The capital v revenue question in the context of government grants: The SCA decides in favour of the motor manufacturing industry

Author: Louis Botha and Louise Kotze. In the recent case of Volkswagen South Africa (Pty) Ltd v Commissioner for South African Revenue Service 80 SATC 179, the age-old question of whether a receipt is capital or revenue in nature was addressed by the Supreme Court of Appeal (SCA), in the context of government grants paid to motor vehicle manufacturers.

Is it time to lower South Africas income tax rates?

Author: David Warneke, Head of Income Tax Technical, BDO South Africa. A fundamental question posed by commentators around the 2018 National Budget was whether an increase in personal or corporate income tax rates, or both, would be announced. The consensus, which proved to be correct, was that such increases were unlikely. The main reasons given were that personal and corporate income tax rates are already high by international standards. Personal income tax rates, mainly due to the introduction of the 45% maximum marginal rate in the 2017/2018 income tax year of assessment for taxable income above R1.5 million, and also since relatively high marginal rates are reached at low taxable income levels, by global standards. Corporate income tax rates, as the rates in most of our main trading partners are lower than ours and globally rates are decreasing.

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.

Notification of commencement of audit

By Yashika Govind, Senior Associate and Nirvasha Singh, Partner at Webber Wentzel. The obligation of SARS to collect tax and taxpayers’ rights are often at odds with each other. In an attempt to address this issue, the Budget 2018 (Budget) proposes to reconcile the taxpayers’ constitutional rights with SARS’ constitutional obligations by including a provision in the Tax Administration Act 28 of 2011 (TAA) stipulating that SARS must inform the taxpayer at commencement of the audit when the information submitted in a tax return will be audited. The provision is intended to cover desk audits which involve inspection or enquiries, without necessarily meeting with the taxpayer or third parties in person.

Procedure is everything: A win for the taxpayer and the importance of the right to just administrative action

Author: Louis Botha (Associate at Cliffe Dekker Hofmeyr). In recent times, taxpayers have often been unsuccessful in their disputes with the South African Revenue Service (SARS), especially where the dispute involved the interpretation or application of the substantive provisions of tax legislation. However, where disputes have involved compliance with the procedural requirements of tax legislation, taxpayers have generally had greater success. The judgment in Mr A v The Commissioner for the South African Revenue Service (Case No. IT13726) (as yet unreported), falls into the second category and is the subject of this article.

Demand loans, prescription and tax

Ben Strauss (Tax Director at Cliffe Dekker Hofmeyr). In South Africa, generally, debts prescribe within three years from the date on which they become due. If a person advances money or credit to another person without a fixed date for repayment, unless the parties agree otherwise, the debt becomes due on the date of the conclusion of the agreement. However, what is the position in the case of a so-called demand loan, that is, a loan agreement in terms of which the creditor has the power by making demand to unilaterally determine when the debtor must perform? That question was at issue in the Constitutional Court case of Trinity Asset Management (Pty) Ltd v Grindstone Investments 132 (Pty) Ltd 2018 (1) SA 94 (CC).

Ignorance is not bliss: A recent judgment about understatement penalties and a caution to taxpayers

Author: Louis Botha and Louise Kotze (Cliffe Dekker Hofmeyr)In the recent matter of Mr A & XYZ CC v The Commissioner for the South African Revenue Service (Case Nos IT13725 & VAT1426, IT13727 & VAT1096), which involved four combined cases, the South African Revenue Service (SARS) issued assessments to Mr A and XYZ CC (Taxpayers) relating to income tax for the 2007 to 2012 years of assessment and Value-Added Tax (VAT) for the 2006 to 2013 periods.

Common misconceptions: Tax treatment of directors’ fees derived by non-residents

Author: Leani Nortje, Senior Associate, Webber Wentzel. Many non-residents that derive directors’ fees from a South African tax resident company believe that because they are non-resident and pay tax in their country of residence on such directors’ fees they are not liable to tax in South Africa. This is a common misconception as non-residents remain taxable on South African sourced income (subject to tax treaty relief).

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 …

Did the punishment fit the crime? The Tax Court reduces an understatement penalty imposed by SARS

Author: Louis Botha (Associate at Cliffe Dekker Hofmeyr). The imposition of understatement penalties in terms of Chapter 16 of the Tax Administration Act, No 28 of 2011 (TA Act) and the factors to consider when imposing such a penalty: An issue that our courts have not dealt with much. In this regard, the judgment of the Tax Court in XYZ CC v The Commissioner for the South African Revenue Service (Case No. 14055) (as yet unreported), handed down on 20 November 2017, sets out some helpful principles.