Authors: O. Kellerman and E. Geldenhuys (ENS) Introduction The Eighth Schedule to the Income Tax Act, 58 of 1962 (“the Act”) creates a tax liability known as capital gains tax which applies generally where an asset is disposed of. A loan is regarded as an “asset” in terms of the definition in paragraph 1 of the Eighth Schedule as it is an incorporeal asset whereby the lender acquires a right to claim payment from the borrower. Where part of a loan is repaid it constitutes part of an asset disposed of and it will be necessary to allocate a part of the base cost of the loan to the part of the loan repaid in order to determine the capital gain or capital loss in respect of the disposal of that part.
Author: Nyasha Musviba
Treasury tightens up pre-retirement withdrawals
National Treasury has tweaked its proposal on how much access to your retirement savings you will be allowed to have once it becomes compulsory for you to preserve your savings. Treasury had suggested that, after legislation is introduced to prevent you from withdrawing your retirement savings before retirement, you be allowed one withdrawal per preservation fund each year, up to 10 percent of the value of your retirement savings. Now, in a discussion document released this week, it is proposing to allow one withdrawal per taxpayer each year, up to 10 percent of the value of the fund from which you withdraw.
Only ‘healthy’ products in new savings accounts
Products that are complex, hard to understand or hit you with excessively high penalties if you stop or reduce your contributions will not be allowed in National Treasury’s proposed savings accounts. Investments housed within the proposed tax-incentivised savings accounts will have to be good for your financial health – the financial services industry will not be allowed to offer complex, difficult-to-understand products or those that hit you with high penalties if you stop or reduce your contributions, National Treasury says.
Exemption employee share ownership plan rulings
Introduction The tax implications for the various participants of a share incentive scheme are complex and the legislation is not necessarily clear. In recent years, share incentive schemes have been a particular focus of the South African Revenue Service (SARS) and the National Treasury, and there have been regular amendments to the tax legislation. It is no wonder that SARS is issuing a number of binding private and binding class rulings that relate to share incentive schemes. Rulings Binding Private Ruling 161 is one such recent ruling. Released on February 5 2014, the ruling deals with the income tax and employees’ tax consequences for the employer and the trust used to facilitate an employee share ownership plan (ESOP).
Budget 2014 – Budget's impact on personal finance
Johannesburg – The 2014 National Bugdet will have an impact on consumers’ tax and retirement and Michelle Dubois, legal marketing specialist at Liberty explains its impacts on personal financial planning for the short and long term future. Will I save tax this year? There was the usual inflationary adjustment to the tax tables to reduce the effect of the so called “bracket creep”. It effectively means that an inflationary linked salary increase will not push your income into the next tax bracket, which would increase your tax payable. The tax relief will be seen in your end of March payslip, and whilst it may not be a lot of money, this is money that you never had before so make sure that it is put to good use.
Deductions for income tax and VAT
Broadly speaking, in their ordinary business operations, certain entities are entitled to claim certain deductions for income tax and value-added tax (VAT) purposes. In this article we discuss the tests used by South African courts and in practice, for income tax and VAT purposes, in order to determine whether a taxpayer will be entitled to such deductions. Consideration will be given specifically to the deduction of legal expenses incurred by a taxpayer in terms of section 11(c) of the Income Tax Act No. 58 of 1962 (the Act) and the deduction of input tax in respect thereof in terms of section 1 read with section 7 of the Value-Added Tax Act No. 89 of 1991 (the VAT Act).
Value Added Tax – Tax invoices and the payment of VAT
Cash-strapped companies that are staring liquidation in the face sometimes resort to desperate measures to convince the court hearing an application for winding-up that they are not, in fact, insolvent and should not be wound up. A novel and imaginative method was adopted by the company, a VAT vendor, in ITC 1865 [2013] 75 SATC 250, though it is unlikely to become popular or to find its way into tax-planning manuals. The taxpayer issued fictitious VAT invoices to create the illusion of a revenue stream In an effort to show the court hearing the liquidation application that it was not insolvent,
Trusts – Distributions from and donations to foreign trusts
On 18 November 2013 the South African Revenue Service (SARS) issued Binding Private Ruling 157 (BPR). The Applicant, a natural person and resident in South Africa, was a beneficiary of two non-resident discretionary trusts A and B. Trusts A and B held various foreign assets such as loan accounts, cash, and shares. Specifically, trusts A and B held all the shares in non-resident companies A and B. It was proposed that trusts A and B would distribute certain of their foreign assets to the Applicant. Upon receipt, the Applicant would donate the assets to a non-resident trust C.
Tax Administration Act – Understatement penalty changes
Current provisions of the Tax Administration Act The Tax Administration Act No. 28 of 2011 (the TAA) became effective on 1 October 2012 and introduced the understatement penalty regime. In terms of section 222 of the TAA, a taxpayer must pay an understatement penalty in addition to the tax payable for the relevant tax period in the event of an “understatement”. What constitutes an “understatement”? An “understatement” is defined as any prejudice to the South African Revenue Service (SARS) or the fiscus in respect of a tax period as a result of:
Deductions – Interest in re-organisations
Amongst the slew of amendments, was an amendment regulating the deductibility of interest incurred in respect of reorganisation transactions. The amendment will affect the structuring of reorganisation transactions, especially those that are debt funded, with significant consequences for the taxpayer. The history To understand these amendments, one has to go back a few years to June 2011 when section 45 of the Income Tax Act (the Act),