The Supreme Court of Appeal delivered judgment on 10 May 2011 in the case of Founders Hill (Pty) Ltd v the Commissioner for the South African Revenue Service (Case No. 509/10) (as yet unreported) which dealt with the capital versus revenue nature of proceeds received by a realization company that acquires land in order to dispose of it.
Tax News
Dividend cessions
The antecedent divestment of a right to a dividend has been a feature of our tax law for longer than I have been in practice. See Hiddingh v CIR 1941 AD 111. The Government are obviously
Capital gains tax relief on certain foreign currency gains
The Draft Taxation Laws Amendment Bill, 2011 (Bill), proposes to delete Part XIII from the Eighth Schedule to the Income Tax Act (Act). Part XIII deals with the taxation of realised gains and losses in respect of foreign currency assets and liabilities in monetary form, such as foreign currency or debts in foreign currency. It only applies to persons to whom section 24I of the Act does not apply.
The importance of residence in determining liability for capital gains
The case of TLD Limited v The Commissioner for the South African Revenue Service heard before the Tax Court raises the interesting issue of the interplay between the imposition of capital gains tax in the context of the Eighth Schedule to the Income Tax Act and the application of a Double Tax Agreement.
Carbon taxes
We have been following the space on the proposed Carbon Tax carefully. There is currently a lot of controversy in Australia concerning a Carbon Tax. Julia Gillard the Prime Minister, said when speaking on a wind farm in New South Wales “the government is committed to a renewable energy target, that 20% of the energy that we use comes from renewable energy sources by 2020, but that renewable energy target was always designed to work with the price on carbon”. Her belief is that to build towards a clean energy future it is imperative for the Australians to price and tax carbon emissions. It appears that that price will
"Adequate consideration" under Section 58(1) of the Income Tax Act
Generally, donations tax is triggered where a person makes a gratuitous disposal of property. Where BEE transactions are concerned, property (eg. shares) is often disposed of at a value below market value. In such cases there are usually good arguments to be made that the disposal is not gratuitous because some indirect commercial benefit will accrue to the person disposing of the property – it makes “
The perils of share incentive schemes for employers
A lot of focus has been placed on the tax implications that flow from an employee’s participation in share incentive schemes. However, employers need to be aware of the potential tax consequences that may arise where such schemes are not administered in accordance with the provisions of Income Tax Act, Act 58 of 1962 (“the Act”).
Closure of dividend schemes
In a long awaited announcement it was indicated by the Minister of Finance that there are several dividend schemes that undermine the tax base. One method makes use of a scenario where the owner of shares cedes the rights to dividends to a third party in return for a payment. The benefit that a third party receives, is not only found in the exempt dividend, but also an STC credit. Another scheme involves the receipt of dividends from shares in which the taxpayer does not have any meaningful economic risk,
Interest-free shareholder's loans at arm's length?
Where foreign subsidiaries find themselves in financial distress, the interest rate on the shareholder loans from a South African shareholder may be reduced to zero percent as the foreign subsidiary is unable to pay any interest due to the fact that it may be insolvent. However, in terms of the transfer pricing provisions in section 31(2) of the Income Tax Act, Act 58 of 1962, as amended, all shareholder’s loans granted by South African shareholders to foreign subsidiaries should bear an arm’s length interest rate. The question therefore remains whether a zero interest rate on a shareholder’s loan will be seen as an arm’s length interest rate for South African transfer pricing purposes.
Capital gains tax and trusts: is there a pipe?
Rene Magritte (1898 – 1967), the Belgian Surrealist artist, painted a smoking pipe and below it the words “Ceci n’est pas une pipe” (“This is not a pipe”). And, of course, the painting of the pipe isn’t a pipe; it is an image of a pipe. In South African tax law (which may also seem surreal at times) there is