generally allowed to set off any losses incurred in respect of one trade
against the income derived from another trade, thereby reducing their overall
section 20A of the Income Tax Act
ring-fences losses incurred by
natural persons from certain trades under specific circumstances. If
applicable, the natural person will not be able to set off the loss incurred
from that trade against the income from any other trade, but may only set off
the loss against future income derived from the trade to which the loss
rationale for this provision was to disallow natural persons to conduct hobbies
disguised as trades in order to set off expenses from that hobby against other
income such as salary income or
requirement for section 20A to apply, is that the natural person must fall
within the highest income tax bracket during the relevant year of assessment.
For the 2019 year of assessment, the
person’s taxable income and any assessed loss or balance of assessed loss of
the taxpayer must be equal to or exceed R1.5 million.
requirement relates to the nature of the trade carried on by the natural
In this regard, he or she (or any relative of that person) must be engaged in
one of the following trades. These include the practising of any sporting
activity, any dealing in collectables, any animal showing by that person, any
form of performing or creative arts or any form of gambling or betting
included are the rental of residential accommodation or vehicles, aircraft or
boats (unless at least 80% of the accommodation, vehicle, aircraft or boat is
used by persons who are not relatives of the natural person for at least half
of the year). Farming or animal breeding will also fall within section 20A
unless such activities are engaged in on a full-time basis.
he or she must have incurred an assessed loss in at least three of the
preceding five years of assessment, ending on the last day of the relevant year
requirements must be met in order for the loss in respect of the specific trade
to be ring-fenced.
away is that taxpayers with additional income sources should carefully consider
the provisions of section 20A to the extent that the current ITR12 income tax
return for individuals require taxpayers to indicate whether or not the losses
are ring-fenced. Taxpayers may also be requested by the South African Revenue
Service to confirm why section 20A should not apply in instances where that
question was answered ‘no’.
No. 58 of 1962
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)