Efficient or inept? South Africas corporate income tax rate and restructuring rules

Author: Candice Gibson. The Davis Tax Committee (DTC) released a media statement on 12 April 2018 in which it announced the publication of four additional final reports and conclusion of its work based on its Terms of Reference. For purposes of this alert, certain aspects from the report on the efficiency of South Africas corporate income tax (CIT) system (CIT Report) will be expanded upon, with particular reference to the reviews undertaken in respect of: the efficiency of the CIT rate; and the efficiency of the corporate restructuring rules (CRRs).

Taxation of deceased estates – How to register a DECEASED ESTATE

Changesin legislation from 1 March 2016 Deaths prior to 1 March 2016: Post death income is taxable in the hands of the beneficiary. There is a deemed capital gain tax (CGT) event on date of death of the deceased. During the liquidation process, accounting for CGT on the disposal of assets is by way of aSpecial Trust registered at SARS. A Special Trust still applies for deaths prior to 1 March 2016 which are still currently being administered.

SARS speaks up: Some clarity provided on the taxation of cryptocurrencies in South Africa

Author: Candice Gibson (Senior Associate at Cliffe Dekker Hofmeyr). On 6 April 2018, the South African Revenue Service (SARS) announced that it will continue to apply normal income tax rules to cryptocurrencies and will expect affected taxpayers to declare cryptocurrency gains or losses as part of their taxable income.

Raising jurisdictional issues

Authors: Heinrich Louw and Louise Kotze (Cliffe Dekker Hofmeyr). Where a taxpayer is dissatisfied with the decision taken by the South African Revenue Services (SARS) regarding an objection made by the taxpayer to an assessment, the taxpayer is entitled to appeal against such decision to the Tax Court. The Rules of the Tax Court, promulgated under s103 of the Tax Administration Act, No 28 of 2011 (TAA), prescribe the procedure to be followed when proceedings are instituted in the Tax Court.

Its complete: The Davis Tax Committee releases its final reports

The final reports can be downloaded below: 20180329 DTC Closing Report(2) 20180417 BD Article on DTC wealth tax report 20180412 DTC Note on Territorial Taxation 20180412 DTC Media Statement – 4 Reports, Closing 20180412 Article on residence and source taxation 20180411 Final DTC CIT Report – to Minister 20180329 Final DTC Wealth Tax Report – To Minister 20180329 Final DTC VAT Report to the Minister 20180329 Final DTC PBO Report to the Minister 20180329 DTC Closing Report(2)

Hybrid Equity Instruments: Redemption versus repurchase

Author: Leani Nortje, a Senior Associate at Webber Wentzel. Section 8E of the Income Tax Act, 1962 (the Act) applies to inter alia deem a share to be a hybrid equity instrument if certain requirements are met, with the result that otherwise exempt dividends paid in respect of that share are deemed to be fully taxable income.   One of the requirements that must be met for purposes of section 8E to apply is that the issuer of the share must be obliged to redeem the share in whole or in part, or the share may at the option of the holder be redeemed in whole or in part, within three years from the date of issue of the share. Section 8E therefore requires a “redemption” of the relevant shares.

Tax treatment of excessive debt financing under review

Authors: Joon Chong, Partner and Karen Miller, Consultant – Webber Wentzel. Malusi Gigaba stated in the Budget Review 2018 (Budget) that: “The deductibility of interest payments on debt acts as an incentive to use debt rather than equity funding, and can be used to strip profits from high tax countries.” He goes further by stating that “[a] discussion document inviting comments will soon be published to facilitate public consultation”. This is a welcome development as it is approximately five years since the South African Revenue Service (SARS) issued its draft interpretation note (IN) into acceptable levels of debt. Taxpayers and foreign investors will therefore welcome the prospect of getting closer to greater clarification on what constitutes an arm’s length acceptable level of debt and interest rate.

The power of prescription reinforced: The SCAs recent approach in respect of immovable property

The Supreme Court of Appeal recently delivered two pertinent judgments dealing with the issue of prescription in respect of immovable property claims. Read together, these decisions send a clear message to holders of real rights ostensibly created via registration of a mortgage bond or title deed conditions: Do not assume the luxury of an extended period within which such rights may be enforced.

The income tax implications of a return of capital

Author: Alexa Muller (Tax Associate at ENSAfrica). In terms of the South African Income Tax Act, 1962 (the Act), distributions received by or accrued to a shareholder of a company may constitute either a dividend or a return of capital each of which would give rise to different tax implications for the shareholder or company concerned. The term dividend, as defined in section 1 of the Act, excludes, inter alia, an amount distributed to the extent that the amount results in a reduction of the contributed tax capital of the company making the distribution. A return of capital, as defined in section 1 of the Act, means any amount transferred by a South African tax resident company for the benefit for or on behalf of any person in respect of any share in that company to the extent that that transfer results in a reduction of contributed tax capital of Read More …

Does the regulation of a hedge fund as a collective investment scheme result in different tax implications?

Author: Magda Snyckers (Tax Director at ENSafrica). Before 1 April 2015, hedge funds were unregulated and were constituted (broadly speaking) as limited liability partnerships or trusts. For tax purposes, these structures functioned as flow-through entities with investors being responsible for the disclosure and payment of tax resulting from investment activities. As such, fund managers were not typically involved in the disclosure of and accounting for the tax resulting from investment activities.