Author: Douglas Gaul, Tax Manager Grant Thornton Johannesburg It has long been a requirement that a non-resident company, trust or other juristic person must file a tax return if it carried on a trade through a permanent establishment in South Africa, or derived any capital gain from a South African source. Every year, the requirements for submitting income tax returns are published by way of a notice in the Government Gazette and it is interesting to note that the requirements for submitting returns for the 2015 year now include non-resident companies, trusts or other juristic persons that derive income from a source in South Africa.
Tax News
Limitation on the deductibility of interest
Author: Mike Betts, Partner Grant Thornton Cape The February edition of e-taxline, Ignore 1 January 2015 tax changes at your peril, dealt with some important amendments to tax legislation that came into effect on 1 January and 1 March 2015. Another amendment that came into force on 1 January 2015 and requires careful consideration is contained in section 23M of the Income Tax Act (’the Act’) and deals with limitations on interest deductions for certain loan transactions. Specifically, if a resident taxpayer (the debtor) borrows funds from another entity (creditor), but the creditor is not liable for tax on the interest in South Africa and the parties are in a controlling relationship with each other, then the debtor’s interest deduction for tax purposes may be limited.
SARS: 2 MILLION INCOME TAX RETURNS SUBMITTED
The South African Revenue Service (SARS) is pleased to announce that it passed the 2 million mark of income tax returns by tax payers. This happened on Thursday, 20 August 2015 at 17:00. This indicates that 44.77% of taxpayers required to submit a tax return have already done so compared to 39.31% at the same time last year. The Tax Season began on 1 July 2015, when taxpayers could officially commence completing and submitting their 2015 tax returns. So far, 2 001 287 personal income tax returns have been submitted to SARS. Of the total submissions, 1 066 978 (53.31%) have been via eFiling while 933 527 (46.64%) of taxpayers opted to submit at our branches. A total of 783 (0.04%) taxpayers have submitted manually via post or a SARS drop box.
New Binding Private ruling issued in respect of renunciation of a usufruct over shares
On 17 August 2015 the South African Revenue Service (SARS) issued Binding Private Ruling 203 (Ruling) relating to the question as to whether securities transfer tax (STT) would be payable on the renunciation of a usufruct over shares. The Ruling specifically dealt with the interpretation of sections 1, 2 and 5 of the Securities Transfer Tax Act No. 25 of 2007 (STT Act). In respect of s1 of the STT Act, the Ruling pertained to the definitions of “security” and “transfer”. Section 1 of the STT Act defines a “security” as:
Public benefit organisations – provision of funds, assets or other resources to associations of persons
On 18 August 2015, the South African Revenue Service (SARS) released a draft Interpretation Note (Draft IN) on Public Benefit Organisations (PBOs) that provide funds, assets or resources to other associations that use such funds, assets or resources to carry on qualifying public benefit activities (PBAs). PBOs play an important role in society as they relieve the financial burden on the State in respect of undertaking PBAs. Tax exemptions and deductions are available to assist PBO’s in conducting the said PBAs and achieving their objectives. The PBA conducted by a PBO must, in accordance with s30 of the Income Tax Act, No 58 of 1962 (Act), be carried out in a non-profit manner and with an altruistic or philanthropic intent.
Proposed unilateral extension of prescription by SARS
Section 99 of the Tax Administration Act, 28 of 2011 (“Tax Admin Act”) regulates prescription in relation to tax assessments and provides for a three year prescription period in respect of income tax assessments and a five year prescription period in the case of self-assessment taxes (e.g. value-added tax and employees’ tax). Generally, the prescription period that prohibits SARS from issuing an additional assessment does not apply if the reason why the full amount of tax was not charged was due to fraud, misrepresentation or non-disclosure of material facts by the taxpayer. When the tax is a self-assessment tax, the basis on which the prescription period does not apply differs in that it refers to fraud, as well as intentional and negligent misrepresentation or non-disclosure.
Taxation of estates to also be revisited?
Authors: Hanneke Farrand and Hannelie la Grange Introduction We previously commented on the recommendations made by the Davis Tax Committee (“DTC”) relating to the taxation of trusts in our article entitled “Taxation of trusts to be revisited?” dated 28 July 2015. We set out below our comments on the recommendations made in the DTC First Interim Report on Estate Duty (“DTC Report”) dealing with estate duty, capital gains tax (“CGT”) and donations tax. The Minister of Finance instructed the DTC to enquire into “the progressivity of the tax system and the role and continued relevance of estate duty to support a more equitable and progressive tax system”, specifically taking into account the interaction between CGT and estate duty. To this end, the DTC Report was released for public comment on 13 July 2015.
Revised draft interpretation note regarding “place of effective management”
Author: Annalie Pinch and Chris de Bruyn Earlier this year, the South African Revenue Service (“SARS”) released issue 2 of Interpretation Note 6 (“draft Interpretation Note”) on the “place of effective management” (“POEM”). Comments were due by 31 July 2015. POEM is often of critical importance in determining the tax residency of an entity. The interpretation previously put forward by SARS in terms of Interpretation Note 6 issued during 2002 (“IN6”) in this regard, did not accord entirely with international precedent and the approach followed by SARS was that the POEM is:
Estate planning: Tax trouble for trusts
Authors: Ruan Jooste and Maarten Mittner (Financial Mail) The Davis Committee’s recommendations on the taxation of trusts and estate duties are punitive in their present form, say industry players, and could lead to new forms of legal avoidance. If the recommendations are implemented, all SA resident trusts and their beneficiaries or donors will be taxed as separate taxpayers. Trusts will be taxed at a flat income tax rate of 41% and an effective capital gains tax (CGT) rate of 27,31%.
Tax free accounts provide training wheels for beginners
Author: Robert Laing (BDlive) Next year will mark the 20th anniversary of the JSE closing its Diagonal Street trading floor and switching to trading via computer screens and networks. Unlike Chicago, Frankfurt and many other exchanges, which kept their trading floors going as a backup while they eased into the new technology, the JSE decided to make a clean break from the past — a reckless leap, I thought, given how firm Telkom’s monopoly was and how bad its lines were back in 1996 when it had only recently split from the post office.