Capital vs Revenue: Swapping assets doesnt swap their nature

Section 42 of the Income Tax Act 58 of 1962 (ITA) is a cornerstone of the so called corporate rules in the ITA. Should certain conditions be met, this section provides roll-over relief to a taxpayer where that taxpayer exchanges an asset for shares in a company. At a glance Section 42 of the ITA provides that where a taxpayer holds an asset as a capital asset and disposes of this asset to a company in exchange for that company issuing the taxpayer equity shares. In order for section 42 to apply, the taxpayer must hold at least 10% of the equity shares in the company to which the taxpayer transfers the asset following the transaction. Section 42 also provides that where a taxpayer holds an asset as a capital asset, the company acquiring that asset in exchange for issuing shares to the taxpayer will acquire that asset as a Read More …

At it again: Capital v revenue

The capital versus revenue debate is as old as tax law itself. The benefits, advantages or consequences of an amount being considered capital or revenue in nature has motivated taxpayers and the South African Revenue Service (SARS) alike to characterise amounts as one or the other. More often than not, the task of distinguishing between the two has fallen to the courts, as it did once again in the case of A Taxpayer v Commissioner for the South African Revenue Service (IT45638) [2023] ZATC 13, where judgment was handed down on 19 July 2023 (IT 45638). At a glance In IT 45638 ZATC CPT (19 July 2023) the Tax Court had to once again address how to determine if expenditure is capital or revenue in nature. In this instance the Tax Court found that a new company established to export grapes to a European retail chain through the taxpayer was Read More …

Tempers continue to cool: Are uniform allowances (for nurses) taxable?

The inclusion of any part of an allowance paid or payable in an employees taxable income is governed by section 8(1)(a) of the Income Tax Act 58 of 1962 (Act). At a glance It has recently been reported in the news that the Department of Health has agreed to pay a temporary allowance of R3,153 to nurses in the public sector to enable them to buy uniforms. From a tax perspective, this amount will potentially not be subject to tax. In terms of section 10(1)(nA) of the Income Tax Act 58 of 1962, where an employee is, as a condition of their employment, required while on duty to wear a special uniform which is clearly distinguishable from ordinary clothing, the value of such uniform, or any allowance provided in lieu of any such uniform, given to the employee by his employer, will be exempt from normal tax and therefore not Read More …

New tax dispute resolution rules come into effect immediately

New tax dispute resolution rules provide for, amongst others, 80 days to submit an objection and more independence of an ADR facilitator. On 10 March 2023, the Minister of Finance published new dispute resolution rules in the Government Gazette in terms of the Tax Administration Act (TAA). These rules describe the procedures for objections and appeals, for the alternative dispute resolution (ADR) mechanism and for the conduct and hearing of appeals before a Tax Board or Tax Court.

South Africans bask in solar power tax breaks

Authors: Joon Chong & Chetan Vanmali, Partners at Webber Wentzel. The demand for solar power installations in South Africa is likely to heat up considerably this year after new incentives were announced in the February 2023 Budget. Responding with glacial speed to years of escalating load shedding, National Treasury has provided new incentives for installing solar PV systems to help expand the countrys available power generation.

What to do if you receive income from two sources?

Taxpayers who receive income from more than one source of employment are reminded that the employees tax (PAYE) deducted by the respective employers may not be enough to cover their final tax liability on assessment. The reason for this is the manner in which a taxpayers tax liability is calculated on assessment. The South African tax system is based on the principle of adding together all sources of income of a taxpayer into a single sum, and applying a progressive tax rate table to determine the final tax liability of the taxpayer on assessment. A progressive tax rate system means that the more income is earned, the higher is the marginal tax rate and more tax is paid on assessment.

SA Budget 2023: Solar panel tax incentive

In brief The 2023 Budget proposes a solar panel tax incentive (available for a period of one year) for individuals installing solar panels at private residences. Budget proposal Budget 2023 proposes an incentive to encourage households to invest in clean electricity generation capacity which can supplement electricity supply. Individuals who pay personal income tax and install new and unused solar photovoltaic (PV) panels can claim a rebate to the value of 25% of the cost of these panels, up to a maximum of R15,000, against their tax liability. The rebate applies to qualifying solar PV panels that are brought into use for the first time in the period from 1 March 2023 to 29 February 2024.

Tax considerations for disposing and acquiring of loan accounts owing by connected persons at a price less than base cost or face value

It is not uncommon for loan accounts owing by a company (debtor company) to a shareholder (creditor) to be sold by the creditor together with the shares in the debtor company. So too may creditors be tempted to dispose of a loan owed by the debtor company in circumstances where the debtor company cant service it because of the prevailing economic downturn. In these instances, the market value of the loan may be invariably less than the face value and also the base cost; and, as such, may be sold at a discount to face value resulting in a capital loss. Where the debtor company is a connected person as defined in section 1(1) of the Income Tax Act, 1962 (as amended) (ITA) in relation to the creditor and the loan is sold at a price less than the base cost of the loan (and assuming the base cost is Read More …

Avoid future headaches: raising all grounds of objection is critical in SARS tax disputes

In recent years, SARS has become increasingly litigious, resulting in disputes often ending up in the Tax Court or the High Court. Such a dispute will generally arise when a taxpayer disagrees with an assessment raised by SARS. An aspect of the dispute process that can have dire consequences if overlooked is that a taxpayer must canvas all relevant grounds of objection from the outset, as these form the basis of any future litigation. A case in point isCommissioner for the South African Revenue Service v Airports Company for South Africa.In this case, SARS raised an additional assessment for the taxpayers 2011 year of assessment, disallowing deductions of Corporate Social Investment (CSI) expenditure and allowances in terms of section 13quinand 12F of the Income Tax Act,1962 (the ITA). The taxpayer only objected to the disallowance of the CSI expenditure. No objection was lodged to section 13quin and section 12F allowances Read More …

SCA rules on the imposition of USP where a taxpayer relied on an opinion

The South African Revenue Service (SARS) may impose penalties on taxpayers who make errors in their tax returns, but relief is available under certain circumstances. Understatement penalties (USPs) are levied in terms of section 222(1) of the Tax Administration Act, 2011 (TAA) and provide that in the event of an understatement by a taxpayer, the taxpayer must, in addition to the tax payable, pay a USP, unless it is the consequence of a bona fideinadvertent error. A provision in theTAAfurther states that SARS must remit a penalty imposed for a substantial understatement if it is satisfied that: the taxpayer was in possession of an opinion by an independent registered tax practitioner that was issued by no later than the date the relevant return was due; the opinion was based upon full disclosure of the specific facts and circumstances of the arrangement; and the opinion confirmed that the taxpayers position is Read More …