Debt relief: Tax inconvenience for companies already in financial distress
Journal of Economic and Financial Sciences
; 15(1), 2022.
Article
in English
| ProQuest Central | ID: covidwho-1847484
ABSTRACT
Orientation The Income Tax Act has tax consequences for both the debtor and the creditor when a debt is waived as a result of a concession or compromise. This article focuses on the income tax implications for the debtor. Research purpose:
Even though symmetry is achieved when calculating the tax implications for the debtor, it causes inconvenience and economic hardship. The research identified examples of where deferral relief has been granted in the Income Tax Act , and this is used as a motivation to extend similar relief for the distressed debtor. Motivation for the study Companies were already trading under tough economic conditions before the advent of coronavirus disease 2019 (COVID-19) The pandemic has compounded the situation and introduced new challenges;hence, debt waivers have become increasingly prevalent. Research approach/design andmethod:
A qualitative research methodology was applied using the doctrinal approach in conducting the research. Mainfindings:
Where a debt is waived in a company that is already in financial distress, this may lead to a recoupment and or capital gains that trigger immediate tax consequences for the company. Practical/managerial implications The recoupment and/or capital gain, which is subject to tax, creates undue hardship, inconvenience on the already distressed debtor and further impacts the ability of South African Revenue Service (SARS) to collect the tax debt. Contribution/value-add The authors seek to rectify the identified problem by suggesting that a legislative amendment be introduced to allow the distressed taxpayer relief through a deferral of inclusion in taxable income.
Business And Economics; concession or compromise; debt benefit; recoupment; capital gain; section 19; paragraph 12A; relief; Research methodology; Income taxes; Taxation; Insolvency; Legislation; International finance; Debt; Capital assets; Qualitative research; Expenditures; Coronaviruses; Capital gains; COVID-19; South Africa
Full text:
Available
Collection:
Databases of international organizations
Database:
ProQuest Central
Language:
English
Journal:
Journal of Economic and Financial Sciences
Year:
2022
Document Type:
Article
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