Section 23M is set to become effective from 1 January 2015. Its intention is to limit the deduction of interest where such interest is paid to a connected person, which is not subject to tax in South Africa on the interest received. In the majority of cases, non-residents are not subject to normal tax in South Africa on interest received from a South African source due to the exemption provided in section 10(1)(h) of the Act. However, the withholding tax on interest paid to non-residents is to become effective from 1 January 2015. The intention would appear to be that if the interest received is not taxed in South Africa at all i.e. neither subject to normal tax in South Africa nor the withholding tax on interest (for example because a double taxation agreement reduces the withholding rate to zero per cent), then the section 23M limitation needs to be Read More …
Category: Income Tax
Recent Developments Regarding Tax Free Savings Accounts
Author: BDO In order to encourage savings, in the 2012 Budget speech the Minister of Finance proposed the introduction of tax free savings accounts. The idea was that individuals could invest up to R30 000 per annum into such accounts, with an overall lifetime ceiling of R500 000. Returns generated in the account would be tax free, whether by way of income or capital gains. The individual could withdraw the amount invested at any stage on a tax free basis.
Keeping the lid on Pandora's Box
If only all judgments were formulated with the elegant reasoning and perspicacity of the judgment delivered by Rogers J in the Western Cape Division of the High Court in Kluh Investments (Pty) Ltd v Commissioner for the South African Revenue Service (case number A48/2014, as yet unreported) on 9 September 2014. The appeal was against the dismissal of an appeal brought in the tax court against an additional assessment levied by the South African Revenue Service (SARS) in respect of the 2004 – year of assessment. SARS added an amount of R110 million to the appellant’s taxable income on the basis that the gross income giving rise to such taxable income had accrued to the appellant during its 2004 year of assessment on disposal of a plantation as contemplated in Paragraph 14 of the First Schedule to the Income Tax Act 58 of 1962 (Act).
Binding Private Ruling 166 – A change of domicile by a controlled foreign company
Author: BDO South Africa Binding Private Ruling 166, issued by SARS on 1 April 2014, involved an issue of concern to many holding companies in South Africa that have non-resident subsidiaries which hold their off-shore investments. The issue is whether a South African holding company will be deemed, for the purposes of para 11 of the Eighth Schedule to the Income Tax Act 58 of 1962, to have incurred a ‘disposal’ of assets if its controlled foreign subsidiary changes its domicile, even where its place of effective management remains outside South Africa.
Tax consequences arising from the writing off of loans
Author: Peter Dachs of ENSafricaWe are often spoken of as an economy with high levels of debt. Even when interest rates are high, we have never been scared of gearing ourselves so that we can buy that expensive car or holiday house in Hermanus. Companies too often have high levels of debt.
Debt restructuring – practical considerations
With effect from 1 January 2013, new rules were introduced in the Income Tax Act No. 58 of 1962 (‘the Act’) governing the tax consequences flowing from the reduction or waiver of debts. According to the Explanatory Memorandum, the amendments were prompted in response to the global financial crisis and the unusually large number of companies facing financial distress. The intention was therefore to establish a mechanism which facilitated debt reductions without creating an additional obligation to pay further tax.
Nine things to know about tax-free savings
Author: Ingé Lamprecht (Moneyweb) JOHANNESBURG – Over the past six months, Moneyweb has published a number of articles about National Treasury’s proposal to introduce tax-free savings accounts from March 1 next year. Each time we have been flooded with e-mails asking for more information. This column gives an overview of these accounts and tries to answer a couple of these questions.
Challenges for corporate taxpayers and the role of advisors
Author: Pieter van der Zwan (North-West University) Being a corporate taxpayer in an environment with constant developments in legislation and regulations coupled with complex tax issues that arise on a regular basis is not an easy task. One need not look further than a number of cases that appeared before the courts over the past year to see evidence of this. It is submitted that the nature of the challenges faced highlights the fact that the role of a corporate tax advisor’s involvement in the tax affairs of a client has evolved to be much more than merely assisting to complete an income tax or provisional tax return just before the submission deadline arrives. This article deals with four of the challenges that a corporate taxpayer in South Africa may face as well as the role that a corporate tax advisor could, and arguably should, be fulfilling in addressing these Read More …
Allowances in respect of public private partnerships
Authors: Nicole Paulsen and Gigi Nyanin of DLA Cliffe Dekker Hofmeyr On 17 July 2014, the National Treasury released the draft Taxation Laws Amendment Bill (TLAB) which aims to give effect to the various tax proposals announced in the 2014 Budget.
Discussion paper on the assumption of contingent liabilities in a going concern acquisition
SARS released the above discussion paper in December 2013 and it was open for comment to 31 March 2014. It deals with the treatment of so-called ‘free-standing’ contingent liabilities from the points of view of the seller as well as the purchaser, where the contingent liabilities are assumed by the purchaser as part settlement of the purchase price for the acquisition of the assets of a going concern. It distinguishes between valuation provisions, ‘embedded’ obligations and free-standing contingent liabilities. A valuation provision, for example a provision for doubtful debts and an embedded obligation, for example the statutory duty to reforest timber plantations after harvesting, have an impact on the market value of the asset to which they are attached.