Income tax exemption for body corporates, share block companies and associations: Clarification in SARS’ latest issue of Interpretation Note 64

Author: Jessica Carr. Income tax exemption for body corporates, share block companies and associations: Clarification in SARS’ latest issue of Interpretation Note 64 On 13 November 2018 the South African Revenue Service (SARS) published the fourth issue of Interpretation Note 64 (Interpretation Note) which seeks to provide guidance on the application and interpretation of s10(1)(e) of the Income Tax Act, No 58 of 1962 (Act). Share page The exemption The section exempts from income tax the levy income generated by a body corporate, a share block company, and an association of persons. It also provides these qualifying entities with a basic exemption from income tax on receipts and accruals outside of levy income, to the extent that the aggregate of the income does not exceed R50,000. The Interpretation Note makes it clear that this exemption is applied to the total receipts and accruals, excluding the levy income, which are taxable Read More …

In the end, there can be only one contract – the SCA considers section 24C of the Income Tax Act

Author: Louis Botha. On 3 December 2018, the Supreme Court of Appeal (SCA) handed down judgment in CSARS v Big G Restaurants (Pty) Ltd (157/18) [2018] ZASCA 179 (3 December 2018), concerning s24C of the Income Tax Act, No 58 of 1962 (Act). Share page In terms of s24C of the Act, a taxpayer can, under certain circumstances, claim an allowance in respect of future expenditure incurred against income received by or accruing to a taxpayer, which income will be utilised wholly or partly to finance the future expenditure. The matter was initially heard by the Tax Court, which found in favour of Big G Restaurants (Pty) Ltd (Taxpayer). SARS appealed the Tax Court judgment to the SCA. We discussed the Tax Court judgment in our Tax & Exchange Control Alert of 2 March 2018. Facts The matter came before the Tax Court as a special case in terms of Read More …

Cruel accrual? An important judgment for taxpayers in the property development industry

Authors: Louis Botha and Heinrich Louw. It is an established tax law principle that an amount will form part of a person’s gross income, in the year of assessment in which the amount accrues to that person. However, as illustrated by a recent judgment, where property-related transactions are concluded, the parties must consider whether s24(1) of the Income Tax Act, No 58 of 1962 (Act) applies to their agreement. Share page On 20 November 2018, the Supreme Court of Appeal (SCA) handed down judgment in the matter of Milnerton Estates Ltd v CSARS (1159/2017) [2018] ZASCA 155 (20 November 2018). The SCA had to consider whether Milnerton Estates Ltd (Taxpayer) had to include the purchase price of immovable properties sold in its 2013 or 2014 tax year of assessment. The Taxpayer was appealing against the Tax Court’s judgment, which court found that the purchase price of the properties accrued to Read More …

Treasury clarifies the clogged-loss rules

Author: Jessica Carr. Amendments to paragraph 39 of the Eighth Schedule to the Income Tax Act, No 58 of 1962 (Act) have been proposed in National Treasury’s draft Taxation Laws Amendment Bill (draft TLAB), as published in July 2018 for public comment. Per the Explanatory Memorandum on the draft TLAB, the proposed amendment seeks to clarify that capital losses between connected persons will be ring-fenced, where a person redeems its interest in the other person (such as a company) and the two persons are connected persons, in relation to each other.  Share page The clogged-loss rule Paragraph 39 of the Eighth Schedule to the Act is a capital gains tax (CGT) anti-avoidance provision which requires a capital loss to be treated as a “clogged loss” where a person disposes of an asset to a connected person and incurs a capital loss. The clogged-loss rule comes into play when determining the Read More …

Tax returns: When does prescription commence to run?

Author: Gigi Nyanin. Section 99 of the Tax Administration Act, No 28 of 2011 (TAA) deals with the period of limitations for issuing assessments. More specifically, s99(1)(b) provides that, in the case of a “self-assessment” for which a return is required, the South African Revenue Service (SARS) may not issue an additional or reduced assessment after five years from the date of assessment of the original assessment. The phrase “date of assessment” is defined in s1 of the TAA as the date that the return is submitted, if a return is required, in the case of self-assessment by the taxpayer. Share page A “self-assessment” is defined in s1 of the TAA as the determination by a taxpayer of an amount of tax payable under a tax Act and includes submitting a return which incorporates the determination of the tax. Stated differently, a self-assessment is any return in which the amount Read More …

More than one way to skin a cat? The High Court considers the power of SARS to issue reduced assessments

Author:  Louis Botha. In terms of s93 of the Tax Administration Act, No 28 of 2011 (TAA), there are five circumstances under which SARS may issue a reduced assessment, so as to reduce a person’s tax liability. While s93, therefore, makes it possible to “skin a cat”, ie reduce a tax liability, in more ways than one, taxpayers should be mindful of the requirements that need to be met and the correct process to follow, in order to achieve the desired result. Share page In Rampersadh and Another v Commissioner of the South African Revenue Service and Others (5493/2017) [2018] ZAKZPHC 36 (27 August 2018), the KwaZulu-Natal Division of the High Court had to consider the provisions of s93 of the TAA, where the applicant taxpayers (Taxpayers) lodged a review application. Specifically, the Taxpayers requested the High Court to review SARS’s decision not to issue reduced assessments in terms of Read More …

Important judgment on simulation handed down by Supreme Court of Appeal

On 9 November 2018, the South African Supreme Court Appeal (“SCA”) handed down an important judgment in which it upheld Sasol Oil (Pty) Ltd’s appeal against a judgment of the Gauteng Tax Court.  The facts of the case were complex, but concerned certain back-to-back supply transactions entered into by a number of entities, including Sasol Oil, which the South African Revenue Service (“SARS”) contended were simulated.  An Isle of Man company in the Sasol group (“SOIL”) sold oil to a UK group company (“SISL”) which, in turn, sold it to Sasol Oil in South Africa. If SOIL had instead sold the oil it had purchased directly to Sasol Oil in South Africa, the controlled foreign company rules may have applied to allocate taxable amounts to SOIL’s South African shareholder.  However, the controlled foreign company rules did not apply to these transactions for SOIL, since it did not sell the oil Read More …

Back to basics: navigating a SARS audit and dispute process

Author: Taryn Solomon. Receiving and responding to a request for relevant material from the South African Revenue Service (“SARS”) and generally dealing with SARS during an audit or a dispute can be a daunting task for any taxpayer. In this article, we go back to basics in briefly discussing the processes followed by SARS during audits and disputes (up to the appeal stage), including providing some tips and insights in dealing with SARS in these processes, which may assist taxpayers in navigating their way through them. Request for relevant material and audit findings SARS has wide information gathering powers in terms of section 46 of the Tax Administration Act, 2011 (“TAA”) and may require a taxpayer or another person to submit relevant material “for the purposes of the administration of a tax Act”. A taxpayer or another person must be given a “reasonable period” within which to submit the relevant Read More …

Welcome tax proposals to the debt relief rules

Authors: Lavina Daya and David Marais. When debt is reduced or written off, certain adverse tax consequences may arise for the debtor. The tax provisions dealing with the debt relief rules are contained in section 19 and paragraph 12A of the Eighth Schedule to the Income Tax Act, 1962 (the “Act”). The current debt relief rules were introduced by the Taxation Laws Amendment Act, 2017 and are applicable in respect of years of assessment commencing on or after 1 January 2018.  The trigger for the application of these debt relief rules is a “concession or compromise”. The definition of “concession or compromise” as it currently reads is widely worded with the result that a change to the terms of a loan, for example, the redenomination of the currency of a loan from say, USD to ZAR, may trigger the debt relief rules. The Draft Taxation Laws Amendment Bill, 2018 (“Draft Read More …

Punitive proposed amendment to South Africa’s transfer pricing provisions

Authors: Jens Brodbeck, Jo-Paula Roman, Megan McCormack and Scott Salusbury. Transfer pricing is a self-assessment mechanism that aims to ensure that taxpayers identify all potential cross-border transactions, operations, schemes, agreements or understandings that have been entered into between connected persons (referred to as “potentially affected transactions”), to ensure that all such potentially affected transactions have been concluded and implemented on an arm’s length basis.  Ideally, where a taxpayer has been a participant to a potentially affected transaction, the taxpayer would ensure upfront that the potentially affected transaction has actually been concluded and implemented on an arm’s length basis.  However, where the terms and conditions of that potentially affected transaction differ from those that would have existed at arm’s length, the taxpayer is required, in terms of section 31(2) of the Income Tax Act, 1962 (“Income Tax Act”), to calculate its taxable income as if the terms and conditions of the Read More …