Tax News

National Treasury amended legislation governing share buy-backs and dividend stripping in 2017 and again in 2018. The specific anti-avoidance provisions can be found in s22B of the Income Tax Act, No 58 of 1962 (IT Act), which takes aim at shares held as trading stock, and paragraph 43A to the Eight Schedule to the IT Act, which applies if the shares are held on capital account. These provisions generally find application when corporates structure the disposal of qualifying interests with the desire to receive an income tax exempt dividend as opposed to taxable income or capital gains. In order to generate the income tax exempt dividend these disposals are generally structured as share buy-back transactions or dividend distributions combined with the immediate disposal of the shares.

The Taxation Laws Amendment Act, No 22 of 2012 introduced a new s24BA into the IT Act, which deals with value mismatches involving the transfer of assets in exchange for the issue of shares. Essentially, the section applies where the value of the asset given in consideration for the shares issued is different from what it would have been had the transaction been between independent persons acting at arms length. Where the market value of the asset before the disposal exceeds the market value of the shares issued, the excess is deemed to be a capital gain for the company issuing the shares. The amount of the excess must also be applied to reduce the tax cost of the shares in the hands of the subscriber.

It has always been a contentious issue whether a purchaser of shares can claim a deduction of the interest that it incurs pursuant to monies borrowed by the purchaser in order to fund the acquisition of shares. The argument has traditionally been that the purchaser will only receive dividends in respect of the shares and these dividends are not taxable. Given the fact that the interest therefore does not generate income, the interest was traditionally disallowed as a deduction. A number of years ago the legislature intervened by allowing the deduction of interest in respect of a debt that is used to fund the acquisition of shares in certain circumstances in terms of s24O of the IT Act. However, it is a requirement that the target company:

Personal income tax rates Many predicted that, given the already small tax base in South Africa, the already high personal income tax rates, the significant increases in tax rates over recent years and the current state of the economy, there would be very few changes to personal income tax rates in the Budget Speech. In recent years, South Africans faced an increase in personal income tax rates (refer for example to the 45% tax bracket introduced for individuals earning R1,5 million and above), the value-added tax rate, dividend withholding tax rate and the capital gains tax inclusion rates.

In terms of s25BA of the IT Act, distributions of amounts that are not of a capital nature that are made by a CIS to unitholders within 12 months after they accrued to, or in the case of interest was received by a CIS, follow the flow-through principle and are deemed to directly accrue to unitholders on the date of distribution and are subject to tax in the hands of unitholders. The IT Act does not provide a definition of what constitutes an amount of a capital nature and one is required to have regard to the specific facts and circumstances as well as tests handed down by Courts to decide whether an amount is of a capital nature.

Against a backdrop of tough economic times, Finance Minister Tito Mboweni walked a tightrope between appeasing taxpayers and managing the fiscus. Below, tax experts unpack key aspects of his maiden Budget address. Personal income tax The announcement that there would be no increases in income tax rates and that VAT would remain unchanged was welcomed, as government sought to limit the negative effects of tax hikes on an already struggling economy.

Author: Jan Cronje, Fin24. Tito Mboweni, South African Minister of Finance walks with members of the Finance Ministry up Government Avenue to deliver his medium-term budget speech on October 24, 2018. (RODGER BOSCH/AFP/Getty Images) ~ AFP Moody’s, the only major ratings agency that has not already downgraded SA’s sovereign debt to junk, on Wednesday responded to Finance Minister Tito Mboweni’s maiden Budget by saying it “highlights the governments limited fiscal flexibility amid a challenging economic environment”.

We must demonstrate were the government, were not petitioners. We must govern…” Finance Minister Tito Mboweni at a press conference before his budget speech, 20 February 2019.Tito Mboweni was in a take-no-prisoners and spare-me-the-ideology mood at the traditional press conference ahead of his budget speech in the National Assembly on Tuesday. Nursing a cold, the minister of finance told the acting commissioner of the revenue service to break some bones when dealing with illicit tobacco traders.

Author: Carin Smith. Budget 2019 delivered a mixed bag for the housing market, say property experts. While transfer duty and capital gains tax have remained unchanged, the introduction of a pilot subsidy programme for first-time buyers is encouraging, says Herschel Jawitz, CEO of Jawitz Properties. “While consumers will continue to face financial pressures as a result of the lack of tax relief, there should be no impact on an already subdued residential market,” said Jawitz. Dr Andrew Golding, chief executive of the Pam Golding Property group, echoed this view, saying funding for the upgrading of informal settlements, as well as the pilot project with R950m over three years to help first-time home buyers, made for welcome news. However, he noted, land expropriation was yet to be finalised and clarified. Urban development He also pointed out that Finance Minister Tito Mboweni had said there was a need to respond to rapid Read More …

Tito Mbowenis first full Budget was a curious affair. On the one hand, it should be seen as a pre-election event designed to pacify most constituencies with a view to shoring up support in the coming May election. But it didnt stop there, and fairly boldly explored a new narrative on economic policy seemingly being tested by both President Ramaphosa and Minister Mboweni himself. Firstly, this was ultimately a budget of bad news without any real corrective action possible. It was always going to be a report-card on recent history and the cumulative effects of gross mismanagement, malfeasance and policy stagnation. The figures presented by Mboweni bore this out. Another downwards revision of GDP to 1.5% this year indicates just how tough it is. But when you factor in a substantial drop in tax revenue, a whopping R1.2bn borrowed each working day to cover debt repayments, and the worst budget Read More …