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Summary Investment and funding instruments
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This document provides a detailed summary of Investment and funding of instruments dealt with in the Tax Legislation
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LML4804 PORTFOLIO MEMO - MAY/JUNE 2023 - SEMESTER 1 - UNISA - (DETAILED ANSWERS - DISTINCTION GUARANTEED!)
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Exempt Income
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Special Deductions
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Investment and fundingInstruments
Chapter 16 SILKE
S8F Hybrid debt Taxpayer claims for the instrument to be debt (why? So that they can
instruments receive Interest deductions) but SARS deems it to be a dividend in
deemed to be specie (equity).
dividend in Anti-avoidance section.
specie
Hybrid debt instrument:
-owes money to another person.
-Arrangement as defined in s80L.
a. Issuer obliged/ entitled to:
(UNLESS MV of shares = amount owed then not s8F)
o Convert instrument into shares.
o Exchange instrument for shares.
(Note: if holder enforces it, then issuer is still obliged to
convert)
b. Obligation to pay is deferred due to insolvency of issuer.
Linked to s8F(3).
c. Connected person loans longer than 30 years.
o Excludes instruments payable on demand within 30 years.
o Conversions are considered to be one and the same
instrument.
Instrument:
Interest-bearing arrangement issued by
- Resident company
- Permanent estate if not resident
- Controlled foreign company.
Amounts: s8F(2)
Interest amount incurred (issuer):
- Deemed to be dividend in specie.
- Not deductible
Interest amount accrued (holder):
- Deemed to be dividend in specie.
- Exempt under s10(1)(k) or 10B.
- Exempt under Dividends Tax s64FA.
Not appliable to: s8F(3)
Small Business Corporations (SBCs) under s12E
Tier 1/ 2 Capital instrument
If register auditor confirms that issuer is actually insolvent.
S24O Interest of This occurs when a taxpayer buys a company by buying their shares.
certain debt The taxpayer would then take out a loan to fund this acquisition,
deemed to be however the interest incurred on the loan is generally not deductible
in production due to it not being in the production of income.
of income. Therefore s24O ‘overrides’ the requirement of the deduction having
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