South Africa: Low-interest, interest-free loans | KPMG | GLOBAL

South Africa: Low-interest, interest-free loans to trusts and companies

South Africa: Low-interest, interest-free loans

Proposals to expand an anti-avoidance provision when low-interest or interest-free loans are involved have been amended.

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The amendments to the anti-avoidance rules were originally proposed to prevent estate tax (duty) and donations tax avoidance through the use of interest-free or low-interest loans to a trust. The final amendments to the Taxation Laws Amendment Act of 2017, promulgated on 18 December 2017, reflect that:

  • The South African Revenue Service (SARS) has accepted that the proposed amendments were too broad. Accordingly, low-interest or interest-free loan funding provided to a trust or a company when at least 20% of the equity shares are owned, or voting rights can be exercised directly or indirectly by the trust or a beneficiary of the trust, would be subject to the provisions of section 7C of the legislation.
  • The qualifying exemptions from the deemed donation have been updated to account for loans to both trusts and companies. 

The legislative changes are effective 19 July 2017 in respect of eligible low-interest or interest-free loan funding provided by individual taxpayers to trusts and companies. Accordingly, those taxpayers having a relationship with trusts need to assess whether any loans that the taxpayers have made to those trusts or to companies owned by trusts, or beneficiaries of such trusts, are subject to the deemed donation implications of the anti-avoidance provision.

The effective date of section 7C is 1 March 2017. This means the first donations tax return and payment will be due for submission and payment to SARS by 31 March 2018.

 

Read a January 2018 report [PDF 114 KB] prepared by the KPMG member firm in South Africa

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