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.
Category: Income Tax
Permanent establishments in South Africa
Recently, the Tax Court handed down judgment in the unreported case of AB LLC and BD Holdings LLC v the Commissioner of SARS (heard in February 2015) in which it had to determine whether or not an American company acting as an advisory group for the South African airline industry, had created a permanent establishment in South Africa. In making it’s decision, the court reviewed the Double Taxation Agreement (“DTA”) concluded between South Africa and the USA. A permanent establishment is created in terms of a double taxation agreement and outlines the activities that an enterprise of a resident state must conduct in a source state before the profits generated from those activities can be taxed in the source state. According to Section 5(1) of the Double Tax Agreement (and the Organisation for Economic Co-operation and Development Model Tax Convention), the term “permanent establishment” means:
Tax Court confirms importance of properly recording all matters relating to tax affairs
Author: Esther van Schalkwyk, Tax Consultant, BDO South Africa Section 102 of the Tax Administration Act places the burden of proving, amongst other things, that an amount or item is deductible or may be set-off, on the taxpayer. SARS, on the other hand, bears the onus in respect of, amongst other things, the facts on which SARS based the imposition of an understatement penalty. The Tax Court recently handed down judgment in VAT case no. 867, in which the Court once again confirmed the importance of the onus of proof in tax disputes.
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 …
Limitation on the deductibility of interest
Author: Mike Betts, Partner Grant Thornton Cape The February edition of e-taxline, Ignore 1 January 2015 tax changes at your peril, dealt with some important amendments to tax legislation that came into effect on 1 January and 1 March 2015. Another amendment that came into force on 1 January 2015 and requires careful consideration is contained in section 23M of the Income Tax Act (’the Act’) and deals with limitations on interest deductions for certain loan transactions. Specifically, if a resident taxpayer (the debtor) borrows funds from another entity (creditor), but the creditor is not liable for tax on the interest in South Africa and the parties are in a controlling relationship with each other, then the debtor’s interest deduction for tax purposes may be limited.
The tax free nature of a voluntary severance package
Loss of employment through retrenchment (forced or voluntary) is a reality many employees face in the current economic climate. Over the last number of years, various tax concessions have been made to ease the financial burden on employees facing retrenchment, mainly in the form of tax free thresholds which apply to certain lump sum employer payments. Navigating the tax pitfalls of retrenchment is important, as it is not necessarily guaranteed that all forms of payment upon retrenchment will qualify for preferential tax treatment.
The onus to prove ‘behaviour’ in the Voluntary Disclosure Process
Author: Mark Bovey (PwC) A discussion of the interpretational issues that may arise when a taxpayer needs to prove behaviour under the Voluntary Disclosure Programme On 1 October 2012, SARS launched a Voluntary Disclosure Programme under the provisions of sections 225 to 233 of the Tax Administration Act, No. 28 of 2011, as amended (“the TAA”). The main aim of the Programme is to encourage taxpayers to disclose, on a voluntary basis, previous non-compliance which may have prejudiced SARS, without the fear of understatement and other administrative penalties.
Amendments to CFC Diversionary Income Rules
Authors: Leani Nortje and Nola Brown (Webber Wentzel) Section 9D currently provides for diversionary income rules which seek to impute into the income of South African residents, service income derived from the performance of services by a CFC to a connected South African resident, and certain sales income derived by CFCs in relation to those residents, from the sales of goods that were sourced by the CFCs from connected parties in South Africa (so-called “CFC inbound sales”). The inbound sales rule does not apply where the CFC is located in a high tax jurisdiction,or the income from the sale of goods is attributable to the activities of a permanent establishment of the CFC. Prior to 1 April 2012, however, the exemptions to the diversionary income rules in relation to CFC inbound sales were substantially broader, in that an exemption existed if:
‘Tax havens will chase out non-compliant taxpayers’ – As global efforts to close loopholes intensify.
Author: Ingé Lamprecht (Moneyweb) JOHANNESBURG – South Africans with unauthorised funds abroad better get their affairs in order because tighter regulation in tax havens will soon become a reality, a tax expert has warned. Speaking at a recent seminar hosted by The Wealth Corporation, Tony Davey, director at boutique consulting firm Tony Davey and Associates, said South Africans with offshore funds (foreign inheritances, foreign earnings pre-1998 or “schlep” funds like unspent travel allowances) that weren’t externalised in line with the R10 million offshore investment allowance or R1 million foreign discretionary allowance permitted by the South African Reserve Bank (Sarb) may soon bear the brunt of closer scrutiny.
Earning commission? This is what you can deduct
Author: Petro van Deventer (Unikone) In our previous article regarding income tax and deductions for individuals, the basic principles were discussed. This article focuses on individuals earning commission or other perks / benefits, as well as a fixed salary. We explain by example: John is a sales representative who earns an annual basic salary of R50 000. During the tax year he also earned commission income of R250 000, giving him a total taxable income of R300 000 for the year. John’s employer does not provide him with office space and he works from home. John travels extensively to see clients, using his car with a cost price of R150 000.