In the 2015 Budget, the Minister of Finance indicated that paragraph 11(2)(b) of the Eighth Schedule to the Income Tax Act of 1962 (the Act), which deals with the issue of shares by a company, would be reviewed. The Taxation Laws Amendment Bill 2015 specifically addresses paragraph 11(2)(b). The issue of shares by a company (whether for cash, shares or other assets) generally does not constitute a disposal for capital gains tax purposes, although there may be capital gains tax consequences in terms of section 24BA of the Act to the extent that there is a mismatch between the value of the shares issued and the cash or assets received.
Category: Capital Gains Tax
Assuming contingent liabilities in acquiring a going concern
Author: Erich Bell, Senior Tax Consultant at BDO South Africa SARS issued a draft interpretation note (DIN) in September 2015 on the tax implications of the assumption of contingent liabilities where a business is sold as a going concern. This article sheds some light on the assumption of contingent liabilities which specifically formed part of the purchase price relating to the acquisition of the business as a going concern.1 A purchaser can settle the purchase price for the acquisition of a business as a going concern by employing a combination of: cash consideration, assuming the seller’s debts, assuming the seller’s contingent liabilities, loan funding, or share issues.
Finality of advance payments by non-residents disposing of immovable property
Author: Ruaan van Eeden The 2015 Taxation Laws Amendment Bill (TLAB) proposes an amendment to s35A of the Income Tax Act, No 58 of 1962 (Act), dealing with the withholding of amounts from payments due to non-resident sellers of immovable property situated in South Africa. The proposed amendment raises an interesting point regarding administrative compliance with a country’s tax laws through the submission of returns for assessment versus a final withholding tax.
Energy sector license and consent charges: capital or revenue?
Recently two interesting cases were reported in New Zealand and Australia. The cases related to whether certain expenses incurred by taxpayers in the energy sector were deductible for purposes of income tax. In those countries – like in South Africa – taxpayers may generally not deduct costs of a capital nature for purposes of income tax. In the case of Commissioner of Inland Revenue v Trustpower Ltd [2015] NZCA 253 the taxpayer (Trustpower) generated and sold electricity. The taxpayer was developing new projects. In that process it incurred expenses in applying for and obtaining consents under the Resource Management Act 1991. The consents related to land use, water and discharge.
Few Cape Town developers cashing in on inner city tax rebate scheme
Author: Bekezela Phakathi (BDlive) There have been few takers of the Urban Development Zone tax incentive in Cape Town. The scheme also appears to have done little to boost the availability of affordable housing in the city’s CBD. The scheme, introduced in 2003, is an incentive administered by the South African Revenue Service (SARS) aimed at revitalising inner city areas by attracting capital investments in commercial and residential property through a tax rebate.
Scope of capital gains tax liability broadened
In order to provide the necessary legislative amendments required to implement the tax proposals that were announced in the 2015 National Budget on 25 February 2015, the National Treasury published the Draft Taxation Laws Amendment Bill (TLAB), 2015, on 22 July 2015 for public comment. One of the proposed amendments relates to the definition of ‘immovable property’ as provided in paragraph 2 of the Eighth Schedule to the Income Tax Act, No 58 of 1862 (Act).
Capital gains tax deferred
Put simply, capital gains tax (CGT) is levied on the capital gain arising on the disposal of an asset, that is, on the difference between the base cost of the asset and the proceeds accruing on disposal. In terms of paragraph 35(4) of the Eighth Schedule to the Income Tax Act, No 58 of 1962 (Act) when a person disposes of an asset during a current tax year and that person becomes entitled to any amount which is payable in future tax years, that amount is deemed to have accrued to that person during the current tax year. So, if the price of an asset is paid, say, in three equal instalments over three tax years, the person disposing of the asset must account for CGT on full price in the first tax year, that is, the year of the disposal.
SARS clamps down on share buy backs followed by the issue of shares
In practice taxpayers often enter into arrangements in terms of which a company buys back its own shares held by certain shareholders, and immediately thereafter issues new shares to new shareholders. This practice has long caused tax avoidance concerns for the South African Revenue Service (SARS), as it could circumvent the payment of capital gains tax (CGT) by the shareholder whose shares are bought back.
Disposal of foreign equity shares – proceed with caution
In advising on international corporate transactions we often advise taxpayers that directly, or indirectly through a foreign subsidiary, dispose of their equity shares in foreign subsidiaries or equity investments resulting in a taxable capital gain. What looks like a simple transaction, capable of being executed in a tax neutral manner, could very easily result in adverse tax implications for the disposing shareholder.
The importance of documentation in tax disputes highlighted in the new dispute resolution rules
Authors: Stephen Lavetan and Taryn Solomon of ENSafrica With effect from 1 January 2013, new rules were introduced in the Income Tax Act No. 58 of 1962 (‘the Act’) governing the tax consequences flowing from the reduction or waiver of debts. According to the Explanatory Memorandum, the amendments were prompted in response to the global financial crisis and the unusually large number of companies facing financial distress. The intention was therefore to establish a mechanism which facilitated debt reductions without creating an additional obligation to pay further tax.