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 …
Tax News
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.
Interpretation Note 49 (Issue 2) – Documentary proof required to substantiate a vendor’s entitlement to input tax or a deduction
This Note provides guidelines on the documentary proof that must be obtained and retained under section 16(2) of the VAT Act to substantiate a vendor’s entitlement to “input tax” as defined in section 1(1), or a deduction as contemplated in section 16(3)(c) to (n). Click here to download full guide.
SARS Guides: VAT412 Guide for share block schemes
Today Sars published VAT guide for share block schemes. The guide deals with the VAT implications of share block schemes in South Africa and the various types of supplies related to these schemes. The intention of the guide is to attend to basic principles and their effect from a VAT point of view.
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.
Tax could jettison attempts at business rescue
Business rescue will not be a viable option for companies in distress, until amendments are made to the Income Tax Act and VAT requirements. Any benefit that financially distressed companies could potentially derive from business rescue might be nullified by the tax implications of certain common business rescue processes. “In fact, unless amendments are made to the Income Tax Act and VAT requirements, successful business rescue will often not be possible,” says Dawid van der Berg of tax, auditing and business advisory company BDO.
SARS–Transfer Duty Guide
Today, Sars issued a new guide for transfer duty, it replaces the previous issue, Transfer Duty Handbook that was issued in March The new guide contains a discussion of the application of the Transfer Duty Act 40 of 1949, in respect of transactions involving immovable property such as land, buildings and other real rights in connection with immovable property situated in South Africa. Although fairly comprehensive, the guide does not deal with an analysis of all the legal detail which may sometimes be necessary when dealing with immovable property transactions. However, it has been necessary to include a certain amount of technical and legal terminology in explaining certain concepts which underpin the transfer duty legislation.
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.