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Collective investment schemes (CISs) essentially pool funds together for the purpose of operating as a type of investment vehicle for investors. CISs have a special taxation regime in that for income tax purposes, distributions (that are not of a capital nature) from a CIS to unit holders within 12 months after that income is accrued (or in the case of interest is received by a CIS) follow the flow-through principle and are deemed to accrue to the unit holders on the date of distribution and subject to tax in the hands of the unit holders. This is in accordance with the well-established conduit pipe principle in South African law. SHARE PAGE Notably, the conduit principle only applies for income tax purposes, whereas in the event a CIS realises a capital gain or loss, then such gain or loss is disregarded for capital gains tax purposes under para 61(3) of the Eighth Read More …

In 2021 amendments were proposed relating to section 20 of the Income Tax Act 58 of 1962 to limit corporate taxpayers’ ability to utilise assessed losses carried forward to 80% of the value of such assessed losses in a given year of assessment. With the remainder of the assessed loss rolling over for use in the next year of assessment. SHARE PAGE The capital deductions regime for miners is contained in section 15(a) of the Act, read with section 36(7C). Section 15 provides that a deduction shall be allowed as per section 36, in lieu of an ordinary deduction under section 11. Section 36 in turn provides for a deduction of any capital expenditure to be allowed from income derived from working any producing mine. The mining industry is thus entitled, subject to certain limitations, to claim the capital expenditure incurred as an income tax deduction against mining income in the Read More …

by Heinrich Louw. Lay-by arrangements and debtors allowances A lay-by arrangement can be characterised as one where a prospective purchaser agrees with a prospective seller that a particular item or asset will be set aside or reserved for purchase. The prospective purchaser usually pays a deposit for the reservation (sometimes followed by further payments). Once the prospective purchaser has presented full payment, the sale is concluded and the purchaser takes possession and ownership of the item. (There may be different characterisations depending on the relevant terms of the agreement.) SHARE PAGE Section 24 of the Income Tax Act 58 of 1962 essentially provides for a deemed accrual for a seller of goods or other property in certain circumstances, mainly in the context of credit agreements. The circumstance in which section 24(1) applies is where transfer to the purchaser is subject to receipt by the seller of the whole or a certain portion Read More …

by Louise Kotze2022 SPECIAL EDITION BUDGET SPEECH ALERT The BEPS Project: Introducing the Two-Pillar Solution and implementation framework in South Africa The shifting of profits by multinational enterprises (MNEs) to lower or no-tax jurisdictions has an adverse impact on economies globally as this practice (amongst others) erodes the tax base in countries with higher tax rates and undermines the integrity of tax systems, often taking undue advantage of developing countries and low-income jurisdictions. SHARE PAGE In order to curb tax base erosion and profit shifting (BEPS), the Organisation for Economic Co-operation and Development (OECD) (in conjunction with the G20) first introduced the BEPS Project in 2013 with the 15-point Action Plan announced in 2015. The BEPS Project aims to ensure that profits are taxed in the jurisdiction where the economic activities generating such profits are performed. On 8 October 2021, the members of the OECD/G20 Inclusive Framework on BEPS (Inclusive Framework) agreed Read More …

by Jerome Brink. One of the greatest challenges faced by South Africa is the high unemployment rate, which especially impacts the youth. High levels of unemployment have a profound impact on the socio-economic fabric of South Africa as a society. Chapter 4 of the Budget Review Documents states that youth unemployment in South Africa was at 56,2% for 20 to 29-year-olds in the third quarter of 2021. Even by emerging market economy standards, that figure is staggeringly high. SHARE PAGE Given the high unemployment rates in South Africa, Government introduced the Employment Tax Incentive (ETI) in January 2014 as one of the tools to try increase employment. The preamble to the Employment Tax Incentive Act 26 of 2013 (ETI Act) sets out the key reasons why it was introduced: “Since the unemployment rate in the Republic is of concern to Government; And since Government recognises the need to share the costs of Read More …

by Keshen Govindsamy. In 2013, section 7B was introduced to the Income Tax Act 58 of 1962. At its essence, it is a timing provision whose purpose is to match the timing between the accrual with the payment of various forms of variable remuneration. Variable remuneration amounts paid by an employer to an employee need to be reflected on the employee’s IRP5 certificate issued by the employer. However, in many instances, these payments are only made after year end due to the fact that these variable remuneration amounts can only be correctly determined after work has been completed or targets achieved. SHARE PAGE The section provides that the timing of accrual of variable remuneration must be on the payment basis and will only be included in the employee’s income (and be taken into account for employees’ tax purposes) on the date of the actual payment. The same will apply for employers claiming Read More …

by Tsanga Mukumba. Revenue collections for 2021/22 reached approximately R1,55 trillion, beating projections by 24%. To encourage economic stabilisation the Minister of Finance announced in the 2022 Budget Speech that South African individual taxpayers would benefit from R5,2 billion worth of tax relief, through a 4,5% upward adjustment to the personal income tax brackets, income tax rebates and thresholds. The upward adjustment of personal income tax brackets has avoided a phenomenon known as “bracket creep”. This occurs where not adjusting the income tax brackets leads to higher tax collected due to inflationary increases in people’s income, as people either move into higher brackets or earn more above the taxing threshold in their current bracket. The personal income brackets for the 2022/23 tax year are as follows: The income tax rebates have been increased to the following amounts: Primary: R16,425 Secondary: R9,000 Tertiary: R2,997 The income tax thresholds are as follows: Below Read More …

by Louis Botha. It was announced in the 2021 Budget that the South African Revenue Service (SARS) would set up a specialised unit to improve compliance of individuals with wealth and complex financial arrangements (HNWIs). The High Wealth Individuals Unit (HWI Unit) was established in 2021 with Ms Natasha Singh appointed as its director in October 2021. At the time of her appointment, SARS indicated that the HWI Unit had initially selected about 1,500 wealthy individuals and their related entities to be investigated for compliance purposes, but that it would extend its reach to include more individuals and families. SHARE PAGE In the 2022 Budget Speech, it was announced that the HWI Unit was taking shape, as part of the rebuilding of SARS. In addition, further proposals have been made that appear to be aimed at ensuring compliance by HNWIs. Currently, provisional taxpayers with business interests are required to declare their assets Read More …

by Stephan Spamer and Howmera Parak. The Minister of Finance has announced various proposed amendments to the taxation regime of retirement funds which we discuss below. Clarification on the transfer of total interest in a retirement annuity fund Under a current reading of the Income Tax Act 58 of 1962, the transfer by members of their retirement interest from one retirement fund to another is permitted, subject to certain conditions that include, inter alia, transfer to a similar type of retirement fund or a fund that imposes more restrictions than the current one. The Minister of Finance (Minister) has expressed recognition of the fact that these conditions may result in retirement annuity fund members with more than one contract in a particular fund being constrained in their ability to transfer one or more contracts from one retirement annuity fund to another. Preservation funds are, however, not restricted on the proportion of their retirement interest Read More …

By Gerhard Badenhorst, Varusha Moodaley and Tersia van Schalkwyk. Despite much speculation regarding another increase in the value-added tax (VAT) rate as well as the introduction of a higher VAT rate for luxury goods, the VAT rate will remain unchanged and no higher VAT rate for luxury goods has been introduced. No further significant VAT amendments were announced; however, we discuss the two proposals that were announced below. VAT on electronic services Revised regulations Revised regulations to prescribe and clarify the extent of electronic services (e-services) supplied by foreign suppliers to South African consumers which are subject to VAT were proposed in 2018. These regulations significantly broadened the scope of e-services. In the 2019 Budget Review the Minister of Finance then announced that further amendments would be made to the e-services regulations to broaden the scope of e-services that would be subject to VAT in line with the Organisation for Economic Co-operation and Read More …