SARS Tightens the Screws on Waived Debt in the Updated Interpretation Note 91
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If you thought writing off a debt was the end of the story, think again. SARS has just updated Interpretation Note 91 (Issue 3) (IN 91), which deals with the tax treatment of a concession or compromise of debt. The result? More detailed rules, broader scope, and a clear message: If your client is getting a break on what they owe, SARS wants to know about it and possibly tax it. Here’s a quick breakdown of what’s changed and why it matters.
What Is IN 91 About
When a debt is waived, reduced, or converted into shares, the borrower essentially gets a financial benefit. SARS calls this a "debt benefit." But is it income? Is it capital? And when should it be taxed?
Interpretation Note 91 clarifies how to apply section 19 (income tax implications) and paragraph 12A of the Eighth Schedule (capital gains implications) of the Income Tax Act when a debt is compromised.
This affects a wide range of real-world scenarios: business rescue, group restructures, bad debts, or informal write-offs.
What is New in Issue 3?
SARS didn’t just tweak a few lines. This update reflects major shifts that every accountant and tax practitioner should note:
More Ways for SARS to Say "That Counts as a Benefit"
The definition of "concession or compromise" has been widened. It now includes:
✅Debt cancelled through merger
✅Debt settled with proceeds from a share issue
✅Debt reductions under informal or formal agreements
Impact: Accountants must now review more transactions for possible section 19 or 12A implications, even those that may have previously been seen as tax-neutral.
Sharper Focus on Share-Based Settlements
If a debt is settled in exchange for shares, SARS wants a fair market valuation. Issue 3 explains how to calculate the benefit, especially when the value of the shares is less than the debt cancelled.
Impact: More complex valuation work. Accountants must document and justify the share valuation method used.
Clearer Guidance on Mixed-Use Loans
Where a loan funded both deductible expenses and capital assets, SARS now requires a split treatment under section 19 and paragraph 12A.
Impact: Expect trickier journal entries and disclosure. Apportionment is now a must, not a maybe.
Intragroup Transactions No Longer Fly Under the Radar
New examples highlight when intragroup relief does not apply, especially where there have been changes in shareholding.
Impact: Accountants managing group structures must reassess all internal debt arrangements. A restructure might trigger unexpected tax.
Exclusions Are Now Easier to Apply
SARS has now better clarified when section 19 and paragraph 12A do not apply, like when the benefit is already taxed under donations tax, fringe benefits tax, or estate duty.
Impact: Less risk of double taxation, but only if you spot these exclusions early.
Bottom Line: SARS Wants Transparency, and They’re Getting Specific
This updated note is a reminder that debt restructuring is no longer just a legal or commercial matter—it’s a tax one. Accountants are on the frontlines and need to:
Identify all forms of debt reduction
Classify them accurately
Apply the right tax treatment
Justify any exclusions
Ignoring the fine print can mean under-declaring income, missing CGT adjustments, or misreporting intergroup transactions.
What You Should Do Now
Review any ongoing business rescue or restructuring cases
Re-assess intercompany loan agreements
Ensure tax computations for share settlements are correctly valued
Train your teams on these changes
This is exactly the kind of technical shift that puts CIBA members ahead when done right, and in hot water when missed.
