Taxpayers benefiting from zero-interest or low-interest loans who think they can limit the tax paid on such loans by relying on the "in duplum" rule will have to think again. Under the in duplum rule, interest on a debt stops accumulating once the total amount of interest is the same as the principal debt. The South African Revenue Service has amended the Income Tax Act with effect from last month to make it clear that, in spite of the in duplum rule, specific anti-avoidance provisions will continue to apply. According to an explanatory memorandum issued by the National Treasury, taxpayers sometimes enter loan arrangements at zero or low interest to favour a related party with interest-cost savings. The use of these loans means that SARS loses out on collecting "pay as you earn", or the taxpayer avoids paying donations tax or possibly dividends tax. To counter the tax benefit resulting from the use of zero- or low-interest loans, the Income Tax Act contains anti-avoidance rules that...
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