With effect from 1 January 2012, the South African Government introduced s6quin of the Income Tax Act, No 58 of 1962 (Act) which provides for a rebate in respect of foreign taxes paid by a South African resident for services rendered within South Africa. In terms of the various treaties for the avoidance of double taxation that South Africa has with other countries, the country that is the source of the income generally has the sole right to tax that income. In respect of services, the country in which the services are rendered is generally understood to be the source of the income in relation to such services.
Category: Income Tax
Court addresses the deductibility of research and development tax incentives
In an attempt to encourage research and development in South Africa, s11D of the Income Tax Act, No 58 of 1962 (Act) was introduced to provide a research and development tax incentive which seeks to encourage and incentivise private sector investment in the research and development of scientific or technological activities. This particular tax incentive ensures that research and development activities are conducted within South Africa with the ultimate goal of indirectly stimulating the economy. Under the provisions of s11D of the Act, two types of tax deductions are allowable. First, the 150% deduction of expenditure incurred directly for research and development purposes and secondly, an accelerated depreciation deduction for capital expenditure incurred on any building or part thereof, machinery, plant, implement, utensil or article used for research and development purposes.
Retail Market Value of Right of Use of Motor Vehicle
On 28 April 2015, National Treasury published the Regulations dealing with the determination of the ‘retail market value’ of the right of use of a motor vehicle fringe benefit. A taxable fringe benefit arises where an employee is granted the right to use a motor vehicle, owned by his employer, for private use. Travelling between the employee’s residence and place of work is included in private use. The ‘determined value’ of a motor vehicle is ordinarily used to calculate the value of the private use. The retail market value must be used to determine the fringe benefit for vehicles acquired by an employer on or after 1 March 2015. Where the employer did not acquire the vehicle, for example,
Ability of SARS to request information from a taxpayer
Author: Peter Dachs (Tax Director at ENSAfrica) The South African Revenue Service (“SARS”) often sends out information requests in terms of section 46 of the Tax Administration Act. The question arises, in what circumstances SARS is permitted to ask such questions and what limits exist in respect of their powers? Relevant legislative provisions The Tax Administration Act has recently been amended by the Tax Administration Laws Amendment Act, 2014. This made certain changes to SARS’ powers to request information from a taxpayer.
The conundrum of the interplay between interest deduction limitations, interest withholding tax and double tax agreements
Author: Gerdus van Zyl (Tax Manager at ENSAfrica) The conundrum of the interplay between interest deduction limitations, interest withholding tax and double tax agreements The deductibility of interest has for years been a contentious issue and this has been reaffirmed with the introduction of section 23M into the Income Tax Act No 58 of 1962 (the “Act”) with effect from 1 January 2015. A further addition to the interest sphere of income tax is the introduction of interest withholding tax provisions in sections 50A to 50H, which came into effect on 1 March 2015.
Procedures governing objections and appeals
Author: Dr Beric Croome (Tax Executive at ENSAfrica) A taxpayer who receives an assessment from the Commissioner of the South African Revenue Service with which they do not agree, is entitled to lodge an objection against that assessment, and Chapter 9 of the Tax Administration Act, No. 28 of 2011 (“TAA”) regulates procedures relating thereto. Taxpayers also need to be mindful of the rules governing objection and appeal promulgated under section 103 of the TAA, which sets out in greater detail the steps to be followed in the objection and appeal process.
Taxation of interest – the complex web
Author: Michael Reifarth (Tax Executive at ENSAfrica) The number of provisions contained in the Income Tax Act, 58 of 1962 (“the Act”) which deal with tax treatment of interest income and interest expenditure have gradually increased over time. There are numerous aspects to be borne in mind by resident and foreign companies when considering the income tax and withholding tax implications which may arise in respect of transactions giving rise to interest income and interest expenditure. This article serves as an outline of certain provisions which should be given consideration when assessing the tax impact which interest income or expenditure may have on the position of a company.
Tax Administration – Interpreting statutory provisions
SARS has investigated, and in many cases raised assessments in respect of, share incentive schemes where the employee had accepted an offer to purchase shares at a fixed price prior to 26 October 2004, subject to delivery and payment taking place at a future date. The law relating to these schemes (known as deferred delivery schemes or DDS schemes) was amended with effect from that date. The Supreme Court of Appeal has now delivered its judgment in the matter of C: SARS v Bosch [2014] ZASCA 171 (19 November 2014) and provided clear guidance on the application of the Income Tax Act No. 58 of 1962 (the Act) in relation to deferred delivery share incentive schemes, where the employee had exercised the right to acquire the shares prior to 26 October 2004.
Suspension of payment of tax due
When the Tax Administration Act No. 28 of 2011 (TAA) was promulgated on 1 October 2012 it introduced rather aggressive provisions empowering the South African Revenue Service (SARS) to collect tax more effectively, including the retention of the pay-now-argue-later principle. However, section 164 of the TAA allows a taxpayer to request a suspension of the obligation to pay an amount of tax or a portion thereof under an assessment where the taxpayer disputes or intends to dispute the liability to pay that tax under the dispute resolution provisions contained in Chapter 9 of the TAA. Previously, section 164(3) of the TAA provided that a senior SARS official may suspend payment of the disputed tax or a portion thereof, having regard to:
Has your tax return prescribed? SARS’ powers reach to infinity and beyond
Author: Hylton Cameron (Grant Thornton Johannesburg) In the recent case of Ackermans Ltd v CSARS the issue of prescribed tax returns was re-visited in Pretoria in the High Court. In terms of the Income Tax Act, SARS is entitled to raise additional assessments for three years from the date of final assessment. However if there is a misrepresentation of a material fact in the original return, the three prescription period does not apply. In this case however, SARS only raised additional assessments some seven to thirteen years after the original assessments, sparking concern about SARS’ almost infinite reach to reassess tax returns.