Page 147 - SAIT Compendium 2016 Volume1

s 12J INCOME TAX ACT 58 OF 1962 s 12J
(c) the tax affairs of the company are in order and the company has complied with all the relevant provisions of the laws administered by the Commissioner;
(d) the company is an unlisted company as de ned in section 41 or a junior mining company;
(e) the company is not carrying on any impermissible trade; and
[Para. (e) substituted by s. 25 (1) (a) of Act 17 of 2009.] (f) the sum of the investment income, as de ned in section 12E (4) (c), derived by that company during any year of assessment does not exceed an amount equal to 20 per cent of the gross income of that
company for that year;
[Para. (f) substituted by s. 25 (1) (a) of Act 17 of 2009.] (g) . . .
[Para. (g) deleted by s. 25 (1) (b) of Act 17 of 2009.] ‘qualifying share’ means an equity share held by a venture capital company which is issued to that company by a qualifying company, and does not include any share
which— (a) . . .
[Para. (a) omitted by s. 38 (1) (e) of Act 24 of 2011.]
(b) would have constituted a hybrid equity instrument, as de ned in section 8E (1), but for the three-year period requirement contemplated in paragraph (a) of the de nition of ‘hybrid equity instrument’ in that section; or
(c) constitutes a third-party backed share as de ned in
section 8EA (1);
[De nition of ‘qualifying share’ substituted by s. 38 (1) (d) of Act 24 of 2011 (date of commencement: 1 January 2012
– the substituted paragraph applies in respect of years of assessment commencing on or after that date) and by s. 38 (1) of Act 24 of 2011 – date of commencement: 1 October 2012.]
‘venture capital company’ means a company that has been approved by the Commissioner in terms of subsection (5) and in respect of which such approval has not been withdrawn in terms of subsection (6) or (6A);
[De nition of ‘venture capital company’ substituted by s. 25 (1) (c) of Act 17 of 2009.]
‘venture capital share’ means an equity share held by a taxpayer in a venture capital company which is issued to that taxpayer by a venture capital company, and does not include any share which—
(a) . . .
[Para. (a) omitted by s. 38 (1) (h) of Act 24 of 2011.]
(b) would have constituted a hybrid equity instrument, as de ned in section 8E (1), but for the three-year period requirement contemplated in paragraph (a) of the de nition of ‘hybrid equity instrument’ in that section; or
(c) constitutes a third-party backed share as de ned in
section 8EA (1).
[De nition of ‘venture capital share’ inserted by s. 38 (1) (g) of Act 24 of 2011 and substituted by s. 8 (1) (h) of Act 24 of 2011 – date of commencement: 1 October 2012.]
(2) Subject to subsections (3), (3A) and (4), there must be allowed as a deduction from the income of a taxpayer expenditure actually incurred by that taxpayer in acquiring any venture capital share issued to that taxpayer by a venture capital company.
[Sub-s. (2) substituted by s. 38 (1) (i) of Act 24 of 2011 – date of commencement 1 January 2012. The substituted subsection applies in respect of years of assessment commencing on or after that date.]
(3) (a) Where, during any year of assessment—
(i) any loan or credit has been used by a taxpayer for the payment or nancing of the whole or any portion of
(ii) any portion of that loan or credit is owed by the taxpayer on the last day of the year of assessment,
the amount which may be taken into account as expenditure that quali es for a deduction in terms of subsection (2) must be limited to the amount for which the taxpayer is in terms of paragraph (b) deemed to be at risk on the last day of the year of assessment.
(b) For the purposes of paragraph (a), a taxpayer must be deemed to be at risk to the extent that—
(i) the incurral of the expenditure contemplated in subsection (2); or
(ii) the repayment of any loan or credit used by the taxpayer for the payment or nancing of any expenditure contemplated in subsection (2),
[Sub-para. (ii) substituted by s. 23 (1) (a) of Act 43 of 2014 – date of commencement: 1 January 2015.]
would (having regard to any transaction, agreement, arrangement, understanding or scheme entered into before or after such expenditure is incurred) result in an economic loss to the taxpayer were no income to be received by or accrue to the taxpayer in future years from the disposal of any venture capital share issued to the taxpayer as a result of the incurral of that expenditure: Provided that the taxpayer must not be deemed to be at risk to the extent that—
(aa) the loan or credit is not repayable within a period of ve years from the date on which that loan or credit was advanced to the taxpayer; and
(bb)any loan or credit used by the taxpayer for the payment or nancing of the whole or any portion of any expenditure contemplated in subsection (2) is (having regard to any transaction, agreement, arrangement, understanding or scheme entered into before or after such expenditure is incurred) granted directly or indirectly to the taxpayer by the venture capital company by which the qualifying shares are issued as a result of the incurral of that expenditure.
[Sub-s. (3) amended by s. 25 (1) (d) of Act 17 of 2009 and substituted by s. 38 (1) (j) of Act 24 of 2011 – date of commencement 1 January 2012. The substituted subsection applies in respect of years of assessment commencing on or after that date.]
(3A) If, during any year of assessment—
(a) a taxpayer incurs expenditure as contemplated in
subsection (2); and
(b) as a result of or immediately after the acquisition of
a venture capital share in a venture capital company that taxpayer is a connected person in relation to that venture capital company,
no deduction must be allowed in terms of subsection (2) during that year of assessment in respect of any expenditure incurred by the taxpayer in acquiring any venture capital share issued to that taxpayer by that venture capital company. [Sub-s. (3A) inserted by s. 38 (1) (k) of Act 24 of 2011 – date of commencement 1 January 2012. The subsection applies in respect of years of assessment commencing on or after that date.]
(4) A claim for a deduction in terms of subsection (2) must be supported by a certi cate issued by the venture capital company stating the amounts invested in that company and that the Commissioner approved that company as contemplated in subsection (5).
(5) The Commissioner must approve a venture capital company if that company has applied for approval and the Commissioner is satis ed that—
(a) the company is a resident;
(b) the sole object of the company is the management of investments in qualifying companies;
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any expenditure contemplated in subsection (2); and
INCOME TAX ACT – SECTIONS