In the Tax Court judgment of Taxpayer A v Commissioner for the South African Revenue Service IT 25042, the taxpayer wanted a deduction for finance charges under section 24J of the Income Tax Act, 1962 in its income tax return for the 2016 year of assessment. The finance charges were comprised of raising fees, debt origination fees and structuring fees (collectively the “upfront fees”) which emanated from the taxpayer entering into loan agreements for the purposes of their property development and investment business. The court found that the upfront fees constituted “related finance charges” and therefore “interest” as defined in section 24J as it read at the time. It follows that the taxpayer was entitled to a deduction for the upfront fees in terms of section 24J. The definition of “interest” in section 24J had been amended with effect from 19 January 2017 to allow for a deduction of the Read More …
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OECD releases its progress report on the administration and tax certainty aspects of Amount A of Pillar One
On 6 October 2022, as part of the ongoing work of the OECD/G20 Inclusive Framework (“IF”) on Base Erosion and Profit Shifting (“BEPS”) to implement the Two-Pillar solution to address the tax challenges arising from the digitalisation of the economy, the OECD released its progress report for comment. Background The report was prepared for the purposes of obtaining further input from stakeholders on the administration and tax certainty aspects of Amount A. Comments are requested with respect to the processes and rules contained in this document. Comments are required by no later than Friday, 11 November 2022. Significant progress has been made in developing the comprehensive technical rules for the new taxing right (Amount A) for market jurisdictions established under Pillar One. It is recognised that the substance of these rules must be stabilised before the development and completion of a Multilateral Convention (“MLC”) which will be signed and ratified Read More …
The tax challenges of international remote work
Due to the impact of the COVID-19 pandemic, many employers have seen an increased demand for international remote working arrangements. We have briefly touched upon the OECD guidelines relevant to these arrangements in a prior article. Different tax consequences of international remote working may arise for both employers and employees, depending on the facts, such as employees working in South Africa for a foreign employer and employees working abroad for a South African employer. However, there are certain key issues that are common to these scenarios. We deal with some of these below. Corporate income tax considerations for the employer company Where an employee works abroad, a key consideration from a corporate income tax perspective is whether the activities of that employee in the foreign country could create a taxable presence for the employer. This would most likely be the case if: the employer is regarded as carrying on a Read More …
A minefield of taxes lies ahead for crypto asset transactions
Author: Joon Chong, Partner at Webber Wentzel. A gain on the disposal of crypto assets may be taxed as either revenue or capital, in line with the same income tax rules that apply to the disposal of shares or unit trusts The gyrations of cryptocurrency markets have delivered a first wake-up call to crypto traders and investors who thought it was an easy way to make money. The second alarm is about to go off as SARS is looking at how to tax all possible crypto activities. Work on new tax and financial regulatory laws that will apply to crypto assets has already begun, and the South African Reserve Bank (SARB) is taking the lead. In a recent presentation, the deputy governor said that the SARB was busy with various workstreams, including a regulatory framework for crypto exchange platforms that will ensure compliance with anti-money laundering / countering the financing Read More …
Airline industry: New Bill has important tax consequences
Author: Scott Edmundson, Partner at Webber Wentzel. The National Treasury has published the Taxation Law Amendment Bill. This bill, effective from 1 January 2023 will have important tax consequences for lessors in the airline industry. Effective 1 April 2021, the Taxation Laws Amendment Act 23 of 2020 (the Amendment Act) amended the definition of “enterprise” in section 1(1) of the Value-Added Tax Act 89 of 1991 (the VAT Act) to include a statutory exemption (in the form of a new proviso (xiii)) for the supply of goods (aircraft, ships and rolling stock) by a non-resident lessor pursuant to a cross-border rental agreement (the Exemption). In terms of the Amendment Act, the Exemption applies to, inter alia, a non-resident lessor leasing an aircraft for use in South Africa, provided: the lessor is not a registered vendor in South Africa for VAT purposes; the supply is made to a recipient (a lessee) Read More …
SARS (somewhat) lifts prohibition on distributions from resident trusts to offshore trusts
Author: Joon Chong, Partner at Webber Wentzel. SARS will now consider applications from South African-resident trusts for approval to distribute funds to non-resident trusts. The South African Revenue Service (SARS) practice, until recently, has been to not approve any applications for the release of funds by resident trusts vesting and distributing funds to non-resident trusts. In a statement dated 8 April 2022, SARS clarified that they were still investigating other options related to the distribution of funds / amounts to non-residents and were in discussions on the matter. They also took note of the fact that the South African Reserve Bank (SARB) had relaxed certain exchange control requirements, decided, due to the risks, not to approve these applications. A statement dated 26 August 2022 and published on SARS’ website has clarified SARS’ position. In the statement SARS has confirmed that it will consider approval for the release of funds / Read More …
Estate planning gone wrong: Reducing an accrual claim by establishing a trust
Proper estate planning eliminates a myriad of life’s “what ifs?”. It involves planning well in advance to avoid a lot of uncertainty and unpleasant eventualities. When a couple contemplates getting married, it is inconceivable that a divorce could ensue. However, Statistics South Africa reports that 4 out of 10 marriages end up in divorces in less than 10 years of marriage. It is therefore crucial to have the foresight to avoid an undesired outcome. A default marital system in South Africa is a marriage in community of property, which is characterised by the maxim: “what’s yours is mine”, and vice versa. Effectively, upon getting married, spouses share half of each other’s undivided and indivisible estates (i.e. assets and liabilities). Such a marriage may be cumbersome to a spouse who is financially frugal when getting married to a spouse who is financially carefree. This is because the debt of a financially Read More …
SARS’ power to collect taxes: High Court judgment on the necessity of issuing a final demand for third party notices
The power of the South African Revenue Service (SARS) to collect tax from a taxpayer by way of issuing a notice to a third party holding assets belonging to a taxpayer, such as a bank holding a taxpayer’s funds, is provided for in section 179(1) of the Tax Administration Act 28 of 2011 (TAA). SARS may only issue the notice if it complies with the requirement in section 179(5) of the TAA, which is that it must deliver to the tax debtor (the taxpayer) a final demand for payment which must be delivered at least 10 business days before the notice is issued. Importantly, the demand must contain the following: It must set out the recovery steps that SARS may take if the tax debt is not paid and the available debt relief mechanisms under the TAA, including in respect of recovery steps that may be taken under section 179. Read More …
The VAT and transfer duty consequences when selling a property used for both residential and commercial purposes
It is not uncommon to sell a property that is utilised for both residential and commercial purposes (for example, a block of flats with shops on the ground floor and residential units above). It is a generally accepted practice that where a commercial property that is being let (thus, making it an enterprise), is sold as a going concern, then it will attract value-added tax (VAT) at the rate of 0%, provided that the transaction falls within the ambit of section 11(1)(e) of the Value-Added Tax Act 89 of 1991 (VAT Act). Section 11(1)(e) of the VAT Act provides that the supply of goods and services will be charged with VAT at the rate of 0% where: (i) the subject matter constitutes an “enterprise” as defined in the VAT Act; (ii) such enterprise is being disposed of as a going concern; (iii) it has been agreed in writing that at Read More …
Another year, another amendment: Timing matters when tax legislation changes
In the recent Tax Court judgment of Taxpayer A v Commissioner for the South African Revenue Service (IT 25042) (14 July 2022), the court was tasked with determining whether the finance charges incurred by the taxpayer stood to be deducted in terms of section 24J of the Income Tax Act 58 of 1962 (ITA). Facts The taxpayer in this case was a company that conducted the business of property investment and property management, including the letting out of property for purposes of earning rental income and property management income. During the 2016 year of assessment (YOA), the taxpayer entered into various loan agreements in terms of which it borrowed funds for the purposes of facilitating property development and investment. It was in respect of these loans that the taxpayer contended that it had incurred finance charges. In its tax return for the 2016 YOA, the taxpayer claimed a deduction in Read More …