Author: Joon Chong, Tax Partner at Webber Wentzel. The recent Tax Court (Cape Town) judgement of IT 24510 confirmed that amounts received by a retailer for the sale of gift cards were not “received or accrued” for purposes of the gross income definition. The taxpayer had not included proceeds from the sale of gift cards as gross income in the year the gift cards were sold, which resulted in the additional income tax assessment and dispute. The court held that the taxpayer had correctly accounted for the value of the cards as gross income on the earlier of the year when the cards were redeemed, or expired. Based on the court’s reasoning, it is submitted that there are strong grounds to argue that there is also no liability to account for value-added tax on the same basis, i.e. not when the cards are sold but when they are redeemed or Read More …
Author: Nyasha Musviba
Unforeseen preference share amendments
Author: Brian Dennehy, Khurshid Fazel and Joon Chong, at Webber Wentzel. The 2019 Taxation Laws Amendment Bill (TLAB) was tabled with the Medium Term Budget Policy Statement on 30 October 2019. The TLAB contains a significant amendment to the definition of “hybrid equity instrument” in section8E of the Income Tax Act, which will deem any distributions made within 3 years of the date of issue of a preference share to be treated as normal income and fully taxable in the holder’s hands.
The capitalisation of interest and section 8F
The provisions of section 8F of the Income Tax Act, 58 of 1962 (the Act) regulate hybrid debt instruments. Broadly speaking, from the time that an interest-bearing debt qualifies as a hybrid debt instrument, the interest incurred in respect thereof will be deemed to be a dividend in specie that is declared by the company which incurred such amount (i.e. the borrower) to the person to whom that amount accrued (i.e. the lender). Furthermore, the borrower is denied a tax deduction in respect of such interest.
Unbundling transactions by listed companies what are the tax implications for shareholders?
From time to time, listed companies unbundle shares to their shareholders. It is important for the shareholders to understand the tax implications which may arise upon the receipt of the shares.
Offshore Trusts: the basic considerations and recent amendments
A new world The world of offshore trusts is now more dynamic than ever. The benefit of trusts as effective tools for the preservation of assets for future generations has been commonly known and accepted for decades. Globally, the trust environment has changed significantly due to the introduction of the Common Reporting Standards and resulting Automatic Exchange of Information between various revenue authorities around the world. The identities of original funders and beneficial owners are no longer protected.
Inbound interest bearing loans section 31 versus section 23M of the Income Tax Act
There can be no objection in principle to the deduction of interest on loans in suitable cases. Loan capital is the life blood of many businesses but the mere frequency of its occurrence does not bring about that this type of expenditure requires different treatment. Whilst these words of Hefer JA in the well-known judgment of Ticktin Timers CC v The Commissioner for Inland Revenue (1999 (4) SA 939 (SCA) at 942I) are still apposite two decades later, there has been increased focus by National Treasury on cross-border financing and how it may lead to tax avoidance, base erosion and profit shifting. As a result of this scrutiny, sections which are intended to have an effect on the deductibility of interest incurred in respect of cross-border loans have been included in the Income Tax Act No. 58 of 1962 (the Act). For the current purposes, we have only focused on Read More …
High Court litigation against SARS: Changes coming?
Author: Louis Botha. On 17 September 2019, the South African Revenue Service (SARS) released a Media Statement regarding the steps that SARS has taken in implementing the Nugent Commission (Commission) recommendations (Media Statement).
Binding Private Ruling: Roll-over relief can also apply to transactions involving non-resident companies
Authors: Louise Kotze and Louis Botha. The Income Tax Act, No 58 of 1962 (Act) provides for roll-over relief in respect of any capital gains that would normally be realised pursuant to the disposal of an asset, provided the requirements of the relevant roll-over relief provision in the Act are met. For example, in terms of s47 of the Act, transactions relating to the liquidation and winding-up of companies, can qualify for roll-over relief so that the capital gains liability that may arise in the normal course of the transaction will be deferred and no capital gains tax (CGT) will be payable at the time that the transaction in concluded.
Sharing is caring – ruling on disposal and acquisition of shares by a PBO
Authors: Louis Botha and Jessica Osmond.The Income Tax Act, No 58 of 1962 (Act) states that where a non-profit company, trust or association of persons meets certain requirements in the Act, it can be approved by SARS as a public benefit organisation (PBO), which enjoys certain tax benefits. To obtain approval a PBO is required, amongst other things, to carry on public benefit activities (PBAs) with a philanthropic intent and in a non-profit manner. However, it may happen that a PBO has excess funds that it would like to invest to earn interest, for example, which interest it would then also use to carry on public benefit activities.
Methods used by taxpayers to write down trading stock to be rewritten?
Author: Jerome Brink. In its simplest form, s22 of the Income Tax Act, 58 of 1962 (Act) is a timing provision which ensures that the cost of trading stock in the hands of a taxpayer matches the income earned in respect of that trading stock sold, or otherwise disposed of. The 2019 Draft Taxation Laws Amendment Bill (2019 Draft TLAB) proposes a key amendment to the manner in which taxpayers can write trading stock down at the end of any year of assessment which will have far-reaching implications for many taxpayers.