South Africa: Draft legislation allowing limited deduction of expenses incurred by companies not trading
A new section 11G allowing for a limited deduction of expenses incurred by companies not trading introduced
Draft legislation allowing limited deduction of expenses incurred by companies not trading
Draft Taxation Laws Amendment Bill, 2023, released on 31 July 2023, would introduce a new section 11G allowing for a limited deduction of expenses incurred by companies in the production of income, but when the company is not trading.
The bill is intended to provide relief that has historically been offered to taxpayers through Practice Note 31 (PN 31), which the South Africa Revenue Service (SARS) in November 2022 announced it intends to withdraw.
PN 31 allows for a deduction of expense incurred by a taxpayer who does not carry on a trade up to the amount of any interest income earned by the taxpayer. Section 11G would be narrower than PN 31 as the deduction would only be available to companies and could only be claimed against interest income accruing in respect of a loan advanced to another company that forms part of the same group of companies. The deduction would be limited to the amount of interest income accruing from the loan advanced to the group company.
Section 11G is proposed to become effective 1 January 2024 and would apply for years of assessment ending on or after that date. It remains to be seen whether SARS will align the timing of the withdrawal of PN 31 with the effective date of section 11G.
Read an August 2023 report [PDF 210 KB] prepared by the KPMG member firm in South Africa
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