Practical accounting insight: South African sole traders and individuals with additional business income should review how assessed losses are treated under Section 20A of the Income Tax Act. SARS says the provision now applies from a marginal tax rate of 39%, rather than the previous 45% threshold, for years of assessment beginning on or after 1 March 2026. This is not a new tax rate, but it may affect whether certain losses can immediately reduce other taxable income.
The change is relevant to individuals who conduct a trade or business in their personal capacity, including some sole proprietors and people earning income from activities that may be treated as a trade. It is not a general rule for companies, and the application depends on the facts of the activity, the taxpayer’s marginal rate and the requirements of Section 20A.
Businesses should avoid assuming that a loss from a side activity can automatically be used against salary, investment or other income. The loss may need to be ring-fenced and carried forward instead, depending on the statutory tests. SARS’s filing-season guidance explains that the amended threshold applies to years of assessment commencing on or after 1 March 2026, while the previous 45% threshold remains relevant to years ending before that date. Read SARS’s 2026 filing-season guidance.
What changed for the 2027 year of assessment?
The practical change is the rate used when determining whether the loss ring-fencing rule applies. From the 2027 year of assessment, which began on 1 March 2026, the relevant marginal tax rate is 39%. Previously, the threshold referred to the maximum marginal rate of 45% for earlier years.
This means that some individuals who may previously have expected a current-year loss to reduce other taxable income should reassess their position. The outcome will depend on the nature of the activity, the evidence supporting the trade, the taxpayer’s taxable income and whether any statutory exceptions apply.
Who should review their position?
- Sole proprietors with recurring losses or low-profit activities.
- Individuals earning salary income while operating a separate business or professional activity.
- Taxpayers with rental, farming, sporting, artistic or other activities that may require a Section 20A analysis.
- Individuals making provisional-tax estimates for the 2027 year of assessment.
The rule should not be treated as a conclusion that an activity is automatically non-commercial. A proper review should consider the facts, the business plan, the continuity of the activity, the nature of the expenditure and the taxpayer’s supporting records.
What businesses and finance teams should check
Start by separating personal income, business income and business expenditure in the accounting records. Review whether expenses claimed as trade deductions are supported by invoices, payment evidence and a clear connection to the income-producing activity.
Next, compare the expected taxable income for the 2027 year of assessment with the individual’s marginal tax rate. Do not rely on the rate used in a prior-year calculation. SARS’s personal income tax information confirms that the 2027 year of assessment runs from 1 March 2026 to 28 February 2027 and provides the current tax thresholds and brackets. Check the current SARS personal income tax information.
Finally, update provisional-tax workings and discuss the treatment of any recurring loss with a suitably qualified tax practitioner. A loss that is ring-fenced may still be available for use against future income from the relevant trade, subject to the applicable rules and time limits.
Practical next steps
- Identify all individual taxpayers with trade losses in the 2027 year of assessment.
- Reconcile business income and expenditure to the underlying accounting records.
- Review the taxpayer’s marginal rate using current-year information.
- Document the commercial basis for the activity and retain supporting evidence.
- Revisit provisional-tax estimates before submission or payment.
This is a general accounting insight, not personal tax advice. Businesses that need help reviewing records, provisional tax or tax compliance can explore Your Financial Partner’s accounting and tax services.
