A critical analysis of Section 19 and Paragraph 12a of the eighth schedule of the Income Tax Act for debt transactions

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dc.contributor.authorTifflin, Tanya
dc.date.accessioned2023-10-10T07:20:56Z
dc.date.available2023-10-10T07:20:56Z
dc.date.issued2020
dc.descriptionA research report submitted in partial fulfilment of the requirements for the degree of Master of Commerce specialising in Taxation to the Faculty of Commerce, Law and Management, School of Accountancy, University of the Witwatersrand, Johannesburg, 2020
dc.description.abstractThe Income Tax Act 58 of 1962 was amended, with effect from 1 January 2013, by the introduction of a set of structured debt relief rules (also referred to as the debt relief provisions). The rules were stipulated in section 19 and paragraph 12A of the Eighth Schedule of the Income Tax Act. These rules have been amended several times since they came into effect on 1 January 2013. Section 19 and paragraph 12A of the Eighth Schedule of the Income Tax Act regulate the situation where a debt is cancelled, waived, forgiven or discharged for no consideration (or for a consideration which is less than the amount of the debt). The rules were intended to assist distressed debtors by simplifying the debt reduction process without creating further tax liabilities. Since the introduction of section 19 and paragraph 12A of the Eighth Schedule, there have been many issues raised in the media around the application and interpretation of various aspects of the legislation. This has resulted in numerous amendments. The purpose of this study is to analyse the legislation from its inception to establish whether (despite the numerous amendments) there are any unintended consequences in the legislation applicable to the 2020 tax year, in order to suggest possible solutions. The study revealed flaws and unintended consequences of the exclusions to the debt relief rules which relate to donations tax, estate duty and liquidated companies. Appropriate recommendations have been suggested to solve these problems. The study identified issues with the concepts of ‘market value’ and ‘effective interest’ in the context of debt to share conversions and recommended, among other things, that interpretation notes be provided to solve the problems. In addition, the study discussed the loophole which exists in section 19(6A) and paragraph 12A(4) of the Eighth Schedule. This loophole has resulted in the application of the debt relief rules not triggering any income tax in instances where assets are sold in the same tax year in which a debt benefit arises. Finally, the study discussed the implications and consequences of the retrospective application of the 2019 amendment to section 19(6A) and paragraph 12A(4) of the Eighth Schedule of the Income Tax Act and recommended that these amendments only apply to transactions which were concluded from 1 January 2019.
dc.description.librarianTL (2023)
dc.facultyFaculty of Commerce, Law and Management
dc.identifier.urihttps://hdl.handle.net/10539/36625
dc.language.isoen
dc.rights.holderUniversity of the Witswatersrand, Johannesburg
dc.schoolSchool of Accountancy
dc.subjectUCTD
dc.subjectDebt relief rules
dc.subjectDebt relief provisions
dc.subjectFinancially distressed
dc.subjectCancelled
dc.subjectNo consideration
dc.subjecteffective interest
dc.subjectUnintended consequences
dc.subject.otherSDG-8: Decent work and economic growth
dc.titleA critical analysis of Section 19 and Paragraph 12a of the eighth schedule of the Income Tax Act for debt transactions
dc.typeDissertation
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