Section 24I of the Income Tax Act of No. 58 of 1962 is the provision that addresses the tax treatment of currency movements arising with respect to foreign currency loans. In situations of related-party debt, the rule was that unrealised movements were typically deferred and realised movements were taxed.
The provisions deferring the taxation of unrealised movements were recently amended, and these provisions have been narrowed. Taxpayers, therefore, need to examine the scope changes to assess whether unrealised amounts now must be taken into account and from what date.
What may be of greater concern is that many taxpayers have advanced foreign currency loans (i.e., loans denominated in currencies other than Rands) to group companies. What happens when these group companies are currently unable to repay the debt? The depreciating Rand may cause significant exchange gains on these loans, and the technical nature of section 24I does not seem to consider that bad debts would result in losses, not gains.
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