10 June 2019
Proposed amendments to address abusive arrangements aimed at avoiding anti-dividend stripping provisions have been drawn up.
The proposed amendments are contained in an initial batch of the 2019 Draft Taxation Laws Amendment Bill published by national treasury for public comment.
According to treasury, the initial batch was published to cover specific provisions that require additional consultation.
The full text of the 2019 Draft Taxation Laws Amendment Bill will be published for comment in mid-July 2019.
The provisions contained in the initial batch will be revised in the draft bill.
Proposals to align the effective date of tax neutral transfers between retirement funds with the effective date of retirement reforms, which is 1 March 2021, are also contained in the initial batch.
In terms of anti-dividend stripping provisions, the proposed amendments are aimed at structures that certain taxpayers have embarked on designed to circumvent the current dividend stripping rules.
“These schemes involve millions of Rands, and have a potential of eroding the South African tax base.”
In order to address this abuse, amendments are proposed in section 22B and paragraph 43A to the Eighth Schedule of the Income Tax Act.
As regards aligning the effective date of tax neutral transfers, ongoing negotiations in Nedlac have necessitated the postponement of the effective date for the annuitisation requirements for provident funds to 1 March 2021.
Postponing the date has required several consequential amendments to various provisions of the Income Tax Act.
However, one amendment was inadvertently left out in paragraph 6(1)(a) of the Second Schedule to the Income Tax Act, which makes provision for tax neutral transfers between retirement funds.
Therefore, urgent changes to the Income Tax Act are needed to align the effective date of the tax neutral transfers from pension to provident or provident preservation funds with the effective date of the retirement reform amendments, which is 1 March 2021.
Comment on the proposed amendments is invited until 25 June 2019.