If an asset is acquired for the purpose of making vatable supplies in a VAT registered enterprise, the VAT input tax paid should be able to be claimed back from SARS. When the asset is sold, a portion of the selling price must be paid to SARS as output VAT. On the other hand, if an asset is acquired for the purpose of making VAT exempt supplies, the input tax cannot be claimed and the subsequent sale of such asset will not give rise to output VAT.
Author: Nyasha Musviba
Current Tax Provisions on REAL ESTATE INVESTMENT TRUSTS (REITS)
The provisions in the Income Tax Act No. 58 of 1962 (the Act) pertaining to the taxation of Real Estate Investment Trusts (REITs) are contained in section 25BB and were introduced into the Act with effect from 1 April 2013. Deduction of “qualifying distributions” A REIT is a resident company which shares are listed on an exchange as shares in a REIT (as defined in the JSE Listings Requirements). Essentially, section 25BB allows for a “qualifying distribution” to be made by a REIT or a controlled company (a company that is a subsidiary of a REIT) for which the REIT or controlled company (that is a resident) gets a deduction from its income for the year of assessment to which that qualifying distribution relates.
Suspension of payment of tax due
When the Tax Administration Act No. 28 of 2011 (TAA) was promulgated on 1 October 2012 it introduced rather aggressive provisions empowering the South African Revenue Service (SARS) to collect tax more effectively, including the retention of the pay-now-argue-later principle. However, section 164 of the TAA allows a taxpayer to request a suspension of the obligation to pay an amount of tax or a portion thereof under an assessment where the taxpayer disputes or intends to dispute the liability to pay that tax under the dispute resolution provisions contained in Chapter 9 of the TAA. Previously, section 164(3) of the TAA provided that a senior SARS official may suspend payment of the disputed tax or a portion thereof, having regard to:
Tax free investments
This is a brief overview of this new class of investments which are available from 1 March 2015. Tax free income Section 12T of the Income Tax Act No 58 of 1962 and the related regulations provides that the total earnings (by way of interest and dividends) as well as any growth (by way of capital gains) will not attract income tax, dividends tax or capital gains tax in respect of these investments owned by a natural person or the estate of such person.
Section 24I – deferral of exchange gains and losses
Section 24I of the Income Tax Act No. 58 of 1962 (the Act) was amended in 2012 in respect of exchange items arising between connected persons or groups of companies. The purpose of this amendment was to address the problem of liquidity in the case of intra-group loans or loans between connected persons. This liquidity challenge necessitated that the tax treatment of the exchange items deviates from the accounting treatment for these exchange items by excluding long term loans from the mark-to-market regime. Therefore, if an exchange item arises between a person and a connected person in relation to that person or another entity within the group (if that person is part of a group of companies), the exchange gains or losses arising from that exchange item are not subject to tax until:
Closing the loophole on retirement annuities and estate duty
Author: Denver Keswell (Nedgroup Investments) “To eliminate the potential to avoid estate duty, government proposes that an amount equal to the non-deductible contributions to retirement funds be included in the dutiable estate when a retirement fund member passes away.” The statement above is drawn from the 2015 Budget Review and while National Treasury has no intention of scrapping the estate duty exemption that applies to retirement annuities, it would like to stop those who abuse the tax advantages of using a retirement annuity, particularly from an estate duty perspective.
SARS denies ‘bullying, abuse of powers’
Authors: Natasha Marrian and Carol Paton (BDlive) The South African Revenue Service (SARS) has denied threatening former commissioner Pravin Gordhan with sequestration to recover money lost to the fiscus after his extension of former deputy commissioner Ivan Pillay’s contract. Mr Pillay has since resigned. The existence of the letter was reported in the City Press on Sunday. The newspaper claimed to have copies of correspondence between legal counsel for SARS, commissioner Tom Moyane and Mr Gordhan.
Take advantage of tax-free savings now
Author: Douglas Gaul (Grant Thornton Johannesburg) Following much anticipation, taxfree savings accounts (TFSA) were introduced on 1 March 2015 as a way to encourage South Africans to save. Natural persons, as well as the deceased or insolvent estates of a natural person, can invest in certain approved tax-free investment vehicles. What you need to know about tax-free savings There is an annual contribution limit of R 30 000, and a lifetime limit of R 500 000 to tax-free investments.This means that by investing R 30 000 per annum, an individual can build up a tax-free investment of R 500 000 over a period of approximately 17 years.
Has your tax return prescribed? SARS’ powers reach to infinity and beyond
Author: Hylton Cameron (Grant Thornton Johannesburg) In the recent case of Ackermans Ltd v CSARS the issue of prescribed tax returns was re-visited in Pretoria in the High Court. In terms of the Income Tax Act, SARS is entitled to raise additional assessments for three years from the date of final assessment. However if there is a misrepresentation of a material fact in the original return, the three prescription period does not apply. In this case however, SARS only raised additional assessments some seven to thirteen years after the original assessments, sparking concern about SARS’ almost infinite reach to reassess tax returns.
Are you liable for new Withholding Tax on interest (WTI)? Snapshot of new Withholding Tax
High net worth individuals who hold local and foreign investments may not be aware of the new withholding tax on interest (WTI) introduced by SARS. WTI is a tax charged on interest paid on or after 1 March 2015 by any person to or for the benefit of a foreigner from a source within South Africa. Ilsa Groenewald, Associate Director for Tax at the Durban office of audit and accounting firm, BDO says “In this new procedure the foreigner will be responsible for the tax, whilst the person making the interest payment will be responsible for withholding the tax.” “The interest paid is taxed at a final tax rate of 15%.” “The return submitted to SARS is called the WTID (Withholding Tax on Interest Declaration) and WTI payments can only be made via the SARS electronic e-filing system.”