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.
Category: Income Tax
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.
Another ruling on income tax allowances for future expenditure
Author: Ben Strauss. Under section 24C of the Income Tax Act 58 of 1962, if a taxpayer receives income under a contract in a tax year, and if the income will be used to finance expenditure to be incurred by the taxpayer in future in the performance of its obligations under that contract then the taxpayer may qualify for an allowance.
The end of NRV for closing stock (or not?)
Author: Joon Chong, a Partner at Webber Wentzel. The Supreme Court of Appeal (SCA) has for the second time in CSARS v Atlas Copco South Africa (Pty) Ltd, confirmed that the net realisable value (NRV) method is not a suitable method to value closing stock for income tax purposes. The SCA referred with approval to its earlier decision of CSARS v Volkswagen South Africa (Pty) Ltd and held that the NRV method is forward looking, taking into account estimated costs which would still need to be incurred before the stock is sold. The Income Tax Act 58 of 1962 (Act), and calculation of taxable income, is backward looking. The reduction from the cost price of the closing stock should only be allowed in two circumstances: (i) when an event that caused the value of the trading stock to diminish occurred in the tax year; and (ii) when the taxpayer knows Read More …
Unbundling transactions by listed companies what are the tax implications for shareholders?
From time to time, listed companies unbundle shares to their shareholders. It is important for the shareholders to understand the tax implications which may arise upon the receipt of the shares.
Inbound interest bearing loans section 31 versus section 23M of the Income Tax Act
There can be no objection in principle to the deduction of interest on loans in suitable cases. Loan capital is the life blood of many businesses but the mere frequency of its occurrence does not bring about that this type of expenditure requires different treatment. Whilst these words of Hefer JA in the well-known judgment of Ticktin Timers CC v The Commissioner for Inland Revenue (1999 (4) SA 939 (SCA) at 942I) are still apposite two decades later, there has been increased focus by National Treasury on cross-border financing and how it may lead to tax avoidance, base erosion and profit shifting. As a result of this scrutiny, sections which are intended to have an effect on the deductibility of interest incurred in respect of cross-border loans have been included in the Income Tax Act No. 58 of 1962 (the Act). For the current purposes, we have only focused on Read More …
Methods used by taxpayers to write down trading stock to be rewritten?
Author: Jerome Brink. In its simplest form, s22 of the Income Tax Act, 58 of 1962 (Act) is a timing provision which ensures that the cost of trading stock in the hands of a taxpayer matches the income earned in respect of that trading stock sold, or otherwise disposed of. The 2019 Draft Taxation Laws Amendment Bill (2019 Draft TLAB) proposes a key amendment to the manner in which taxpayers can write trading stock down at the end of any year of assessment which will have far-reaching implications for many taxpayers.
SARS issues binding class ruling regarding unbundling transaction
Authors: Tsanga Mukumba and Louis Botha. Section 46 of the Income Tax Act, No 58 of 1962 (Act) provides tax relief where a company (Unbundling Co) wishes to unbundle its shareholding in a subsidiary (Unbundled Co), to the companys own shareholders. The Unbundling Cos shareholders indirect shareholding in the Unbundled Co is converted to a direct shareholding, in proportion to their shareholding in the Unbundling Co.
SA Budget 2019/20 – Controlled foreign company comparable tax threshold to be decreased
The Budget noted a global downward trend in corporate taxation rates. This downward trend may lead to an unintended increase in the imputation of the net income of controlled foreign companies (CFCs) in South African shareholders taxable income. This is despite the fact that at the inception, the CFC may have operated in a jurisdiction with rates of tax which would have met the present threshold contained in paragraph (i) of the proviso to s9D(2A)(l) of the IT Act.