tax update 2018 · 2018-04-18 · click to edit master title style the rate of tax … to be levied...

CLICK TO EDIT MASTER TITLE STYLE

TAX UPDATE – 2018NICO THERON


Budget 2018

Selected TLA amendments (total - 106 sections);

Selected court judgments (15 in total vs 27 in previous year);

Selected TALAA amendments – (total – 80 sections); and

Selected rulings issues by SARS (BPR, BCR, BGR) (30 vs 54 in previous year in total).

OVERVIEW


Cannot cover everything in detail.

Extremely important to stay up to date by regularly checking on latest developments – don’t procrastinate.

OVERVIEW

CLICK TO EDIT MASTER TITLE STYLEOVERVIEW


For more:

Online subscription;

My website www.unicustax.co.za/taxbytes ;

Facebook: Southafricatax;

LinkedIn: nicotheron;

Twitter: Theronnico.

OVERVIEW

http://www.unicustax.co.za/taxbytes


BUDGET 2018


1. (1) The First Schedule to the Estate Duty Act, 1955, is hereby amended by the substitution in paragraph (1) for

subparagraph (a) of the following subparagraph:

“(a) (i) 20 per cent of the dutiable amount of the estate as does not exceed R30 million; and

(ii) 25 per cent of the dutiable amount of the estate as exceeds R30 million; or”; and

(2) Subsection (1) is deemed to have come into operation on 1 March 2018 and applies in respect of the estate of a person

that dies on or after that date.

The ‘dutiable amount’ is the amount of the total value of property (section 3); less the deductions (section 4); less the section

4A amount (R3,5 million).

No change in the treatment of ‘capital gains’ at date of death – R300 000 and 40% inclusion rate.

ESTATE DUTY

CLICK TO EDIT MASTER TITLE STYLEDONATIONS TAX

CLICK TO EDIT MASTER TITLE STYLEINDIVIDUAL TAX RATES

Taxable income (R) Rates of tax (R)

0 – 195 850 18% of taxable income

195 851 – 305 850 35 253 + 26% of taxable income above 195 850




708 311 – 1 500 000 207 448 + 41% of taxable income above 708 310

1 500 001 and above 532 041 + 45% of taxable income above 1 500 000

2019 tax year (1 March 2018 - 28 February 2019) - see changes from last year


The rate of tax … to be levied in respect of the taxable income of a company (other than a public benefit organisation,

recreational club or small business funding entity referred to in paragraph 4 or a small business corporation referred to in

paragraph 5) in respect of any year of assessment ending on or after 1 April 2018 is … as follows (a) 28 per cent of the taxable

income of any company (excluding ...

… any company from mining for gold on any gold mine … carrying on long-term insurance business

CORPORATE TAX RATE– 28% (EFFECTIVE 42.4%)


… any company which qualifies as a small business corporation …

… in respect of any year of assessment ending on or after 1 April 2018 …

… service is performed personally by any person who holds an interest in that company, co-operative or close

corporation or by any person that is a connected person in relation to any person holding such an interest … - 18

December 2017

SMALL BUSINESS CORPORATION

Taxable income (R) Rate of tax (R)

0 – 78 750 0%

78 151 – 365 000 7% of taxable income above 78 150


550 001 and above 58 930 + 28% of taxable income above 550 000


… in respect of any year of assessment commencing on or after 1 March 2018 …

8. The rate of tax referred to in section 3(2) to be levied in respect of the taxable turnover of a person that is a registered micro

business as defined in paragraph 1 of the Sixth Schedule to the Income Tax Act,1962,in respect of any year of assessment ending

during the period of 12 months ending on 28 February 2018 is setout in the table below:

6. The rate of tax referred to in section 3(1) to be levied on taxable income attributable to income derived by a qualifying company

within a special economic zone as contemplated in section 12R of the Income Tax Act, 1962, subject to paragraph 7, is 15 cents

on each Rand of taxable income in respect of any year of assessment ending on or after 1 April 2018.

TURNOVER TAX - NO CHANGE

Turnover (R) Rate of tax (R)

0 - 335 000 0%

335 001 - 500 000 1% of each R1 above 335 000

500 001 - 750 000 1 650 + 2% of the amount above 500 000

750 001 and above 6 650 + 3% of the amount above 750 000


4.The rate of tax referred to in section 3(1) to be levied in respect of the taxable income of any public benefit organisation that has

been approved by the Commissioner in terms of section 30(3) of the Income Tax Act, 1962, or any recreational club that has been

approved by the Commissioner in terms of section 30A(2) of that Act or any small business funding entity that has been approved

by the Commissioner in terms of section 30C(1) is 28 per cent—

(a) in the case of an organisation, club or small business funding entity that is a company, in respect of any year of assessment

ending on or after 1 April 2018; or

(b) in the case of an organisation or small business funding entity that is a trust, in respect of any year of assessment

commencing on or after 1 March 2018.

PBO’S


No changes to the lump sum tables.

… a retirement fund lump sum withdrawal benefit accrues …

… in any year of assessment commencing on or after 1 March 2017, …

Withdrawal Benefit

2019 tax year (1 March 2018 - 28 February 2019) - No changes from last year

LUMP SUM WITHDRAWAL BENEFITS – NO CHANGE


0 – 25 000 0%

25 001 - 660 000 18% of taxable income above 25 000

660 001 - 990 000 114 300 + 27% of taxable income above 660 000

990 001 and above 203 400 + 36% of taxable income above 990 000


… a retirement fund lump sum benefit accrues … in any year of assessment commencing on or after 1 March 2017, …

… a severance benefit accrues… in any year of assessment commencing on or after 1 March 2017, …

Retirement & Death Benefits or Severance Benefits

2019 tax year (1 March 2018 - 28 February 2019) - No changes from last year

RATES APPLICABLE TO LUMP SUMS – NO CHANGE


0 – 500 000 0% of taxable income

500 001 - 700 000 18% of taxable income above 500 000

700 001 – 1 050 000 36 000 + 27% of taxable income above 700 000

1 050 001 and above 130 500 + 36% of taxable income above 1 050 000

CLICK TO EDIT MASTER TITLE STYLENORMAL TAX REBATES

Section 6 2019 2018 2017

primary rebate R14 067 R13 635 R13 500

secondary rebate R7 713 R7 479 R7 407

tertiary rebate R2 574 R2 493 R2 466

Section 6A 2019 2018 2017

in respect of benefits:

to the person

R310 R303 R286

to the person and one dependant R620 R606 R572

to each additional dependant R209 R204 R192


Government is concerned that some taxpayers may be excessively benefiting from this rebate, …

specifically in instances where multiple taxpayers contribute toward the medical scheme or expenses of another person

(for example, adult children jointly contributing to their elderly mother’s medical scheme).

Where taxpayers carry a share of the medical scheme, contribution or medical cost, it is proposed that the medical tax credit

should also be apportioned between the various contributors.

Because the rebate is available when the person contributed and is not based on the amount paid.

SPLITTING OF MEDICAL FEES TAX CREDITS - PROPOSAL

CLICK TO EDIT MASTER TITLE STYLEINCREASE IN THE VAT RATE

http://www.sars.gov.za/Legal/Legal-Publications/Pages/FAQs.aspx

Section 66: An amount of tax determinable under this Act must be calculated by—

(a) where the tax fraction is expressed as—

(i) a proportion, rounding it off to the fifth decimal place namely 0,12280; or

(ii) a percentage, rounding it off to the third decimal place, namely 12,280; and

Yes, as defined in section 1(1) of

the Act, but …

http://www.sars.gov.za/Legal/Legal-Publications/Pages/FAQs.aspx

CLICK TO EDIT MASTER TITLE STYLEINCCREASE ZERO RATED GOODS – WHOLE WHEAT BROWN BREAD

CLICK TO EDIT MASTER TITLE STYLEPAYROLL TAXES – SUBSISTENCE ALLOWANCE

… the amounts which shall be deemed to have been actually expended … GG 41473 No. 169

amounts deemed to have been actually expended

the accommodation, to which that allowance or advance relates

in respect of

incidental costs

only

in respect of meals

and other

incidental costs

is outside the RSAis in the RSA

to defray the cost of

meals and incidental

costs

R416 per day R128 per day amount per day in accordance with

the table for the country in which that

accommodation is locatedIn respect of the year of assessment commencing

1 March 2018

Section 8(1)(c)


Paragraph 9 (3)(ii) of the Seventh Schedule to the Income Tax Act,

‘B’ represents an abatement equal to an amount of [R78 150] R75 750:

… is deemed to have come into operation on 1 March 2018 and applies in respect of years of assessment commencing on or

after that date.

PAYROLL TAXES - RESIDENTIAL ACCOMMODATION


Reimbursive travel – rate = R3.61 (use to be R3.55)

PAYROLL TAXES – REIMBURSIVE TRAVEL


By the power vested in me by paragraph 14(3)(a) of the Fourth Schedule to the Income Tax Act, 1962 (Act No. 58 of 1962),

section 8(2A) of the Unemployment Insurance Contributions Act, 2002 (Act No. 4 of 2002), and section 6(2A) of the Skills

Development Levies Act, 1999 (Act No. 9 of 1999), I, Thomas Swabihi Moyane, Commissioner for the South African Revenue

Service, hereby determine that an employer’s return (EMP 501) for the period—

(a) 1 March 2017 to 28 February 2018, must be rendered on or before 31 May 2018; and

(b) 1 March 2018 to 31 August 2018, must be rendered on or before 31 October 2018.

http://www.sars.gov.za/Legal/Secondary-Legislation/Pages/Income-Tax-Notices.aspx

THE EMPLOYER RECONCILIATION DECLARATIONS (EMP501, EMP601

AND/OR EMP701)


South African-controlled companies operating in countries where tax payable is less than 75 per cent of what would have been

payable at home are required to include the foreign net income in their South African tax calculation.

Of the controlled foreign company.

This prevents these firms from shifting profits to low-tax jurisdictions. In the context of a global trend towards lower corporate

tax rates, government will review the controlled foreign company tax exemption to determine whether a reduction is warranted.

Dropping the 75% threshold, will reduce the 21% to, let’s say, 20% or less.

REVIEWING THE CONTROLLED FOREIGN COMPANY COMPARABLE TAX

EXEMPTION - PROPOSAL


The Taxation Laws Amendment Act (2017) extended the application of controlled foreign company rules to foreign companies

held through foreign trusts and foreign foundations.

The draft Taxation Laws Amendment Bill (2017) developed related rules to classify distributions of discretionary foreign trusts

or foreign foundations to individuals and trusts as income of the South African resident beneficiaries.

This was done to discourage the use of trusts to defer tax or recharacterise (sic) the nature of income.

However, due to the complexity and broadness of the proposal, the specific rules were withdrawn and postponed to 2018.

These rules will now be considered.

EXTENSION OF THE APPLICATION OF CONTROLLED FOREIGN COMPANY RULES TO

FOREIGN COMPANIES HELD THROUGH FOREIGN TRUSTS AND FOUNDATIONS


In 2017, the Income Tax Act was amended to address the tax consequences of applying debt relief rules.

Government has noted concerns about unintended consequences that may arise from the application of these tax

amendments.

It is proposed that further amendments be made to address these concerns.

AMENDMENTS RESULTING FROM THE APPLICATION OF DEBT RELIEF

RULES


In 2017, anti-avoidance rules dealing with share buybacks and dividend stripping were strengthened.

One of the legislative provisions specified that anti-avoidance rules would override corporate reorganisation rules to prevent

taxpayers from stripping dividends out of a target company, and thereby devaluing the company, before a reorganisation

transaction.

It has come to government’s attention that these changes may affect some legitimate transactions and arrangements.

As a result, it is proposed that the interaction of these anti-avoidance rules and some of the corporate reorganisation rules be

reviewed. In addition, anti-avoidance rules dealing with share buybacks and dividend stripping regarding preference shares

should be clarified.

REFINING ANTI-AVOIDANCE RULES DEALING WITH SHARE BUYBACKS AND

DIVIDEND STRIPPING


Definition moved to section 1(1) of the Act

‘OFFICIAL RATE OF INTEREST’


This rate is used to quantify the fringe benefit of low interest rate loans provided by employers and the amount of a donation

for low interest loans to trusts by connected persons.

Given that interest rates lower than prime are now uncommon, it is proposed that the official rate be increased to a level closer

to the prime rate of interest.

This would allow the benefit of lower rates to be measured with reference to a rate that approximates the rate

offered by commercial banks to low-risk clients.

Watch out:

Not only for section 7C

Section 23M

Section 64E(4)

Paragraphs 2(f) and (gA) of the Seventh Schedule

ADJUSTING “OFFICIAL RATE OF INTEREST” IN THE INCOME TAX ACT

CLICK TO EDIT MASTER TITLE STYLEDEVELOPER OF DWELLINGS AND CHANGE IN USE

(not budget)

Section 18B no longer applicable

Change in use now triggered when properties applied in residential dwelling letting


In order to ease the administrative burden, it is proposed that the requirement for a person receiving a tax-exempt dividend to

submit a return be repealed.

REPEAL OF REQUIREMENT TO SUBMIT RETURNS BY PERSONS WHO

RECEIVED EXEMPT DIVIDENDS


An amendment is proposed to ensure that non-compliant tax practitioners are deregistered. If a tax practitioner has not

complied on a continuous or repetitive basis and does not correct their behaviour after being notified by the SARS

Commissioner, they will be deregistered as a tax practitioner.

DEREGISTRATION OF NON-COMPLIANT TAX PRACTITIONERS


It is proposed that a taxpayer be notified at the start of an audit as part of efforts to keep all parties informed.

(PE tax court judgment later)

NOTIFICATION OF COMMENCEMENT OF AN AUDIT


SELECTED TLA AMENDMENTS 2017


CONTEXT

Section 10(1)(o)(ii) provides an exemption from employment income where employment services are rendered outside SA for 183/60 days.

SARS’ Interpretation Note 16 provides detailed guidance on the application together with examples (needs updating now).

Budget 2017 – proposed to remove exemption where individual is not liable to tax in the host country.

Draft bill – proposed a complete repeal of the exemption – i.e. not only where individual is not subject to tax in the host country – reason –

purpose was to prevent double tax, not to allow double non-taxation.

Forcing taxpayers to rely on double tax treaties and section 6quat to claim relief in the case of double tax.

SECTION 10(1)(0)(II) – 183/60 DAY EXEMPTION


AMENDMENT

Exemption still available but only in respect of the first R1 million of remuneration. Anything after that, fully taxable in SA.

For taxable portion – section 6quat or treaty (only claimable on assessment – cashflow problem – apply for hardship directive (according to

response document) and may also be taken into account on P-Tax calculations.

Reason for deviation from original proposal – original proposal would unduly benefit low tax jurisdictions.

EFFECTIVE DATE

1 March 2020, i.e. from the 2021 YOA.



GENERAL COMMENTS

2 years to plan before this change becomes effective.

Options?

Cease tax residency – source basis of tax – beware the exit charge though (does this mean giving up your passport/citizenship?). On tax residency see

SARS’ Interpretation Notes 3 and 4.

Do not confuse this exemption with the seafarer exemption which is still a full exemption (section 10(1)(o)(i)) (for more detail on this

exemption – see SARS’ Interpretation Note 34.



CONTEXT

Trusts are used to avoid wealth taxes (estate duty and donations tax), typically through the sale of assets by a natural person to a Trust on

low interest or interest free loans or advancing low interest or interest free loans to a trust to acquire assets.

The 2016 Taxation Laws Amendment Act introduced section 7C which applies w.e.f. 1 March 2017.

in essence it imposes a donations tax obligation on the person advancing a loan to a trust if that loan does not bear interest at the official rate (or on the

difference between the rate charged and the official rate if a rate lower than the official rate is charged).

The position before change was that it could only apply if there was a loan to a trust by certain natural persons and certain companies.

SECTION 7C – LOANS TO TRUSTS

Company ANatural

person ATrust A Trust A

CLICK TO EDIT MASTER TITLE STYLESECTION 7C – AMENDMENT

… company … at the instance of

…

… a natural person …

… a trust …

conn

ecte

d pe

rson

… any loan, advance or credit …

… directly or indirectly … … provides to …

… a company …

20%

or

… a beneficiary of that trust…or

equity shares … voting

rights

CLICK TO EDIT MASTER TITLE STYLEEXAMPLE

RSA trust #1

Connected persons

RSA individual #1 RSA Company #1

RSA individual #2

Loan

Beneficiary

Owns a primary residence

25%


EFFECTIVE DATE

19 July 2018

(exclusion for loans that fund acquisition of primary residence of lender (or spouse)

SECTION 7C – LOANS TO TRUSTS


CONTEXT

(Section 10(1)(1)(q))

Bona fide scholarships or bursaries provided to a person is exempt from tax.

If that scholarship or bursary is provided by an employer (or associated institution) to an employee (or relative of an employee) the amount is exempt

provided the employee agrees to repay if he/she fails.

Where the scholarship or bursary is provided by an employer to a relative of an employee, the exempt amounts are:

R20K for Gr R – 12 / NQF 1-4;

R60K NQF 5 -10; and

Only if remuneration proxy of employee does not exceed R600K.

SECTION10(1)(Q) AND (QB) – SCHOLARSHIPS AND BURSARIES


AMENDMENT

New section 10(1)(qB)

In effect - increasing exempt amounts for bursaries provided to family members of an employee if that family member is a person with a disability and

that employee is liable for family care and support of that disabled person.

In these cases, the exempt amounts are:

R30K for Gr R – 12 / NQF 1 – 4;

R90K for NQF 5 – 10; and

If that employee’s rem proxy does not exceed R600K.

EFFECTIVE DATE

1 March 2018.

SECTION10(1)(Q) AND (QB) – SCHOLARSHIPS AND BURSARIES


CONTEXT

Following retirement reform, deductions for contributions to retirements funds now all rank for deduction under section 11(k);

Given the opening words of section 11 – deductions for contributions to RA’s is only allowable against income generated from trading

activities;

Before retirement reform, deductions could be claimed for RA contributions against non-trade income (section 11(1)(n)(i)(ff)).

AMENDMENT

Section 11(k) repealed and replaced as section 11F (effectively removing the trade requirement);

Further, also prevents deductions creating an assessed loss because of the inclusion of capital gains the 27.5% cap (see example).

EFFECTIVE DATE

1 March 2016.

SECTION11(K) – RETIREMENT CONTRIBUTION DEDUCTIONS


Taxpayer 1

Both of them:

Taxpayer 2

are residents of the RSA.

The taxable income of taxpayer 1, before taking the contribution into account, is

R100 000. The taxpayer also has a taxable capital gain of R900 000.

contributed R180 000 to a retirement annuity fund.

The taxable income of taxpayer 2, before taking the contribution into account, is

R200 000. The taxpayer also has a taxable capital gain of R800 000.

Section 11F deduction R(100 000) R(180 000)

EXAMPLE


CONTEXT

Section 19 and paragraph 12A operates to trigger a tax event in the case of a debt reduction (i.e. loan waiver/cancellation).

Generally, if loan funded operating expenses, debt reduction triggers a recoupment on revenue account. Where the debt funded capital

expenses, there is reduction in base cost consequent upon waiver (donations tax also possible).

For more detail on the operation of section 19 and paragraph 12A – see SARS’ Interpretation Note 91.

Prior to amendment, there was a group exemption for the tax event on loan waiver if the loan was between a group of companies and

funded capital assets.

This “group exemption” did not exist if the loan funded revenue expenses and is subsequently waived.

SECTION19 AND PAR12A – DEBT REDUCTIONS - GOUPS


AMENDMENT

The group exemption for loan waivers where the loan funded capital assets to be extended to loans that funded revenue expenses (with

some exceptions – proviso (aa) and (bb)).

However, for both loans (capital and revenue), the group exemption only applies if the debtor is a dormant group company.

Dormant group company – a company that has not carried on any trade in the year of debt waiver and the year preceding that year (as to what

constitutes a trade – useful guide is SARS’ Interpretation Note 33.) (Draft TLAB much more stringent – required 4 years of non-trade amongst others)

NB – group is a section 41 Group – i.e. excludes foreign companies in a group (unless POE in SA – as regards POE – see SARS’

Interpretation Note 6).

EFFECTIVE DATE

1 January 2018 and applicable in respects of debt reductions that occur for years of assessment ending on or after 1 January 2018.



GENERAL COMMENT

The group exemption for loan waivers iro loans funding capital assets was not previously limited to dormant group companies. Any group

loan waiver could have qualified for exclusion (subject to a few anti-avoidance rules) from the tax event prior to the change. The EM

explains the reason for this change thus:

“In order to bring clarity to the purpose of paragraph 12A(6)(d) group exemption and uniformity to the rules under paragraph 12A of the

Eighth Schedule and section 19 of the Act in respect debt that is cancelled, waived, forgiven or discharged for dormant companies within

the same group of South African companies, it is proposed that the current paragraph 12A(6)(d) group exemption should be replaced with

a more targeted exclusion.”



CONTEXT

Debt to equity conversion:

Principle, company needs to improve B/S and then either:

Issues shares in settlement of a debt owing to a shareholder;

Issues shares to shareholder and uses the subscription proceeds to settle debt.

Is this a debt waiver/debt reduction subject to section 19 and Par 12A?

First came up in Datakor Engineering case 1998 when debt reduction rules were still dealt with in section 20, par 12 and section 8(4).

Appellate division held that issue of shares in settlement of a debt owed to a shareholder was a compromise with a creditor.

SARS then issued BPR124 – held that there is no loan waiver (small factual difference was that actual money flew) – i..e used subscription proceeds.

BPR124 was followed by: BPR173, BPR193, BPR208, BPR213, BPR246, BPR255 – all with slightly different facts but at its core the same question. In

most cases, SARS ruled that there is no tax consequence on conversion.

SECTION19 AND PAR12A – DEBT:EQUITY CONVERSIONS AND AVOIDANCE


AMENDMENT

Where debt is reduced by way of issue of shares (in a group – i.e. debtor and creditor is a company) there is no debt waiver tax

consequence (both capital and revenue accounts).

Anti avoidance measures included to prevent forced reliance on conversion rules by creating a group.

Where the debt is waived by way of share issue (not in a group) – Tax benefit:

If no shares prior to conversion – the tax benefit is the amount by which face value of debt pre conversion exceeds market value of shares post

conversion.

If shares pre conversion – tax benefit = the amount by which market value after shares after conversion exceeds market value of shares prior to

conversion.

EFFECTIVE DATE

1 January 2018

SECTION19 AND PAR12A – DEBT:EQUITY CONVERSIONS AND AVOIDANCE


CONTEXT

Based on the 2017 EM Government had two problems –

People are entering into share buy-back transactions that avoid CGT (or income tax); and

People are stripping value through declaration of excessive dividends and then selling the shares are at nominal value.

PARAGRAPH 43A – ANTI AVOIDANCE- BUY BACKS AND DIVIDEND STRIPPING


CONTEXT

So they needed to stop it. How – through changing paragraph 43A and section 22B.



CONTEXT

43A - not for share buy backs really – dividend stripping

Dividend stripping – rule prior to change:

Company value stripped by pre share sale dividend declared to company shareholder (exempt from DWT);

Shares sold at nominal value (very little CGT or very little taxable on revenue if held as trading stock) (or a loss);

Rules introduced to add exempt dividend to proceeds on sale of actual shares in the case of CGT and to income in the case of revenue; and

Only applicable where prospective purchaser (or his connected person) in some way funded the pre-sale dividend and the prospective seller owns at least

50% of the shares in the target.

Current rules not sufficient – shareholding of 50% must change to a shareholder who has sufficient influence to cause a distribution to

decrease value and purchaser funding not enough plus need to deal with share buy back transactions.



AMENDMENT

First round (draft bill) – add exempt dividend iro of disposal to sale proceeds if

the exempt dividend was received within a period of 18 months prior to the disposal of the share; or

If the exempt dividend was received in respect, by reason of or in consequence of the disposal (in other words, at any time).

No purchaser funding requirement and qualifying shareholding dropped to 20%(and no other controlling interest).



AMENDMENT

Comment on draft bill:

“The extended anti-avoidance measures will apply to share sale transactions where there is no avoidance taking place as the measures will taint all

dividends received in the preceding 18 months irrespective of whether they are related to or linked to the share sale. The dividend policies consistently

applied by companies are ignored. It is proposed that the rule focuses either on extraordinary dividends or that the 18 month period should be reduced to

12 months.”



AMENDMENT

Response from NT:

“Partially accepted. The period of 18 months will remain. However, in addition to the anti-avoidance measures applying in respect of dividends arising by

reason of or in consequence of a share disposal, the 2017 Draft TLAB will be changed to limit the application of the rules to dividends that are considered

excessive as compared to a normally acceptable dividend (known as extraordinary dividends) received by a company within 18 months preceding the

disposal of a share in another company. In this regard, any dividends received within 18 months preceding a share disposal in respect of that share that

exceed 15 per cent of the higher of the market value of the share disposed of (as determined at the beginning of the 18 month period and the market

value of the shares on the date of disposal) will be treated as extraordinary dividends and will therefore be subject to the anti-avoidance measure.”



AMENDMENT

Intention therefore:

If the dividend was received within a period of 18 months prior to the disposal and that dividend was an extraordinary dividend then par43A will apply (i.e.

dividends in the past 18 months only triggers 43A if it was extraordinary); and

If the dividend was received by reason of the disposal then paragraph 43A will apply (in other words at any time and irrespective of whether or not the

dividend is an extraordinary dividend??????).

Can you just wait 18 months and dodge 43A?



AMENDMENT

Extraordinary dividend:

Based on response document:

“any dividends received within 18 months preceding a share disposal in respect of that share that exceed 15 per cent of the higher of the market

value of the share disposed of (as determined at the beginning of the 18 month period and the market value of the shares on the date of disposal)”

In other words:

Check if there was any dividend in the 18 months prior to time of disposal;

If so check what the market value of the share was at the beginning of the period of 18 months and what the market value was at the date of

disposal;

Determine the highest value;

Take 15% of the highest value; and

If the dividends received is more than 15% of that highest value, then it is an extraordinary dividend and you fall into the anti-avoidance

measure.



AMENDMENT

50% shareholding requirement broadened:

At least 20% and no majority shareholder (in the case of a private company);

At least 10% if company is listed.

Only if exempt dividend is an extraordinary dividend:

If it’s a pref share where dividend is determined by a rate of interest – the difference between actual rate and 15% (if rate higher than 15%);

Timing of event;

In the tax year of disposal of shares or if dividend is received after the year of disposal, the year in which the dividend is received.

PARAGRAPH 43A – ANTI AVOIDANCE- BUY BACKS


AMENDMENT

19 July 2017.

GENERAL COMMENTS

Paragraph terribly drafted in my view.

PARAGRAPH 43A – ANTI AVOIDANCE- BUY BACKS


CONTEXT

Various provisions in the Act provides for a tax event in respect of interest that should have been charged on certain loans:

Interest free loans to employees trigger a fringe benefit under 7th Schedule equal to the amount of interest that would have been charged;

Section 7C provides for a deemed donation on interest that should have been charged;

Low interest or interest free loans to a shareholder of a company triggers a deemed dividend of the amount of interest that should have been charged.

The in duplum rule states that interest charged on a loan may not exceed the capital amount outstanding (NCA provisions expand this rule

to include other finance cost.

Therefore, where interest that should have been charged on an employee loan, a loan to a trust or a loan to a shareholder equals the

capital amount of the debt in question, no further tax event should arise in consequence of the application of the in duplum rule.

SECTION 7D – IN DUPLUM RULE


AMENDMENT

The in duplum rule does not apply in these cases.

EFFECTIVE DATE

1 January 2018 and for years of assessment starting on or after this date.

GENERAL COMMENT

Does the in duplum rule apply to debts owed to SARS?

Appears unclear from case law but unlikely to be applicable (debt arising under contract vs debt arising from statute).

SECTION 7D – IN DUPLUM RULE


CONTEXT

Government grants listed in the 11th schedule is exempt from income tax ito section 12P.

Where an exempt grant is received, the taxpayer may not obtain a tax benefit for expenses funded with the exempt grant (double dipping). I.e. cant claim operating expenses as deduction if those operating expenses were funded by an exempt grant – same principle with capital assets and allowances.

Where the exempt government grant is in-kind (an asset), the general rule is that the anti-double dipping rule will find its way to application in the principle that a taxpayer has not incurred any cost for that asset and therefore no deduction should be allowed.

Section 22 of the Act (Trading Stock), however, has a deemed cost rule (section 22(4) – market value) which defeats the anti-double dipping rules.

AMENDMENT

Deemed cost rule in 22(4) – does not apply to grants in-kind.

EFFECTIVE DATE

18 December 2017.

SECTION 22 AND SECTION 12P – GOVERNMENT GRANTS IN KIND


CONTEXT

No clear rules on VAT treatment associated with leasehold improvements and the correct treatment has long been debated where leasehold improvements are effected for no consideration.

In 2012 SARS issued a draft interpretation note that was intended to give guidance but this was never finalized.

Specific rules now included in the VAT Act.

AMENDMENT

New Sections:

8(29) – deemed supply - Lessee is deemed to make a supply for VAT purposes of leasehold improvements if done for no consideration;

9(12) – time of supply – at the time the leasehold improvements are completed;

10(28) value of supply – equal to Rnil;

Effect – lessee can claim VAT on cost of leasehold improvements as an input tax credit as deemed to make a taxable supply for Rnil;

There is a reversal if the lessor does not use to make taxable supplies – reversal in the hands of the lessor. (new section 18C)

EFFECTIVE DATE

1 April 2018.

VAT – LEASEHOLD IMPROVEMENTS

CLICK TO EDIT MASTER TITLE STYLENEW ANTI-AVOIDANCE MEASURE TO CURB DIVIDENDS TAX AVOIDANCE –

SECTION 8G

Intermediate Hold Co.

Foreign Co.

Sub. Co.

Receives shares

Dividend

exempt from

the dividends

tax

Issues shares Reduction in

CTC

Resident in the RSA

Step 1: An asset-for-share transaction.

Step 2: The CTC is equal to the market value of the shares in Sub. Co.

The transaction merely reorganises ownership within the group … with no or limited

movement of operational assets.

CLICK TO EDIT MASTER TITLE STYLEDETERMINATION OF CONTRIBUTED TAX CAPITAL IN RESPECT OF SHARES

ISSUED TO A GROUP COMPANY

AMENDMENT:

Introduction of new section 8G;

Deems CTC of intermediate Holdco to be the same as the CTC in the orginal subCo

EFFECTIVE DATE

19 July 2018


SELECTED COURT JUDGMENTS


FACTS

Taxpayer sells goods to a customer (say for example R4m).

Taxpayer intends to a make a donation of R2 million to a charitable trust (who is in some way connected to customer).

As opposed to making a R2million cash donation, taxpayer credits sale by R2million and says to customer – make sure the further R2

million you were supposed to pay to me finds its way to the trust.

So taxpayer recognizes the sale of R4million and passes credit note for R2million but shows the credit note as an expense in the AFS (i.e.

not a reduction in the sales/turnover) – For BEE Points.

SARS disallows the expense of R2m and adds understatement penalty of 100% - onus of proof not discharged.

IT14055 – DISALLOWED EXPENSES


HELD

As regards the R2 million expense:

Taxpayer provided no satisfactory evidence. Taxpayer provided credit notes and explanation as to the cause of the expense – i.e. the facts leading up to

the existence of the expense per the AFS but nothing to prove entitlement to the expense (or that the amount should be excluded from gross income).

Onus of proof not discharged.

As regards the penalty:

SARS imposed – gross negligence.

Court, where a person relies on incorrect professional advice – that person is not grossly negligent.

Penalty reduced to 50% - no reasonable grounds for tax position (beware civil claims).

(no grounds for remission argued in case the court found a penalty to be imposed?).

IT14055 – DISALLOWED EXPENSES


FACTS

SARS issued an additional assessment in 2016 on the taxpayer for an amount of R1.2m odd iro 2014 tax year.

Basis for the additional assessment completely unknown to the taxpayer nor was the taxpayer informed of the reason.

Taxpayer lodged objections which were seemingly all rejected by SARS.

SARS proceeded with collection steps by appointing third party

Taxpayer brought interdict application to stop third party appointment.

HC - VUYISILE ZAMINDLELA NONDABULA V SARS (SECTION 96)


HELD

The additional assessment could only have been an estimated assessment in terms of section 95.

Assessments must comply with the provisions of section 96 (whole host of things that must be included). In the case of an estimated

assessment, the assessment must indicate the grounds for assessment.

(date for paying the amount assessed; summary of procedures for lodging an objection etc).

This was never included.

Taxpayer won.



TAKE AWAY

Assessments must comply with section 96 of the TAA. If they don’t, SARS acted unlawfully and unconstitutionally.

Examples in practice – dividends tax assessments – all you get is a statement of account and the statement of account “never” complies

with section 96.

Can you object? – yes, there is an assessment. It may be worthwhile pursuing a different avenue (High Court Application – PAJA?).



FACTS

the taxpayer was held liable by SARS for STC which it had not taken into account in determining its selling price for a business because at

the time of the transaction, the legislation allowed for an exemption/exclusion for STC.

However, following promulgation of the 2007 Amendment Act, a couple of months after the taxpayer had concluded the transaction, this

exemption/exclusion (more accurately described as a “loophole”) was removed retrospectively to a date before the taxpayer’s transaction

was concluded.

In short therefore – legislation was enacted retrospectively to the prejudice of the taxpayer.

Court asked to rule on whether it is allowed to enact the amendment retrospectively.

HELD

Judgment is 156 pages – in short – retrospectivity was lawful because the taxpayer was sufficiently forewarned through earlier publications

and in the budget speech .

HC – PIENAAR BROTHERS V SARS (LEGALITY OF RETROSPECTIVE

LEGISLATION)


TAKE AWAY

Budget speech is extremely important!

Considering the Draft Bills is extremely important.

Examples this year:

Section 7C - TLA promulgated 18 December 2017. Amendment effective – 19 July 2017 (date of publication of the Draft Bill).

Paragraph 43A (“buy-backs”) – effective 19 July 2017.

HC – PIENAAR BROTHERS V SARS (LEGALITY OF RETROSPECTIVE

LEGISLATION)


FACTS

Income Tax

Taxpayer submitted a p-tax return and paid all tax due for the year under provisional tax.

When submitting the income tax return for the year, taxpayer submitted nil returns as “no trade” (if no trade, where do you get the money to pay the tax?)

Subsequently discovered that taxpayer was trading and that it should not have submitted nil returns.

SARS raised an assessment and levied 25% (initially 100%) understatement penalty.

VAT

Taxpayer never registered for VAT and did not submit VAT returns.

Taxpayer was, however, charging VAT.

Assessments raised and 50% (initially 100%) understatement penalty imposed.

TC – IT14247 (PREJUDICE AND UNDERSTATEMENT PENALTIES)


FACTS

Issue before the court – did SARS suffer any prejudice because of the taxpayers omission on the income tax returns and default in

rendering VAT returns.

If so, penalties may be imposed and may be increased by the court.



HELD

Income tax

There was a prejudice despite taxpayer having paid P-tax. P-tax payments could not form part of Government Budgetary process – could not be used to

fund government expenses– prejudice clearly exist.

Opportunity cost and resource allocation also a prejudice.

Penalty increased to 100% ( “gross negligence”).

VAT

There was a prejudice.

Penalty increased to 100%.



TAKE AWAY

The wording here (and in section 92 of the TAA) is “any prejudice” – very wide!

Examples: Dividends tax returns on receipt of an exempt dividend:

Failure to submit return - default.

Prejudice? Opportunity cost, resource allocation?

Shortfall? Rnil.



FACTS

Assessments raised by SARS – invoking the GAAR.

Taxpayer requested reasons under rule 6 of the rules and specifically asked for:

Details of the transaction, operation, scheme, agreement or understanding" which was included in each "arrangement" relied on by SARS in the

assessment; and

Why these arrangements are “abnormal” (both very important to understand the basis for invoking GAAR).

SARS responded – sufficient reasons provided in the letter of assessment.

Taxpayer brought a rule 52 application for the court to order SARS to give reasons.

TC – 033/2016 (REASONS – ADEQUATE?)


HELD

Reasons required are adequate reasons – Phambili case (Sprigg Investments case?);

Taxpayer clearly from previous correspondence to date understood exactly the basis the for the assessment.

SARS provided adequate reasons.

Taxpayer using delay tactics.

Case dismissed.



TAKE AWAY

Asking for reasons is important – some merit in arguing adequate reasons are required (despite Sprigg Investments).

Rule 52 of the Tax Court rules make provision for various applications:

Declare an objection valid;

Extend the period for lodging an objection;

Extend period to provide more documents;

Extend period to lodge and appeal (see later).



FACTS

Taxpayer – natural person.

SARS audited – 2007 – 2010 years of assessment and included initially R16.9m odd in gross income over these years(using bank

statements).

Taxpayer objected.

Objection partially allowed and amount reduced to R5.7m odd over various tax years.

Taxpayer appealing – R5.7m is capital in nature and not to be included in gross income – SARS says, taxable

Taxpayer called one witness – accountant!

Date of assessment in dispute to date of judgment – 5 years!

TC – IT13695 (CAPITAL AND ONUS OF PROOF)


FACTS

The taxpayer owned various companies and trusts.

There were several transactions between several of the companies and the trusts and the taxpayer and other natural persons (repayment

of loans, fund transfers, refunds of attorney fees etc) in most cases, the taxpayer’s bank account was used for all these transactions.



HELD

The taxpayer could not prove on a balance of probabilities that amounts received were not hers or that it was a repayment of loans or fund

transfers etc.

The amounts were received by the taxpayer and in absence of evidence to the contrary – everything belongs to the taxpayer and is

taxable!

200% additional tax confirmed.



TAKE AWAY

It is easy to make arguments/statements – proving the facts on which they are based is a different story.

Ensure complete segregation of entities and bank accounts and have proper accounting records.

Often I get asked – what is SARS going to do – there is no information!

TC – IT13695


FACTS

SARS audit, additional assessment and objection.

On 8 November 2013 – objection disallowed.

On 9 December 2013 – appeal lodged on e-filing (NOA).

On 30 June 2014 – follow up with SARS:

SARS has no record of the appeal.

Filed NOA again – and requested condonation – reason for delay – faulty internet line.

10 February 2015 – SARS refused condonation but practitioner only became aware of refusal 20 June 2015 (notice sent to previous

practitioner despite noting specific address in NOA).

On 23 June 2015 – practitioner files another NOA.

TC – 0018/2016 (CONDONATION OF LATE APPEAL)


FACTS

Response from SARS – we cannot extend beyond the 75 days. You are more than 75 days late. Sorry.

Taxpayer launched rule 52 application to ask the court to condone the late appeal;

HELD

Correct interpretation - SARS has the power to extend the period for lodging an appeal for up to 75 business days from the date of the

request [for condonation]??? (seemingly because section 107(2) does not specifically state from when the extension periods must be

counted – can be inferred as the intention – interpretation of statutes).

Further considerations for condonation:

Failure fault of the taxpayer?

Extent of the delay and the time period within which steps were taken to remedy the delay.



HELD

Whether condonation will prejudice SARS.

Whether there is reasonable prospects of success.

Faulty ADSL line is not the taxpayer’s fault;

2 days after becoming aware that no appeal was filed – filed another;

Prospects of success good – (SARS failed in administrative duties).

“SARS is legally obliged to consider supporting documentation tendered to it by a tax payer so as to arrive at a decision.” (PTA East

Motors).

TAKE AWAY

Previously dead in the water cases (post 75 days) may have a chance now?



FACTS

In 2007 taxpayer sold an asset and made a capital gain (R9.7m) and was assessed by SARS as such;

Some time later, purchaser defaulted on payment and sale cancelled. Taxpayer kept payments to date. Only R4.5m of the R17m had been

paid;

Given cancellation of the sale, taxpayer wanted SARS to reduce 2007 assessment;

SARS refused and said taxpayer can get a capital loss in year of cancellation;

Capital loss does not shield any gain (cash flow) – taxpayer applied to High Court to have SARS decision not to fix 2007 assessment

reviewed (could not object to 2007 assessment – assessment became final) – that application was dismissed;

Taxpayer appeals to SCA making interesting arguments (probably knowing that 8th schedule does not permit carry backs).

SCA – NEW ADVENTURE SHELF VS SARS


HELD

Appeal dismissed (cannot carry back).

TAKEAWAY

“In any event, even if in certain instances it may seem ‘unfair’ for a taxpayer to pay a tax which is payable under a statutory obligation to do

so, there is nothing unjust about it. Payment of tax is what the law prescribes, and tax laws are not always regarded as ‘fair’. The tax

statute must be applied even if in certain circumstances a taxpayer may feel aggrieved at the outcome.”

SCA – NEW ADVENTURE SHELF VS SARS


FACTS:

The IT34 was issued to the taxpayer before this letter of audit findings were sent to the taxpayer. The grounds for the assessment were

given as “see letter”.

HELD:

The respondent's non-compliance with sections 40 and 42 of the TAA clearly offends both the Constitution and the principle of legality.

Accordingly, the respondent's decision to conduct an additional assessment without notice, must be set aside as it does not comply with

the peremptory prescripts of the applicable legislation and it is also constitutionally unsound. In the circumstances, the assessment is found

to be invalid:

TAKE AWAY:

SARS are bound by the provisions of the TAA, PAJA and Constitution – failure to comply may result in assessment being unlawfull.

NOTIFICATION OF ADJUSTMENT OF ASSESSMENT


SELECTED TALAA AMENDMENTS 2017


CONTEXT

When a taxpayer exceeds the R1 million threshold – they must deregister from turnover tax. As deregistration will in most cases be back

dated, there may be a period where the taxpayer has not filed a return timeously or may not have correctly attended to P-tax.

This leads to penalties.

AMENDMENT

Section 48C – exemption from penalties under chapter 15 TAA and underpayment of p-tax if penalties arise solely in consequence of

transition.

EFFECTIVE DATE

Effective 1 March 2018 and for YOA commencing on or after 1 March 2018.

MICRO BUSINESS DEREGISTRATION– TRANSITION RULES


CONTEXT

Every person who pays and/or receives a dividend must submit a dividends tax return (persons who receive tax free dividends under

section 12T do not have to).

AMENDMENT

Retirement funds (pension fund, pension preservation fund, provident fund, provident preservation fund, retirement annuity funds and

certain beneficiary funds) similarly no longer required to submit a dividends tax return.

EFFECTIVE DATE

18 December 2017.

DIVIDENDS TAX RETURNS – SECTION 64K


CONTEXT

If dividends tax is withheld but required declarations are obtained within 3 years after payment of the dividend – share owner can get a

refund of dividends tax withheld (s64L – M).

A dividend may be due and payable in year 1 and only paid 2 years later. The current wording suggests that refunds can only be made if

declarations are obtained within 3 years from year 1 (payment of the dividend) when the dividend was only actually paid 2 years later.

AMENDMENT

3 year period runs from date of payment of the dividend and not the date that dividends are “deemed to be paid” under the Act.

EFFECTIVE DATE

18 December 2017.

DIVIDENDS TAX - REFUNDS


CONTEXT

Reimbursive travel allowances are not subject to PAYE whether taxable or not.

AMENDMENT

Now subject to PAYE if reimbursed at rate higher than prescribed rate, irrespective of distance travelled. (prescribed rate – R3.55). Only

the excess portion subject to PAYE.

Example:

1000km at R5per km. PAYE on (R5 – R3.55) x R1000. NB – not only 80% of that amount.

EFFECTIVE DATE

1 March 2018.

PAYE – REIMBURSIVE TRAVEL


CONTEXT

Retirement fund contributions reduce the amount subject to PAYE.

The extent to which it reduces the amount subject to PAYE is problematic given the deduction limits are annual limits.

AMENDMENT

The PAYE deduction for contributions to retirement funds will be capped based on the following formula:

R350 000 x period employed/12.

Example – employee employed for seven months. Cap for PAYE over the period:

R350 000 x 7/12 = R204 166.67 (R29 166.67 x 7).

EFFECTIVE DATE

1 March 2018.

PAYE – RETIREMENT FUND CONTRIBUTIONS


CONTEXT

Not all decisions made by SARS are subject to objection and appeal. Those that are not subject to objection and appeal – may be

reviewed by SARS “internally” under section 9 of the TAA.

Examples – decision not to pay a refund, decision not to grant suspension of payment – decision to audit a taxpayer – decision not to accept a VDP

application …

Decisions given effect to in an assessment – may not be reviewed 9 (they should be objected to).

There are cases where a decision is given effect to in an assessment that is not subject to objection and appeal (?)

AMENDMENT

These decisions are now reviewable under section 9 also unless that decision is subject to objection and appeal. (see SARS’ dispute

resolution guide – Annexure C.

EFFECTIVE DATE

18 December 2017.

“DISPUTE RESOLUTION” – SECTION 9 TAA


CONTEXT

Several of the interest provisions in the TAA (chapter 12) are not yet effective.

AMENDMENT

Minister of Finance granted authority to phase in TAA interest provisions by public notice.

EFFECTIVE DATE

18 December 2017.

INTEREST – EFFECTIVE DATES


Context:

PAYE is calculated on remuneration – remuneration includes fringe benefits

Fringe benefits includes right of use of a motor vehicle

Regulations issued to calculate the determined value.

Amendment

In the case of motor dealers, manufactures, importers and rental companies, determined value for new vehicles is

Dealer billing price (incluiding VAT) [use to be excluding VAT]

For other employers – still the same as before – dealer billing price including VAT

Effective date

1 March 2018

PAYE CHANGES – FRINGE BENEFIT


CONTEXT:

When are you supposed to include interest earned by SARS in taxable income?

When it accrues - difficulty due to timing

AMENDMENT

new section 7E

Interest payable by SARS is deemed to accrue to that person on the date on which that amount is paid to that person.

Effective Date

amounts of interest paid by SARS on or after 1 March 2018.

TIME OF ACCRUAL OF INTEREST PAYABLE BY SARS


SELECTED RULINGS


PROPOSED TRANSACTION 267

SA Co with Swedish Shareholder Company intends to distribute dividend to shareholder.

SA/Sweden Treaty – If any treaty between SA and another country reduces dividends tax to lower than 5%, then the lower rate must apply

to dividends by SACo to Sweden.

SA/Kuwait treaty – Dividends taxable only in Kuwait (i.e. no dividends tax in SA).

PROPOSED TRANSACTION 276

Same facts except shares are redeemable pref shares (redeemable after 15 years at discretion of shareholder).

RULING

No dividends tax required to be withheld by SA Co on dividends to Swedish Shareholder.

the purpose of BPR276 is ostensibly to establish whether the distribution on the preference share would be considered a dividend for the

purposes of the treaty (i.e. that SARS cannot later say that although the set up may escape domestic anti-avoidance provisions, it does not

escape treaty even though this was not asked).

BPR 267 AND 276 – MOST FAVROUED NATION – DWT


PROPOSED TRANSACTION

Co-applicant intends to unilaterally waive/renounce right to claim against applicant.

BPR 273 – WAIVER OF CONTRACTUAL RIGHT

Company A

Applicant Co applicantRight to claim produce against

Applicant annually


RULING

No donations tax obligation (group exemption – s56(1)(r);

Par 38 of 8th schedule not applicable (arguably because the disposal through renunciation is to nobody in particular).

Neither section 19 or paragraph 12A applicable:

While the right to claim the produce is arguably a ‘debt’ it is likely that the debt was not used to fund any expenditure in the applicant and hence there is

nothing to recoup in the applicant.

Whilst there is indeed a supply by Co-applicant to Applicant for VAT purposes, the value of supply is Rnil. Section 10(4) – deeming

provision – not applicable (probably because the applicant was not required to apportion input tax credits).

BPR 273 – WAIVER OF CONTRACTUAL RIGHT


BACKGROUND

Taxpayers who invest in VCC’s get a deduction for the cost of the share – very good incentive.

Typically – investor identifies a target and then approaches a VCC through which to make the investment to get the tax benefit (typically the

VCC will issue a specific class of shares to ringfence the investment – several rulings on this).

Investor here probably identified a solar electricity company as target and VCC wanted to make sure that the way they are doing it will not

compromise their status as VCC.

BPR 274 – VCC’S AND IMPERMISSBLE TRADE


PROPOSED TRANSACTION – the parties


Company A (GP)

Applicant (VCC)

Operating company

Natural

persons (LP)

En

com

mandite

par

tners

hip

Class A Shares 20% class B Shares

(but will pay value of

70% shares)



Class B share “terms”

Shareholder entitled to distributions equal to subscription price plus a cumulative nominal annual compounded monthly return (smells like “debt”);

Dividends to be paid out of excess or free cash (equity flavor);

Class A shareholders only entitled to distributions once class B shares distributions made (looks like prefs);

Once class B shareholders received return, A and B will rank equally in all respects;

Until B distributions paid, B shareholders will have 50% voting right (pref share?). Once paid, a share will carry a single vote.




Activities of operating company:

Partnership to cede and assign all rights in a Solar service agreement to operating company . Under the agreement, operating company will be required

to provide solar electricity to customers.

To ensure fulfilment of obligations under contract, Operating company will subcontract company A but operating company will continue to own all the

underlying assets such as solar panels etc.



RULING

VCC only getting 20% so will not be seen as controlling group company (despite paying for 70% shares);

Class B shares issued by operating company will be “equity share” and therefore “qualifying shares”;

Solar panels are immovable property and hence not impermissible trade (in respect of immovable property);

Amounts received by operating company from customers are not rental income and therefore not investment income.




BPR 287 – SECTION 42

ApplicantCompany A

Co applicantDispose of property

Issue of sharesRender Services



Services to be rendered by Company A:

Procure the rezoning of the property for business purposes; • execute technical and impact studies; • coordinate a professional team that will include

architects, engineers, and quantity surveyors to design “a comprehensive building package”; • market the intended convenience retail centre to potential

lessors and secure lessors for it; • prepare financial feasibility studies and compile a detailed financial plan; • identify the potential development company

that will purchase the property for further development into a convenience retail centre and to secure a purchase agreement in respect of the property and

the comprehensive building package with that development company; • oversee critical negotiations; and • ensure that the co-applicant can meet the

suspensive conditions of the transaction.

RULING

The sale of the property will qualify for section 42 roll-over.

(Fairly simple facts – why ruling).

The issue of further shares to another company – shifting of wealth appears to be the reason for the application. The ruling however does not, in my view,

serve to protect the parties – SARS will not issue rulings on ant avoidance – the fact that the sale is a 42 sale is clear.

BPR 287 – SECTION 42



Applicant has a SED and ED obligation calculated as a percentage of turnover consequent upon an agreement with Government.

Failure to comply with obligation will result in “termination points” but termination points can never have the effect of cancelling the

agreement.

Applicant established a trust to which SED and ED payments are to be made to comply with agreement and the trust will use the funds to

run certain projects.

RULING

Payments are deductible under section 11(a) read with 23(g); and

No donations tax obligation triggered under 55 or 58.

(no rulings list – whether expense is capital in nature – factual in nature? By issuing the ruling as they did they clearly made a decision that

the expense is not capital in nature) Also section 58(1) on no rulings list?

BPR 282 – SOCIO ECONOMIC AND ENTERPRISE DEVELOPMENT EXPENSES


Why apply for a ruling (the fact that non-compliance would not result in termination of the agreement may raise questions as to

whether in the production of income and may also be seen as capital in nature).

BPR 282 – SOCIO ECONOMIC AND ENTERPRISE DEVELOPMENT EXPENSES


BACKGROUND

7th Schedule – par 2(e) free or cheap services – fringe benefit.

Carve out in paragraph 10(2)(b) – conveyance of employees from place of home to place of employment and vice versa– “no fringe

benefit”. (technically still a fringe benefit – cash equivalent is just deemed to be Rnil).

Issue in practice – what is “place of home” (is a central collection and drop off point place of home?).

RULING

Carve out (i.e. no Fringe benefit if) expanded (or explained):

“Transport services provided to employees to and from any collection or drop-off point en route to or from the employees’ homes and place

of employment is accepted to fall within the provisions of paragraph 10(2)(b). No value will, therefore, be placed on these transport

services”.

BGR 42 – FRINGE BENEFIT – EMPLOYEE TRANSPORT


BACKGROUND

ETI gives incentive to employers employing qualifying employee.

Incentive only available if, inter alia, employer pays minimum wage.

Minimum wage is whatever the wage regulating measure says it is if there is one.

If there is no wage regulating measure then must pay at least R2 000 (if employed full time) if the employee works at least 160 hours a

month.

The issue is – what is the minimum wage if not employed full time? I.e. does not work at least 160 hours.

In short, you must do a gross up of wage assuming 160 hours and if that is more than or at least equal to R2 000 – then fine.

Simple in theory, but what hours do you add together to determine number of hours worked.

RULING

“The 160 hours stipulated in section 4(1)(b) must consist of only ordinary hours of work and do not include overtime or hours other than

ordinary hours of work.”

BGR 44 – MEANING OF 160 HOURS


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