Currently some financial traders utilise the provisions of Section 24J(9) to effectively provide for the taxation of their interest-bearing instruments on a mark‑to‑market basis linked to the accounting treatment of those instruments in their accounts.

The Minister has indicated that he is keen to commence moving towards taxing financial instruments on this basis, that is aligning the tax treatment to the accounting treatment, in order to simplify the audit and compliance requirements for both taxpayers and the Revenue. Firstly he wants to move the provisions of Section 24I dealing with foreign currency instruments closer to the accounting standards. Secondly he is wanting to expand and revise the mark‑to‑market treatment of other financial instruments. The Budget Tax Proposals say that these changes will include expanding the provisions of Section 24J(9) to cover a wider set of financial assets and liabilities. He says that the revised system will be subject to explicit SARS approval so that those parties electing to move into this regime will be fully controlled during the pilot phase of the project.

The Minister makes it clear in his Budget Proposals that these legislative provisions will be changed as they are tested over the next few years based on the practical experience that flows from using them. Be warned!

Written by Alastair Morphet, Tax Director, Cliffe Dekker Hofmeyr