011 463 5566 tonyd@harding.co.za


In this seventh newsletter for 2023 we consider the following:
‘Two-Pot’ Retirement System Postponed
PN31 Revisited : The Taxation Laws Amendment Bill, 1 November 2023
CFCs Foreign Business Exemption (FBE) revisited
Ponzi Schemes : Capital Losses arising from Investment Fraud & CGT
Tax Dispute Procedure – Stand in the queue and await your turn
Proposed New Advance Pricing Agreement (APA) rulings for international transactions
Non-resident beneficiaries: amendments to section 25b now delayed to 2025 year of assessment
Submission date for it3(t) returns extended to September 2024
SARS Interpretation Notes (INs), BGRs, BCRs, BPRs and Guides Noter-Up

Tony Davey – Editor
Duncan McAllister – Co-Editor


Treasury has acceded to lobbying by the Retirement Fund Industry to defer the implementation of the so-termed two-pot retirement system for a year until 1 March 2025.

Treasury made this announcement to Parliament’s finance committee on 25 October 2023. A further concession is that the previous one-off access of 10% of the Vested component as at 28 February 2025 to a maximum of R25 000 will be increased to R30 000. (The annual access to the Savings component without the requirement to terminate employment remains). See our previous articles in Davey’s Locker issues of 7.2022 and 5.2023 for a full evaluation.


Treasury has further extended the effective date of the proposed section 11G (which replaces PN31 in an amended form) to 1 January 2025 for years of assessment commencing on or after this date. Presumably to correlate to the revised deferred date of the new section 11G, PN31 remains in force and effect and thus interest expenditure incurred by a taxpayer in order to earn interest income (notwithstanding the taxpayer is not carrying on a trade) remains tax deductible to the extent of the interest earned. While the version of section 11G in the Bill has been considerably broadened compared to what was in the draft Bill, it still falls short of PN 31 in that its application is restricted to the deduction of interest. Typically, many persons who manage funds on behalf of investors charge a percentage-based fee which SARS allows as a deduction against the related interest income under PN 31, yet section 11G does not deal with such fees. In addition, the amendment does not address interest paid on funds borrowed to produce taxable REIT dividends. In the spirit of fairness and equity, SARS and National Treasury should address these issues during 2024.
See Davey’s Locker Newsletter 6.2023.

Treasury has temporarily withdrawn a proposed amendment to section 9D(9)(b) which was to take effect on 1 January 2024. This proposed amendment would discourage the current practice of RSA Asset Managers operating through their international foreign-based entities from outsourcing the investment analysis function back to the RSA, by removing the FBE tax exemption in this circumstance.

The Coronation SCA judgment in favour of SARS will now be appealed and heard by the Constitutional Court and thus the proposed amendments will be held in abeyance pending the Constitutional Court judgment.
See Davey’s Locker Newsletter 6.2023.


Losses of a capital nature – General
The loss of a capital asset held as a long-term investment, for example, a share portfolio, as a result of fraud or theft, should give rise to a capital loss under paragraph 4(a) of the Eighth Schedule to the Income Tax Act.
The definition of ‘asset’ in paragraph 1 of the Eighth Schedule excludes currency other than any coin made mainly from gold or platinum, but a bank account, for example, is an asset for CGT purposes, being a debt claim against the bank, as is a share portfolio managed by a stock broker or asset manager. It follows that fraud or theft involving such investments would give rise to a capital loss. Although capital losses on personal-use assets are disregarded under paragraph 53, paragraph 53(3)(e) specifically excludes financial instruments as personal-use assets.

Timing of the loss
The timing of the disposal under the Eighth Schedule needs to be considered in relation to the stolen money and right of recovery which the taxpayer has against the thief and possibly an insurer. Paragraph 13(1)(b) and (c) of the Eighth Schedule are relevant in this regard.
Thus, for example, under paragraph 13(1)(b) the time of disposal of a claim against –

  • a misappropriator is on the date on which it is extinguished through recovery, abandonment or expiry; and
  • an insurer is when it is repudiated and the repudiation is not contested.

Any amount recovered in a year of assessment subsequent to the year of disposal, including any successful Professional Indemnity (P.I.) claim, must be treated as a capital gain under paragraph 3(b)(ii) of the Eighth Schedule.
Proof of embezzlement, fraud and theft of money

SARS in its interpretation Note (IN) 80 states:
‘A taxpayer claiming a deduction for losses owing to the fraud and theft of money and for expenditure pertaining to legal and forensic services to investigate such expenditure and losses bears the onus of proving such expenditure and losses under section 102 of the Tax Administration Act.
Without limiting the manner in which the expenditure and losses can be proven, the following will be considered as prima facie proof that such expenditure and losses occurred:

  • A police case docket reference number;
  • A report by an accredited private investigator;
  • A report by a forensic auditor; or
  • A charge sheet issued by a court.
  • A taxpayer will also need to prove the quantum of the expenditure and losses.’


The recent Supreme Court of Appeal (SCA) judgment C: SARS v ABSA Bank delivered 29 September 2023, held that other than in limited exceptional circumstances, a taxpayer must follow the objection and appeal procedures set out in the Tax Administration Act (TAA) and cannot break ranks by approaching the High Court directly. This strict interpretation of Section 105 of the TAA is consistent with the principles enunciated in the earlier SCA case of C: SARS v Rappa Resources 2023 (4) SA 488 (SCA) in which it was stated that ‘The purpose of Section 105 is clearly to ensure that in the ordinary course, tax disputes are taken to the tax court. The high court consequently does not have jurisdiction in tax disputes unless it directs otherwise’.

It is common cause that a tax dispute concerning only a question of law (as distinct from a dispute of fact) would constitute an exceptional circumstance entitling the high court to intervene at the objection stage and adjudicate the dispute. On appeal from the high court to the SCA in this ABSA Bank case, the SCA in upholding SARS appeal, held that the high court did not have jurisdiction to intervene and review the assessments raised by SARS (on the substantive basis that the taxpayer had participated in an impermissible tax avoidance arrangement) as the matter involved both disputes of fact and law, as distinct from only a question of law. Thus, no exceptional circumstances existed to justify the high court intervention.

In conclusion, the SCA held that the merits of any challenge to the notices of assessment must be adjudicated in accordance with the normal dispute resolution process provided for by Section 104 of the TAA and Rules and the Section 105 process whereby the high court may intervene, is strictly confined to limited circumstances.


Insertion of Sections 76A To L in the Income Tax Act
We welcome the APA programme which will provide taxpayers with greater certainty when embarking on large-scale international transactions with related parties that have transfer pricing implications. This APA is to promote voluntary compliance and complements SARS’s advance tax rulings system, which currently provides rulings on the tax implications of proposed domestic transactions. The technical crux of the APA is to pre-determine the allocation of profit in an ‘affected transaction’ (being a transaction between related parties) that would have been the allocation of the profit if the related parties had been independent persons dealing at arms length.

The proposed legislation seeks to introduce the enabling framework for the APA programme and is inserted in the Income Tax Act (as distinct from the Tax Administration Act (TAA)) given its close relationship with section 31 of the Act. It deals with persons eligible to apply for APAs, fees, pre-application consultation, content of applications for an APA, amendment and withdrawal of applications, criteria for rejecting applications, processing of applications, finalization of APAs, annual compliance reports by the taxpayer to SARS, extension of duration of APAs, termination of APAs, record-keeping and the Commissioner’s power to prescribe procedures and guidelines for the implementation of the programme.

It is envisaged that the APA programme will commence with a pilot after the legislative framework has been put in place. The pilot will accept only bilateral APA applications, in consultation with the Tax Authorities of another country which has a Double Tax Agreement (DTA) with the RSA.


In Davey’s Locker 6.2023 we reported that the draft Taxation Laws Amendment Bill, 2023 proposed to amend section 25B of the Income Tax Act. The effect of the proposed amendments will result in distributions of income to non-resident beneficiaries by a resident trust being subject to tax in the trust at 45%. The draft bill proposed that these amendments would come into operation on 31 July 2023. In the Taxation Laws Amendment Bill, 2023 tabled on 1 November 2023, it is now proposed that the amendments come into operation on 1 March 2024 and apply to years of assessment commencing on or after that date.

For the year of assessment ending on 29 February 2024, trustees are required to submit to SARS information electronically on distributions from trusts on the IT3(t) return (see Davey’s Locker 5.2023). The notice specifying the date of submission of these returns was published in GN 3631 GG 48867 of 30 June 2023 “Third Party Notice to Submit

Returns for periods on or after 1 March 2023”. The original submission date was 31 May 2024. On 10 November 2023 SARS published GN 4051 GG 49646 which has now extended the submission date to 30 September 2024.