It is not uncommon for loan accounts owing by a company (debtor company) to a shareholder (creditor) to be sold by the creditor together with the shares in the debtor company. So too may creditors be tempted to dispose of a loan owed by the debtor company in circumstances where the debtor company cant service it because of the prevailing economic downturn. In these instances, the market value of the loan may be invariably less than the face value and also the base cost; and, as such, may be sold at a discount to face value resulting in a capital loss. Where the debtor company is a connected person as defined in section 1(1) of the Income Tax Act, 1962 (as amended) (ITA) in relation to the creditor and the loan is sold at a price less than the base cost of the loan (and assuming the base cost is Read More …
Category: Income Tax
Avoid future headaches: raising all grounds of objection is critical in SARS tax disputes
In recent years, SARS has become increasingly litigious, resulting in disputes often ending up in the Tax Court or the High Court. Such a dispute will generally arise when a taxpayer disagrees with an assessment raised by SARS. An aspect of the dispute process that can have dire consequences if overlooked is that a taxpayer must canvas all relevant grounds of objection from the outset, as these form the basis of any future litigation. A case in point isCommissioner for the South African Revenue Service v Airports Company for South Africa.In this case, SARS raised an additional assessment for the taxpayers 2011 year of assessment, disallowing deductions of Corporate Social Investment (CSI) expenditure and allowances in terms of section 13quinand 12F of the Income Tax Act,1962 (the ITA). The taxpayer only objected to the disallowance of the CSI expenditure. No objection was lodged to section 13quin and section 12F allowances Read More …
SCA rules on the imposition of USP where a taxpayer relied on an opinion
The South African Revenue Service (SARS) may impose penalties on taxpayers who make errors in their tax returns, but relief is available under certain circumstances. Understatement penalties (USPs) are levied in terms of section 222(1) of the Tax Administration Act, 2011 (TAA) and provide that in the event of an understatement by a taxpayer, the taxpayer must, in addition to the tax payable, pay a USP, unless it is the consequence of a bona fideinadvertent error. A provision in theTAAfurther states that SARS must remit a penalty imposed for a substantial understatement if it is satisfied that: the taxpayer was in possession of an opinion by an independent registered tax practitioner that was issued by no later than the date the relevant return was due; the opinion was based upon full disclosure of the specific facts and circumstances of the arrangement; and the opinion confirmed that the taxpayers position is Read More …
Five points to consider when SARS owes you a refund
Authors: Andries Myburgh AND Simon WeberIts been a tough year. For taxpayers expecting long-outstanding refunds from the South African Revenue Service (SARS), even moreso. Earlier this year, SARS relished the fact that it had paid ZAR2.4 billion in refunds to taxpayers. It acknowledged that these refunds were a major cash injection into the economy at a very critical period. But SARS has generally been slow to refund amounts of excess payments due to taxpayers. The Tax Ombud, for instance, reported that in the 2018/2019 financial year, 24.43% of all complaints received by its office had related to delayed refunds the second highest number of complaints.
SARS decision to audit: Can it be taken on review?
Author: Louise Kotze. Administrative action (being the exercise of public powers and the performance of public functions by organs of state) may be taken on review by members of the public that have been adversely affected by a decision that is taken by any public authority. In the recent judgment of Cart Blanche Marketing CC and others v CSARS (26244/15) [2020] ZAGPJHC (31 August 2020), the High Court of South Africa had to determine whether the decision taken by the South African Revenue Service (SARS) to audit a taxpayer constituted administrative action and whether the said decision was capable of being reviewed under South African administrative law.
The failure by a taxpayer to object to the imposition of interest may prove fatal
Author: Louise Kotze. In the judgment of CSARS v The Executor of the Estate Late Lot Maduke Ndlovu (A395/2016) [2020] ZAGPPHC (12 October 2020), the High Court of South Africa had to determine whether the Tax Court had erred in its findings that, amongst others, the taxpayer should be entitled to raise a new ground of objection during the appeal when such ground had not been raised by the taxpayer in his objection. Facts The late taxpayer, the executor of whose estate was the respondent in this matter, was granted options to acquire shares in his employer, which options were exercised by him during his tenure of employment.
Tax Appeal Tribunal ruling: Commissioner Generals discretion must be exercised judiciously
Authors: Celia Becker and Phillip Karugaba. The recent ruling of the Tax Appeals Tribunal (TAT) in the case of Century Bottling Company v Uganda Revenue Authority (URA), has brought the discretion of the Commissioner General of the URA sharply in focus. It is absolutely necessary and indeed important that in the exercise of their functions, public authorities exercise discretion. It is equally important that such discretion is properly exercised taking into account only the relevant considerations and for the proper reasons. The citizen has recourse to court to check the excesses of executive discretion. A public official is therefore not like the cultural leader kamala byona (he who finishes all matters). The formers discretion is very much controlled by law and by the courts.
Deductions available for commission earners
Author: Joon Chong, a Tax Partner a Webber Wentzel. Commission earners could make an argument to SARS that they should be allowed to deduct their normal range of business expenses, even if commission is no longer more than 50% of their total remuneration under the exceptional circumstances of the Covid-19 pandemic. Who is a commission earner? Commission earners who earn more than 50% of their total remuneration as commission income are not limited in the type of business expenses they can claim, as long as these are incurred in the production of their income and are not capital or personal in nature.
Tax treatment of losses incurred during lockdown
Authors: Aubrey Mazibuko, Emil Brincker and Louis Botha. There is little doubt that the national lockdown in response to the COVID-19 health crisis has had a negative financial impact on individuals and business alike. In our Tax & Exchange Control Alert of 28 May 2020, we discussed some of the practical day-to-day tax consequences that the lockdown may have on businesses. In this alert we take a look at the effect that the national lockdown may have on expenditure or losses incurred by individuals and businesses. We also the look at the tax consequences that may arise as a result of employers providing their employees with personal protective equipment. To this end we will consider two scenarios.
Estimating the tax effects of the sale of a business in the hands of a seller
Author: Craig Miller from Webber Wentzel. Tax practitioners are often asked to calculate the indicative effects of the prospective sale of a business (assuming no roll-over relief applies) for the seller. Invariably, the tax practitioner will be informed by the private equity or corporate finance practitioner that enterprise value (EV) is the estimated fair value of the operations of the business. However, this may give rise to a misunderstanding. A tax practitioner is likely to be confused by reference to the “business” (a term only appearing three times in the Income Tax Act) and will not always understand how this value is calculated.