Where an accident or other mishap results in a taxpayer’s 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 58 of 1962 as having been incurred in the production of income. In Port Elizabeth Electric Tramway Co v CIR 1936 CPD 241,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.’ (Emphasis added.) Particular risks are inherent Read More …
Category: Corporate Tax
The Mark Lifman judgment: the High Court refuses to interdict the enforcement by SARS of a judgment taken against the taxpayer
Mark Lifman has recently been the subject of many lurid newspaper stories, with City Press describing him as ‘one of South Africa’s biggest underworld bosses and one of Cape Town’s richest and most feared underworld figures’. It has been reported that he owes SARS some R388 million in tax. Not for the first time in history has a powerful underworld figure met his Waterloo when engaging with the tax authorities. A judgment of the Cape Town High Court delivered on 17 June 2015 (but not yet reported) recorded that Lifman and various close corporations of which he was the sole member owed an undisputed tax debt to SARS of over R13 million (some R3 million of which was owed by Lifman personally) that had accumulated over some ten years. Further tax debts (see para [6]) were still in issue.
No tax relief for hedge funds?
Author: Magda Snyckers (ENSafrica) With effect from 1 April 2015, the business of a hedge fund has been declared to be a collective investment scheme (“CIS”) in terms of section 63 of the Collective Investment Schemes Control Act 45 of 2000 (“CISCA”). Accordingly, hedge funds are now subject to and regulated by certain prescribed provisions of CISCA. As a result, a person that conducts the business of a hedge fund must, within 6 months from 1 April 2015, lodge with the registrar of the Financial Services Board an application for registration as a manager to operate a hedge fund in accordance with section 42 of CISCA. Hedge funds typically constitute en commandite partnerships or trusts and a substantial amount of the investors into such hedge funds constitute tax exempt institutions.
The definition of ‘controlled group company’ and ‘equity share’
Author: Heinrich Louw (Senior Tax Associate – Cliffe Dekker Hofmeyr) The South African Revenue Service (SARS) released Binding Private Ruling No, 205 (Ruling) on 11 September 2015. The Ruling considers the meaning of ‘controlled group company’ and ‘equity share’. An approved venture capital company (VCC) in terms of s12J of the Income Tax Act, No 58 of 1962 (Act), resident company A (Company A), and resident company B (Company B), proposed to incorporate a new company (RentalCo).
Improved tax allowance for photo voltaic power plants
The 2015 Taxation Laws Amendment Bill (TLAB) proposes an amendment to s12B of the Income Tax Act, No 58 of 1962 (Act) in respect of the accelerated tax allowance available to photo voltaic (PV) power plants. The proposal, which comes into operation on 1 January 2016, allows for a 100% accelerated tax allowance in respect of embedded PV power plants, generating up to 1MW for self-consumption. As a general principle and provided the requirements of s12B of the Act are met, a taxpayer is permitted to deduct the cost of qualifying assets (including structures of a permanent nature), used in the generation of electricity from renewable resources, on a 50 / 30 / 20 basis (ie over a three year period). As s12B of the Act currently stands, solar power is classified as a single concept without distinguishing between the sub-categories of photo voltaic and concentrated solar power (CSP). The Read More …
Revised draft interpretation note regarding “place of effective management”
Author: Annalie Pinch and Chris de Bruyn Earlier this year, the South African Revenue Service (“SARS”) released issue 2 of Interpretation Note 6 (“draft Interpretation Note”) on the “place of effective management” (“POEM”). Comments were due by 31 July 2015. POEM is often of critical importance in determining the tax residency of an entity. The interpretation previously put forward by SARS in terms of Interpretation Note 6 issued during 2002 (“IN6”) in this regard, did not accord entirely with international precedent and the approach followed by SARS was that the POEM is:
The tax function must transform to become a strategic business asset: PwC report
Never before has tax been more important to governments, taxpayers and other stakeholders. Increased global compliance requirements, together with a greater need for robust controls to manage tax risks and a desire to use data analytics to assist in business wide decision making processes are all impacting tax functions and their investment decisions. To remain relevant to the business, tax functions will need to manage these growing external pressures and operational challenges by charting a course for continuous transformation that is immediate, holistic and practical.
Tax court rules on creation of permanent establishment in South Africa
Author: Dr Beric Croome – ENSafrica Tax Executive Where a foreign company renders professional services to a South African company in South Africa, it is important that the foreign entity considers whether, as a result of rendering such services, the foreign company will create a permanent establishment in South Africa. The reason why this becomes important is that where a foreign company creates a permanent establishment in South Africa, this country will under the provisions of a Double Tax Agreement (“DTA”) concluded with another country, be entitled to subject that foreign entity to tax on the profit attributable to that permanent establishment created in South Africa.
Securities transfer tax exemption where parties opt out of roll-over relief
The South African Revenue Service (SARS) released Binding Private Ruling No 195 (Ruling) on 26 June 2015. The Ruling deals with the application of the exemption provision contained in s8(1)(a) of the Securities Transfer Tax Act, No 25 of 2007 (STT Act) in circumstances where parties have entered into an asset-for-share transaction as defined in s42 of the Income Tax Act, No 58 of 1962 (Act), but elected that any relief provided for in s42 of the Act should not apply. The Applicant, a company incorporated and resident in South Africa, was a wholly-owned subsidiary of HoldCo, a non-resident company incorporated in a foreign jurisdiction.
Distribution of a debit loan account in anticipation of deregistration of a company
The South African Revenue Service (SARS) published Binding Private Ruling No. 198 on 7 July 2015 (Ruling). The Ruling deals with the distribution by a South African resident company (Subsidiary) of its loan account to its South African holding company (Holding Company) in anticipation of the Subsidiary’s deregistration. The applicable provisions in the Income Tax Act, No 58 of 1962 (Act) are s10(1)(k), s47, s64D and s64FA(1)(b). The relevant facts relating to the Ruling are as follows: