Author: Varusha Moodaley (Senior Associate at Cliffe Dekker Hofmeyr). An input tax deduction may be claimed when VAT is incurred on goods and services acquired for the purpose of consumption, use or supply in the course of making taxable supplies. The entitlement of a vendor to claim input tax deductions in respect of expenses incurred is generally not disputed where a vendor makes wholly taxable supplies. VAT is therefore generally not considered to be a large component of a businesss cost base as most VAT registered businesses will be entitled to claim a credit or refund of VAT paid to the extent that they conduct an enterprise that makes taxable supplies.
Author: Nyasha Musviba
Trusts: More bad news, with one silver lining
Author: Louis Botha (Associate at Cliffe Dekker Hofmeyr). On 1 March 2017, s7C of the Income Tax Act, No 58 of 1962 (Act) came into effect. On 1 March 2017, s7C of the Income Tax Act, No 58 of 1962 (Act) came into effect. One of the reasons for introducing this provision was to prevent taxpayers from avoiding estate duty, by selling assets to a trust on loan account, which loan account they would then extinguish by making use of their annual donations tax exemption of R100,000. Section 7C addresses this avoidance, by providing, amongst other things, that the trust must pay interest on such loan, advance or credit, but only where the trust and the natural person are connected persons, such as where the natural person is a beneficiary of the trust. Where the trust does not pay interest on the loan to the natural person or pays interest Read More …
Foreign employment income exemption is this the end?
Author: Nandipha Mzizi (Candidate Attorney at Cliffe Dekker Hofmeyr). Currently, s10(1)(o)(ii) of the Income Tax Act, No 58 of 1962 (Act), states that if a South African resident works in a foreign country for more than 183 days a year, with more than 60 of those days being continuous, foreign employment income earned is exempt from tax, subject to certain conditions. This exemption is only available to employees from the private sector. Early this year in the 2017 Budget, it was proposed that the exemption be adjusted as it was excessively generous for those that still benefited from it, ie private sector employees. It was proposed that foreign employment income will only be exempt from tax if it was subject to tax in the foreign country.
Tax treatment of conversion of debt into equity and the artificial repayment of debt
Author: Jerome Brink (Associate at Cliffe Dekker Hofmeyr). The Income Tax Act, No 58 of 1962 (Act) contains rules dealing with the manner in which a taxpayer must account for the benefit derived from the waiver, cancellation, reduction or discharge of a debt owed by that taxpayer. The tax implications arising in respect of the reduction of a debt, depends mainly on whether the loan funding was used to fund tax deductible expenditure such as operating expenses or alternatively capital or allowance assets. The debt reduction rules apply only to the extent to which the waiver, cancellation, reduction or discharge of a debt gives rise to a reduction amount, in other words, the amount, by which the decrease in debt exceeds the consideration received by the creditor in return.
Assumption of contingent liabilities under the corporate reorganisation rules
Author: Mareli Treurnicht (Director at Cliffe Dekker Hofmeyr). On 19 July 2017 National Treasury published the Draft Taxation Laws Amendment Bill, 2017 (Bill) in terms of which it proposes to clarify the tax implications arising when a person assumes contingent liabilities under the corporate reorganisation rules contained in s41 to s47 of the Income Tax Act, No 58 of 1962 (Act) (Corporate Reorganisation Rules).
The death of share buy-backs?
Author: Emil Brincker (National Practice Head at Cliffe Dekker Hofmeyr). Share buy-backs have become very popular over the last few years in circumstances where a taxpayer intended to dispose of his shareholding in a company. Share buy-backs have become very popular over the last few years in circumstances where a taxpayer intended to dispose of his shareholding in a company. This was especially the case to the extent that the seller is also a company. The reason is that, should one consider the definition of a dividend in s1 of the Income Tax Act, No 58 of 1962 (Act), the proceeds from a share buy-back will be deemed to be a dividend to the extent that it is not funded out of so-called share capital or contributed tax capital (CTC). To the extent that the seller is a company, such dividend would also not be subject to dividends tax at Read More …
When proceeds accrue for tax purposes?
Author: Heinrich Louw (Cliffe Dekker Hofmeyr). Judgment was delivered in the tax court on 30 May 2017 in the matter of M v Commissioner for the South African Revenue Service (case number 14005, as yet unreported). The case dealt with the familiar question of whether proceeds had accrued in a particular year of assessment, even though payment was only received in a subsequent year of assessment. While the judgment is not by any means ground-breaking, it serves as additional authority for some of the established principles, and touches on some finer points, regarding the suspension of performance. In this case the taxpayer had sold certain immovable properties during its 2013 year of assessment. It was a term of the agreements of sale that the buyer would only make payment of the purchase consideration against transfer of the relevant immovable property a term that is relatively common. Transfer was only given Read More …
The shoe is on the other foot: The High Court orders SARS to discover documents in the context of a review application
Authors: Louis Botha and Nandipha Mzizi(Cliffe Dekker Hofmeyr). It seldom happens that the South African Revenue Service (SARS) is compelled to provide documents to a taxpayer, while SARS is conducting an audit. In Carte Blanche Marketing CC and Others v Commissioner for the South African Revenue Service (26244/2015) [2017] ZAGPPHC 253 (26 May 2017), the Gauteng Division of the High Court, Pretoria had to decide whether SARS should be compelled to produce certain documents requested by the applicants (Taxpayers) in the context of a review application brought by the Taxpayers. The main proceedings in this matter involve a review application which the Taxpayers brought against SARS seeking to set aside the decision of SARS to audit them in terms of s40 of the Tax Administration Act, No 28 of 2011 (TAA).
Investment by a venture capital company
Author: Gigi Nyanin (Associate at Cliffe Dekker Hofmyer). The South African Revenue Service (SARS) released Binding Private Ruling 274 (BPR 274) on 6 June 2017, which deals with the investment by a venture capital company (VCC) in a company providing and expanding plants for the generation of solar electricity. By way of background, the VCC tax regime was introduced into the Income Tax Act, No 58 of 1962 (Act) in 2009 to encourage investment into small and medium-sized enterprises and junior mining companies. The relevant legislation, which is found in s12J of the Act, provides for the formation of an investment holding company, described as a VCC. Investors subscribe for shares in the VCC and claim an income tax deduction for the subscription price incurred. The VCC, in turn, invests in qualifying companies (ie investee companies).
SARS rules on the PAYE and VAT implications of non-executive directors remuneration
Author: Beric Croome and Gerhard Badenhorst (Tax Executives at ENSafrica). The South African National Treasury indicated in the 2016 Budget Review that there are differing views as to whether the remuneration paid to a non-executive director (NED) is subject to employees tax, that is, pay-as-you-earn (PAYE) and whether a NED should register for value-added tax (VAT). It was suggested that these issues be investigated to provide clarity. In its final response document on the Taxation Laws Amendment Bill, 2016, National Treasury and the South African Revenue Service (SARS) proposed that SARS address the uncertainties relating to VAT and PAYE in relation to NED remuneration in an interpretation note.