Editorial

• Date: 01 March 2020
• Author: Des Kruger
• Pages: v-vi
• Published date: 01 March 2020
• Record Number: btclq_v11_n1_a1
• DOI: 10.10520/EJC-1ceb20fd84

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© SIBER INK

Editorial

DES KRUGER

The f‌irst article is by Milton Seligson SC and concerns section 12J of the

Income Tax Act, 1962 (the Act), which was originally introduced in 2008 as

a tax incentive to taxpayers who, in exchange for investing in the shares of

a Venture Capital Company (VCC), thereby providing venture capital for

small businesses and mining concerns, were allowed to deduct upfront the

full expenditure incurred in the acquisition of the VCC shares. As noted

by Milton, section 12J was not particularly attractive on its introduction

due to the complexity of its provisions, especially those seeking to prevent

abuse. This has however been remedied to a large degree and is being much

more widely used.

The article gives a detailed overview of the current provisions of section

12J, which is due to expire on 20 June 2021, showing that the tax incentive

to invest in VCC shares is counter-balanced by the anti-avoidance provi-

sions it contains, aimed at preventing abuse of the concession and undue

loss of revenue by the f‌iscus.

The author then provides a very useful analysis of the still remaining

problem areas, most notably the at-risk requirement of section 12J(3) —

which applies where the taxpayer uses a loan or credit to pay for or f‌inance

the whole or any portion of the expenditure incurred in acquiring the

shares and any portion of that loan or credit is owed by the taxpayer on the

last day of the year of assessment. The article concludes that the taxpayer

will not be deemed to be at risk if there is any agreement or arrangement

that protects the investor from sustaining loss or the risk thereof in respect

of the expenditure incurred.

The second article is by Michael Rudnicki and is a very useful and

detailed analysis of the bad-debts allowance that may be claimed by

taxpayers under section 11(j) of the Act. As is seemingly the trend, the

section 11(j) allowance is required to be determined, in most instances, by

reference to International Financial Reporting Standards (IFRS), in this case

IFRS 9 in relation to credit provisioning. The section provides for a 25%

allowance in relation to credit impairments as contemplated in IFRS 9, and

40% in relation to a loss allowance relating to impairment that is measured

as an amount equal to the lifetime expected credit loss as contemplated in

IFRS 9, for debt. The article seeks to simplify, in non-accounting language,

the meaning of the various phrases used in IFRS 9, and explains the under-

lying philosophy for these terms and their accounting impact.

The f‌inal article is by Des Kruger and discusses the value-added tax

(VAT) implications to be considered when embarking on a corporate trans-

action, whether the intended outcome is to be achieved by way of the