South Africa unrealised gains foreign currency loans | KPMG | ZA

South Africa: Unrealised gains, foreign currency loans

Revised tax treatment in South Africa

There are changes to the rules in South Africa with respect to the tax treatment of unrealised gains on foreign currency loans.


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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. 

Revised treatment

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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