Author: Heinrich Louw (Senior Associate). In terms of s104 of the Tax Administration Act, No 28 of 2011 (Act), a taxpayer who is aggrieved by an assessment or decision of the South African Revenue Service (SARS), may object to the assessment or decision. The Act states that the objection must be lodged within 30 business days from the date of the assessment. A senior SARS official may extend this period by no more than 21 business days, unless the official “…is satisfied that exceptional circumstances exist which gave rise to the delay in lodging the objection”.
Category: Court Cases
The Kluh-ed up taxpayer wins – a decision on section 26 of the Income Tax Act
In its efforts to increase its income from tax revenue, the South African Revenue Service (SARS) sometimes applies legislative provisions in tax legislation in a manner that can best be described as tenuous. An example of this is apparent from the recent decision of the Supreme Court of Appeal (SCA) in CSARS v Kluh Investments (Pty) Ltd (115/2015) [2016] ZASCA 5 (1 March 2016).
Decision on the VAT treatment of the supply of student accommodation
An interesting judgment was recently delivered in the High Court (Gauteng Division, Pretoria) in the matter of Respublica (Pty) Ltd v Commissioner for the South African Revenue Service (as yet unreported). The matter concerned the value-added tax (VAT) treatment of the lease of a building to a university for purposes of student accommodation. Facts Respublica (Pty) Ltd (Vendor) owned an immovable property which it leased to the Tshwane University of Technology (University).
Pay Now, Argue Later: Are There Any Exceptions To This Rule?
Author: Alan Lewis (Practitioner in Private Practice). We look at exceptions to SARS’ pay now, argue later rule and how they are being applied At first glance, it appears that the “pay now, argue later-rule” approach, which applies when SARS’ demands payment of all outstanding or assessed taxes, is set in stone. In terms of Section 164 (1) of Tax Administration Act (TAA), a taxpayer’s obligation to pay taxes, and SARS’ right to recover taxes, is not suspended by an objection, appeal, or pending the decision of the Tax Court. This means that, in most cases, a taxpayer’s pleas for an extension of their obligation to pay these taxes falls on deaf ears.
Can SARS limit legal professional privilege?
Authors: Natalie Napier and Phillip Lourens (Hogan Lovells). New rules have come into effect for how legal professional privilege is regulated, we look at what effects they may have in practise. Amendments have been made to the Tax Administration Act (the TAA) by the insertion of a new section 42A with effect from 8 January 2016. Section 42A prescribes the procedures and requirements that must be followed by the taxpayer in order to claim legal professional privilege in respect of relevant material required by SARS, during an inquiry or during the conduct of a search and seizure by SARS.
Employee Fringe Benefits on Motor vehicle salary sacrifice
In the recently reported case of Anglo Platinum Management Services v SARS [2015] ZASCA 180 (the Anglo case), the judgment of which was delivered on 30 November 2015, the Supreme Court of Appeal (SCA) ruled in favour of the taxpayer in respect of a motor vehicle salary sacrifice scheme. The judgment stresses the importance of employers and employees properly agreeing to, understanding and correctly implementing remuneration structures that contain a salary sacrifice component. Before dealing with the SCA judgment, it is useful to touch on the basic principles of a ‘salary sacrifice’ arrangement, or more eloquently put, a ‘salary substitution’ arrangement. I use the word ‘substitution’, as that is what it boils down to: it is the substitution of a cash component of an employee’s overall cost to company remuneration package, for a non-cash benefit, that generally results in a lower amount subject to the deduction of employees’ tax.
Capital v Revenue: the taxpayer prevails – ommissioner for the South African Revenue Service v Capstone 556 (Pty) Ltd (20844/2014) [2016] ZASCA 2 (9 February 2016)
The question of whether an amount constitutes capital or revenue in a specific instance, is an issue that our courts have grappled with on many occasions. In Commissioner for the South African Revenue Service v Capstone 556 (Pty) Ltd (20844/2014) [2016] ZASCA 2 (9 February 2016), the Supreme Court of Appeal (SCA) had to deal with this very issue. The SCA had to decide two questions: whether the share sale of the taxpayer, Capstone, of approximately 17.5 million shares in JD Group Ltd (JDG), through which it made a profit of R400 million, constituted revenue or was capital in nature; and whether an indemnity settlement paid by the taxpayer after it had sold the shares, formed part of the base cost of the shares for purposes of capital gains tax (CGT).
Remuneration structuring or salary sacrifice – SCA endorses taxpayer scheme
Ever since the Margo Commission recommended that there should be a uniform system for the determination of the value of benefits of employment, and the enactment of the Seventh Schedule to the Income Tax Act, there has been a tension between SARS and employers over the legitimacy of structured remuneration packages. There are few reported cases of instances in which employers have resisted a challenge by SARS. In the recent judgment of Cachalia JA, in the matter of Anglo Platinum Management Services (Pty) Ltd v C:SARS [2015] ZASCA 180 (30 November 2015), the employer’s remuneration practices were found to be legitimate.
Employee’s Tax – Emolument attaching orders
A recent, much publicised decision in the Western Cape High Court declared certain provisions in the Magistrates’ Court Act (MCA) relating to the issuing of emolument attachment orders (EAO) to be invalid and unconstitutional. In the matter of University of Stellenbosch Legal Aid Clinic and Others v Minister of Justice and Correctional Services and Others (Case No. 16703/14) [2015] ZAWCHC 99 application was made to have EAOs issued against a number of clients of the applicant declared invalid. An EAO permits the attachment of a debtor’s earnings and obliges the debtor’s employer (garnishee) to pay a specified amount out of the debtor’s earnings to the creditor or the creditor’s attorney until the debt and legal costs have been fully paid.
Deductability of business trade losses
Where an accident or other mishap results in a taxpayer incurring an involuntary loss, a question can arise as to whether that loss is deductible for income tax purposes in terms of the general deduction formula laid down in section 11(a) of the Income Tax Act of 1962 (the Act) as having been incurred in the production of income. In Port Elizabeth Electric Tramway Co Ltd v CIR [1936] 8 SATC 13, Watermeyer J expressed the underlying principle by saying that – “all expenses attached to the performance of a business operation bona fide performed for the purpose of earning income are deductible whether such expenses are necessary for its performance or attached to it by chance or are bona fide incurred for the more efficient performance of such operation provided they are so closely connected with it that they may be regarded as part of the cost of performing it.”