This is a brief overview of this new class of investments which are available from 1 March 2015. Tax free income Section 12T of the Income Tax Act No 58 of 1962 and the related regulations provides that the total earnings (by way of interest and dividends) as well as any growth (by way of capital gains) will not attract income tax, dividends tax or capital gains tax in respect of these investments owned by a natural person or the estate of such person.
Tax News
Section 24I – deferral of exchange gains and losses
Section 24I of the Income Tax Act No. 58 of 1962 (the Act) was amended in 2012 in respect of exchange items arising between connected persons or groups of companies. The purpose of this amendment was to address the problem of liquidity in the case of intra-group loans or loans between connected persons. This liquidity challenge necessitated that the tax treatment of the exchange items deviates from the accounting treatment for these exchange items by excluding long term loans from the mark-to-market regime. Therefore, if an exchange item arises between a person and a connected person in relation to that person or another entity within the group (if that person is part of a group of companies), the exchange gains or losses arising from that exchange item are not subject to tax until:
Closing the loophole on retirement annuities and estate duty
Author: Denver Keswell (Nedgroup Investments) “To eliminate the potential to avoid estate duty, government proposes that an amount equal to the non-deductible contributions to retirement funds be included in the dutiable estate when a retirement fund member passes away.” The statement above is drawn from the 2015 Budget Review and while National Treasury has no intention of scrapping the estate duty exemption that applies to retirement annuities, it would like to stop those who abuse the tax advantages of using a retirement annuity, particularly from an estate duty perspective.
SARS denies ‘bullying, abuse of powers’
Authors: Natasha Marrian and Carol Paton (BDlive) The South African Revenue Service (SARS) has denied threatening former commissioner Pravin Gordhan with sequestration to recover money lost to the fiscus after his extension of former deputy commissioner Ivan Pillay’s contract. Mr Pillay has since resigned. The existence of the letter was reported in the City Press on Sunday. The newspaper claimed to have copies of correspondence between legal counsel for SARS, commissioner Tom Moyane and Mr Gordhan.
Take advantage of tax-free savings now
Author: Douglas Gaul (Grant Thornton Johannesburg) Following much anticipation, taxfree savings accounts (TFSA) were introduced on 1 March 2015 as a way to encourage South Africans to save. Natural persons, as well as the deceased or insolvent estates of a natural person, can invest in certain approved tax-free investment vehicles. What you need to know about tax-free savings There is an annual contribution limit of R 30 000, and a lifetime limit of R 500 000 to tax-free investments.This means that by investing R 30 000 per annum, an individual can build up a tax-free investment of R 500 000 over a period of approximately 17 years.
Has your tax return prescribed? SARS’ powers reach to infinity and beyond
Author: Hylton Cameron (Grant Thornton Johannesburg) In the recent case of Ackermans Ltd v CSARS the issue of prescribed tax returns was re-visited in Pretoria in the High Court. In terms of the Income Tax Act, SARS is entitled to raise additional assessments for three years from the date of final assessment. However if there is a misrepresentation of a material fact in the original return, the three prescription period does not apply. In this case however, SARS only raised additional assessments some seven to thirteen years after the original assessments, sparking concern about SARS’ almost infinite reach to reassess tax returns.
Are you liable for new Withholding Tax on interest (WTI)? Snapshot of new Withholding Tax
High net worth individuals who hold local and foreign investments may not be aware of the new withholding tax on interest (WTI) introduced by SARS. WTI is a tax charged on interest paid on or after 1 March 2015 by any person to or for the benefit of a foreigner from a source within South Africa. Ilsa Groenewald, Associate Director for Tax at the Durban office of audit and accounting firm, BDO says “In this new procedure the foreigner will be responsible for the tax, whilst the person making the interest payment will be responsible for withholding the tax.” “The interest paid is taxed at a final tax rate of 15%.” “The return submitted to SARS is called the WTID (Withholding Tax on Interest Declaration) and WTI payments can only be made via the SARS electronic e-filing system.”
Cross-border technical services income – Double Tax Agreements should be considered
Author: Bruce Russell (Grant Thornton Cape) South African resident taxpayers performing advisory or other technical services within South Africa to clients abroad, may be subject to foreign withholding taxes. To reduce the risk of this income being subjected to double taxation, it is necessary to consider the source of this income. The source of services income South African courts have interpreted the concept of source in applying the Income Tax Act.
Overhaul VAT laws for digital economy, says PwC
Author: Thabiso Mochiko (BDlive) Governments need to upgrade value added tax (VAT) laws to keep up with the digital economy, according to consulting firm PwC. SA’s existing tax law on digital related services, amended last year, imposes VAT on electronic services such as educational materials, games, e-books, audio visual content, and music. But local and global authorities are looking at expanding the scope to include services such as software applications and online advertising.
No tax on SA’s flying doctor – court
Author: Ilse de Lange (The Citizen) The SA Red Cross Air Mercy Service Trust was a welfare organisation and did not have to pay VAT on its services, the North Gauteng High Court in Pretoria has ruled. The trust approached the court for relief after the SA Revenue Service (Sars) ruled two years ago it had to pay 14% VAT on the fixed monthly fee and hourly rates for each flight they received from provincial government.