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Inbound interest bearing loans section 31 versus section 23M of the Income Tax Act

There can be no objection in principle to the deduction of interest on loans in suitable cases. Loan capital is the life blood of many businesses but the mere frequency of its occurrence does not bring about that this type of expenditure requires different treatment. Whilst these words of Hefer JA in the well-known judgment of Ticktin Timers CC v The Commissioner for Inland Revenue (1999 (4) SA 939 (SCA) at 942I) are still apposite two decades later, there has been increased focus by National Treasury on cross-border financing and how it may lead to tax avoidance, base erosion and profit shifting. As a result of this scrutiny, sections which are intended to have an effect on the deductibility of interest incurred in respect of cross-border loans have been included in the Income Tax Act No. 58 of 1962 (the Act). For the current purposes, we have only focused on Read More …

Methods used by taxpayers to write down trading stock to be rewritten?

Author: Jerome Brink. In its simplest form, s22 of the Income Tax Act, 58 of 1962 (Act) is a timing provision which ensures that the cost of trading stock in the hands of a taxpayer matches the income earned in respect of that trading stock sold, or otherwise disposed of. The 2019 Draft Taxation Laws Amendment Bill (2019 Draft TLAB) proposes a key amendment to the manner in which taxpayers can write trading stock down at the end of any year of assessment which will have far-reaching implications for many taxpayers.  

SARS issues binding class ruling regarding unbundling transaction

Authors: Tsanga Mukumba and Louis Botha. Section 46 of the Income Tax Act, No 58 of 1962 (Act) provides tax relief where a company (Unbundling Co) wishes to unbundle its shareholding in a subsidiary (Unbundled Co), to the companys own shareholders. The Unbundling Cos shareholders indirect shareholding in the Unbundled Co is converted to a direct shareholding, in proportion to their shareholding in the Unbundling Co.

SA Budget 2019/20 – Controlled foreign company comparable tax threshold to be decreased

The Budget noted a global downward trend in corporate taxation rates. This downward trend may lead to an unintended increase in the imputation of the net income of controlled foreign companies (CFCs) in South African shareholders taxable income. This is despite the fact that at the inception, the CFC may have operated in a jurisdiction with rates of tax which would have met the present threshold contained in paragraph (i) of the proviso to s9D(2A)(l) of the IT Act.

Finality to Debt Benefit Rules

Author: Siyanda Gaetsew. The Taxation Laws Amendment Act, 2018 (TLAA), which was promulgated on 17 January 2018, amended South African tax legislation by overhauling two provisions relating to the reduction of debt, (the Debt Benefit Rules), namely section 19 of the Income Tax Act, 1962 (the ITA) and paragraph 12A of the Eighth Schedule to the ITA (the Eighth Schedule). This article will examine the notable areas where the legislation per the TLAA differs and the importance of the timing of the application of such amendments.

SARS prescription only starts once tax return has been submitted

Author: Eric Madumo, a Candidate Attorney and Joon Chong, a Partner at Webber Wentzel. In the recent case of CSARS v Char Trade, the Supreme Court of Appeal (SCA) that prescription begins to run against CSARS when a return for secondary tax on companies (STC) is submitted to SARS by a taxpayer. In the Char Trade case, a return for STC had not been submitted by the taxpayer. Due to this, prescription had not begun to run against CSARS. The result of this is that CSARS was able to make an assessment in 2012 of the taxpayer’s liability amounting to ZAR 1,812,609 for the 2007 cycle.

Tax non-compliance status may be inaccurate

Authors: Joon Chong, a Tax Partner, Nina Keyser, a Tax Partner, Nirvasha Singh, a Tax Partner & Carryn Alexander, an Associate at Webber Wentzel. SARS replaced the Tax Clearance Certificate (TCC) system with the enhanced Tax Compliance Status (TCS) system on eFiling in April 2016. The new TCS system is aimed at improving tax compliance as taxpayers can better manage their TCS and remedy any non-compliance through the “My Compliance Profile” (MCP) function on eFiling.

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.