Page 1122 - SAIT Compendium 2016 Volume2

EXPLANATORY MEMORANDUM ON THE TAXATION LAWS AMENDMENT BILL, 2015
by the original owner it is clear that current adjustment rules need to be amended and streamlined to allow for greater simpli cation and effectiveness of the legislation.
B. Subsequent year cancellation
The normal application of the provisions of the Eighth Schedule relating to the disposal (and acquisition) will apply to both parties of the transaction on a cancellation in a subsequent year. The original owner, speci cally reacquiring the asset either at the actual amount incurred to obtain or in this case reacquire the asset (the amount refunded) or at the value of the asset exchanged for the re-acquisition of the original asset (market value of the debt asset cancelled). This could give the original owner the unintended bene t of a step-up in base cost purely through the working of the legislation without actually having paid or given up any economic bene t/value in the chain of ownership change as the previous year’s gain is netted off through a capital loss in the original owner’s hands during the year of cancellation. The provisions of the Eighth Schedule that further provides for the capital loss equal to the capital gain in the year of cancellation could also result in decreased capital.
III. Proposal
A. Same year cancellation
To amend the anomaly of a capital loss on the disposal and subsequent cancellation of a contract in the hands of the original owner in the same year of assessment it is proposed that a disposal and subsequent cancellation of a contract in the hands of the original owner be speci cally excluded from a disposal as contemplated in the Eighth Schedule. This will have the effect that no capital gain/loss calculation will be required and that the base cost in the hands of the original owner will be the exact same amount as it was prior to entering into the contract.
B. Subsequent year cancellation
It is proposed that if a contract is cancelled in a subsequent year of assessment to which it was entered into, that certain amendments are made to the Eighth Schedule to ensure a more equitable outcome of the cancellation of the contract within the tax frame.
C. Base cost
Insertion of a new paragraph that effectively limits the base cost of the asset reacquired in the hands of the original owner to an amount equal to the base cost of that asset prior to entering into the relevant contract on the disposal of the asset that has subsequently been cancelled. To re ect actual economic value / expenses incurred post entering into the contract, the base cost of the asset reacquired will take into account any subsequent expenditure incurred by the new owner as allowed under paragraph 20 of the Eighth Schedule.
IV. Effective date
The proposed amendments come into operation on 1 January 2016 and apply in respect of disposals made during any year of assessment commencing on or after that date.
3. INCOME TAX: BUSINESS (FINANCIAL INSTITUTIONS AND PRODUCTS) 3.1 EXTENSION OF MURABAHA AND SUKUK TO LISTED ENTITIES
[Applicable provisions: Section 24JA(1) and (7)]
I. Background
In 2010, enactments were made in the Taxation Laws Amendment Act of 2010 recognising diminishing musharaka, mudaraba and murabaha as forms of Islamic nance equivalent to traditional nance entailing interest. These forms of Islamic nance were to be offered by banks. Subsequently in 2011, the changes were made to the Act to introduce sukuk as another form of Islamic nance limited to Government. However, sukuk nancing arrangements has been extended to public entities with effect from 1 April 2015. In Islamic nance, a murabaha is an unconditional contract of sale between buyer and seller where the goods, cost price, mark-up and payment date are all clearly de ned and agreed upfront. Generally, sukuk which is often referred to as ‘Islamic bond’ means a claim similar to that represented by a trust certi cate. The claim stems from the fact that the certi cate represents a bene cial ownership interest in the underlying asset generating the cash ow.
II. Reasons for change
Although Sharia compliant nancing arrangements have been introduced in stages, it has always been the Government’s intention to ensure that these nancing arrangements are accessible to other entities as well as an additional source to raise capital.
III. Proposal
It is proposed that the current legislation in respect of murabaha and sukuk be extended to cover companies listed on a South African exchange.
IV. Effective date
The proposed amendments will come into operation on 1 January 2016 and apply to years of assessment commencing on or after that date.
3.2 ALLOWING REITS TO DEDUCT TAX DEDUCTABLE DONATIONS
[Applicable provision: Insertion of a new subsection (2A)(c)of section 25BB]
1114 SAIT CompendIum oF TAx LegISLATIon VoLume 2