A taxpayer enters into a loan agreement with a lender in which the lender will provide debt to the investor to enable it to invest in a VCC. The loan is repayable within a 5-year period at the discretion of the taxpayer. There is no interest on the loan.
Important:
This answer is based on tax law year ending 28 February 2021.
Answer:
The principle is that the deduction “must be limited to the amount for which the taxpayer is in terms of paragraph (b) deemed to be at risk on the last day of the year of assessment”. We read the sentence “… a loan or credit facility will not be deemed to satisfy the “at-risk” criteria if the loan or credit facility is directly or indirectly provided by the VCC …” as saying that, the taxpayer will be at risk if the loan provided by the VCC is repayable within 5 years. If it is longer than 5 years, the investor will not be at risk. It certainly follows from the use of the word “and” in the proviso and requires both items to apply before the person will be deemed to not be at risk.