The South African Revenue Service (SARS) issued Binding Private Ruling No 201 (Ruling) on 13 August 2015. The Applicant, being a natural person, held 100% of the equity shares in a resident operating company (OpCo). OpCo, in turn, owned 100% of the shares in a dormant resident company (Co-Applicant). The parties wished to introduce a black-owned company (BEECo) as a shareholder in OpCo in order to improve its Black Economic Empowerment (BEE) credentials.
Tax News
Scope of capital gains tax liability broadened
In order to provide the necessary legislative amendments required to implement the tax proposals that were announced in the 2015 National Budget on 25 February 2015, the National Treasury published the Draft Taxation Laws Amendment Bill (TLAB), 2015, on 22 July 2015 for public comment. One of the proposed amendments relates to the definition of ‘immovable property’ as provided in paragraph 2 of the Eighth Schedule to the Income Tax Act, No 58 of 1862 (Act).
The tax free nature of a voluntary severance package
Loss of employment through retrenchment (forced or voluntary) is a reality many employees face in the current economic climate. Over the last number of years, various tax concessions have been made to ease the financial burden on employees facing retrenchment, mainly in the form of tax free thresholds which apply to certain lump sum employer payments. Navigating the tax pitfalls of retrenchment is important, as it is not necessarily guaranteed that all forms of payment upon retrenchment will qualify for preferential tax treatment.
Do you or your dependant have a medical disability?
Author: Ilsa Groenewald, Associate Director, Tax, BDO Durban Tax expert offers guidance on SARS changes to tax claims for medical disabilities 06 August 2015 – Taxpayers who have a disability, or who have a spouse or child with a disability, should be aware of the claims that can be made when completing their 2015 income tax return. ‘The medical tax calculation has changed for the 2015 tax year’, said Ilsa Groenewald, Associate Director for tax at the Durban office of audit, advisory and tax firm, BDO South Africa.
DAVIS TAX COMMITTEE – SIGNIFICANT CHANGES PROPOSED TO ESTATE DUTY AND TAX ON TRUSTS
True to its mandate, the Davis Tax Committee (DTC) has been hard at work reviewing the South African tax system. Since its formation in 2013, it has already issued reports on small and medium enterprises (SMMEs), Base Erosion and Profit Shifting (BEPS) and VAT. It also compiled a macro analysis of the South African tax system, a World Bank study on the effective tax burden in South Africa and presented carbon tax proposals. However, on 13 July the committee issued the “Estate Duty Report” which deals with a variety of topics sure to spark outcry and fierce debate, especially from more wealthy taxpayers. Whatever the outcome of the report may be following consultations, taxpayers will need to review their estate and tax plans to accommodate the impending changes.
Davis Tax Committee – Significant changes proposed to Estate Duty and Tax on Trusts
True to its mandate, the Davis Tax Committee (DTC) has been hard at work reviewing the South African tax system. Since its formation in 2013, it has already issued reports on small and medium enterprises (SMMEs), Base Erosion and Profit Shifting (BEPS) and VAT. It also compiled a macro analysis of the South African tax system, a World Bank study on the effective tax burden in South Africa and presented carbon tax proposals. However, on 13 July the committee issued the “Estate Duty Report” which deals with a variety of topics sure to spark outcry and fierce debate, especially from more wealthy taxpayers. Whatever the outcome of the report may be following consultations, taxpayers will need to review their estate and tax plans to accommodate the impending changes.
Remission of the provisional tax “underestimation” penalty
Author: Lesedi Seforo (SAIT) Lesedi Seforo urges tax professionals to apply their minds when estimating the taxable income for the purpose of calculating the second professional tax payment. Over the past few months, SAIT has received numerous queries from members regarding what the Fourth Schedule to the Income Tax Act (No. 58 of 1962) (Act) describes as the “penalty for underpayment of provisional tax as a result of underestimation”. As far as this particular penalty is concerned, the challenge for some tax practitioners appears to be two-fold:
The onus to prove ‘behaviour’ in the Voluntary Disclosure Process
Author: Mark Bovey (PwC) A discussion of the interpretational issues that may arise when a taxpayer needs to prove behaviour under the Voluntary Disclosure Programme On 1 October 2012, SARS launched a Voluntary Disclosure Programme under the provisions of sections 225 to 233 of the Tax Administration Act, No. 28 of 2011, as amended (“the TAA”). The main aim of the Programme is to encourage taxpayers to disclose, on a voluntary basis, previous non-compliance which may have prejudiced SARS, without the fear of understatement and other administrative penalties.
Acquisition of shares using interest-bearing funding – refinements to section 24O
Authors: Denny da Silva and Elandre Brandt (Webber Wentzel) Section 24O was introduced in 2012 as an alternative to so-called “debt push-down structures”. The provision allows a company to claim a deduction for interest incurred on debt used to acquire shares in a company, under qualifying circumstances (subject to certain interest deduction limitation provisions in the Income Tax Act). Under current law, the interest deduction is allowed where a company acquires equity shares in another company that is an operating company (being a company that carries on business continuously and in the course or furtherance of that business provides goods or services for consideration) or a company that holds more than 70% of the shares of an operating company, and that acquiring company becomes the controlling group company of the acquired company at the end of the day of the transaction.
Amendments to CFC Diversionary Income Rules
Authors: Leani Nortje and Nola Brown (Webber Wentzel) Section 9D currently provides for diversionary income rules which seek to impute into the income of South African residents, service income derived from the performance of services by a CFC to a connected South African resident, and certain sales income derived by CFCs in relation to those residents, from the sales of goods that were sourced by the CFCs from connected parties in South Africa (so-called “CFC inbound sales”). The inbound sales rule does not apply where the CFC is located in a high tax jurisdiction,or the income from the sale of goods is attributable to the activities of a permanent establishment of the CFC. Prior to 1 April 2012, however, the exemptions to the diversionary income rules in relation to CFC inbound sales were substantially broader, in that an exemption existed if: