Page 81 - SAIT Compendium 2016 Volume1

s 8EA INCOME TAX ACT 58 OF 1962 s 8EA
‘qualifying purpose’, in relation to the application of the funds derived from the issue of a preference share, means one or more of the following purposes:
[Words preceding para. (a) substituted by s. 7 (1) (b) of Act 43 of 2014 – date of commencement deemed to have been 1 January 2013; the substituted wording applies iro any dividend or foreign dividend received or accrued during years of assessment commencing on or after that date.]
(a) The direct or indirect acquisition of an equity share by any person in an operating company, other than a direct or indirect acquisition of an equity share from a company that, immediately before that acquisition, formed part of the same group of companies as the person acquiring that equity share;
(b) the partial or full settlement by any person of any— (i) debt incurred for one or more of the following
purposes:
(aa) The direct or indirect acquisition of an equity
share by any person in an operating company, other than a direct or indirect acquisition of an equity share from a company that, immediately before that acquisition, formed part of the same group of companies as the person acquiring that equity share;
(bb)a direct or indirect acquisition or a redemption contemplated in paragraph (c);
(cc) the payment of any dividend or foreign dividend as contemplated in paragraph (d);or (dd)the partial or full settlement, directly or indirectly, of any debt incurred as
contemplated in item (aa), (bb) or (cc); or
(ii) interest accrued on any debt contemplated in
subparagraph (i);
(c) the direct or indirect acquisition by any person or a
redemption by any person of any other preference share if—
(i) that other preference share was issued for any purpose contemplated in this de nition; and
(ii) the amount received by or accrued to the issuer of that preference share as consideration for the issue of that preference share does not exceed the amount outstanding in respect of that other preference share being acquired or redeemed, being the sum of— (aa) that amount; and
(bb) any amount of dividends, foreign dividends or interest accrued in respect of that other preference share; or
(d) the payment by any person of any dividend or foreign dividend in respect of the other preference share contemplated in paragraph (c);
[De nition of ‘qualifying purpose’ substituted by
s. 11 (1) (b) of Act 31 of 2013 – date of commencement: see footnote*.]
‘third-party backed share’ means any preference share in respect of which an enforcement right is exercisable by the holder of that preference share or an enforcement
obligation is enforceable as a result of any amount of any speci ed dividend, foreign dividend, return of capital or foreign return of capital attributable to that share not being received by or accruing to any person entitled thereto. [Proviso to de nition of ‘third-party backed share’ deleted by s. 11 (1) (c) of Act 31 of 2013 – date of commencement: see footnote*.]
(2) Any dividend or foreign dividend received by or accrued to a person during any year of assessment in respect of a share must be deemed in relation to that person to be an amount of income received by or accrued to that person if that share constitutes a third-party backed share at any time during that year of assessment.
(3) (a) Where the funds derived from the issue of a preference share were applied for a qualifying purpose, in determining whether—
(i) an enforcement right is exercisable in respect of that share, no regard must be had to any arrangement in terms of which the holder of that share has an enforcement right in respect of that share and that right is exercisable; or
(ii) an enforcement obligation is enforceable in respect of that share, no regard must be had to any arrangement in terms of which that obligation is enforceable,
against the persons contemplated in paragraph (b).
(b) For the purposes of the determination contemplated in paragraph (a) no regard must be had to the following persons: (i) The operating company to which that qualifying
purpose relates;
(ii) any issuer of a preference share if that preference
share was issued for a qualifying purpose;
[Sub-para. (ii) substituted by s. 7 (1) (c) of Act 43 of 2014 –
date of commencement deemed to have been 1 January 2013; the substituted subparagraph applies iro any dividend or foreign dividend received or accrued during years of assessment commencing on or after that date.]
(iii) any other person that directly or indirectly holds at least 20 per cent of the equity shares in—
(aa) the operating company contemplated in subpara-
graph (i); or
(bb) the issuer contemplated in subparagraph (ii);
(iv) any company that forms part of the same group of companies as—
(aa) the operating company contemplated in subpara- graph (i);
(bb) the issuer contemplated in subparagraph (ii); or (cc) the other person that directly or indirectly holds at least 20 per cent of the equity shares in the operating company contemplated in subparagraph (i) or the issuer contemplated in subparagraph (ii);
(v) any natural person; (vi) any organisation—
(aa) which is—
(A) a non-pro t company as de ned in section 1
of the Companies Act; or
(B) a trust or association of persons; and
(bb) if—
* Section 11 (1) of Act 31 of 2013 (containing amendments to s. 8EA) comes into operation—
(a) in the case of dividends or foreign dividends received in cash by any person during any year of assessment of that person that commences on or after 1 January 2013, on 1 April 2012 and applies in respect of any dividend or foreign
dividend so received if that dividend or foreign dividend— (i) accrued to that person on or after 1 April 2012; and
(ii) is received by that person on or after a date three months after the date on which that dividend or foreign dividend accrued to that person; or
(b) in the case of dividends or foreign dividends— (i) received by or accrued to any person; and
(ii) that are not received by and accrued to that person as contemplated in paragraph (a),
on 1 January 2013 and applies in respect of any dividend or foreign dividend so received and accrued during years of assessment of that person that commence on or after that date.
SAIT CompendIum oF TAx LegISLATIon VoLume 1 73
INCOME TAX ACT – SECTIONS