument that constitutes a tier 1 or tier 2 capital instrument referred to in the regulations issued in terms of section 90 of the Banks Act (contained in Government Notice No. R.1029 published in Government Gazette No. 35950 of 12 December 2012) issued— |
| (i) | by a bank as defined in section 1 of that Act; or |
| (ii) | by a controlling company in relation to that bank; |
| (c) | an instrument of any class that is subject to approval as contemplated— |
| (i) | in the Short-term Insurance Act in accordance with the conditions determined in terms of section 23(1)(a) of that Act by the Registrar defined in that Act, where an amount is owed in respect of that instrument by a short-term insurer as defined in that Act; or |
| (ii) | in the Long-term Insurance Act in accordance with the conditions determined in terms of section 24(1)(a) of that Act by the Registrar defined in that Act, where an amount is owed in respect of that instrument by a long-term insurer as defined in that Act. |
[Section 8FA(3)(c) substituted by section 15(1)(b) of the Taxation Laws Amendment Act, 2013 (Act No. 31 of 2013), GG 37158, dated 12 December 2013 - commenced 1 January 2018]
| (d) | [Section 8FA(3)(d) deleted and substituted by section 72(1) of the Taxation Laws Amendment Act 2020, GG44083, dated 20 January 2021 - comes into operation on 1 January 2025 and applies in respect of amounts incurred on or after that date - deemed to have come into operation on 12 December 2013 (section 61 (1) and (2) of the Taxation Laws Amendment Act, 2023)] |
| (e) | an instrument that constitutes a third-party backed instrument as defined in section 8F(1). |
[Section 8FA(3)(e) inserted by section 17(1)(d) of the Taxation Laws Amendment Act, 2016 (Act No. 15 of 2016)]