International trading has become more and more customary for both individuals and companies, with imports and exports, as well as foreign investment becoming easier as the world becomes smaller with the help of internet, e-commerce, and so forth. This has led to more taxpayers having foreign currency assets and/or liabilities.

The intention of this article is to address some areas of the section 24I focusing mainly on the treatment of unrealised and realised foreign exchange losses and on specific exclusions from this section. This is not meant to be a comprehensive analysis of section 24I and therefore all other areas of this section should be considered when considering the tax implications of foreign exchange gains or losses on foreign assets or liabilities.

This section is only applicable to certain persons such as:

  • companies,
  • trusts that carry on a trade,
  • natural persons that hold any foreign currency, foreign debt own or owing to, and
  • to persons that are owed amounts in terms of foreign exchange contracts or that have a right to amounts in terms of foreign currency option contracts (24I(2)).

This section does not apply to non-residents.

The definition of exchange item provides that it is an amount in foreign currency which comprises of the following:

  • a unit of currency that has been acquired and not yet disposed of
  • a foreign debt owing by or to the taxpayer
  • a foreign currency which is owing by or to in terms of a foreign exchange contract
  • a right to buy or sell foreign currency in terms of a foreign currency option contract

Section24I(3) states that every person that the section is applicable to, must include in their taxable income any unrealised and realised foreign exchange differences in relation to the exchange items as well as any premiums or amounts received or paid in terms of foreign option contracts.

Every person to which the section is applicable will have to include in their taxable income the effect of unrealised and realised foreign exchange differences. This can be a deduction or an income depending on whether the taxpayer made a loss or a gain during the tax year. A premium or consideration received or paid in terms of an option contract or any amount paid to acquire the foreign option contract must also be included.


During the year the taxpayer acquired $100 at R13. At 28 February 2018, the taxpayer still held $100. The exchange rate at this date was R14.

This means that the taxpayer gained R100 with the movement of the foreign exchange rates. This gain must be included in the taxable income of the taxpayer as income.

The same would apply if a loss of R100 were incurred. The amount would be allowed as a deduction in the calculation of the taxable income of the taxpayer.

Section 24I (7) provides that when foreign debt or any premium or consideration paid in terms of a foreign currency option contract was utilised to acquire and install any plant or machinery, or to design or create patents that the foreign exchange differences arising on such instruments must be deferred to the year in which that plant, machinery or patent is brought into use.

If a person enters into a foreign option contract with the sole or main intention to reduce its tax, any resulting foreign exchange loss shall not be allowed as a deduction from such person. This subsection has been included as anti-avoidance to preclude taxpayers from engaging in tax avoidance transactions.

Subsection 10(A) provides for some exclusions. A person must not take into account any exchange difference arising from foreign debt, if at the end of the year of assessment:

  • the parties to the foreign debt, form part of the same group of companies; or
  • if the parties are connected persons in relation to each other; and
  • if the parties did not hedge the foreign debt by entering into a foreign exchange contract and a foreign exchange option contract

The subsection also further provides that if the foreign debt:

  • does not lead to the recognition of a current liability or a current asset in terms of IFRS; and
  • the item is not funded by a party that does not form part of the group of companies or is not a connected party of the company or the debtor/creditor;

the foreign exchange differences should not be included in the taxable income. This subsection has been included to address the problems of liquidity in the case of intra-group loans or loans to connected persons.

It is clear that section 24I has become more and more applicable to a wide variety of taxpayers, and it is therefore important for accountants, taxpayers and tax practitioners to consider the current and future tax implications of unrealised and realised foreign gains or losses on taxpayers’ foreign assets or liabilities.

Marcelo Bernardo

Intermediate Trainee Accountant, Tshwane

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