Tax News

Amendments to the regulation of primary and secondary listings on the JSE

Authors: Colin du Toit,Madelein Burger,Elodie Maume from Webber Wentzel. ​On 5 November, the JSE Limited (JSE) announced amendments to its Listings Requirements to strengthen the regulation of primary listings and secondary listings. The amendments follow an extensive consultation process with the market and the public that kicked off in September 2018 after the JSE released a consultation paper (Paper) on “possible regulatory responses to recent events surrounding listed issuers and trading in their shares” (click hereto read the e-alert on the Paper).Following the consultations, the JSE published draft amendments in April 2019 for formal comment (clickherefor the e-alert on the draft amendments).

The end of NRV for closing stock (or not?)

Author: Joon Chong, a Partner at Webber Wentzel. The Supreme Court of Appeal (SCA) has for the second time in CSARS v Atlas Copco South Africa (Pty) Ltd, confirmed that the net realisable value (NRV) method is not a suitable method to value closing stock for income tax purposes. The SCA referred with approval to its earlier decision of CSARS v Volkswagen South Africa (Pty) Ltd and held that the NRV method is forward looking, taking into account estimated costs which would still need to be incurred before the stock is sold. The Income Tax Act 58 of 1962 (Act), and calculation of taxable income, is backward looking. The reduction from the cost price of the closing stock should only be allowed in two circumstances: (i) when an event that caused the value of the trading stock to diminish occurred in the tax year; and (ii) when the taxpayer knows Read More …

When should revenue for gift cards be taxable?

Author: Joon Chong, Tax Partner at Webber Wentzel. The recent Tax Court (Cape Town) judgement of IT 24510 confirmed that amounts received by a retailer for the sale of gift cards were not “received or accrued” for purposes of the gross income definition. The taxpayer had not included proceeds from the sale of gift cards as gross income in the year the gift cards were sold, which resulted in the additional income tax assessment and dispute. The court held that the taxpayer had correctly accounted for the value of the cards as gross income on the earlier of the year when the cards were redeemed, or expired. Based on the court’s reasoning, it is submitted that there are strong grounds to argue that there is also no liability to account for value-added tax on the same basis, i.e. not when the cards are sold but when they are redeemed or Read More …

Unforeseen preference share amendments

Author: Brian Dennehy, Khurshid Fazel and Joon Chong, at Webber Wentzel. The 2019 Taxation Laws Amendment Bill (TLAB) was tabled with the Medium Term Budget Policy Statement on 30 October 2019. The TLAB contains a significant amendment to the definition of “hybrid equity instrument” in section8E of the Income Tax Act, which will deem any distributions made within 3 years of the date of issue of a preference share to be treated as normal income and fully taxable in the holder’s hands.

The capitalisation of interest and section 8F

The provisions of section 8F of the Income Tax Act, 58 of 1962 (the Act) regulate hybrid debt instruments. Broadly speaking, from the time that an interest-bearing debt qualifies as a hybrid debt instrument, the interest incurred in respect thereof will be deemed to be a dividend in specie that is declared by the company which incurred such amount (i.e. the borrower) to the person to whom that amount accrued (i.e. the lender). Furthermore, the borrower is denied a tax deduction in respect of such interest.

Offshore Trusts: the basic considerations and recent amendments

A new world The world of offshore trusts is now more dynamic than ever. The benefit of trusts as effective tools for the preservation of assets for future generations has been commonly known and accepted for decades. Globally, the trust environment has changed significantly due to the introduction of the Common Reporting Standards and resulting Automatic Exchange of Information between various revenue authorities around the world. The identities of original funders and beneficial owners are no longer protected.

Inbound interest bearing loans section 31 versus section 23M of the Income Tax Act

There can be no objection in principle to the deduction of interest on loans in suitable cases. Loan capital is the life blood of many businesses but the mere frequency of its occurrence does not bring about that this type of expenditure requires different treatment. Whilst these words of Hefer JA in the well-known judgment of Ticktin Timers CC v The Commissioner for Inland Revenue (1999 (4) SA 939 (SCA) at 942I) are still apposite two decades later, there has been increased focus by National Treasury on cross-border financing and how it may lead to tax avoidance, base erosion and profit shifting. As a result of this scrutiny, sections which are intended to have an effect on the deductibility of interest incurred in respect of cross-border loans have been included in the Income Tax Act No. 58 of 1962 (the Act). For the current purposes, we have only focused on Read More …

Binding Private Ruling: Roll-over relief can also apply to transactions involving non-resident companies

Authors: Louise Kotze and Louis Botha. The Income Tax Act, No 58 of 1962 (Act) provides for roll-over relief in respect of any capital gains that would normally be realised pursuant to the disposal of an asset, provided the requirements of the relevant roll-over relief provision in the Act are met. For example, in terms of s47 of the Act, transactions relating to the liquidation and winding-up of companies, can qualify for roll-over relief so that the capital gains liability that may arise in the normal course of the transaction will be deferred and no capital gains tax (CGT) will be payable at the time that the transaction in concluded.