Public benefit organisations (PBOs) play an important role in society as they relieve the financial burden on the state to undertake public benefit activities. Tax exemptions and deductions are available to assist PBOs achieve their objectives. The sole or main object of a PBO must be to conduct a public benefit activity. The PBO’s public benefit activity must, in accordance with s30 of the Income Tax Act, No 58 of 1962 (Act), be carried out in a non-profit manner and with an altruistic or philanthropic intent. Consequently, a PBO which carries on a public benefit activity with the sole purpose of making a profit will act contrary to the fundamental objective of a PBO. However, in a situation where a PBO, as part of undertaking a public benefit activity carries on a business undertaking or trading activity and earns income, is the PBO contravening the provisions of s30 of the Read More …
Author: Nyasha Musviba
Withdrawal of rebate in respect of foreign taxes on service fees sourced in South Africa
With effect from 1 January 2012, the South African Government introduced s6quin of the Income Tax Act, No 58 of 1962 (Act) which provides for a rebate in respect of foreign taxes paid by a South African resident for services rendered within South Africa. In terms of the various treaties for the avoidance of double taxation that South Africa has with other countries, the country that is the source of the income generally has the sole right to tax that income. In respect of services, the country in which the services are rendered is generally understood to be the source of the income in relation to such services.
Changes to reportable arrangements previously listed in draft notices
On 16 March 2015, the Commissioner for the South African Revenue Service published Public Notice No. 212 in Government Gazette No. 38569 listing certain arrangements as ‘reportable arrangements’ for purposes of s35(2) and s36(4) of the Tax Administration Act, No 28 of 2011 (TAA) (Notice). With effect from the date of publication of the Notice, all previous notices issued under s80M(2)(c) and s80N(4) of the Income Tax Act, No 58 of 1962 (ITA) and s35(2) of the TAA were replaced.
Binding Ruling – SARS ruling on preference share transaction
Binding Private Ruling No 191 (Ruling) was released by the South African Revenue Service (SARS) on 26 March 2015. The Ruling relates to the refinancing of debt through means of preference share funding. Having regard to the terms and conditions of the preference shares and the proposed cash-flows of the transaction, the applicant sought a ruling confirming that: the preference shares to be issued would not constitute ‘hybrid-equity instruments’ and ‘third-party backed shares’, as respectively defined in s8E(1) and s8EA(1) of the Income Tax Act, No 58 of 1962 (Act);
Court addresses the deductibility of research and development tax incentives
In an attempt to encourage research and development in South Africa, s11D of the Income Tax Act, No 58 of 1962 (Act) was introduced to provide a research and development tax incentive which seeks to encourage and incentivise private sector investment in the research and development of scientific or technological activities. This particular tax incentive ensures that research and development activities are conducted within South Africa with the ultimate goal of indirectly stimulating the economy. Under the provisions of s11D of the Act, two types of tax deductions are allowable. First, the 150% deduction of expenditure incurred directly for research and development purposes and secondly, an accelerated depreciation deduction for capital expenditure incurred on any building or part thereof, machinery, plant, implement, utensil or article used for research and development purposes.
Retail Market Value of Right of Use of Motor Vehicle
On 28 April 2015, National Treasury published the Regulations dealing with the determination of the ‘retail market value’ of the right of use of a motor vehicle fringe benefit. A taxable fringe benefit arises where an employee is granted the right to use a motor vehicle, owned by his employer, for private use. Travelling between the employee’s residence and place of work is included in private use. The ‘determined value’ of a motor vehicle is ordinarily used to calculate the value of the private use. The retail market value must be used to determine the fringe benefit for vehicles acquired by an employer on or after 1 March 2015. Where the employer did not acquire the vehicle, for example,
FATCA – Approaching the 30 June 2015 Reporting Deadline
The United States of America (US) Congress enacted the Foreign Account Tax Compliance Act (FATCA) in 2010. FATCA aims to identify non-compliance by US taxpayers (including US taxpayers not residing in the US), which may previously have been concealed by using foreign financial accounts. FATCA imposes reporting obligations on US individual taxpayers (and certain individuals who own predetermined foreign financial accounts or offshore assets) and Foreign Financial Institutions (FFIs). In terms of FATCA, FFIs include South African banks and custodians, brokers, asset managers, private equity funds, certain investment vehicles, long-term insurers and other participants in the financial system.
Ability of SARS to request information from a taxpayer
Author: Peter Dachs (Tax Director at ENSAfrica) The South African Revenue Service (“SARS”) often sends out information requests in terms of section 46 of the Tax Administration Act. The question arises, in what circumstances SARS is permitted to ask such questions and what limits exist in respect of their powers? Relevant legislative provisions The Tax Administration Act has recently been amended by the Tax Administration Laws Amendment Act, 2014. This made certain changes to SARS’ powers to request information from a taxpayer.
The conundrum of the interplay between interest deduction limitations, interest withholding tax and double tax agreements
Author: Gerdus van Zyl (Tax Manager at ENSAfrica) The conundrum of the interplay between interest deduction limitations, interest withholding tax and double tax agreements The deductibility of interest has for years been a contentious issue and this has been reaffirmed with the introduction of section 23M into the Income Tax Act No 58 of 1962 (the “Act”) with effect from 1 January 2015. A further addition to the interest sphere of income tax is the introduction of interest withholding tax provisions in sections 50A to 50H, which came into effect on 1 March 2015.
Procedures governing objections and appeals
Author: Dr Beric Croome (Tax Executive at ENSAfrica) A taxpayer who receives an assessment from the Commissioner of the South African Revenue Service with which they do not agree, is entitled to lodge an objection against that assessment, and Chapter 9 of the Tax Administration Act, No. 28 of 2011 (“TAA”) regulates procedures relating thereto. Taxpayers also need to be mindful of the rules governing objection and appeal promulgated under section 103 of the TAA, which sets out in greater detail the steps to be followed in the objection and appeal process.