Author: David Warneke (BDO SA) Section 8F of the Income Tax Act, dealing with hybrid debt instruments was substituted by the Taxation Laws Amendment Act of 2013. In its substituted form the provision is considerably broader in scope than its predecessor. In particular it appears that certain subordination agreements may render the subordinated debt subject to reclassification as hybrid debt with potentially costly consequences. The new treatment applies to amounts incurred on or after 1 April 2014. In terms of section 8F if a debt instrument falls into classification as a hybrid then the effect is that interest incurred in respect of the hybrid debt instrument:
Author: Nyasha Musviba
Ruling on the definition of 'listed shares' for purposes of the foreign dividend exemption
Author: Heinrich Louw (Cliff Dekker Hofmeyer) The South African Revenue Service (SARS) released Binding Class Ruling No 42 on 7 February 2014. The factual circumstances in respect of which the ruling was made are as follow: Company Y is a company incorporated and resident in foreign country Y. Company X is a company incorporated and resident in country X. Company X is also a wholly-owned subsidiary of Company Y. Company X is to be listed on the JSE Limited. Its business is investment in foreign debt instruments, on which it will receive interest returns.
Employee share ownership plan ruling
Author: Andrew Lewis (Senior Associate at Cliff Dekker Hofmeyer) 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 National Treasury with regular amendments to the tax legislation. It is no wonder that we see a number of binding private and binding class rulings being issued by SARS that relate to share incentive schemes. Binding Private Ruling No 161 (BPR 161) is one such recent ruling, released on 5 February 2014, which deals with the income tax and employees’ tax consequences for the employer company and the trust used to facilitate an employee share ownership plan (ESOP).
VAT – where to lodge objection – Tax Court or High Court?
The Pretoria Tax Court made an interesting ruling in ITC No 1866 [2013] 75 SATC 268. Section 32(1) of the Value-Added Tax Act No. 89 of 1991 (the VAT Act) states that the following decisions of the South African Revenue Service (SARS) are subject to objection and appeal, namely: In terms of section 23(7) of the VAT Act notifying that person of SARS’s refusal to register that person in terms of the VAT Act. In terms of section 24(6) or (7) of the VAT Act notifying a person of SARS’s decision to cancel, or refusal to cancel his registration in terms of the VAT Act.
Tax Administration Act – Criminal investigation in relation to a serious tax offence
The Tax Administration Act, No. 28 of 2011 (the TAA) took effect on 1 October 2012. In light of SARS’s strong emphasis on compliance, this article considers the procedures SARS should follow where it believes that a serious tax offence might have been committed. A “serious tax offence” is defined as “a tax offence for which a person may be liable on conviction to imprisonment for a period exceeding two years without the option of a fine or to a fine exceeding the equivalent amount of a fine under the Adjustment of Fines Act, 1991 (Act No. 101 of 1991).”
Taxation risk on Lost or stolen cheques
The principles to be applied in cases where cheques have been intercepted in the post and misappropriated by thieves have been summarised in previous case law, where it has been established that when a debtor tenders payment by cheque and the creditor accepts it, the payment remains conditional and is only finalised once the cheque is honoured. Accordingly, where the cheque is misappropriated and someone other than the payee, by fraudulent means, converts the cheque into cash, the risk will lie with the debtor since it is the debtor’s duty to seek out his creditor. However, where the creditor stipulates a particular method of payment and the debtor complies with it, any risk inherent in the stipulated method of payment is for the creditor’s account.
Tax deductions – Expenditure on repairs
Interpretation Note 74(the Note), issued by SARS on 6 August 2013, is a collation of fundamental principles regarding the deductibility of expenditure on repairs (and the recoupment of such expenditure) in terms of section 11(d) of the Income Tax Act 58 of 1962 (the Act) and the principles, as laid down in case law, regarding the distinctive features of a repair as contrasted with other categories of expenditure. The Note commences with the general observation that – “expenditure on repairs to an asset not comprising trading stock is likely to be of a capital nature, particularly when it is not incurred at regular intervals”.
Setting aside business rescue
An interesting judgment was handed down in the North Gauteng High Court on 3 October 2013 in the matter of Commissioner for the South African Revenue Service v Miles Plant Hire (Pty) Ltd (case no 23533/2013). Miles Plant Hire (Pty) Ltd (the taxpayer) was involved in a dispute with the South African Revenue Service (SARS) in terms of which an appeal was pending. The taxpayer adopted a resolution to file for business rescue. When SARS became aware of the resolution, it brought an application for the setting aside of the resolution, and for the taxpayer to be wound up in terms of section 177(1) of the Tax Administration Act, No. 28 of 2011 (the TAA).
Interest on debt instruments with equity features
On 4 July 2013, the draft Taxation Laws Amendment Bill (DTLAB) was issued by National Treasury in terms of which it was proposed that new anti-avoidance rules will be introduced into the Income Tax Act No. 58 of 1962 (the Act) in order to reduce the opportunity for the creation of equity instruments that are artificially disguised as debt instruments. The first set of proposed anti-avoidance rules focus on the features relating to the instrument itself and are contained in section 8F of the Act. The second set of proposed anti-avoidance rules focus on the nature of the yield of the instrument and are contained in section 8FA of the Act.
Cut taxes for the sake of job growth
Author: Yasmeen Suliman (KPMG) It is well known that the growth of the South African economy is languishing, and unemployment levels are dangerously high. Without real economic growth, it is unlikely that sufficient sustainable jobs will be created to reduce unemployment levels significantly. Tax collections are also under pressure; a depressed economy means lower tax collections. With a ballooning government deficit, the National Treasury has to collect more revenue to fund expenditure. One could almost label our situation as desperate – and, as everyone knows, desperate times call for drastic measures.