Tax News

Taxation of shares – Beware when you issue shares

Nyasha Musviba

Generally there are no tax consequences when a company issues shares. This is the case regardless of whether the shares are issued for cash or in order to settle the purchase consideration that may have arisen pursuant to the acquisition of assets by the company. This follows from the provisions of paragraph 11(2)(b) of the Eighth Schedule to the Income Tax Act, No 58 of 1962 (Act) to the extent that there is no disposal of an asset by a company in respect of the issue of a share in the company.

Binding Ruling on notional funding arrangement

Nyasha Musviba

The degree to which black people participate in the ownership of an entity is an important measure of an entity’s compliance with the black economic empowerment (BEE) legislation and the amended codes. The difficultly with many BEE transactions is that the participants do not have the funding available to acquire ownership (shares) in the measured entity. Historically, where the participants have used third party funding (eg preference shares) to finance the acquisition of shares in the measured entity, the funding has proved too costly, leaving the participants with no meaningful ownership in the measured entity.

The VAT treatment of joint venture interests

Nyasha Musviba

Substantial uncertainty has arisen over the last few months pursuant to the Value-added Tax (VAT) treatment of interests in unincorporated joint ventures. This has especially become relevant in the context of property owners owning an undivided interest in property and forming a joint venture so as to lease the property to third parties. From a strict legal perspective, the joint venture may have had to register as a separate vendor in terms of s51 of the Value-Added Tax Act, No 89 of 1991 (VAT Act), it being a body of persons. In this context the requirement is to register as a separate VAT vendor irrespective of the question whether a partnership is formed between the property owners.

Binding Ruling – Conversion of a PBO to a for-profit Company

Nyasha Musviba

In Binding Private Ruling 188 (‘BPR’) SARS recently dealt with the conversion of a tax exempt Public Benefit Organisation (‘PBO’) to a for-profit company. Parties to the proposed transaction were a company incorporated in a foreign country and limited by guarantee, which is registered in South Africa as an external company (the ‘Applicant’ or ‘Applicant PBO’) under section 23(1)(a) of the Companies Act, 2008, and a PBO under section 30 or the Income Tax Act (‘the Act’). Section 30 governs PBOs in the Act.

Binding Ruling – Waiver of an Intra-Group Loan that Funded the Acquisition of a Mining Operation

Nyasha Musviba

SARS recently released Binding Private Ruling 187 (‘BPR’) which deals with the waiver of a loan that funded the acquisition of a mining operation as a going concern under an intra-group transaction, as contemplated in section 45 of the Income Tax Act (the ‘Act’). Parties to the proposed transaction were a company incorporated in and a resident of South Africa (the ‘Applicant’), and a second company incorporated in and a resident of South Africa (the ‘Co-Applicant’).

MINISTER SEEKS PUBLIC COMMENT ON PROPOSED TEMPORARY REDUCTION OF UIF CONTRIBUTIONS

Nyasha Musviba

The Minister of Finance is seeking public comment on a proposal for a temporary reduction in employers and employees’ contributions to the Unemployment Insurance Fund (UIF), while keeping benefits unchanged. In the 2015 Budget Speech, the Minister proposed to reduce the remuneration threshold against which the contributions are calculated from the current monthly amount of R14 872 to R1 000. Given the challenging economic environment that has led to downward revisions in economic growth, a reduction in unemployment insurance contributions will provide significant support to households and employers.

PwC Tax Comment on the 2015 Budget Review

Nyasha Musviba

Personal Income Tax The Finance Minister proposes that the marginal personal income tax rates increase by 1% for all income tax brackets, with the exception of the lowest bracket which will remain at 18%. This means that a taxpayer earning approximately R100,000 per year will have an additional R44.25 extra in their pockets every month. This barely covers the ever-rising cost of fuel and consumables. However, a taxpayer who earns approximately R1 million per year can expect to have R379.22 less cash to take home every month.