RSM South Africa

Proposed Amendments to the Doubtful Debt Provisions

There has been a significant change from previous wording, with the old section 11(j) being repealed and replaced by an entirely new section.

While the rate of allowance was not defined in Section 11(j), based on SARS practice, 25% of the provision for bad debts was granted as an allowance.

The changes to Section 11(j), as originally proposed in the 2018 Draft Taxation Laws Amendment Bill issued in July, provided for the following:

  • A 25% allowance on impairment of debt (debt recognised in terms of IFRS 9) other than debt in respect of lease receivables or;
  • A 25% allowance on debt other than “IFRS debt” that would have been allowed as a deduction under any other section, had that debt become bad if that debt is 90 days or more in arrears.

However, the new Section 11(j) as detailed in the 2018 Taxation Laws Amendment Bill now provides for the following:

For IFRS debt (where IFRS is applied by taxpayers):

A 40% allowance on the IFRS impairment that is measured at an amount equal to the lifetime expected credit loss, as contemplated in IFRS 9, in respect of debt other than in respect of lease receivables as defined in IFRS; and

on the amounts of debts disclosed as bad debt written off for financial reporting purposes that have not been allowed as a deduction under section 11(i) for the current or any previous year of assessment and the debt is included in the income of the taxpayer in the current or any previous year of assessment

A 25% allowance on the remaining IFRS impairment in respect of debts other than lease receivables or debt taken into account under item 1 above.

For non-IFRS debt (where IFRS is not applied by taxpayers):

A 40% allowance is granted on debts due to the taxpayer which are 120 days or more in arrears and;

A 25% allowance is granted on debts due to the taxpayer which are 60 days or more in arrears.

The new Section 11(j) allows taxpayers to make an application to the Commissioner and the Commissioner may issue a directive to increase the percentage in paragraphs 1(a) and 2(a) above to a percentage not exceeding 85%.

The Commissioner will however take the following into account:

  • the history of a debt owed to that taxpayer, including the number of repayments not met, and the duration of the debt;
  • steps taken to enforce repayment of the debt;
  • the likelihood of the debt being recovered;
  • any security available in respect of that debt;
  • the criteria applied by the taxpayer in classifying debt as bad; and
  • such other considerations as the Commissioner may deem relevant;

The new provisions will be effective from years of assessment commencing on or after 1 January 2019.

The above changes would therefore provide welcome relief to taxpayers battling with collection owing to the struggling economy.

Ozeyr Ahmed

Associate | Corporate Tax, Johannesburg


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