Page 595 - SAIT Compendium 2016 Volume2

IN 67 (2) Income Tax acT: InTeRPReTaTIon noTes IN 67 (2)
Example 32 – Portfolio of a collective investment scheme in property
Facts:
A portfolio of a collective investment scheme in property holds 30% of the equity shares in ABC (Pty) Ltd. No other holder of shares holds more than 50% of the voting rights in the company.
Result:
The portfolio is a connected person in relation to ABC (Pty) Ltd under paragraph (d)(v) because – • the portfolio is a company as de ned in section 1(1);
• it holds at least 20% of the equity shares in ABC (Pty) Ltd; and
• no other holder of shares holds the majority voting rights in the company.
3.9 Timing of the ‘connected person’ test
The majority of the provisions in the Act which use the term ‘connected person’ indicate that the criteria to determine whether persons are connected should be considered as at the time of a transaction, (that is, effectively before the transaction is concluded), for example, when the acquisition or disposal of an asset takes place or when certain expenditure is incurred. Some provisions, however, indicate that the relationship between persons should be determined at speci ed times. For example, under section 24N special timing rules apply* when a person disposes of equity shares to another person during the year of assessment and a quanti ed or quanti able amount which is payable by the purchaser to the seller is not due and payable in that year. The amount in question will be regarded as not having accrued to the seller and not to have been incurred by the purchaser during that year to the extent that it is not due and payable during that year. One of the requirements is that the purchaser and seller are not connected persons in relation to each other at any time after the disposal of the shares.
Paragraph 39(1) of the Eighth Schedule provides, amongst other things, that a person must, when determining the aggregate capital gain or aggregate capital loss of that person, disregard any capital loss determined in respect of the disposal of an asset to any person who was a connected person in relation to that person immediately before the disposal.
Section 23I is an anti-avoidance provision that stipulates, amongst other things, that no deduction will be allowed under certain circumstances for the amount of any expenditure incurred for the use or the right to use or permission to use any ‘tainted intellectual property’. The term ‘tainted intellectual property’ is de ned in section 23I(1) and in subparagraph (a) of the de nition reference is made to intellectual property which was the property of the end-user or of a taxable person that is or was a ‘connected person’ as de ned in section 31(1A) in relation to the end-user. The relevant time for determining the ‘connected person’ relationship is therefore when the expenditure is incurred.
These examples are not exhaustive and are merely presented for illustrative purposes. The timing of the ‘connected person’ relationship will depend on the wording of the particular provision of the Act.
3.10 Expanded or restricted de nition of a ‘connected person’
The table below sets out the provisions of the Act which expand or restrict the de nition of a ‘connected person’ in section 1(1).
Table 1 – Expanded or restricted de nition of a ‘connected person’
Section of the Act or paragraph of the Eighth Schedule
Expanded or restricted de nition of a ‘connected person’
Section 9C(1)
As de ned in section 1(1), provided that the expression ‘and no holder of shares holds the majority voting rights in the company’ in paragraph (d)(v) of that de nition must be disregarded.
Section 23I(1) de nition ‘tainted intellectual property’
‘Connected person’ as de ned in section 31(4).
Section 29A(10)
The individual policyholder fund, company policyholder fund, untaxed policyholder fund and corporate fund, shall be deemed to be separate companies which are connected persons in relation to each other for the purposes of section 29A(6), (7) and (8) and sections 9B, 20, 24I, 24J, 24K, 24L, 26A and 29B and the Eighth Schedule.
Section 31(4)
As de ned in section 1(1), provided that the expression ‘and no holder of shares holds the majority voting rights in the company’ in paragraph (d)(v) of that de nition must be disregarded.
Paragraph 39(3) of the Eighth Schedule
A connected person in relation to a natural person does not include a relative of that person other than a parent, child, stepchild, brother, sister, grandchild or grandparent of that person. A connected person in relation to a fund of an insurer contemplated in section 29A does not include another such fund of that insurer in respect of the disposal of an asset by such fund to another such fund.
* Provided detailed criteria, as speci ed in the section, are met.
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