Tax Break: South African tax for professionals

Does the July 2026 tax court judgment on dividend stripping and the general anti-avoidance rule (GAAR) mean these transactions can no longer be done? This episode answers a listener's question about that case and reads it against section 22B of the Income Tax Act, paragraph 43A of the Eighth Schedule and the current understatement penalty (USP) regime.
The episode starts with the facts: seven appeals combined into one, seven shareholders of a property company funded by shareholder loans rather than share capital, holding companies introduced under section 42, a dividend declared equal to the full value of the business, a subscription by a new shareholder that diluted the existing shareholders to 0.1%, and a sale of the remaining shares. SARS applied the GAAR to tax the dividends as sales proceeds, and the court found for SARS.
Rather than repeating the GAAR analysis covered in earlier episodes, the discussion looks at three broader questions. What tax law does and does not do when you ask whether a transaction may be done. Why the February 2017 implementation date matters, given that the specific dividend stripping rules in section 22B and paragraph 43A came into effect on 19 July 2017 and were refined in 2019 for dilutive structures. And what the judgment says about understatement penalties: the court's description of the taxpayer's position as an error of legal judgment, the bona fide inadvertent error defence and the Thistle and Coronation judgments, and how the penalty table currently treats impermissible avoidance arrangements and substantial understatements.
The episode closes with what to take home when reading a case like this against the law as it was then and as it stands now.
Timestamps:
00:15 Introduction and the listener question on dividend stripping and the GAAR
03:15 Facts of the tax court case: dividend, subscription, dilution and sale
06:40 What tax law does and does not do
07:30 Section 22B and paragraph 43A: the 19 July 2017 effective date and the 2019 amendments
10:30 Understatement penalties: error of legal judgment and bona fide inadvertent error
12:30 The penalty table now: impermissible avoidance arrangements and substantial understatements
14:00 Take-home points
If you work with South African tax as an auditor, accountant, lawyer, wealth planner or corporate finance professional, this episode is for you. Contact me at pieter@pvdz.co.za for feedback or tax advice. More resources at https://tax.pvdz.co.za. You can subscribe for my weekly mailer at 
Keywords: dividend stripping, GAAR, general anti-avoidance rule, section 22B, paragraph 43A, Income Tax Act, understatement penalty, USP, bona fide inadvertent error, impermissible avoidance arrangement, Tax Administration Act, South African tax

When does section 23M of the Income Tax Act limit the interest a company can deduct on debt owed to a creditor in a controlling relationship, and why is it not just a cross-border rule? This episode of Tax Break highlights three pointers for identifying whether s 23M applies.
Pieter starts with the origin of the provision in the 2013 Amendment Act alongside the OECD BEPS Action 4 work on interest deductibility, and the early commentary linking it to thin capitalisation, transfer pricing and the withholding tax on interest.
The first pointer is the controlling relationship requirement: the 50% equity share or voting rights test, and the wider list in s 23M(2) that reaches indirect controlling relationships and funding from other entities in the same group. He explains why the group structure and the route the funding takes both matter.
The second pointer is the requirement that the interest not be subject to tax in the lender's hands, the deeming ratio where withholding tax on interest is reduced below 15% under a tax treaty, and two domestic examples. 
The third pointer concerns the impact of s 23M: specifically, what is considered interest for this provision goes beyond contractual interest to items such as foreign exchange losses and IFRS 16 lease interest embedded in section 11(a) lease payments.
This is the last episode before a short break. Tax Break returns in October.
00:10 Introduction
04:06 Origins of s 23M 
05:47 Pointer one: controlling relationships 
07:20 Pointer two: interest not subject to tax
09:00 Pointer three: the expanded definition of interest
If you work with South African tax as an auditor, accountant, lawyer, wealth planner or corporate finance professional, this episode is for you. Contact me at pieter@pvdz.co.za for feedback or tax advice. More resources at https://tax.pvdz.co.za.
Keywords: section 23M, interest deduction limitation, controlling relationship, subject to tax, withholding tax on interest, section 9D controlled foreign company, tax EBITDA, IFRS 16 lease interest, foreign exchange losses, OECD BEPS Action 4, Income Tax Act, South African tax

Understatement penalties (USP) and bona fide inadvertent errors after the amendment to section 222 of the Tax Administration Act (TAA): if you correct an error on a return that has already been assessed, has the amendment created a new risk?
The request for correction function on SARS eFiling, and the objection route where an assessment has already been audited or verified, have been the standard ways to fix a return. Pieter van der Zwan revisits how section 222 protected a taxpayer who came forward with a bona fide inadvertent error, and how the Thistle and Coronation judgments widened the concept of bona fide inadvertent errors to positions taken on tax advice.
Section 222 was amended at the end of last year and the bona fide inadvertent error ground now sits in section 223(3)(a), tied to the definition of a substantial understatement (the greater of 5% of tax properly chargeable or R1 million). Pieter shares his concern regarding the effect that the amendment may have on correcting true errors.
The episode considers why the correcting an error may carry more exposure, where the voluntary disclosure programme (VDP) enters the picture, and the question that Pieter thinks the amendment leaves open.
Timestamps
00:10 Introduction 
02:50 Request for correction and objection under the previous section 222
05:10 Thistle and Coronation: tax advice as a bona fide inadvertent error
06:30 Amended section 222 and section 223(3A)
09:47 Substantial understatement threshold: 5% or R1 million example
15:10 Reasonable care and USP exposure below the threshold
15:40 Key takeaways
If you work with South African tax as an auditor, accountant, lawyer, wealth planner or corporate finance professional, this episode is for you. Contact me at pieter@pvdz.co.za for feedback or tax advice. More resources at https://tax.pvdz.co.za.
Keywords: understatement penalty, USP, bona fide inadvertent error, section 222 Tax Administration Act, section 223(3)(a), substantial understatement, request for correction, reasonable care, objection, voluntary disclosure programme, Thistle case, South African tax

Reportable arrangements (RAs) under section 35 of the Tax Administration Act are often overlooked by advisors, and frequently only surface when an accountant reaches the "reportable arrangement" question on the tax return. This episode of Tax Break sets out what reportable arrangements are, where they are found in the legislation, and what to do when a transaction is reportable.
Reporting an arrangement to SARS on form RA01 does not change the tax treatment of the transaction. It flags arrangements with features SARS wants to see, which also tells advisors that a risk exists and should be addressed in the advice given.
Section 35(1) is conceptual and fact-specific. Examples include arrangements with a tax deduction but no accounting expense (or accounting revenue but no gross income), and arrangements with tax avoidance characteristics such as round tripping or offsetting elements. Section 35(2) allows SARS to list arrangements by public notice, which it did in 2016. The thresholds in that notice are not high, so reportable arrangements are not limited to large transactions.
The episode highlights four items from the 2016 public notice that come up regularly: hybrid equity instruments under section 8E if the prescribed period were 10 years; share buybacks exceeding R10 million where shares are issued within 12 months (dividend stripping risk); acquiring a controlling interest in a company with an assessed loss exceeding R50 million (section 103(2) risk); and payments exceeding R10 million to non-residents rendering services in South Africa (permanent establishment risk).
Exclusions are covered, including the tax benefit threshold and the exclusion where the tax benefit is not the main or one of the main benefits. A participant must report within 45 business days, and written confirmation that another participant has reported may relieve the obligation. Non-reporting penalties are fixed monthly amounts that can range from roughly R600 000 to R3.6 million over 12 months.
Timestamps
00:10 Introduction: why reportable arrangements are missed
01:03 About Tax Break and the tax question tool on the website
02:54 What reportable arrangements are and what reporting means
04:31 Section 35(1) arrangements: tax vs accounting differences, avoidance features
06:48 Section 35(2) and the 2016 public notice
07:57 Section 8E hybrid equity instruments
09:16 Share buybacks over R10 million
10:00 Controlling interest in companies with assessed losses over R50 million
10:55 Payments to non-residents over R10 million
12:00 Exclusions
12:45 Who reports, 45 business day deadline, RA01
13:36 Penalties for non-reporting
14:00 Summary
If you work with South African tax as an auditor, accountant, lawyer, wealth planner or corporate finance professional, this episode is for you. Contact me at pieter@pvdz.co.za for feedback or tax advice. More resources at https://tax.pvdz.co.za.
Keywords: reportable arrangements, RA01, section 35 Tax Administration Act, SARS public notice 2016, section 8E hybrid equity instruments, share buyback dividend stripping, assessed loss section 103(2), permanent establishment non-residents, reportable arrangement penalties, South African tax

Are self-insurance premiums deductible? In this episode of Tax Break, I discuss the deductibility aspect of the Western Cape High Court judgment in CSARS v Meiring Citrus (Pty) Ltd. 
I cover:
The two grounds that SARS abandoned
The court’s conclusion as to whether the taxpayer actually incurred expenditure
Why I disagree with the court's position on expenditure
The court’s position on the capital nature of the premiums paid.
If you work with South African tax as an auditor, accountant, lawyer, wealth planner or corporate finance professional, this episode is for you. Contact me at pieter@pvdz.co.za for feedback or tax advice. More resources at https://tax.pvdz.co.za.
Keywords: self-insurance premiums, section 11(a) deduction, Meiring Citrus, capital in nature, expenditure actually incurred, Labat Africa, section 23L, experience account, South African tax, Income Tax Act, Western Cape High Court, SARS