The South African Revenue Service (SARS) published Binding Private Ruling No. 193 (BPR 193) on 15 June 2015, which deals with the repayment of a shareholder loan by way of set-off with an outstanding loan under a subscription agreement. The applicable provisions in the Income Tax Act, No 58 of 1962 (Act) are s19 of the Act and paragraphs 12A and 20(3)(b) of the Eighth Schedule to the Act. The applicant in the transaction to which BPR 193 applies is a company incorporated in and resident of South Africa (Applicant). The second party to the transaction is the holding company of the Applicant and a non-resident for South African tax purposes (Holdco).
Category: Corporate Tax
Capitalisation of shareholder loans and set-off
The South African Revenue Service (SARS) published Binding Private Ruling 193 (Ruling) on 15 June 2015, which dealt with the partial capitalisation of a shareholder loan. The applicant was tax resident and incorporated in South Africa, and was held by a non-resident holding company. The holding company had previously extended a shareholder loan to the applicant, and at the time of the Ruling an amount of capital and interest remained outstanding.
The valuation of a usufruct for tax purposes
Author: Alexa Muller – Tax Associate at ENSafrica The value of a usufruct is often needed to be calculated for purposes of taxes, for example: for purposes of estate duty should a testator/testatrix bequeath a usufruct over property to an heir; for purposes of donations, tax should a usufructuary renounce his/her usufructuary rights; or for purposes of capital gains tax, should a property in respect of which a usufruct is registered be disposed of.
Venture Capital Investments – are you missing an excellent opportunity?
Author: David Honeyball, partner Grant Thornton Cape Small business development continues to be a focus area for economic development for South Africans desperate for faster economic growth. Therefore, the introduction of Section 12J of the Income Tax Act, which was introduced on 1 July 2009, created a welcome pooling mechanism allowing investors to channel funds into small businesses and junior mining companies. The intention of the legislation is that by pooling funds, a Venture Capital Company (VCC) can provide equity and management services to the investee. As incentive, the VCC shareholders enjoy a 100% upfront tax deduction of the value of their investment (shares) and with no recoupment if the shares are sold within 5 years.
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.
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.
Taxation of interest – the complex web
Author: Michael Reifarth (Tax Executive at ENSAfrica) The number of provisions contained in the Income Tax Act, 58 of 1962 (“the Act”) which deal with tax treatment of interest income and interest expenditure have gradually increased over time. There are numerous aspects to be borne in mind by resident and foreign companies when considering the income tax and withholding tax implications which may arise in respect of transactions giving rise to interest income and interest expenditure. This article serves as an outline of certain provisions which should be given consideration when assessing the tax impact which interest income or expenditure may have on the position of a company.
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:
Narrowing deficit eases need to borrow
Authors: Ntsakisi Maswanganyi and Linda Ensor (BDlive) Higher than expected tax revenues and lower government spending has helped narrow the budget deficit and will bring down borrowing by the government. The main budget deficit — which covers all three spheres of government — is now estimated at 4.3% of gross domestic product (GDP) from 4.7%, the Treasury said on Thursday. This reduces the amount the government needs to borrow to finance its spending while satisfying ratings agencies that it was on track to bring down its large deficits. However, questions remain on how sustainable the narrowing was.