SA Budget 2020/21 – Export of dual listed securities – Proposed income tax amendments

Authors: Tsanga Mukumba and Louis Botha. Under South Africas current exchange control (Excon) rules, South African residents are required to seek approval from the South African Reserve Bank (SARB) should they wish to export a South African listed security outside of the Common Monetary Area. As a result of the proposed modernisation of South Africas Excon regime, discussed in the Exchange Control section of our Budget Alert, under which the SARBs permission will no longer be required, it is proposed that such an export results in income tax consequences. Specifically, the Budget proposes that such a transfer now constitute a deemed disposal of that security for income tax purposes, with further consequences once the share is traded on the relevant foreign exchange.

SA Budget 2020/21 – Proposal to prevent tax avoidance through the use of loop structures

Author: Louis Botha. According to the Budget, the current exchange control provisions restrict the use of loop structures, in part to protect the tax base. The current policy is that a South African resident may not collectively hold more than a 40% interest in an offshore entity, which in turn, holds interests in a South African entity or made loans to a South African company. Where an interest is held in this manner, it is known as a loop structure.

Utilisation of trusts as a planning tool remains under the microscope

Author: Jerome Brink Historically many individuals made use of estate planning schemes through trusts, whereby taxpayers would transfer assets to a trust and the purchase price owed by the trust to the taxpayer in respect of the assets would be left outstanding as a loan, advance or credit in favour of that taxpayer on which no interest or very low interest would be charged. Alternatively, taxpayers would advance a low interest or interest-free cash loan, advance or credit to a trust in order for the trust to use the money to acquire assets.

The end of NRV for closing stock (or not?)

Author: Joon Chong, a Partner at Webber Wentzel. The Supreme Court of Appeal (SCA) has for the second time in CSARS v Atlas Copco South Africa (Pty) Ltd, confirmed that the net realisable value (NRV) method is not a suitable method to value closing stock for income tax purposes. The SCA referred with approval to its earlier decision of CSARS v Volkswagen South Africa (Pty) Ltd and held that the NRV method is forward looking, taking into account estimated costs which would still need to be incurred before the stock is sold. The Income Tax Act 58 of 1962 (Act), and calculation of taxable income, is backward looking. The reduction from the cost price of the closing stock should only be allowed in two circumstances: (i) when an event that caused the value of the trading stock to diminish occurred in the tax year; and (ii) when the taxpayer knows Read More …

Reportable arrangement: proposed reporting burden on mining companies and rehabilitation trusts

The reportable arrangement provisions were established by the South African Revenue Service (SARS) with the objective of obtaining information on certain types of transactions. The circumstances under which a person should report an arrangement to SARS, as defined in section 34 of the Tax Administration Act, 2011 (the TAA), are contained in sections 34 to 39 of the TAA.

Potential amendments affecting foreign trusts holding shares in foreign companies

Author: Joon Chong, Tax Partner at Webber Wentzel. National Treasury has held a few workshops this year to engage with stakeholders on proposed amendments before the draft amendment bills are circulated for comment. At one of these workshops attended by the Webber Wentzel Tax Team, National Treasury indicated that there could be amendments in the draft bills which would affect resident beneficiaries and donors to foreign trusts, where these foreign trusts hold shares in foreign companies.

​SARS to host BRICS Tax Experts and Heads of Tax Administrations

The South African Revenue Service (SARS) will host the tax experts and heads of tax administrations from BRICS member countries, namely Brazil, Russia, India China and South Africa, in Sandton next week. This will take place at the Hilton Hotel in Sandton from 18 to 21 June 2018. The BRICS Tax meetings follow on BRICS Customs meetings held in April this year, which contributed to creating an enabling framework for BRICS Customs cooperation.

Revised debt reduction rules

The debt reduction provisions contained in section 19 of the Income Tax Act, 1962 (the Act) and paragraph 12A of the Eighth Schedule to the Act have been amended with effect from 1 January 2018 and are applicable to years of assessment commencing on or after that date. As a result of the changes, the ambit of these provisions has widened significantly, as discussed below, and the additional circumstances to the rules find application are worth noting.

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.