The National Treasury has published the 2026 draft tax bills for comment. The bills consist of the draft Taxation Laws Amendment Bill (TLAB) and the draft Tax Administration Laws Amendment Bill (TALAB). They contain the proposals for changes in South African tax legislation for the current legislative cycle.

The draft TLAB is fairly short at 43 pages. Many of the changes are technical corrections or minor amendments. From a taxpayer perspective, that is arguably good news if there are no substantial changes. Smaller changes can still affect taxpayers, though. Practitioners who see problems with the proposed wording can submit comments to the National Treasury for the consultation process.

In this article, I highlight four proposals in the draft TLAB relevant to those working with corporate or business taxes.

CFC rules and domestic treasury management companies

The first proposal deals with the interaction between the controlled foreign company rules (the CFC rules) and the domestic treasury management company rules (the DTMC rules). A DTMC is a group company that fulfils a treasury function. It is subject to lighter exchange control requirements. From a tax perspective, it can have a functional currency other than Rand.

The problem arises where a DTMC holds shares in a CFC. As the law stands, a CFC determines its net income in its own functional currency and translates this to Rand. The DTMC then translates it back into its own functional currency and eventually back to Rand again. Treasury identified that these two Rand translations at different points in time could have unintended consequences.

The proposal, as far as one can pick up from the draft explanatory memorandum, reduces these translations to a single one where the DTMC and the CFC share the same functional currency. The proposal seeks to achieve this by excluding the DTMC from the CFC translation rules in section 9D(6) of the Income Tax Act (the ITA).  It is not clear to me how the proposed changes achieve all the outcomes described in the draft EM.

Dividend stripping: extraordinary dividends clarified

The second proposal clarifies the dividend stripping rules, specifically the definition of an extraordinary dividend. That definition currently refers to any dividend that accrued during the 18 months prior to the disposal of the share, or as a result of the disposal. The clarification replaces the reference to any dividend with the aggregate of dividends.

A dividend is extraordinary to the extent that it exceeds 15% of the market value of the shares, taken as the higher of the market value at the start of the 18-month period or at the disposal. As the law currently reads, one could possibly read it to apply the 15% test to each dividend separately. The proposed clarification confirms that the test applies to the aggregated dividends.

Sections 23M and 23N: alignment withdrawn

The third proposal concerns the alignment of section 23M and section 23N of the ITA. Both provisions limit interest deductions. Section 23M limits the interest a borrower can deduct on debt owed in a controlling relationship context where the recipient is not fully taxed on the interest in South Africa, which for a foreign person turns on the interest withholding tax. The limit applies a fixed rate of 30% to an EBITDA-based tax measure.

Section 23N limits interest deductions where shares were acquired with debt in circumstances covered by section 24O, or where assets were acquired with debt in transactions qualifying for relief under sections 45 and 47. Section 23N currently uses a 40% base rate, adjusted with reference to the average repo rate for the year.

An earlier amendment would have aligned this variable rate with the 30% rate in section 23M with effect in future. The proposal withdraws that amendment, so the two provisions will not be aligned. 

VAT on leasehold improvements by non-vendor lessors

A few years ago, deeming and adjustment rules were introduced that allow the lessee to claim input tax on leasehold improvements. They also require an output tax adjustment by the lessor to the extent that the lessor does not use the improvements to make taxable supplies. The aim was to put the parties in the VAT position that would have applied had the lessor made the improvements itself.

Treasury identified that the current adjustment provisions at lessor level only apply where the lessor is a VAT vendor. The same concern arises where the lessor is a non-vendor, for example a school making only exempt supplies. A VAT leakage arises because the lessor is a non-vendor. The proposal is that lessors who are not VAT vendors may be required to account for VAT adjustments through a self-declaration process. If your clients are involved in leases with leasehold improvements and the lessor is not a vendor, this proposal may affect them.

Take-home message

The 2026 draft TLAB contains no drastic changes, but these four proposals can affect taxpayers in day-to-day practice. In my view, there are some questions about whether the CFC and DTMC proposal’s wording achieves what the explanatory memorandum intends. It makes sense for any taxpayers or practitioners who have concerns about any of these proposals to submit comments to the National Treasury before the legislation is finalised.

I discuss these proposals in more detail in my podcast, Tax Break. You can listen at this link: