Consumers and businesses by now have had a few months to assess the impact of tax changes indicated by the Finance Minister in his most recent Budget Speech. ‘’Be wary though that with these changes also come charlatans who pounce on uninformed business owners and individuals with offers ranging from sophisticated tax avoidance schemes to offers of services or products to ensure compliance,” warns BDO Pretoria Consultant and ex-Managing Partner, Roy Edge. “This is nothing new, we see it all the time where individuals or groups lure unsuspecting people into parting with hard-earned money by investing in new and creative tax schemes.”
Tax News
Tax treatment of contributions to retirement funds
Author: Jenny Klein The date of implementation of new rules relating to the tax treatment of contributions to retirement funds, which were expected to take effect on 1 March 2015, was postponed until 1 March 2016, in terms of the Taxation Laws Amendment Act of 2014. Among other changes, the new rules will affect the employees’ tax implications of employer contributions to retirement funds, and the deductibility for income tax purposes by the member of such contributions, thus affecting both participating employers and members. In addition, depending on the nature of the benefits available to members, the retirement fund may be obliged to provide information to the participating employer in respect of contributions for specific categories of fund members. The implications of some of these changes are highlighted below.
Finality of advance payments by non-residents disposing of immovable property
Author: Ruaan van Eeden The 2015 Taxation Laws Amendment Bill (TLAB) proposes an amendment to s35A of the Income Tax Act, No 58 of 1962 (Act), dealing with the withholding of amounts from payments due to non-resident sellers of immovable property situated in South Africa. The proposed amendment raises an interesting point regarding administrative compliance with a country’s tax laws through the submission of returns for assessment versus a final withholding tax.
Another ruling on the capitalisation of shareholder loans
Author: Heinrich Louw The South African Revenue Service (SARS) released Binding Private Ruling 208 (Ruling) on 8 October 2015. The Ruling concerned the use of subscription proceeds to repay a shareholder loan. Company A and Company B each held 50% of the issued shares in Company C. Company A wanted to acquire Company B’s shares (Shares) in Company C. Company B had a loan claim against Company C, which was used to finance operational expenditure of Company C. Company A only wanted to acquire the Shares and not the loan claim.
Disclosure to SARS and the treatment of pay-as-you-earn
Authors: Nicole Paulsen and Gigi Nyanin The disclosure to the South African Revenue Service (SARS) of potential tax defaults can be addressed in various ways. However, the formal Voluntary Disclosure Programme (VDP), as contemplated in the Tax Administration Act, No 28 of 2011 (TAA), is the preferred and recommended option. The VDP is a formal statutory process, regulated under Part B of Chapter 16 of the TAA, in terms of which a taxpayer can approach SARS voluntarily to regularise its tax affairs with the prospect of obtaining various forms of relief. It is important to note that upon a successful VDP application, the VDP process does provide relief in respect of understatement penalties (which could be up to 200% in severe cases), 100% relief from administrative non-compliance penalties and in addition thereto, SARS will not pursue criminal prosecution.
Market value of shares on valuation date
Author: Heinrich Louw An interesting judgment was handed down in the Supreme Court of Appeal (SCA) on 30 September 2015 in the case of Commissioner for the South Africa Revenue Service v Stepney Investments (Pty) Ltd. The matter concerned the determination of the valuation date value of certain shares for purposes of calculating the capital gain or loss that arose upon their disposal Stepney Investments (Pty) Ltd (Taxpayer) owned certain shares in Emanzini Leisure Resorts (Pty) Ltd (Company). The Company was mainly involved in the casino, hotel and leisure sector. At the relevant time the Company was awarded a casino licence for a period of 15 years in respect of a particular area and intended to establish a casino at a particular site. Unfortunately the Company became involved in a litigious dispute with a third party in respect of the development of the casino on the preferred premises, causing a Read More …
Tax treatment of contributions to retirement funds
Author: Jenny Klein (Tax Manager at ENSAfrica) The date of implementation of new rules relating to the tax treatment of contributions to retirement funds, which were expected to take effect on 1 March 2015, was postponed until 1 March 2016, in terms of the Taxation Laws Amendment Act of 2014. Among other changes, the new rules will affect the employees’ tax implications of employer contributions to retirement funds, and the deductibility for income tax purposes by the member of such contributions, thus affecting both participating employers and members. In addition, depending on the nature of the benefits available to members, the retirement fund may be obliged to provide information to the participating employer in respect of contributions for specific categories of fund members. The implications of some of these changes are highlighted below.
Transfer pricing: Is there a need to prepare transfer pricing documentation?
Author: Wendy Lumsden (Mazars) In South Africa, as is the trend internationally, the focus on transfer pricing is growing. Both the Organisation for Economic Co-operation and Development (OECD) and the Davis Tax Committee have recommended changes to enforce arm’s length transacting within multinationals. As the focus by tax authorities on transfer pricing continues to escalate, we consider the necessity for South African clients to properly determine arm’s length prices and prepare transfer pricing policies based on transfer pricing research and analysis.
VAT and the recovery of costs
Author: Seelan Moonsamy (ENSafrica) The question of whether VAT must be levied on costs that are on-charged often arises, particularly when no VAT was incurred on the cost in the first instance. The issue is most prevalent in the services industry where a consultant, for example, seeks to recover from his client certain costs that the consultant has incurred in rendering services to the client.
The right of tax authorities to demand production of documents
A recent decision in the Federal Court of Canada in the matter of Minister of National Revenue v BP Canada Energy Company 2015 FC 714 dealt with the Canadian law concerning the right of the Canadian Revenue Authority (‘CRA’) to demand information from taxpayers. In the preparation of its annual financial statements, BP Canada Energy Company (‘BP’) prepared workings in which it analysed tax positions that it had taken in which there might have been a difference between its interpretation of the law and the interpretation of the CRA. These working papers supported a reserve for tax contingencies. They also listed issues on which the interpretation was uncertain (‘issues list’).