By Douglas Gaul, Tax Manager Grant Thornton Johannesburg Prior to 1 March 2014, dividends received from equity shares that were acquired by an employee as part of a share incentive scheme, were exempt from income tax (with some exceptions), even if these shares were held by a share trust on behalf of the employees. This situation has changed, and share incentive schemes must be reviewed to determine whether they still achieve the outcomes they were originally setup to deliver.
Category: Income Tax
Loans disguised under share schemes are no more it is time to restructure
By Hawa Bibi Hoosen, Senior Tax Consultant, Grant Thornton Durban The revised section 8E and newly introduced section 8EA of the South African Income Tax Act (the Act¯) deems certain dividends and foreign dividends received in cash by any person on or after 1 January 2013, to be income, taxed in the hands of the shareholder. This has resulted in significant changes in the tax planning of companies and individuals alike.
A horse that looks like a cow is still a horse – Hybrid debt instrument taxed as dividends
By Donatella Callaway The new anti-avoidance rules in respect of hybrid debt instruments, which were introduced by the Taxation Laws Amendment Act 2013 (TLA), became effective on 1 April 2014. The provisions were introduced to reduce the opportunity to create equity instruments that are artificially disguised as debt instruments.
Successive corporate reorganisation transactions
Author: Andrew Lewis (CliffeDekkerHofmeyr) A number of advance tax rulings have recently been released by the South African Revenue Service (SARS) relating to the corporate tax rollover relief rules contained in s41 to 47 of the Income Tax Act, No 58 of 1962 (Act). The most recent ruling in this regard is Binding Private Ruling No 168 (BPR 168), which was released on 17 April 2014.
Interest incurred on replacement loans
This private ruling from SARS deals with interest incurred on replacement loans and addresses whether such loans retain their initial business purpose for purposes of determining whether the interest incurred on the loans qualifies for a deduction under section 24J(2).
Tax tips: how property can save you money
That time of the year again – 28 February was the closing of the annual tax season for the period 1 March 2013 to 28 February 2014. Once your IRP5 has been submitted you anxiously await the decision made by SARS as to whether you need to pay in, or hopefully, that you receive a refund directly into your bank account. Either way, it is time to reflect on the coming financial year-end 28 February 2015, and to start planning on how best to focus on your financial growth. By having your income submitted to SARS you could generate a positive cash flow. For you to benefit from tax deductions, the ideal investment would be in property. It is known that to have a successful property portfolio to increase your net worth is possibly the best investment you could consider.
Income Tax Exemptions – Employee share schemes
As a general rule, subject to certain exceptions, local dividends received and accrued to a South African tax resident are exempt from normal tax in terms of section 10(1)(k) of the Income Tax Act, No. 58 of 1962 (the Act). One such exception applies to employee share schemes by virtue of the application of section 10(1)(k)(i)(dd). Section 10(1)(k)(i)(dd) of the Act Section 10(1)(k)(i)(dd), which was introduced from 1 January 2011, prescribes that a dividend will not be exempt from normal tax if such dividend is received or accrued in respect of a restricted equity instrument (as defined in section 8C) unless:
Relief in relation to acquisition debt
Author: Webber Wentzel Relief in relation to acquisition debt Section 23N contains rules to cap allowable interest incurred by an acquirer of a business pursuant to a Section 45 intra-group transfer or a Section 47 liquidation distribution. It replaces Section 23K from 1 April 2014 and also applies to the refinancing of debt that was subject to Section 23K. In terms of Section 23N, the acquisition debt interest incurred by the acquiring company must, in any year of assessment and for a period of five years of assessment thereafter, not exceed the sum of the amount of interest received by or accrued to the new operating company plus 40% of the higher of the “adjusted taxable income” incurred in the first year in which the acquisition occurred or the year being tested.
Interest on loans from foreign persons
By Mike Betts, Tax Partner Grant Thornton Cape From 1 January 2015, the interest paid or due to non-residents from a source within South Africa (SA) will be subject to a 15% withholding tax, according to sections 50A to 50H of the Income Tax Act (‘the Act’). These provisions do not affect interest paid by, amongst others, any sphere of government, or any SA bank and will most likely affect loans from foreign shareholders and from other group companies located beyond the borders of SA.
Latest Research and Development tax allowance still missing the mark
By Barry Visser, Associate Director Grant Thornton Johannesburg Recent Research and Development (R&D) legislative amendments substantially changed the nature of the R&D allowance contained in section 11D of the Income Tax Act. However, despite the significant changes, this allowance still seems to fail to encourage many companies to undertake R&D. We highlight the most significant barriers and provide suggestions to benefit from the allowance.