Author: Victoria Williams – SAVCA South African venture capitalists have welcomed the recent Taxation Laws Amendment Bill which introduces two changes to Section 12J of the Income Tax Act. The changes, effective January 2015, should boost investment into entrepreneurial businesses and increase the appeal of venture capital for investors.
Category: Taxation Laws Amendments
Proposed amendments to Section 9D could offer a simpler means to avoid controlled foreign company imputations
Author: Bruce Russell, tax consultant, Grant Thornton Cape The controlled foreign company (CFC) provisions seeks to reduce the opportunity for income to be diverted and taxed offshore in the hands of foreign companies where: South African tax residents may exercise, directly or indirectly, a majority of the voting rights in the foreign companies or where South African tax residents may participate, directly or indirectly, in the majority of the benefits attached to shares of the foreign companies. In terms of Section 9D of the Income Tax Act, a hypothetical taxable income, “net income”, is calculated as if the CFC is South African tax resident. This net income may be included in the taxable income of the South African tax resident shareholders.
Proposed tax changes to restraint of trade payments
Author: Douglas Gaul, tax manager, Grant Thornton Johannesburg Paragraph (cA) of the definition of gross income was introduced into the Income Tax Act with the intention of preventing avoidance schemes whereby payment due to an employee was disguised as a capital payment for the so-called restraint of trade compensation. This inclusion has however had an impact on legitimate restraint of trade payments and is therefore being reconsidered again. Prior to the introduction of this paragraph, it may have been possible for an employee to avoid paying normal tax on such payments (at the maximum marginal rate of 40%), despite possibly paying capital gains tax at the significantly lower rate of 13.3%.
Draft Responses by National Treasury on the Excessive Interest Limitation Rules
On 15 October 2014, National Treasury and SARS stated in a Response Document (‘Document’) presented to the Standing Committee on Finance (‘SCoF’) that the ‘excessive interest limitation rules’ are in line with international practice and measure up well in light of current discussions at the OECD. Sections 23M and 23N were introduced in the 2013 Taxation Laws Amendment Act as measures to limit the amount of interest that a company can deduct, which the Document describes as a more reasonable level since debt finance was used to create opportunities for base erosion in the past.
INVITING TECHNICAL TAX PROPOSALS FOR ANNEXURE C OF THE 2015 BUDGET REVIEW
I. Background The National Treasury invites taxpayers, tax practitioners and members of the public to submit any technical proposals to improve or correct current tax legislation, including the closing of loopholes and addressing of unintended anomalies. Proposals received will be considered for possible inclusion in Annexure C of the 2015 Budget Review, released as part of the 2015 Budget Review.
The assumption of rehabilitation liabilities as consideration given on the acquisition of mining property and capital assets
Author: Andre Vermeulen – ENSafrica During December 2013, SARS released a draft discussion paper in which it set out its application of the relevant tax law, in relation to the tax treatment of the purchaser and seller, with regard to the assumption of contingent liabilities as part settlement of the purchase price of assets acquired as part of a going concern. SARS states that the document was prepared in light of recent judgments delivered by local and foreign courts as well as numerous requests for clarity regarding the income tax treatment, of both the seller and the purchaser, in respect of the assumption of contingent liabilities as part settlement of the purchase price of assets disposed of and acquired.
SARS guide on the new dispute resolution rules
The rules, promulgated on 11 July 2014 (new Rules), replaced the rules promulgated under s107A of the Income Tax Act, No 58 of 1962 (old Rules). The new Rules prescribe the procedures to be followed in respect of objections and appeals in respect of assessments or certain administrative decisions by SARS. The new Rules also deal with procedures to be followed in respect of alternative dispute resolution and various other issues relating to the Tax Court. In our Tax Alert dated 18 July 2014, it was noted that some of the most noteworthy departures from the old Rules were the following:
Overhaul of retirement reform loses momentum
The Treasury’s delay in implementing retirement reform has been met with dismay by some industry players, who view the proposed changes as crucial to improving SA’s low savings rate. Payroll providers and pension-fund administrators have invested millions in new systems to carry out the changes, which were to have taken effect in March next year. But the Treasury announced earlier this month the first phase of the reforms would be delayed until March 2016 or even March 2017.
Important changes to section 23M of the Income Tax Act (ITA)
The Taxation Laws Amendment Bill (TLAB), tabled in parliament on 22 October 2014, contains welcome changes to the provisions of section 23M of the Income Tax Act (ITA), due to come into operation on 1 January 2015. Section 23M provides for a limitation on the amount of interest which can be deducted on loans sourced from a person that is in a ‘controlling relationship’ with the debtor where the interest is not subject to tax in the hands of the person to which it accrues.