SA Budget 2019/20 – Tax Budget Proposals

Author: Dave Honeyball. In line with expectations Finance Minister Tito Mboweni did not increase tax rates for income tax, Vat and capital gains tax. For the first time in many years, tax rates have remained unchanged from prior years and the only relief available to individual taxpayers has been a very small increase in the primary, secondary and tertiary rebates. The effect of this is that the tax threshold for individual taxpayers has increased from R78 150 to R79 000. Taxpayers who are fortunate enough to receive inflationary remuneration increases will for the first time in many years not benefit from any tax bracket relief and may in fact move into a different tax bracket by virtue of their increases.

A special dispensation: SARS ruling about special trusts

In recent times, the issue of mental health and the importance of caring for vulnerable persons with mental illnesses has become more prominent. Of course, the effect of mental illness on persons may differ depending on the nature of the illness. In the case of very serious forms of mental illness, a person may not be able to look after their own affairs any longer. From a tax perspective, the Income Tax Act, No 58 of 1962 (Act), makes provision for the creation of so-called special trusts, where the trust is created for the benefit of a person who cannot take care of his own affairs due to a disability (Beneficiary), including as a result of a serious mental illness. Share page The trustees of such a trust would then have to administer the assets of the trust in favour of the Beneficiary. In order for a trust to become Read More …

One less issue when issuing tax invoices

A tax invoice plays a pivotal role in the VAT system for suppliers and recipients alike. In terms of the Value-Added Tax Act, No 89 of 1991 (VAT Act), a supplying vendor is obliged to issue a tax invoice that complies with the requirements of the VAT Act within 21 days of making a taxable supply to a recipient. Similarly, a recipient vendor will only be entitled to claim an input tax deduction in respect of a VAT cost incurred for the purpose of making taxable supplies, to the extent that he or she is in possession of a valid tax invoice at the time of claiming the deduction. Share page A tax invoice is therefore an essential part of the audit trail of a vendor and its enterprise activities, and the failure to issue a tax invoice is a contravention of the VAT Act and an offence in terms Read More …

When must a reportable arrangement be disclosed to SARS?

Under the Tax Administration Act, No 28 of 2011 (TAA) persons who enter into certain types of transactions must report the details of those transactions to SARS. These types of transactions are called “reportable arrangements”. Share page The list of transactions that must be reported are set out in s35(1) of the TAA, and in s35(2) of the TAA as read with a SARS notice issued pursuant to that provision. The term “reportable arrangement” is defined in s34 of the TAA as “an ‘arrangement’ referred to in section 35(1) or 35(2) that is not an excluded ‘arrangement’ referred to in section 36”. The term “arrangement” is defined in s34 of the TAA as “any transaction, operation, scheme, agreement or understanding (whether enforceable or not)”. The term “participant” is defined in s34 of the TAA, simply put, as a person who promotes the arrangement, a person who may obtain a tax Read More …

Spiritus Ex Machina: Addressing the Unique BEPS Issues of Autonomous Artificial Intelligence by Using ‘Personality’ and ‘Residence’

{46 Pages Posted: 12 Jan 2019 Last revised: 2 Feb 2019 } Author: Lucas de Lima Carvalho ( University of Sao Paulo (USP), Faculty of Law (FD), Department of Economic, Financial, and Tax Law) Abstract This article analyses two unique BEPS issues associated with the future operations of Autonomous Artificial Intelligence (AAI), namely, “disappearing income” and “powerlessness to tax”. AAI is defined as an AI system that (i) is capable of performing tasks commonly associated with human intelligence and beyond, (ii) is not directly or indirectly controlled by human beings, and (iii) has full managerial power over its own actions and resources. The paper provides policy recommendations to address the BEPS issues associated with AAI, as well as comments on their impacts for tax administration and the broader structure of domestic and international tax law. Click Here to download full document https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3306427 Keywords: Artificial Intelligence, BEPS, Personality, Personhood, Residence, Robot, Singularit

Important judgment for taxpayers regarding the valuation of trading stock

Author: Jerome Brink. In C:SARS v Volkswagen SA (Pty) Ltd (1028/2017) [2018] ZASCA 116 (19 September 2018) the Supreme Court of Appeal (SCA) dealt with important principles in the Income Tax Act, No 58 of 1962 (Act), specifically s22 of the Act dealing with amounts to be taken into account in respect of trading stock. The judgment will likely have far-reaching consequences for many taxpayers and this article provides a brief analysis of the key issues and principles underpinning the judgment. In C:SARS v Volkswagen, the task before the court was to determine whether the Net Realisable Value (NRV) of Volkswagen South Africa’s (Taxpayer) trading stock, calculated in accordance with International Accounting Standard 2 (IAS2) of the International Financial Reporting Standards (IFRS), may and should, where such NRV is lower than the cost price of such trading stock be accepted as representing the value of trading stock held and not Read More …

VAT on commercial and residential accommodation: Lodging, leasing or renting?

Author: Gerhard Badenhorst. The Value-Added Tax Act, No 89 of 1991 (VAT Act) contemplates the supply of two types of residential accommodation, ie the supply of “commercial accommodation” and “dwellings”. The distinction between commercial accommodation and a dwelling is essential, because the supply of commercial accommodation is subject to VAT at the standard rate, whereas the letting and hiring of a dwelling is exempt from VAT. In addition, where commercial accommodation is supplied together with domestic goods or services (furniture, water, electricity cleaning, maintenance, etc.) for periods longer than 28 days for an all-inclusive charge, VAT is only payable on 60% of such charge. It is unfortunately not always clear as to whether the accommodation provided comprises “commercial accommodation” or “dwellings”. The definition of “commercial accommodation” in the VAT Act contemplates the supply of lodging, or board and lodging, together with domestic goods or services in any residential establishment which Read More …

No capital gains tax? Ruling on the disposal of property by a PBO

Author: Louis Botha. On 31 August 2018, SARS published Binding Private Ruling 309 (BPR 309), which deals with the disposal of an asset by a public benefit organisation (PBO). Specifically, the ruling dealt with the application of the definition of “gross income” in s1 of the Income Tax Act, No 58 of 1962 (Act) and the capital gains tax exemption in paragraph 63A of the Eighth Schedule to the Act. Legal context “Gross income” in s1(1) of the Act, in relation to any year or period of assessment, means, the total amount, in cash or otherwise, received by or accrued to or in favour of a South African resident, excluding receipts or accruals of a capital nature. Paragraph 63A of the Eighth Schedule to the Act states that a PBO, approved by SARS in terms of s30(3) of the Act, must disregard any capital gain or capital loss realised in Read More …

Disallowance of the utilisation of an assessed loss 

Author: Gigi Nyanin. In the recent case of Commissioner for the South African Revenue Service v Digicall Solutions (Pty) Ltd (927/2017) [2018] ZASCA 137 (28 September 2018), the Supreme Court of Appeal (SCA) was requested to consider whether the Commissioner for the South African Revenue Service (Commissioner) was correct in disallowing the utilisation by Digicall Solutions (Pty) Ltd (Taxpayer) of certain assessed losses, in terms of s103(2) of the Income Tax Act, No 58 of 1962 (Act). By way of background, in order to determine the taxable income of a taxpayer from its trade, s20(1) of the Act provides that a taxpayer may set off (i) a balance of the assessed loss brought forward from the previous year of assessment, and (ii) any assessed loss incurred in the current year in carrying on any other trade. The following requirements must be met for a taxpayer to set off an assessed loss Read More …

No tax deduction for damages paid for deliberate breach of supply contract

Authors: Ben Strauss and Jerome Brink. South African courts have held, on a number of occasions, that taxpayers are entitled to deduct damages or compensation paid to third parties. However, this principle does not apply in all cases. Share page The case of Kangra Group (Pty) Ltd v Commissioner for SARS (Case number A20/18) was recently heard by the full bench of the Western Cape division of the High Court. Facts and background The salient facts were relatively simple: The taxpayer, Kangra Group (Pty) Ltd (Taxpayer) was a coal mining company linked to the well-known entrepreneur and philanthropist, Mr Graham Beck. It supplied coal to AMCI under a set of agreements. The price of the coal was fixed under the contract at about US$25 per ton. During the term of the contract, the price of coal in the international market increased considerably to about US$40 per ton. The Taxpayer unilaterally Read More …