Major new tax burden introduced

Author: David Warneke (Partner and head of Tax Technical at BDO South Africa). The Taxation Laws Amendment Act of 2017 (Act 17 of 2017) which was promulgated on 18 December 2017 contains provisions, namely section 22B of the principal Income Tax Act and paragraph 43A of the Eighth Schedule to the Income Tax Act, that will result in a significant compliance burden for companies, even in cases in which they do not result in additional taxation. The provisions deal with disposals of shares in a company (say A) that are held by another company (say B) in circumstances in which B held a significant portion of the equity shares (which the Amendment Act defines as a qualifying interest) in A at any time within the 18 months preceding the disposal. Section 22B applies in situations in which the shares that are the subject of the provision are held as trading Read More …

Deductibility of legal expenses

Author: Gigi Nyanin (Associate at Cliffe Dekker Hofmeyr). For purposes of determining the taxable income derived by any person from carrying on a trade, s11(c) of the Income Tax Act, No. 58 of 1962 (Act) provides for the deduction of legal expenses which arise in the course of or by reason of a taxpayers ordinary trading operations. More specifically, any legal expenses actually incurred by a taxpayer in respect of any claim, dispute or action at law arising in the course of or by reason of the ordinary operations undertaken by the [taxpayer] in the carrying on of [its] trade will be deductible.

A win against SARS: late delivery of SARSs rule 31 Statement

Author: Mareli Treurnicht (Director at Cliffe Dekker Hofmeyr). On 17 October 2017 the Tax Court (Western Cape Division: Cape Town) delivered judgment in the matter between S Company v The Commissioner for the South African Revenue Service (SARS) under case number IT0122/2017. The judgment was handed down by Judge Cloete. This judgment is of great interest to any taxpayers currently involved in prolonged disputes with SARS, in particular where there are delays on the part of SARS.

Announcement of further revisions to the debt reduction rules in the Income Tax Act

Author: Jerome Brink (Associate at Cliffe Dekker Hofmeyr). The current s19 and paragraph 12A of the Eighth Schedule (Eighth Schedule) were introduced into the Income Tax Act, No 58 of 1962 (Act) with effect from years of assessment commencing on or after 1 January 2013. In essence, these provisions contain the debt reduction rules which attempt to create a uniform system that provides relief to persons under financial distress in certain circumstances. In simple terms, the relevant provisions set out the tax implications arising in respect of a debt that is reduced, cancelled, waived, or discharged by a creditor. The tax implications are dependent on what the debt originally funded, for instance trading stock, other deductible expenditure, allowance assets or capital assets.

Assumption of contingent liabilities under the corporate reorganisation rules

Author: Mareli Treurnicht (Director at Cliffe Dekker Hofmeyr). On 19 July 2017 National Treasury published the Draft Taxation Laws Amendment Bill, 2017 (Bill) in terms of which it proposes to clarify the tax implications arising when a person assumes contingent liabilities under the corporate reorganisation rules contained in s41 to s47 of the Income Tax Act, No 58 of 1962 (Act) (Corporate Reorganisation Rules).  

When proceeds accrue for tax purposes?

Author: Heinrich Louw (Cliffe Dekker Hofmeyr). Judgment was delivered in the tax court on 30 May 2017 in the matter of M v Commissioner for the South African Revenue Service (case number 14005, as yet unreported). The case dealt with the familiar question of whether proceeds had accrued in a particular year of assessment, even though payment was only received in a subsequent year of assessment. While the judgment is not by any means ground-breaking, it serves as additional authority for some of the established principles, and touches on some finer points, regarding the suspension of performance. In this case the taxpayer had sold certain immovable properties during its 2013 year of assessment. It was a term of the agreements of sale that the buyer would only make payment of the purchase consideration against transfer of the relevant immovable property a term that is relatively common. Transfer was only given Read More …

SARS ruling on tax on taking over contingent liabilities in sale of business

The South African Revenue Service (SARS) has sought to provide guidance on a difficult tax issue: the assumption (taking over) of contingent liabilities on the acquisition of a business as a going concern. In this regard SARS has issued Interpretation Note 94 dated 19 December 2016 (IN). The matter is best discussed by way of examples. Example 1: The seller (S) runs a toy shop. He owns the shop building and a stock of toys. The value of the building is R60 and the value of the stock is R30. He owes a supplier R15. S has two employees:

When is an error a bona fide inadvertent error?

Authors:  Louis Botha, Heinrich Louw and Mark Morgan. On 4 November 2016 judgment was handed down by the Tax Court of South Africa (held in Cape Town) in the matter of ABC Holdings (Pty) Ltd v The Commissioner for the South African Revenue Service, Case number ITI13772. In this case the court had to consider whether the taxpayer, ABC Holdings (Pty) Ltd, was entitled to claim a deductible allowance of enhancement income of R9,354,458.00 received in terms of a contract for future expenditure in terms of s24C of the Income Tax Act, No 58 of 1962 (Act) for its 2011 year of assessment. The other issue that arose in this case and which is the focus of this article, was whether the South African Revenue Service (SARS) was correct to levy an understatement penalty in the circumstances.

Further welcome tax incentives announced for renewable energy sector

Renewable energy is seen as the long term future to the planet’s energy demands as a result of the increasing effects of climate change due to the long term use of fossil fuels. South Africa, in particular, has certain obligations as a party to the United Nations Framework Convention on Climate Change (UNFCCC) to ensure the reduction of greenhouse gas emissions and to incentivise investments in low carbon, clean energy. In addition to the environmental factors, South Africa’s load shedding and insufficient power supply has resulted in a further demand for the greater procurement and use of renewable energy.

Funding for small and medium-sized enterprises

The Venture Capital Company (VCC) Tax Regime was introduced into the Income Tax Act 58 of 1962 (Act) to encourage investment into small and medium-sized enterprises (SMEs) and junior mining companies. Since its inception in 2008 and despite subsequent amendments in 2011, there has been limited take-up in the market, with only a handful of VCC funds having become fully funded and operational.