South Africa: Proposed changes to anti-avoidance rules for hybrid equity instruments
Amendments to section 8E of the Income Tax Act
National Treasury has proposed amendments to section 8E of the Income Tax Act, aimed at strengthening anti-avoidance rules for hybrid equity instruments.
The proposed changes include:
- Revising the definition of a “hybrid equity instrument” to include any share or financial instrument classified as a financial liability under International Financial Reporting Standards (IFRS) in the issuer’s annual financial statements
- Removing the three-year redemption period requirement, broadening the scope to capture instruments with longer maturities that are debt-like in substance.
Therefore, dividends declared on such hybrid equity instruments would be reclassified as income and taxed in the hands of the investor.
The changes would apply to years of assessment commencing on or after January 1, 2026 (the effective date).
Read an August 2025 report prepared by the KPMG member firm in South Africa