Broadly speaking, in their ordinary business operations, certain entities are entitled to claim certain deductions for income tax and value-added tax (“VAT”) purposes. In this article we discuss the tests used by South African courts and in practice, for income tax and VAT purposes, in order to determine whether a taxpayer will be entitled to such deductions. Consideration will be given specifically to the deduction of legal expenses incurred by a taxpayer in terms of section 11(c) of the Income Tax Act No. 58 of 1962 (“Income Tax Act”) and the deduction of input tax in respect thereof in terms of section 1 read with section 7 of the Value-Added Tax Act No. 89 of 1991 (the “VAT Act”).
Category: Tax Administration
Taxpayer – choose your weapon carefully
The Pretoria Tax Court made an interesting ruling in Income Tax Case No 1866 75 SATC 268.Section 32(1) of the Value-Added Tax Act, No 89 of 1991 (VAT Act) states that the following decisions of the South African Revenue Service (SARS) are subject to objection and appeal, namely:
Capital Gains Tax: Trusts vs Individuals
Author: Rigard Sevenster (Fiduciary Specialist at Glacier by Sanlam.) Many financial planners, and the general public at large, have expressed concern regarding when and to what extent they or their trust is liable for capital gains tax (CGT). Knowing the different tax treatments will assist in choosing how to structure your estate and trust more effectively. In this article we highlight some of the most important differences in CGT from either a trust or an individual’s perspective.
Income protection policies: tax deduction for premiums to be abolished from 1 March 2015
Employees earning remuneration are generally prohibited from claiming tax deductions for any expenditure other than those items listed in section 23(m) of the Income Tax Act (58 of 1962). This is in contrast to persons carrying on a trade independently of an employer.
Tax Administration Act – Understatement penalty regime
The draft Taxation Administration Laws Amendment Bill, 2013 (TALAB) was released by the South African Revenue Services (SARS) on 5 July 2013 for public comment. The TALAB proposes, amongst other things, that several amendments be made to the Tax Administration Act, No 28 of 2011 (the TAA) in respect of understatement penalties.
Taxpayer's rights on SARS audits
The Tax Administration Act, Act 28 of 2011 (the TAA) came into effect on 1 October 2012. Its promulgation brought with it many changes to not only taxpayers’ rights and obligations but the reciprocal rights and obligations on the part of the South African Revenue Service (SARS) in its continuous business of revenue collection. Some of the amendments and repeals of sections previously contained in the Income Tax Act No. 58 of 1962 (the Act) have seen a welcome improvement in taxpayers’ rights. One of these improvements is contained in section 42 of the TAA.
Employee Tax – ligation cannot be contractually varied
The decision of the Johannesburg Labour Court in Naidoo v The Careways Group (Pty) Ltd [2013] ZALCJHB 96, in which judgment was handed down on 29 May 2013, affirms a clear principle – the obligation of an employer to deduct employees’ tax in respect of remuneration cannot be varied by an agreement between these two parties. The rationale is beyond doubt – the obligation to deduct tax is laid down in the Income Tax Act (the Act) and overrides any contract to the contrary.
The remittance of administrative non-compliance penalties
Charl Hall, Tax Compliance Officer, Mazars In terms of the Tax Administration Act (TAA)Since the enactment of the Tax Administration Act (TAA) the South African Revenue Services (Sars) has tightened the screws to encourage taxpayer compliance. A number of new penalties are being introduced to ensure taxpayers are compliant and their tax affairs are in order. For taxpayers who have been charged with administrative non-compliance penalties, there is a light at the end of the tunnel as set out in Section 216 – 218 of the TAA. In this regard, there are three remittance scenarios that can apply to a taxpayer.
New Tax Clearance Certificate (Tcc) Application Process
Author: SARS Legal and Policy SARS have introduced an enhanced Tax Clearance Certificate application process on eFiling and in branches. This is the first step in the phased implementation of a modernised tax compliance process to be introduced in the first quarter of 2014.
Determining A 'Group Of Companies' For Purposes Of The Corporate Rules
Author: Andrew Lewis (CliffeDekkerHofmeyr) The Income Tax Act, No 58 of 1962 (the Act) contains a definition of a ‘group of companies’ in s1 of the Act. However, a narrower definition of the term ‘group of companies’ is contained in s41 of the Act, which applies to certain corporate tax roll-over rules and other provisions contained in the Act. It is important to identify which companies fall within the different definitions of a ‘group of companies’ in order to determine whether one qualifies for the applicable tax relief.