TL106

2019
TAX4861/2

Define Tomorrow.
TL106 Topics

Learning unit 11:

▪ Interest-bearing instruments
▪ Foreign exchange
▪ Transfer Pricing

Learning unit 12:

▪ Companies and close corporations
▪ Corporate rules TAX4862 ONLY
• Learning unit 13:
▪ Dividends
▪ Acquisition and disposal of shares

Learning unit 14:

▪ Trusts (Attribution rules ( paras 68 to 73)
excluded for TAX4861)

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LEARNING UNIT 11
• Interest‐bearing instruments (s 24J)
• Foreign exchange (s 24I)
• International transactions (s 31)

3
 Framework for calculation of Taxable Income
GROSS INCOME XXX
LESS: EXEMPT INCOME (ss10, 10A, 10B, 10C and 12T) ( XXX )
INCOME XX
LESS: DEDUCTIONS AND ALLOWANCES
(ss11 – 17A & 21 – 24P, excluding s 18A) (note: s 11F excluded) ( XXX )
LESS: ASSESSED LOSS (ss 20 – 20A) (XXX)
XX
ADD: AMOUNTS INCLUDED IN TAXABLE INCOME (e.g. s 8(1)(a)) XXX
ADD: TAXABLE CAPITAL GAIN (s 26A) XXX
XX
LESS: s 11F PENSION, PROVIDENT & RAF contributions deduction (XXX)
LESS: DEDUCTIONS in terms of s 18A (qualifying donations) (Remember –
(XXX)
excess can be carried forward to following year of assessment)
TAXABLE INCOME XX

Remember – Check the    REQUIRED  part of the question, so see if it requires you to start your 
calculation with net profit / income. If it does, IT IS IMPERATIVE THAT YOU DO SO.

4
Interest-bearing instruments – s 24J

• Deduction of interest:
• Deemed to be incurred ito s 24J(2) if
incurred in the production of income (and
carrying on of a trade)  must be deducted
from income from issuer/borrower
• Taxation of interest:
• Deemed to accrue ito s 24J(3) irrespective
if it is of a capital nature or not  must be
included in gross income of holder/lender
• Use a timeline for accrual periods versus year-
end (see par 11.6 in TL106 for an example)
• Yield to maturity  calculate (TAX4862 only)

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 Example: Yield to maturity – s 24J
(TAX4862 only)

Interest of R27 500 for the year was received by

Macaroni Limited in respect of a financial
instrument which Macaroni Limited purchased on
1 September 2017 at a discount of 6% on its face
value of R550 000. Interest is receivable six-
monthly (on 28/29 February and 31 August)
calculated on the face value at 5% per year. The
instrument will mature on 31 August 2020, when
Macaroni Limited will receive the face value plus a
premium of 10%.
Calculate the yield to maturity.

6
Example Solution: Yield to maturity – s 24J

Calculate as follows:
• PV = -517 000 (R550 000 - 6%)
• FV = 605 000 (R550 000 + 10%)
• N=6
• P/YR = 2 (HP)
• PMT = 13 750 ((5% x 550 000)/2)
• Comp i = 5.15242% (10.30484% / 2 HP)
Yield to maturity (YTM)

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 Example (s 24J)
(TAX4861 & TAX4862)

On 1 August 2019, Construct (Pty) Ltd (‘Construct’)

entered into an instalment credit agreement for the
purchase of a new concrete mixer truck, to be used in
the company’s manufacturing process. In terms of the
agreement, 12 instalments are payable on a three
month‐basis, commencing on 31 October 2019. The
company made all payments on time as stipulated in
the agreement. The concrete mixer truck was brought
into use on 1 September 2019. The company has a 31
December year‐end.
Instalments were calculated as follows:
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 Example (s24J)

R
Cash cost (excluding VAT) 810 000
Add: VAT 121 500
931 500
Less: Deposit (192 780)
738 720
Add: Finance charges (YTM = 3.06% per 3 month-period) 155 034
Total 893 754

Instalments per three month-period 74 479

Required:
Calculate the effect on Construct’s taxable income for 2019 y.o.a.

9
 Solution section 24J
4. Section 12C deduction
 R810 000 x 40% (324 000)

Section 24J
 31 October 2019 (R738 720 x 3.06% = (14 988)
R22 605), but may only claim interest
for Sep and Oct (once asset BIU),
therefore R22 605 x 61/92)

 31 December 2019 (interest accrued)

(R738 720 + R22 605 – R74 479) (13 936)
= R686 846 x 3.06% x 61/92

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 Incurral of interest on certain debts
deemed to be in production of income
s 24O
• Interest incurred to acquire shares in a local company
is usually not deductible as –
• Local dividends are exempt and therefore not in the
production of income
• INCOME = Gross income – exempt income
• S 24O provides relief if:
• Equity shares are acquired
• in an operating company and after entering into transaction
• acquiring company is a controlling group company in relation to the
company whose shares is acquired, and
• the 2 companies form part of same group of companies (as defined
in s 41(1))
OR
• in a controlling group company in relation to a operating company
that forms part of the same group of companies (as defined in s
41(1) and after entering into transaction
• the acquiring company is a controlling group company in relation to
the acquired controlling group company, and
• the 2 companies form part of same group of companies (as defined
in s 41(1))

2019/05/21 11
 Incurral of interest on certain debts
deemed to be in production of income
s 24O
Definitions:
Operating company:
At least 80% of the aggregate amount received by/
accrued to the company during a year of assessment
constitutes income (gross income – exempt income),
and
• the company derived the income from a business carried on
continuously, and
• in the course of which goods or services are provided or
rendered by the company for consideration
An equity share = Qualifying interest in an operating
company if the following is met:
The company should have been an operating company
on:
• Equity share held at year-end on the date of the year-end.
• Equity share disposed of by company on the date of disposal.
2019/05/21 12
Transactions in foreign currency

13
Foreign exchange (Ss 25D & 24I)

EVERY FOREIGN
EXCHANGE TRANSACTION

UNDERLYING ASSET EXCHANGE ITEM

NON-MONETARY ITEM MONETARY ITEM

Section 25D Section 24I

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 Section 25D
• Section 25D is used to convert foreign currency:
• Receipts (examples: Interest received or accrued on a
foreign investment); and
• Expenses (examples: Interest paid or incurred on a foreign
loan or debt, assets or stock purchased
• Individuals & non-trading trusts, use
• Spot rate on day foreign amount received/accrued, or
• Average exchange rate for year of assessment
• Companies and trading trusts, use
• Spot rate on day foreign amount received/accrued
(Note that par 43(1A) of 8th Schedule contradicts s 25D. Par 43(1A)
allows companies & trusts to use the average rate when disposing
of non-monetary assets in a foreign currency.)

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 Foreign exchange (S 24I)
• Study par 15.2 (excluding 15.2.3 & 15.2.4), 15.3 and 15.4 in Silke
together with this summary
• If either trading stock or an asset is purchased in foreign currency –
convert the cost on transaction date using the spot rate (s 25D) (cost
price)
• If the purchase price is not settled in full on transaction date 
exchange item – s 24I
• If a forward exchange contract (FEC) is obtained  exchange item
• Calculate exchange differences (gains or losses) between:
• the transaction date and either translation date (end of year of
assessment) and / or realisation date (payment date); or
• the translation date and either next translation date or realisation
date
• of the exchange items by making use of the ruling rate
• In terms of section 24I(7) the exchange difference must be deferred
and taken into account in the year of assessment during which the
asset is brought into use.

Trading Stock?
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 Foreign exchange

Transaction Translation  Realisation 

date date (YE) date
Loan,
advance or  Spot rate Spot rate Spot rate
debt
Market‐related 
FEC Forward rate FEC rate for  Spot rate
remaining period

Goods shipped free‐on‐board (FOB) – transaction date = shipping date
Goods shipped on a cost‐insurance‐freight basis (CIF) – transaction date  = 
shipping date

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 Example

Wooden Joy (Pty) Ltd (“Wooden”) is a resident company. Wooden is a registered

VAT vendor (on invoice basis, two‐monthly tax periods ending in January, March,
etc.) and only makes taxable supplies. The company’s primary business is to
assemble and install wooden playground equipment (not classified as a process of
manufacturing) at clients’ premises. Wooden has a December year‐end.

Wooden ordered two new excavating machines from an American company for
$15 800 each on 16 September 2019 The two excavators were shipped FOB (free‐
on‐board) on 30 September 2019. The machines arrived in South Africa on
15 October 2019 and was cleared immediately. Import duties of R28 750 were
paid, as well as the correct amount of VAT. 25% of the outstanding debt was paid
to the supplier on the date of the safe arrival of the two machines in South Africa.

On 1 November 2019 the two excavators were brought into use by Wooden. On
the same day (1 November 2019), Wooden entered into a four‐month FEC in
order to hedge the outstanding purchase price. The outstanding debt was settled
in full on 29 February 2020.
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 Example
Transaction  Date Spot rate
Date
$1 = R
16 September 2019 $1 = R9,85
30 September 2019 $1 = R9,80
25% paid 15 October 2019 $1 = R9,95
1 November 2019 $1 = R9,60
$1 = R9,90 (forward rate under 
a four‐month FEC)
Year‐end 31 December 2019  $1 = R10,05
$1 = R10,25 (forward rate under 
a two‐month FEC)
75% paid 29 February 2020 $1 = R10,15

Binding General Ruling No. 7 allows for a four year write-off period on
these types of excavation machines.

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 Example

REQUIRED Marks

Calculate all the implications on Wooden Joy (Pty) Ltd’s

taxable income regarding the acquisition and settlement of
the debt of the two excavation machines for the 2019 year of 9
assessment. Show all calculations and round all amounts to
the nearest Rand.

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 Import duty 
Example added to cost of 
assets, VAT 
claimed
Rx: 25% of debt Rx: remaining 75% 
Shipped  Delivered & of debt
Order BIU Yr‐end Paid
FOB Pd 25%

Tx: Cost – s25D
16 Sept ‘19 30 Sept ‘19 15 Oct ‘19 1 Nov ‘19 31 Dec ‘19 29 Feb ‘20
2 x $15 800  = 
$31 600 ($31 600 x 25% = $7 900) x (9.95 – 9.80) loss (S24I)
DEBT 9.85 9.80 9.95 9.60 10.05 10.15

($31 600 x 75% = $23 700) x  (9.80 – 10.05) loss (S24I)

1 Nov ‘19 31 Dec ‘19 29 Feb ‘20

FEC 9.90 10.25  10.15

(2 mth FEC) 

($31 600 x 75% =$R23 700) x (9.90 – 10.25) gain (S24I)
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Example – foreign exchange ‐ solution
Purchase of the two excavation machines:

2019 Cost of excavation machines:
$31 600 ($15 800 x 2 machines) x R9,80 (s 25D) = R309 680 + 
R28 750 (import duties) = R338 430 
Section 11(e) allowance = R338 430 / 4 years x 2/12 (14 101)
Foreign exchange differences (section 24I):
Debt:
15 October 2019
$7 900 ($31 600 x 25%) x (R9,80 – R9,95) – Loss (1 185)
31 December 2019
$23 700 ($31 600 ‐ $7 900) x (R9,80 – R10,05) – Loss (5 925)
FEC:
31 December 2019
$23 700 x (R10,25 – R9,90) – Gain 8 295

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 Example

USING THE SAME INFORMATION AS THE PREVIOUS EXAMPLE, JUST CHANGING THE DATE 
THAT THE ASSETS WERE BROUGHT INTO USE
Wooden Joy (Pty) Ltd (“Wooden”) is a resident company. Wooden is a registered VAT
vendor (on invoice basis, two‐monthly tax periods ending in January, March, etc.) and only
makes taxable supplies. The company’s primary business is to assemble and install wooden
playground equipment (not classified as a process of manufacturing) at clients’ premises.
Wooden has a December year‐end.

Wooden ordered two new excavating machines from an American company for $15 800
each on 16 September 2019 The two excavators were shipped FOB (free‐on‐board) on
30 September 2019. The machines arrived in South Africa on 15 October 2019 and was
cleared immediately. Import duties of R28 750 were paid, as well as the correct amount of
VAT. 25% of the outstanding debt was paid to the supplier on the date of the safe arrival of
the two machines in South Africa.

On 1 November 2019, Wooden entered into a four‐month FEC  in order to hedge the 

outstanding purchase price. The two excavators were brought into use by Wooden on 
1 February 2020. The outstanding debt was settled in full on 29 February 2020.
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 Example
Rx: 25% of debt Rx: remaining 75% 
Shipped  Delivered & of debt
Order Yr‐end BIU Paid
FOB Pd 25%

Tx: Cost – s25D 1 Feb ‘20

16 Sept ‘19 30 Sept ‘19 15 Oct ‘19 31 Dec ‘19 29 Feb ‘20
2 x $15 800  = 
$31 600 ($31 600 x 25% = $7 900) x (9.95 – 9.80) loss (S24I) s24I(7) deferred 
9.95 9.60 unrealised
10.15g/(l)
DEBT 9.85 9.80 10.05

s24I(7) deferred 
($31 600 x 75% = $23 700) x  (9.80 – 10.05) loss (S24I) unrealised g/(l)

1 Nov ‘19 31 Dec ‘19 29 Feb ‘20

FEC 9.90 10.25  10.15

(2 mth FEC) 
s24I(7) deferred 
($31 600 x 75% =$R23 700) x (9.90 – 10.25) gain (S24I) unrealised g/(l)
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Solution
2019 Cost of excavation machines:
$31 600 ($15 800 x 2 machines) x R9,80 (s 25D) = R309 680 + R28750 
(import duties) = R338 430 
Section 11(e) allowance cannot be claimed as the asset has not been
brought into use in 2019 yoa
Foreign exchange differences (section 24I):
Debt: 15 October 2019 (section 24I(7)
$7 900 ($31 600 x 25%) x (R9,80 – R9,95) = R1 185 loss that cannot be
claimed as the asset has not been brought into use – defer to 2020
31 December 2019 (section 24I(7))
$23 700 ($31 600 ‐ $7 900) x (R9,80 – R10,05) = R5 925 loss deferred to
2020
FEC: 31 December 2019 (section 24I(7))
$23 700 x (R10,25 – R9,90) = R 8 295 gain deferred to 2020

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Solution
2020:
Section 11(e) allowance = R338 430/4 years x 11/12 (brought
into use 1 February 2020) (77 557)
Foreign exchange differences (section 24I):
Debt: Deferred – 2019
15 October 2019
$7 900 ($31 600 x 25%) x (R9,80 – R9,95) = R1 185 loss (1 185)
31 December 2019
$23 700 ($31 600 ‐ $7 900) x (R9,80 – R10,05) = R5 925 loss (5 925)
29 February 2020 (when realised)
$23 700 ($31 600 ‐ $7 900) x (R10.05 – R10,15) = R2 370 loss (2 370)
FEC: Deferred ‐ 31 December 2019
$23 700 x (R10,25 – R9,90) = R 8 295 gain 8 295 
29 February 2020 (when realised)
$23 700 x (R10,25 – R10.15) = R2 370 loss (2 370)

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Irrecoverable debts – s24I(4)
• For years of assessment commencing on or
after 1 January 2019:
• If a debt is irrecoverable on realisation date by reason
of:
• Becoming bad, OR
• Results in a loss due to a decline in the market value of the
debt
An exchange gain previously included in income can
be deducted on realisation date and an exchange loss
previously deducted from income should be included
in income on realisation date.
• For years of assessment ending before
1 January 2019:
• If a debt became irrecoverable (reasons were not
mentioned) a gain previously included or loss previously
deducted will be reversed on the date that it became
irrecoverable

2019/05/21 27
 FOREX
s24I(10A)

TAX4862 ONLY
Section 24I(10A) - Transactions between group
companies or connected persons

• Section 24I(10A) defers unrealised exchange gains

and losses in respect of debts/loans until realised or
conditions below no longer met; if
• The lender and borrower are part of the same group of
companies; or
• The lender and borrower are connected persons
AND
• The loan is not hedged by a FEC or FCOC; &
• No part of debt/loan is current loan/asset for IFRS (note
i.t.o. SAICA syllabus no part of long term loan will be re-
classified as current liability); &
• Loan not directly/indirectly funded by independent party

29
Section 24I(10A) - Transactions between group
companies or connected persons

Section 24I(10A) exchange gains/losses

recognised when:
• gain/loss realised (debt/loan repaid);
• or requirements of section 24I(10A) no longer met
Exchange difference calculation:
(exchange rate last day of preceding YOA less
exchange rate on transaction date) x debt/loan
amount

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Example - section 24I(10A)

On 1 January 2019 Watson (VAT vendor) purchased a new

manufacturing machine on credit for €300 000 from
Tsonga (a connected person).
On 1 February 2019 the machine was shipped (FOB).
On 1 March 2019 the machine was cleared by Customs
(customs duty value was R 3 420 000) and on 15 March
2019 the machine was brought into use by Watson.

It was agreed that Watson would pay Tsonga the full

amount of the debt on 31 December 2020. Watson did
not enter into any FEC to serve as a hedge in respect of
the debt. (Year end = 31 March )

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 Example - section 24I(10A)

Date Spot rate
€ = R
1 January 2019 €1 = R 9,00
1 February 2019 (transaction) €1 = R9,05
1 March 2019 €1 = R9,14
15 March 2019 €1 = R9,25
31 March 2019 (year‐end) €1 = R9,32
31 March 2020 €1 = R9,37
31 December 2020  €1 = R9,40
(payment/realisation)
Required:
Calculate all the implications on the taxable income  of Watson for the 2019 and 2020 
year of assessment.

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Solution - section 24I(10A)
2019 - New manufacturing machine BA1

Cost (€300 000 x R9,05) 2 715 000

Customs Duty (R3 420 000 x 20%) 684 000
VAT claimed -
3 399 000
Section 12C – R3 399 000 x 40% (1 359 600)

Foreign exchange
Debt – not realised, requirements of s24I(10A) met
thus defer to 2020

2020
Debt – not realized, requirements of s 24I(10A) not
met. Payable within 12 months = current liability)
€300 000 x (R9,05 – R9,32) – loss from 2019 (81 000)
Debt – €300 000 x (R9,32 – R9,37) – loss (15 000)

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Slide 33

BA1 Ons se SAICA syllabus sal geen deel v loan sien as a current liability?
Becker, Annette, 2019/05/13
 Capital Gains Tax – Par 43 of 8th
Schedule (TAX4862 only)

Par 43 of 8th Schedule deals with the disposal of non-

monetary assets acquired or disposed of in foreign
currency.
Par  Natural persons or non‐ Determine gain/loss in foreign 
43(1) trading trusts if base cost  currency
and proceeds in same  Gain/loss converted to RAND at:
foreign currency • Spot rate  ‐date of disposal; or
• Average rate for year of disposal
Par  When par 43(1) does not  Determine gain/loss in RAND
43(1A) apply  • Base cost  ‐ spot rate date of 
acquisition or average rate year of 
acquisition
• Proceeds – spot rate date of 
disposal or average rate year of 
disposal
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INTERNATIONAL
TRANSACTIONS

TAX4862 ONLY
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 International transactions (s 31)
Section 31 applies to any affected transaction that leads to a tax
benefit to any party to the transaction.
20% equity & 
voting rights
Affected transaction
A transaction concluded between connected persons under
conditions other than arm’s length conditions between
independent persons.

Connected persons can be cross-border transactions between:

• Resident + non-resident
• 2 non-residents, one of them with permanent establishment in RSA
• 2 residents, one with permanent establishment outside RSA
• Non resident + CFC (CFC’s excluded from the syllabus)

36
Section 31 – Connected persons

Connected persons for section 31 refers to the definition

in section 1, with one meaningful disregard:
• Companies in the same group of companies but the “at least
70% of equity shares” is replaced by 50% of equity shares or
voting rights (par (d)(i)); or
• Any person (except a company) that alone or together with
connected person directly/indirectly holds at least 20% of equity
shares or voting rights (par (d)(iv)); or
• Any company that holds at least 20% of equity shares or voting
rights if no other company holds majority voting rights (par
(d)(v); or
• Other company managed or controlled by a connected person to
the company or a person connected to such connected person
(par (d)(vA)); A co. that holds 20% will qualify as a connected person for s31 
regardless of whether another co. holds majority voting rights.

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Example: connected person S1 & S31

Foreign Co 1 Foreign Co 2
Non-resident companies

20% 80%
SA Co 3
South African company

S 1: Only Foreign Co 2 is a
connected person with SA Co 3.

S 31: Foreign Co 1 & Foreign Co 2 will

both be connected persons with SA Co 3

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 International transactions (s 31)
Section 31(2):
If an affected transaction leads to a tax benefit to any party
calculate the taxable income of the person receiving the
benefit by applying arm’s length conditions to the
transaction
Difference in taxable income:
• If resident = company deemed distribution of asset in
specie’ thus dividend in specie
• If resident = other than company donation
When? last day of 6 month period following the end of the
YOA in resect of which adjustment was made.
Section 31 (5) – (7) - Excluded from the syllabus

39
 International transactions (s 31)
Transfer Pricing
Are the parties 
between a resident 
Has a tax benefit 
and non‐resident and  Yes
arisen?
connected? Section 1
Only allow the South African company to deduct or 
include amount equal to amount under arm’s length  Yes
transaction ((S31(2))

Difference between actual amount charged/paid and 
and adjusted amount treated as follows (S31(3)):
• Natural person – donation
• Companies – deemed distribution of asset in specie
On last day of 6 month period following the end of the YOA 
(year of assessment)  in respect of which adjustment was 
made. 

40
Example section 31

Turkey (Pty) Ltd (“Turkey”), a resident company,

sells trading stock with a cost price of R150 000 to
a non-resident connected party, Goose Plc
(“Goose”) for R180 000 when the market value of
the stock is R250 000. Goose is managed and
controlled in a country with a 15% tax rate. Turkey
has a December 2019 year-end.

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Example (s31) - Solution
Transfer Pricing

Section 31(2) adjustment: R

Gross income – proceeds from sale 180 000

Section 32(2) adjustment (R250 000 ‐ 70 000
R180 000)
Opening stock (150 000)
Taxable income 100 000
Section 32(3) deems section 32(2) adjustment to be
distribution of asset in specie thus dividend in specie
payable = R14 000 (R70 000 x 20%)

42
Section 31 – Financial assistance

• An affected transaction can also be financial

assistance provided, for example
• Low/high interest rate levied/paid on loan granted
to/by connected foreign party; or
• Excessive financial assistance provided where the
party would normally qualify for much less financial
assistance.
• Financial assistance includes debt, security or a
guarantee.

43
 Section 31 – Financial assistance
Are the parties 
Has a tax benefit 
connected? Section  Yes
arisen?
1 & Section 31(4)

Only allow the South African company to deduct an amount equal 
to an arm’s length rate of interest.
Only allow the deductible interest to be based on an amount than  Yes
an arm’s length lender would have lent (and on the amount that the 
South African company would have borrowed in the circumstances).

Difference between actual interest charged/paid and adjusted 
Interest treated as follows (S31(3)):
• Natural person – donation
and • Companies – deemed distribution of asset in specie
On last day of 6 month period following the end of the YOA (year of 
assessment)  in respect of which adjustment was made. 

44
Example – Financial assistance

On 1 January 2019 Turkey (Pty) Ltd (“Turkey”), a

resident company received a loan of
R1 000 000 at 20% interest per annum from
Goose Plc (“Goose”), a non-resident company
that holds 21% of the shares in Turkey. The
other shares (79%) in Turkey are held by
Chicken (Pty) Ltd.
Turkey could only qualify for a loan of
R600 000 at 15% interest per annum at all local
banks. Turkey has a December 2019 year-end.

45
Example – Financial assistance -
Solution
In terms of section 1, definition of connected persons Goose and
Turkey are not connected parties BUT section 31(4) states that for
purposes of financial assistance if a company holds at least 20%
shares in another company they will be connected persons even if
another company holds the majority voting rights. This is also
between a resident and non-resident company –thus an affected
transaction.
Interest incurred for 2019:
R1 000 000 x 20% x 365/365 (days) = R 200 000
Reasonable interest applied to a reasonable loan amount:
R600 000 x 15% = R90 000 (allowable deduction for Income Tax
purposes)
Thus excessive interest:
R200 000 – R 90 000 = R110 000 deemed dividend in specie.

46
LEARNING UNIT 12
Companies &
Corporate rules

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 Companies
• Dividends distributed (cash or dividend in
specie) subject to 20% dividends tax, except
if:
• Foreign company listed in RSA – dividends tax
only in respect of cash dividends;
• Foreign company not listed in RSA not subject to
dividends tax.

49
 Corporate

TL106
TAX4862 ONLY
Corporate Rules (ss 41 & 42)
Summary p40 - 41 TL106
• Tax relief measure for corporate restructuring
• If s 41 and s 42 requirements are met the corporate
rules will apply in absence of a written agreement to
the contrary.
• Purpose: treat parties as if they were the same person
• Subject to anti-avoidance and general anti-avoidance
rules (GAAR)
• s 24BA
• provisions governing value-shifting arrangements
• anti-dividend stripping and share buy-back rules
• the general anti-avoidance rules in s 103
• Ring-fencing of certain capital losses and recoupments

51
“Group of companies” definition
S 1 Broad def.: S 41(1) Narrow def.:
• a company (controlling Excludes:
group company) directly
holds at least 70% of the • a co-operative, a PBO,
equity shares of at least foreign CIS, non-profit
one other company company, company gross
(controlled group income is exempt from
company), and tax ito s 10, non-
• the controlling group resident company &
company, alone or company place of
together with other effective management
controlled group outside RSA
companies, holds at least
70% of the equity shares • Shares held as TS ≠
in another company (also equity shares ito s 41
referred to as a controlled • Shares under contract to
group company). sell/buy ≠ equity shares

52
“Group of companies” definition s 41

Example (SILKE Example 20.7)

• US Co, a company incorporated and effectively
managed in the United States directly holds
100% of the equity shares in SA Co1 and SA
Co2. SA Co2 holds 100% of the equity shares
in SA Co 3. SA Co1, SA Co2 and SA Co3 are
all incorporated and effectively managed in
South Africa. All of the shares are held on
capital account. There are no contractual
obligations, rights or options to purchase or sell
the shares under particular circumstances.

53
 Example (SILKE Example 20.7)
100%
US Co 100% USA

SA Co 1 SA Co 2

S 1: US Co, SA Co 1, SA Co 2 & SA Co 3 100%

form part of a group of companies
(at least 70% equity shareholding)
SA Co 3
S 41(1): SA Co 2 & SA Co 3 form part of
a group of companies as US Co is a non-
resident company, therefore SA Co 1 not South Africa
part of group companies
54
Asset-for-share transaction s 42
Silke 20.5
Summary p40 - 41 TL106
Requirements (ALL must be met):
• A person transfers an asset, other than a restraint of trade or
personal goodwill, to a resident company; and
• MV of the asset at equal or > tax cost to a resident company; and
• Company issues equity shares to person as consideration for the
asset; and
• The person who transferred the asset:
o holds a qualifying interest in the company on that disposal date; or
o is a natural person engaged on a full-time basis in the company (or in a
controlled group company in relation to the company) that business is
that of rendering services.
• intention for which the asset was held and is acquired for:
o Trading stock → Trading stock
o Capital asset as Capital asset
o Capital asset as Trading stock (only if not part of same group of
companies)

55
Asset-for-share transaction s 42

Summary p40 - 41 TL106

Qualifying interest (s42):
• Any % of equity shares held in a listed
company or CIS in securities; OR
• Any % of equity shares held in a company in
the same group of companies; OR
• 10% or > equity shares (with voting rights); OR
• Natural person employed on full-time basis in a
company that renders services

56
Asset-for-share transaction s 42

Summary p40 - 41 TL106

Example: Asset
Land & Buildings
CP = R1 000k
MV = R2 000k
TV (Co A) = R800k
Co A Co B
Resident person Resident company

Shares in Co B
Equity shares & voting
rights >10%
MV = R2 000k

57
Asset-for-share transaction s 42
Receiving (Co B)
S42 applies: S42 does NOT apply:
• Taxable income – • Cost of asset
allowances claimed on acquired (BC) = the
cost for Co A [R1 000k] market value of the
• CGT – BC deemed shares immediately
acquired @ BC for Co after the acquisition of
A [R800k] the shares [R2M]
• CTC: TV of asset • if not arm’s length
added to CTC of Co B transaction s24BA
[R800k] also applies

58
Asset-for-share transaction s 42
Disposing (Co A)
S42 applies: S42 does NOT apply:
• Recoupment - none -
deemed disposal at • CGT (disposal @ MV)
tax cost for Co A = • Recoupment (disposal
(R800k) @ MV)
• CGT - None - disposal • Gross income (if it
at Base cost = [R800k]
was trading stock)
• Shares: deemed
acquired at same value • S24C (if it was a
as asset = Base cost = contract)
[R2M]

59
Asset-for-share transaction s 24BA

Summary p40 - 41 TL106

Example: Asset
Land & Buildings
CP = R1 000k
MV = R2 000k
TV (Co A) = R800k
Co A Co B
Resident person Resident company

Shares in Co B
Equity shares & voting
rights >10%
MV = R1 800k

60
Asset-for-share transaction s 24BA

MV of assets [R2 000k] > MV of shares issued

(value after issue) [R1 800k],
• Excess [R0.2m) deemed to:
• Co B. Issuing Shares → Capital gain
made on disposal of shares
• Person acquired shares (disposing of
asset – Co A)
• If acquired as capital asset – reduce base cost of
shares
• If acquired as trading stock – reduce amount of
expense for section 11(a), 22(1) and 22(2)
61
Asset-for-share transaction s 24BA
Summary p40 - 41 TL106
Example: Asset
Land & Buildings
CP = R1 000k
MV = R1 800k
TV (Co A) = R800k
Co A Co B
Resident person Resident company

Shares in Co B
Equity shares & voting
rights >10%
MV = R2 000k

62
Asset-for-share transaction s 24BA

• MV of asset [R1 800k] < MV of shares issued

(after issue) [R2 000k]
o Excess [R0.2m] deemed to be:
o Co B. Issuing Shares → Dividend in specie
 Dividends tax paid by company on date
of shares issued

63
Asset-for-share transaction s 24BA

Section 24BA will NOT apply if:

• after company acquired asset company and
person form part of same group of companies,
OR
• after asset acquired person holds all shares
(100%) of company; OR
• par 38 of the 8th Schedule applies

64
Learning unit 13:

▪ Dividends

 Acquisition and
disposal of shares

https://www.freepik.com/ 65
 Framework
Shares Dividends

Shares = Tree Dividends = Fruit

Capital  Gross income

CGT Less : exempt income
(S10(1)(k) + 10B) 
Capital gain/loss
Proceeds – Base cost  
Less:  annual  exclusion (if applicable)
Net capital gain x    incl rate 

= Taxable income = Taxable income
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 Dividend definition
(s1 and extended in s64D)
Any amount (cash or assets (dividend in specie))
transferred or applied by a resident company by
virtue of any share held by a shareholder (owner of
the share) by way of a distribution made by the
company, or as consideration for the acquisition of any
share in that company (share buy-back).
Included in terms of s64D: s31(3) dividend in specie
Dividend definition exclusions:
● A reduction of “contributed tax capital”
● Capitalisation shares issued
● Open market acquisition by company of its own
shares listed on the JSE by way of a general
repurchase of shares.
https://www.dividendmantra.com/2016/02/best-high-dividend-stocks/ 67
Contributed tax capital (CTC)
NOT accounting term

CTC = consideration received by the company

from the owners of the shares in exchange for
the issue of shares:
Cash Assets Services

Capitalisation issue not part of CTC because the

company did not receive any consideration for
the share.

CTC balance on 1 January 2011 will be provided

https://www.freepik.com/ 68
Dividends tax – Framework
RSA Companies
Dividend paid by Resident Co
(RSA) cash and div. in specie

Paid to exempt beneficial

owners?
If not then

Residents Non-residents
20% 20% but DTA

69
 Dividend & CTC

On 1 April 20XX, XDF Ltd, a resident company, paid a

dividend of R1,50 per share to its 1 million holders of
equity shares as well as a 10% preference share
dividend to its holders of preference shares.

The dividend paid by XDF Ltd on 1 April to its holders

of equity shares as well as the dividend paid to its
holders of preference shares will qualify as
dividends. These are amounts transferred (paid) for
Definition  the benefit of shareholders in a resident company in
of a 
dividend
respect of shares held by the shareholders in the
company.
https://www.freepik.com/ 70
 Dividend & CTC
On 31 October 20XX, Adco Holdings (Pty) Ltd was
voluntarily liquidated and distributed R4 000 000 to
its holders of equity shares, of which R200 000
represented a reduction in Adco Holdings (Pty) Ltd’s
contributed tax capital.
The R4 000 000 meets the definition of  a dividend
since it is an amount distributed for the benefit of 
Definition 
of a  shareholders in a resident company in respect of 
dividend
shares held by the shareholders in the company.  Exclusion
The amount of R200 000 distributed by Adco Holdings (Pty) that 
represented a reduction in Adco Holdings (Pty) Ltd’s contributed 
tax capital, is NOT a dividend. Therefore the dividend amounts 
to R3 800 000. https://www.freepik.com/ 71
 Dividend & CTC

On 15 December 20XX, ABS (Pty) Ltd acquired 10% of

its equity shares in terms of a share buyback. ABS
(Pty) Ltd paid the relevant shareholders R1 000 000 of
which R100 000 represented a reduction in ABS (Pty)
Ltd’s contributed tax capital.
The R1 000 000 is an amount transferred as consideration
for the acquisition of shares in a resident company and is
Definition  transferred for the benefit of shareholders in the company
of a 
dividend
in respect of shares held by the shareholders in the
company. The amount of R100 000 representing a
reduction in ABS (Pty) Ltd’s contributed tax capital, is NOT
Exclusion
a dividend. Therefore the dividend amounts to R900 000.
https://www.freepik.com/ 72
Framework share BUY-BACK

CTC

Company Share buy‐back
Owner of 
shares 

DIVIDEND Reduce base cost 
of shares by 
reduction of CTC, 
excess → Dividend
73
 Dividend & CTC
On 15 December 20XX, ABS Ltd LISTED on the JSE, acquired
10% of its equity shares in terms of a share buyback. ABS Ltd
paid the relevant shareholders R1 000 000 of which
R100 000 represented a reduction in ABS Ltd’s CTC.
The R1 000 000 is a dividend since it is an amount
transferred as consideration for the acquisition of shares in
a resident company and is transferred for the benefit of
shareholders in the company in respect of shares held by
Definition 
the shareholders in the company. However the amount
of a  transferred by ABS would not be a dividend since it qualifies
dividend
as a general repurchase of ABS’s own securities as
contemplated in subpar (b) of par 5.67(B) of s 5 of the JSE
Exclusion Listings Requirements and is therefore specifically excluded
from the dividend definition. No dividend.
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 Dividend, CTC &
Dividends Tax

On 31 October 20XX, Adco Holdings (Pty) Ltd was 
voluntarily liquidated and distributed R4 000 000 to its 
holders of equity shares, of which R200 000 represented a 
reduction in Adco Holdings (Pty) Ltd’s contributed tax 
capital. 
The dividend amounts to R3 800 000.
The dividend is paid as follows: 
50% to individuals, 
25% to a resident company, and 
25% to a non‐resident company with a DTA that limits 
dividends tax to 10%.

https://www.freepik.com/ 75
 Dividend & CTC
RSA Companies
Dividend paid by Resident Co
(RSA) cash and div. in specie s64D
R3 800 000

2
s64F, s64FA & s64H 
Paid to exempt beneficial  
25%
owners? Res Co. (R950 000)
If beneficial owner is not exempt
R2 850 000

50%
3 Non‐residents
Residents  20% but  25%
20% subject to DTA
individuals Non‐resident co
R1 900 000 X 20% = R380 000 R950 000 X 10% = R95 000
76
 Liquidation dividend
The statement of the financial position of Nobody Listens (Pty) Ltd before being liquidated,
follows:

Leon Bubble is the sole holder of shares. Note R
Share capital 1 120 000
Retained earning 1 095 000
1 215 000

Represented by:
Office equipment 2 300 000
Inventories 3 900 000
Cash 15 000
1 215 000
Note 1:
The capital at 31 December 2010 comprised R 50 000 share capital and share premium. In
addition, the capital account held R40 000 capitalised profits from revenue reserves. On
3 January 2014, Leon bubble acquired R30 000 equity shares to fund a shipment of RAP
music (included in inventory above)
Note 2
The cost price of the office equipment was R500 000 and the current market value is
R400 000. The tax value of the office equipment is R200 000. Leon Bubble took all the
equipment for himself to equip his own recording studio.
Note 3
In March Nobody Listens had a closing down sale and all inventory were sold at a 50%
discount.
 Liquidation – solution
1: R50K (share cap and share prem). R40K cap profits. R30K eq shares acquired.
Description Calculations CTC Reserves
subject to
R R dividends tax
R
Opening balance R50 000 + R30 000 R80 000 40 000
Retained earnings 1 095 000
2: Leon took all equip
1 135 000
Accounting profit/loss
Office equipment: Rnil less 300 000 (300 000)
Inventory 3: 50% discount R900 000 less 50% (450 000)
Tax liability:
Office equipment: s8(4)(a) Recoupment: 200 000 2 CP = R500K and MV = 
(400 000 less 200 000) R400K. TV = BV= R200K.
Inventory: opening (900 000) (OB) less 0
(CB)=(900 000)
Sales (cash) 450 000 = (450 000)
Assessed loss 250 000
Less: Dividend in specie 400 000 (MV of office
equipment) x 20% (80 000)
Balance of reserves subject to -
dividends withholding tax 305 000
Dividends tax withheld on cash
distribution @ 20% R305 000 X 20% (61 000)
Net distribution 8078000 244 000
 Liquidation – solution

Available for distribution:

R
Cash 15 000
Inventory cash sales 450 000
465 000
Dividends tax on div in specie (80 000)
385 000
Share capital repaid (CTC) (80 000)
305 000
Cash dividend subject 305 000
to dividends tax

79
Framework: company transfers /
applies - Profits
DIVIDEND
Distributed: 

ASSET CASH

Dividends Tax
Asset = Co. liable
NORMAL TAX
Cash = withheld
 Recoupment ? NORMAL TAX
 CGT ? Payable by the end of the 
No section 11(a)
No section 11(a)
month following the 
month in which the 
dividend was 
https://www.freepik.com/
paid/distributed
80
 Dividends tax – Foreign companies
Framework
Foreign companies listed on JSE (cash dividends only)

1
Dividend paid by Foreign Co listed on JSE –
No
translate @spot rate on date of payment

Yes

2
Paid to exempt beneficial  owners?
or Yes
S64F(1)(j) paid to non‐residents exempt Dividends 
No
tax not 
applicable
If beneficial owner is not exempt or a non-resident

3 Residents 20% 
Less: any foreign taxes 
withheld 81
 Foreign dividends received by
resident shareholders
• Local:
– Gross income (full amount)
– Exempt income: local s 10(1)(k)(i)
• Foreign: Gross income but 
• S10B(2) applies (4 scenario’s)
– 10% holding of equity shares & voting rights (natural 
person& company) 
– CFC (excluded)
– Cash dividends from foreign company listed on JSE (applies 
to person (thus natural person & companies))
– In specie dividend from listed company received by resident 
company
• Ratio exemption – s10B(3) 
• Co = 8 / 28
• Other = 25 / 45
• Remember application of s10B(5) in case of an annuity
https://www.freepik.com/ 82
 Acquisition of assets in exchange
for shares

S 40CA :
Acquired Asset = 
MV of share 
AFTER acquisition  S 40C :
(subject to  Distributions of 
S 24BA :
corporate rule  shares and issues 
If acquisition of 
ss41(2)) of shares or 
assets in 
options for NO
exchange for 
consideration
shares is NOT at 
arms’ length
Refer to slides 60 
to 64

83
 Disposal of shares to a third party
Disposal = donation, sale, 
bequests, etc…
Share‐dealer: shares = trading stock → gross income
(Unless s9C applies) 
Investment = it is capital and subject to CGT (section 9C)
Consider donations tax?
Dispose of shares to company (share buy back / liquidation)

• Share buy back (only part disposal) Paragraph 
76B(2) and 
Reduce base cost of shares (after 1 April 2012)  76B(3)
by reduction of CTC, excess → Dividend

84
Share transactions (s 9C)
Even applies if taxpayer is a share‐dealer
IMPLICATIONS:
Sale of equity shares  deemed capital in nature
(regardless of intention) recoupment

SILKE 14.1; 14.10 and 14.11
CGT

“equity shares”: shares held for a continuous period of at 
least 3 years.

Section 9C: NOT applicable if section 8C (TL107) applicable

85
 Share transactions (s 9C)
Mr Saunders is a share‐dealer. Four years ago he acquired listed shares 
for a purchase price of R15 000. He has decided to now sell these 
shares for R60 000.  
Calculate all the tax implications for Mr Saunders in respect of 
the sale of the shares.

Solution
Opening stock (s 22(2)) ..........................................................................(R15 000) 
Add back: Adjustment under s 9C(5) .............................. ........................ R15 000 
Capital gains implications on the sale of shares as s 9C deems the 
proceeds to be of a capital nature as the shares were held for a 
continuous period of longer than three years (held for four years): 
Proceeds (R60 000) less Base cost (R15 000) =  R45 000 
capital gain – R40 000 (the annual exclusion) =  R  5 000
Taxable capital gain included at an inclusion rate of 40%    ...................... R 2 000
Assume this is the only capital gain 
or loss for Mr Saunders
Learning unit 14:

▪ Trusts

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Trusts
Rights

Trustees
Obligations

https://www.freepik.com/
Factors to consider – Parties to a
trusts
Founder

Beneficiaries (minors, non‐residents, disabled)

Trustees

https://www.freepik.com/
Factors to consider – Taxation of
trusts
Type of trust (testamentary, inter‐vivos, special (special 
trusts excluded from syllabus))

Residency of trust

Trust assets and the location of the assets

Nature of income generated by assets: 
dividends, interest, rental etc.

https://www.freepik.com/
The flow of income and capital in a trust
to determine s 25B or s 7
Vested Right
Donate (remember Discretion of 
effect of s7C) dividend Trustee’s
Sell
Bequest ≠ dona on

Incomedividend Capital
Founder/donor  (Fruit)  (Tree) 
or seller or 
Beneficiaries s 25B  Beneficiaries  par 80
deceased estate Subject to attribution 
(Subject to s 7)
rules (par 69,70,73)
Level 2 ONLY

https://www.freepik.com/
 Trusts – who gets taxed?
YES
Section 7(2)  ‐ 7(8) applies
S 7(5) - donor taxed on
1
income not vested in NO
beneficiary.
Section 25B applies
Donor Do beneficiaries have a vested right?
Woulidge
YES NO
2 s25B(1)/(2) 3

Beneficiary Trust
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Interaction between s 7 and s 25B
• KNOW Section 25B and section 7
• Remember that section 25B is subject to s 7!
• Always ask two questions:
1. Original cause of income? (where)
Did the income originate from an asset either sold, 
donated (is the donor still alive?) or bequeathed to sell 
asset @ MV → seller the trust
2. To whom did it accrue?
Sell asset @ MV → SELLER
In other words what is the beneficiary’s status in 
relation to the donor
• If donated, will section 7 apply?
Woulidge application : MAXIMUM amount of income 
that may be attributed to the donor = deemed interest. 
Deemed interest = the difference between the market‐related 
interest and the actual interest charged. 
Diagrammatic Interaction between
s 7 and s 25B

Assets
Dona on → DONOR
 Donations tax Trust
 CGT

 Section 7 
 Attribution rules  Level 2 ONLY

Section 25B 

https://www.freepik.com/
Diagrammatic Interaction between
s 7 and s 25B
Assets
Sell asset @ MV → SELLER
Donations tax

 CGT Trust
Section 7 
loan @ market‐ Attribution rules  Level 2 ONLY
related interest
 Section 25B 

Assets
Sell asset @ MV → SELLER  Donations tax Trust
 CGT Trust
 Section 7  Trust
S7C
 Attribution rules  Level 2 ONLY
Section 25B 
loan < market‐ related 
interest or interest‐free
https://www.freepik.com/
Diagrammatic Interaction between
s 7 and s 25B Testamentary

Assets Trust
Valid will → DECEASED
Donations tax Trust
 CGT

Section 7 

Attribution rules  Level 2 ONLY

 Section 25B 

 Estate duty (TL107) Level 2 ONLY

https://www.freepik.com/
 Section 7
S 7(3) ‐ donation between parent and minor child, parent 
taxed, whether vested or not.
S 7(5) ‐ A beneficiary who may not receive the income until the 
happening of some event, donor taxed on income not 
vested.
S 7(1) ‐ if the beneficiary has a vested right to income or 
retained income, beneficiary taxed. If so, section 7(1) 
takes precedence over section 7(5). But does not over 
ride section 7(3).
S 7(8) – donation to a non‐resident, donor taxed. 
S 7(2)(a) – donation to a spouse where the main purpose was 
the reduction or avoidance of tax, then the donor 
taxed (section 7(2)(a) excluded from syllabus).
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 Section 25B
S 25B(1) ‐ Income has been received by (or accrued to) an ascertained
beneficiary with a vested right then tax the beneficiary.
S 25B(2) ‐ The beneficiary acquired a vested right in consequence of the
exercise of a trustee’s discretion then tax the beneficiary.
S 25B(3) ‐ Any allowance or deductions that the Act will allow follow the 
amount to which they relate to.
S 25B(4) ‐ Deductions are limited to the income deemed to accrue to the 
beneficiary.
S 25B(5) ‐ Excess will be deemed to be a deduction or allowance in the 
determination of taxable income of the trust, limited to the taxable 
income of the trust
S 25B(6) ‐ Balance of excess carried forward and allowed as deduction in next 
year in hands of beneficiary
 Trust
Mr X (resident) sold a local block of flats (@ market‐value R3 million) to a resident
discretionary trust on 1 Mar 2017. The sale was financed by an interest‐free loan
account. Market related interest rate is 10% and the official rate of interest is 7.75%. No
amount has been repaid. Mr X’s minor daughter is the only beneficiary with vested rights
to both income and the asset.
Who will be taxed, if:
Taxable rental income = R200 000.

who
Taxable Rental 
income
R200 000
Woulidge
S 7(3) Interest‐free loan
Daughter Trust
Mr X 
R200 000 R0 R0

Limited to (R3 million x 10% = R300 000 (Woulidge))
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 Trust – Woulidge & s 7(3)
Mr X (resident) sold a local block of flats (@ market‐value R3 million) to a resident
discretionary trust on 1 Mar 2017. The sale was financed by an interest‐free loan
account. Market related interest rate is 10% and the official rate of interest is 7.75%. No
amount has been repaid. Mr X’s minor daughter is the only beneficiary with vested rights
to both income and the asset.
Who will be taxed, if:
Taxable rental income = R400 000.

who
Taxable Rental 
income
R400 000
Woulidge
S 7(3) Interest‐free loan
Daughter Trust
Mr X 
R300 000 R100 000 R0
S 25B(1)
Limited to (R3 million x 10%)
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 Section 7C 1 March 2017

Donations tax
Sell asset @ MV → SELLER

Interest free Selling price x 
Sell asset @ MV (official interest 
Financed by loan  rate less interest 
≤ market‐related 
paid)
interest
Last day YOA

 Donations tax

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 Trust – s 7C
Mr X (resident) sold a local block of flats (@ market‐value R3 million) to a resident
discretionary trust on 1 Mar 2017. The sale was financed by an interest‐free loan
account. Market related interest rate is 10% and the official rate of interest is 7.75%. No
amount has been repaid. Mr X’s minor daughter is the only beneficiary with vested rights
to both income and the asset.
Mr X made no other donations during the year.
Donations tax implications:

Interest‐free loan
Deemed 
donation
Mr X  Trust

Deemed donation = difference between interest payable on loan and the interest 
payable on the loan at the official rate of interest on the last day of the year of 
assessment.
R3 million (loan) x 7.75% (official rate of interest) = R232 500 – R0 (interest free) = R232 500

R232 500 – R100 000 (s 56(2)(b) exemption) x 20% donations tax = R26 500, payable before the 
end of the month following the end of the year of assessment, ie 31 March 2019.
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 TAX 4862
Trusts and CGT
• Ownership of assets vest in the Trust
• Disposal = 2 options
– Trust sells the asset or 
– Trust transfers the asset to the beneficiary
• Paragraph 80 (subject to the attribution rules) 
deals with the rules applicable to a capital gain on 
the disposal of a trust asset.
• Capital loss = trapped in trust
• Capital gain  determine who will be taxed
 TAX 4862
Trust sells asset
If Trust sells asset = capital gain or capital loss 

Are attribution rules applicable? (A donation?)

If YES Tax donor 
↓
If NO
↓
Does the resident beneficiary have a vested right? 
If YES  Tax beneficiary (par 80)
↓
If NO
↓
Tax the  trust

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 TAX 4862
Trust vests asset in beneficiary

• Vesting of an interest in an asset of a trust in a resident 
beneficiary = disposal par 11(1)(d)  subject to CGT
• Timing of the disposal is the date on which the interest 
vests – par 13(1)(a)(ii) of Eighth Schedule
• If beneficiary has a vested interest from the inception of 
the trust  gain taxed in hands of beneficiary when 
disposed of
• However, when a contingent right becomes a vested right 
disposal occurs  subject to CGT
 TAX 4862
Attribution rules

• Realisation of “donated” asset (extend sec 7’s rules)
NB!! Only applicable to capital gains (losses are trapped in trust)
• Par 69: Minor children of parent similar s 7(3) 
‐ thus parent(donor) is taxed
• Par 70: Conditional vesting similar s 7(5)
‐ Resident donor is taxed if capital gain did not vest in a resident 
beneficiary

• Par 72: Non‐resident similar s 7(8) – Par 72 excluded from sillabus
‐ thus the donor is taxed

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 TAX 4862
Attribution rules
• Par 73: attribution of income and capital
gain
• Where both income and a capital gain
are derived by a donation THEN
• The total amount of that income and
capital gain shall not exceed the
benefit derived from the donation
(including the benefit in the form of
interest – Woulidge)

107
Define Tomorrow.