On 16 August 2025, National Treasury and SARS released the Draft Taxation Laws Amendment Bill (TLAB), 2025, together with the accompanying Explanatory Memorandum. The proposals are open for public comment until 12 September 2025, after which a revised Bill will be tabled in Parliament.
The draft bill contains a number of significant proposals aimed at tightening loopholes, broadening the tax base, and modernising rules. Below we provide a detailed breakdown of the most important changes, with a focus on how they may affect individuals, companies, and trusts.
1. Foreign Retirement Fund Benefits – Removal of the Exemption
Section 10(1)(gC)(ii) of the Income Tax Act allows South African residents to exempt from local tax any pensions or lump sums received from a foreign retirement fund. The rationale was to prevent double taxation – particularly where the contributions were made, and benefits accrued, while the individual was working outside South Africa.
Proposed change: This exemption will be removed in full. From 1 March 2026, all foreign pensions and lump sums received by South African tax residents will be taxable in South Africa. Treasury argues that the exemption has been used by some residents to shelter income that would otherwise be taxable. In particular, SARS has expressed concern that individuals are using offshore retirement arrangements to defer or avoid tax, in ways that were not intended when the exemption was introduced.
It seems that the proposed changes do not take into account that the original contributions to a foreign pension fund were made from after-tax income. For example, if you were to invest R100 000 of your own savings into a foreign pension fund today, and then, following the amendment, withdraw that R100 000 plus any investment growth, you would be liable to pay South African income tax on the full amount, including the capital originally contributed.
Practical effect:
- South African residents who return to SA after working abroad will now face tax on their foreign pensions when drawn.
- Double Tax Agreements (DTAs) will play a central role – for example, where a treaty gives exclusive taxing rights to the country of source, South Africa may still have to exempt the income. The reality is the majority of DTA’s do not exclude foreign pensions from tax in South Africa. Therefore treasury’s assertions to DTA relief is a bit unfounded.
- Planning around emigration, returning expatriates, and offshore retirement structures will need to be revisited.
Feedback is due by 12 September 2025 and we would recommend all those affected to make submissions.
2. Preference Shares – Dividend to Income Re-characterisation
Preference shares are often used by companies as a funding tool. While they are technically equity, many are structured to behave like debt — offering fixed dividends and redemption rights. Under current rules (sections 8E and 8EA of the Income Tax Act), certain “hybrid” or redemption-linked dividends may already be treated as taxable income rather than tax-exempt dividends.
The 2025 Draft TLAB clarifies that if a dividend is declared within 90 days before a redemption or buy-back, it will automatically be treated as taxable income in the shareholder’s hands.
This prevents structures where dividends are timed just before redemption to avoid tax, effectively disguising interest or capital repayments as tax-free dividends.
Example:
- A company issues preference shares with a R1,000,000 redemption value.
- Just before redemption, it declares a dividend of R50,000.
- Under the proposed rule, this R50,000 dividend would not be exempt but treated as taxable income in the hands of the shareholder.
- This ensures that the combination of dividend and redemption is taxed in a manner consistent with economic reality.
Practical impact:
- Companies using preference shares for funding may lose the tax arbitrage benefit.
- Private equity deals, BEE transactions, and shareholder structures relying on pre-redemption dividends will need to be revisited.
- The rule applies to years of assessment beginning 1 January 2026 and onwards.
3. Exchange Differences on Related-Party Loans (Section 24I(10A))
Under section 24I, taxpayers must account for foreign exchange differences on foreign currency-denominated debts and loans. For related-party loans, subsection allows taxpayers to defer recognising certain forex gains or losses, provided the loan is recognised as a current asset or liability under IFRS.
The Draft TLAB clarifies that this deferral is no longer available if the loan is not recognised as a current asset or liability under IFRS at the end of the year. In other words, if the accounting treatment does not classify the loan as “current,” any exchange gains or losses must be immediately brought into taxable income.
- SARS is aligning the tax treatment with accounting standards to prevent deferral of taxable income.
- Groups with cross-border related-party loans that previously deferred forex differences may now face immediate taxation on gains or allow deductions for losses.
- This is particularly relevant for multinational groups or companies with intercompany financing arrangements in foreign currency.
Example:
- Scenario: A South African parent company lends USD 1,000,000 to its foreign subsidiary.
- Initial Exchange Rate: 1 USD = 20 ZAR → Loan recorded at ZAR 20,000,000.
- Year-end Exchange Rate: 1 USD = 22 ZAR → Unrealised gain = ZAR 2,000,000.
- Current law: If the loan is a related-party loan and classified as current under IFRS, this ZAR 2,000,000 gain could be deferred.
- Proposed rule: If the loan is not a current asset under IFRS, the ZAR 2,000,000 gain must be included immediately in taxable income, increasing the tax liability for that year.
Key Implications for Clients:
- Companies with foreign currency loans to related parties must review accounting classifications carefully.
- Tax planning may need to consider whether loans should be structured or reclassified to manage timing of taxable forex gains.
- Groups with significant intercompany lending could face accelerated tax charges, even if the underlying cash hasn’t moved.
4. Loss Ring-Fencing (Section 20A)
Individuals carrying on certain “suspect trades” (such as rental of holiday homes, farming, horse-breeding, or arts-related activities) are subject to loss ring-fencing. If losses are generated, they cannot be set off against other income unless the taxpayer can prove a reasonable prospect of profit.
The Bill tightens these rules by broadening the list of trades subject to ring-fencing and by clarifying that certain deductions (e.g. high-interest financing costs on such activities) cannot be used to create perpetual losses.
The amendment introduces additional activities to the list of “suspect trades,” which are now subject to ring-fencing provisions. These include:
- Sporting activities
- Dealing in collectibles
- Performing or creative arts
- Gambling activities
- Farming (unless conducted on a full-time basis)
- Renting out residential accommodation, vehicles, aircraft, or boats (unless at least 80% of the usage is by unrelated parties)
This will particularly affect high-net-worth individuals who have historically used lifestyle assets or side activities to create tax-deductible losses against their main income.
5. Trust–Beneficiary Attribution (Section 25B)
| Area | Current Position | Proposed Change | Effective Date | Impact |
| Foreign Pensions | Exempt under s10(1)(gC)(ii). | Exemption removed – all foreign retirement benefits taxable in SA. | 01-Mar-26 | Residents with offshore pensions face SA tax; DTAs must be reviewed. |
| Preference Shares | Dividends generally exempt unless hybrid rules apply (s8E, 8EA). | Dividends declared within 90 days of redemption = taxable income. | 01-Jan-26 | Removes key funding advantage; BEE & PE deals may be affected. |
| Exchange Differences (s24I(10A)) | Forex gains/losses on related-party loans may be deferred. | No deferral if debt no longer a current asset/liability under IFRS. | YOA ending on/after 1 Jan 2026 | Earlier recognition of forex gains/losses; tighter alignment to IFRS. |
| Loss Ring-Fencing (s20A) | Applies to certain “suspect trades”; some losses offset allowed with proof of profit motive. | Broadened to cover more trades; limits deductions (e.g. financing costs). | 01-Mar-26 | Restricts use of lifestyle businesses to create tax losses. |
| Trust Attribution (s25B) | Income vested in beneficiary taxed in their hands if distributed in year. | Taxed when accrued, even if not paid yet, where beneficiary is resident. | 01-Mar-26 | Removes deferral opportunities; trustees need to adjust practices. |
| Maintenance Payments | Previously no exemption. | Reinstates exemption for bona fide child maintenance. | 01-Mar-26 | Ensures maintenance not taxed unfairly. |
| CIS & Hedge Funds | Outdated definitions in law. | Aligned with financial sector regulation. | 01-Mar-26 | Modernises treatment of pooled investments. |
| VAT – Education | Ambiguity in VAT treatment of schools and services. | Confirms exemption and clarifies refunds for errors. | 01-Jan-26 | Greater certainty for schools and parents. |
| Carbon Tax & Energy (s12L) | Existing carbon rates and energy efficiency deductions. | Updated emissions factors, higher carbon tax, refinements to incentives. | 1 Apr 2025 / 1 Mar 2026 | Higher compliance burden; new opportunities for efficiency |
Trust income is generally taxed in the hands of the beneficiary if vested in them during the same tax year, otherwise it is taxed in the trust.
The Bill clarifies that where income is vested in a resident beneficiary, it will be taxed in their hands when it accrues, regardless of whether it is distributed in cash at that time.
This closes off certain deferral structures where trustees “vested” income but delayed payment to push tax out to future years.
Conclusion
The Draft TLAB 2025 represents one of the most comprehensive tightening exercises in recent years, with significant impact on retirement savings, corporate financing, trusts, and international transactions. SARS and Treasury continue to focus on closing perceived loopholes and increasing the effective tax base.
Public comments close on 12 September 2025. Clients are encouraged to engage early and consider restructuring where appropriate. You can submit comments on the proposed amendments to: National Treasury’s tax policy depository at 2025AnnexCProp@treasury.gov.za; and
SARS at 2025legislationcomments@sars.gov.za
Our team will be monitoring the legislative process and will provide updates as the Bill progresses through Parliament.
Please do not hesitate to contact us for if you need advice.
