No “halfway-house” for Government Grants

Author: Esther van Schalkwyk, Senior Tax Consultant at BDO SA. In terms of a proposed amendment contained in the Draft Taxation Laws Amendment Bill of 2016 (‘Draft TLAB’), the taxation of government grants will likely change. National Treasury proposed a special inclusion in taxpayers’ “gross income” of “any amount received by or accrued to a person by way of a government grant as contemplated in section 12P”.

The Medium Term Budget Speech 2016

Author: Ferdie Schneider, Head of Tax at BDO South Africa  Amidst protests at Parliament, the Minister of Finance, Mr Pravin Gordhan, delivered his Medium Term Budget Policy Statement (MTBPS) on 26 October 2016 at 14:00. The MTBPS again reported to Parliament and the general public on the planned use of taxpayer funds; fiscal and financial measures; and public finance management. SA’s economic growth was forecasted at 0.9% in the February 2016 Budget, but the MTBPS has revised this downward to just 0.5% for 2016. Forecasts have it that economic growth will increase to 1.7% in 2017, which seems to be a very optimistic forecast, but if believed to be found credible could boost investor confidence. This is on the back of a slowdown in global growth in 2016 which affects investment and trade in most economies, especially those of developing countries.

Double non-taxation of hybrid debt instruments issued by non-residents

Author: Esther van Schalkwyk, Senior Tax Consultant at BDO South Africa.  National Treasury indicated its intention to address double non-taxation, if an issuer of a hybrid debt instrument is not a South African resident taxpayer, with effect from 24 February 2016. Debt instruments containing equity features are commonly referred to as hybrid debt instruments. The anti-avoidance rules contained in the Income Tax Act reclassify interest on “hybrid debt instruments” and “hybrid interest” as dividends in specie in the hands of the issuer and the holder of an instrument. As a result, the issuer of the hybrid debt instrument is denied an interest deduction against its taxable income and is usually subject to dividends tax. The holder, on the other hand, is deemed to receive an exempt dividend instead of an interest payment.

Are we seeing more positive developments in the venture capital companies regime?

On 15 June 2016 the South African Revenue Services (SARS) released Binding Private Ruling 242 (Ruling), which provides clarity on the interpretation and application of certain provisions of the Income Tax Act, No 58 of 1962 (Act) in the context of venture capital companies. Specifically, the Ruling deals with the interpretation and application of the terms “controlled group company”, “equity share” and “hotel keeper”, as defined in s1 of the Act, and the terms “qualifying company” and “qualifying share” as defined in s12J of the Act.

Tax exemption of membership based organisations – time for a rethink?

Membership based organisations are fundamental to the sustainability and development of the economy of South Africa as they provide vital industry and professional support services to a wide range of important occupations and trades ranging from accountants, lawyers and doctors to artisans and engineers. The majority of these organisations operate on a non-profit basis for the benefit of their members and ultimately play an important role in increasing employment in South Africa and uplifting poor communities.

Will trusts still be the way to go? The new Section 7C proposed by the Draft Taxation Laws Amendment Bill

For a number of years, National Treasury indicated that it intended tightening up the tax provisions applicable to trusts. On 8 July 2016, the Draft Taxation Laws Amendment Bill (Draft TLAB) and the Explanatory Memorandum on the Draft TLAB (Explanatory Memorandum) were released by National Treasury. The Draft TLAB proposes to introduce a new s7C into the Income Tax Act, No 58 of 1962 (Act), which will have far-reaching tax consequences for trusts and persons utilising trusts as an investment vehicle, if it is enacted in its present form.

Off down the rabbit-hole in pursuit of the OECD/G20 BEPS project developments in a world run mad

The European migrant crisis has reached catastrophic proportions. In 2015 more than a million migrants and refugees from Syria, Afghanistan, Iraq and other Asian and African countries fled from war and conflict, to Europe. The European Union (EU) is struggling to cope with the influx, which has caused schisms in the EU over how best to deal with resettlement of these displaced persons. Some European jurisdictions have been willing to accept asylum seekers while others have responded by increasing funding for border patrol operations in the Mediterranean and re-introducing border controls within the Schengen Area.

Further welcome tax incentives announced for renewable energy sector

Renewable energy is seen as the long term future to the planet’s energy demands as a result of the increasing effects of climate change due to the long term use of fossil fuels. South Africa, in particular, has certain obligations as a party to the United Nations Framework Convention on Climate Change (UNFCCC) to ensure the reduction of greenhouse gas emissions and to incentivise investments in low carbon, clean energy. In addition to the environmental factors, South Africa’s load shedding and insufficient power supply has resulted in a further demand for the greater procurement and use of renewable energy.

Value-added tax on the supply of student accommodation

For some time now there has been a shortage of accommodation for tertiary students in South Africa. Developers have seen the gap in the market and have started building apartment buildings to provide housing to students. The typical arrangement works as follows: The owner of the building rents individual apartments to the students for a period of 10 months a year. The apartments come with beds and tables. There is a communal kitchen, a laundry facility, and a lounge area with a TV and Wi-Fi. Sometimes the owners let the buildings to tertiary institutions who, in turn, let the apartments to the students.

Green, greener, greenest – a ruling on section 12K of the Income Tax Act

The recent announcement by Eskom that it would reconsider its position on the use of renewable energy has caught the attention of many in the renewable energy industry. The Income Tax Act, No 58 of 1962 (Act) contains a number of tax incentives which are available to participants in the renewable energy industry, including the exemption of certified emission reductions (CERs), contained in s12K of the Act. On 9 June 2016, the South African Revenue Service (SARS) issued Binding Class Ruling 053 (Ruling), which deals with the application of s12K of the Act in the context of a Clean Development Mechanism (CDM) project. The parties to the Ruling are a non-profit association of green energy producers (Applicant), the project developer and sponsor of the registration of the CDM project with the Executive Board of the United Nations Framework Convention on Climate Change (UNFCCC) (Project Developer) and the owners of the … Continue reading