The introduction of International Financial Reporting Standards into the Income Tax Act is setting a dangerous precedent, according to tax and legal experts. The changes will bring about a fundamental change in the way South Africans will be taxed in future, and will certainly not simplify tax matters.
Category: Income Tax
The Trustees of the Insolvent Estate of Grahame Whitehead v Dumas (323/12) [2013] ZASCA 19
The Supreme Court of Appeal (SCA) heard the matter between The Trustees of the Insolvent Estate of Grahame Whitehead and Dr Leon Dumas on 1 March 2013. The judgment was delivered on 20 March 2013 by Cachalia JA (with Lewis, Ponnan, Theron and Petse JJA concurring).
Recent case on judicial review of SARS’ actions in terms of PAJA
By Hanneke Farrand and Esther Geldenhuys, ENS – Edward Nathan Sonnenbergs The South African Revenue Service (“SARS”) increased their audit activity and focus on the collection of tax. Taxpayers often rely on protection in terms of administrative law and in particular, the Promotion of Administrative Justice Act, No. 3 of 2000 (“PAJA”). An important rule under PAJA is that judicial review can only be used as a last resort after all other internal remedies have been exhausted and taxpayers therefore first have to make use of the objection and appeal procedures provided for in the Tax Administration Act, No. 28 of 2011. The case outlined below highlights the nature of some of SARS’ actions that may be brought under judicial review in terms of section 6 of PAJA and the circumstances under which such a review application might be dismissed.
When can SARS re-characterise contractual arrangements for taxation purposes?
Tax planning structures normally involve multiple parties. Sometimes the individuals and/or legal entities involved are inter-connected. The tax benefits generated through such structures, almost without exception, annoy revenue authorities.
What’s in a name: 'primary residence' examined
By Danielle le Roux and Johan van der Walt The term ‘primary residence’ is defined in paragraph 44 of the Eighth Schedule to the Income Tax Act, No 58 of 1961 (ITA) (read with paragraph 1). The reason this definition has captured the minds of many is due to the exclusion on the gain or loss made on disposal of one’s primary residence, provided the gain does not exceed R2 million or the proceeds from the sale of the property do not exceed R2 million. To qualify as a primary residence, and receive the benefit of the exemption, a residence must be one in which a natural person or a special trust holds an interest. But, in addition, the natural person or a beneficiary of the special trust or spouse of the person or beneficiary must: ordinarily reside or have resided in the residence as his or her main residence; Read More …
Reforming the taxation of trusts: a long time coming
By Johan van der Walt High Net Worth Individuals (HNWI’s) and their use of trusts for tax and estate planning purposes go hand in hand. A trust is often praised for its “flexibility”. Open any financial planning periodical and there’s bound to be an article on the virtue of trusts.
Maintenance contracts: making commercial sense of section 24C
The Commissioner of the South African Revenue Service (“the Commissioner”) has recently published a Draft Interpretation Note (“the Draft”) on the allowance of future expenditure on contracts in terms of section 24C of the Income Tax Act 58 of 1962 (“the Act”). In the Draft the Commissioner has taken a firm view on what he regards as “a high degree of probability and inevitability” that expenditure will be incurred, especially with regards to maintenance contracts.
Changes in tax interest announced
As part of his 2013 Budget proposals, Minister Gordhan announced various changes to the tax treatment of interest. Firstly, as announced last year, the tax treatment of so-called ‘hybrid debt’ will be amended so as to re-characterise such debt as dividends. The main concerns in this area appear to be debt instruments that do not have a realistic possibility of being repaid in 30 years, or debt that is convertible into shares at the option of the issuer. Banks and insurers will be excluded from this re-characterisation treatment.
The continued attack on the trust structure
It is not news that the fiscus has been bearing down on the use of Trusts by taxpayers in recent years. Finance Minister, Pravin Gordhan, has made this abundantly clear on numerous occasions and his sentiment seems to be echoed by Oupa Magashule, the Commissioner for the South African Revenue Service.
Commissioner's discretion to levy or remit penalties under the Tax Administration Act
By Beric Croome and Elsabe Strydom , ENS – Edward Nathan Sonnenbergs The Tax Administration Act 28 of 2011 (“TAA”) which came into effect on 1 October 2012 (bar a few specific sections) introduced two types of penalties, namely administrative non-compliance penalties and understatement penalties. This article considers whether the Commissioner of the South African Revenue Service (“SARS”) has any discretion to levy the above mentioned penalties as compared to any discretion provided for in the repealed penalty provisions as contained in the Income Tax Act 58 of 1962 (“ITA”). The taxpayer’s right to have the penalties remitted as per the TAA compared to the taxpayer’s right to remittance in terms of the ITA is also considered.