Author: Kyle Mandy (PwC). In order to prevent the five year rule from being abused, there are certain exceptions. Section 99 of the Tax Administration Act regulates the prescription of tax periods. The most important circumstances in which SARS is barred from raising further assessments in relation to a tax period are those relating to the passing of time. As a general rule, SARS is time-barred from raising an assessment in relation to a tax period as follows:
Category: Corporate Tax
Tax administration: SARS’ constitutional obligations and taxpayers’ rights
Author: Andries Myburgh (Tax Director at ENSafrica). Given recent media coverage of the various Constitutional Court challenges involving government institutions and the Presidency; the perceived power struggle between the Commissioner for the South African Revenue Service (“SARS”) and the Minister of Finance; as well as SARS’ continued pressure to collect revenue in difficult economic times that see corporate taxpayers endure declining revenues and increasing costs; it is useful to remind taxpayers and their shareholders of their constitutional rights and SARS’ constitutional obligations when it performs its functions in administering various taxation legislation. This topic is very complex and, accordingly, what follows is a very broad overview of these issues. Taxpayers and their shareholders are encouraged to obtain specialised legal advice or assistance when confronted with potential investigations or audits by SARS.
Extent of tax fraud unknown – SARS
Author: Amanda Visser (IOL). The South African Revenue Service (SARS) still does not know the full extent of tax evasion, despite its work probing foreign bank accounts held by South African residents. It has been a year since SARS confirmed some account holders had been using their offshore accounts to evade their tax obligations, both locally and internationally. SARS received the damming information through international exchange of information agreements with foreign financial institutions.
Deductability of business trade losses
Where an accident or other mishap results in a taxpayer incurring an involuntary loss, a question can arise as to whether that loss is deductible for income tax purposes in terms of the general deduction formula laid down in section 11(a) of the Income Tax Act of 1962 (the Act) as having been incurred in the production of income. In Port Elizabeth Electric Tramway Co Ltd v CIR [1936] 8 SATC 13, Watermeyer J expressed the underlying principle by saying that – “all expenses attached to the performance of a business operation bona fide performed for the purpose of earning income are deductible whether such expenses are necessary for its performance or attached to it by chance or are bona fide incurred for the more efficient performance of such operation provided they are so closely connected with it that they may be regarded as part of the cost of performing it.”
Asset-for-share transactions
Section 42 of the Income Tax Act of 1962 (the Act) provides for tax roll-over relief in respect of asset-for-share transactions as defined. Such a transaction generally entails the disposal by a person of an asset to a company, and the issue of new shares by that company to the person, as consideration. One of the requirements is that the nature of the asset must be retained. In other words, if the person held the asset as trading stock, the company must acquire it as trading stock, and if the person held it as a capital asset, the company must acquire it as a capital asset. If the person held the asset as a capital asset, the company may acquire it as trading stock if the person (where the person is a company) and the company do not form part of the same group of companies.
Unilateral extension of prescription in certain specific tax matters
Author: Carmen Gers and Chris de Bruyn (ENSafrica). Section 99 of the Tax Administration Act, 28 of 2011 (“Tax Admin Act”), which regulates prescription in relation to tax assessments, provides that a three-year prescription period applies where the South African Revenue Service (“SARS”) has had a previous opportunity to assess a taxpayer (e.g. income tax) and a five-year prescription period applies in the case of self-assessment (e.g. value added tax and employees’ tax). In an ENSafrica article dated 19 August 2015, we addressed the proposed unilateral extension of prescription by SARS as was provided for in the draft Tax Administration Laws Amendment Bill (“Draft Bill”), a copy of which can be found here.
Exemption from Security Transfer Tax for collateral
Authors: Magda Snyckers and Kelle Gagné (ENSafrica). For years, the South African securities lending industry has been lobbying for an exemption from securities transfer tax (“STT”) for the outright transfer of listed equity securities as collateral. On 8 January 2016, the Taxation Laws Amendment Act 25 of 2015 was promulgated, which includes the long-awaited introduction to the Securities Transfer Tax Act 25 of 2007 (the “STT Act”) of such an exemption. This is very good news for the South African securities lending market and others, but parties will need to clear a few hurdles before availing themselves of the exemption.
Pravin Gordhan: We will win the trust of South Africans
Author: Sarah Evans (Mail & Guardian) In his first press conference since being reappointed finance minister, Gordhan has pledged to ensure “sound fiscal management”. The newly appointed minister of finance, Pravin Gordhan, sought to reassure the country and nervous investors on Monday in a press conference where he promised that “sound fiscal management” would be the ministry’s priority. Gordhan was appointed to the position, which he previously held from May 2009 to March 2014, in a surprise announcement on Sunday night.
Proposed extension of existing prescription periods (section 99 of the Tax Administration Act)
Author: Mareli Treurnicht (Cliffe Dekker Hofmeyr). Section 99 of the Tax Administration Act, No 28 of 2011 (TAA) prescribes the period of limitations (ie prescription) for the issuance of assessments. Section 99 currently states that the South African Revenue Service (SARS) may not make an assessment in terms of Chapter 8 of the TAA, inter alia: three years after the date of assessment of an original assessment by SARS; (in the case of self-assessment for which a return is required) five years after the date of assessment of an original assessment by way of self-assessment by the taxpayer or, if no return is received, by SARS; or (in the case of a self-assessment for which no return is required) after the expiration of five years from either the date of the last payment of the tax for the tax period or the effective date, if no payment was made in respect Read More …
SARS uses banks to collect debt
Author: Amanda Visser (IOL) Several financial institutions, including banks, have accused the South African Revenue Service (SARS) of not following its own processes when collecting outstanding tax debt; instead using them as its first port of call. Statistics by the Banking Association of South Africa indicate banks each receive between 4 000 and 8 000 appointments on a monthly basis to collect tax debt on SARS’s behalf. This has increased from an average of 150 per month in previous years. The administrative cost per appointment amounts to R200.