Attempting To limit The Attribution of Capital Gains
Paragraphs 68 to 72 of the Eighth Schedule to the Income Tax Act No. 58 of 1962 (‘the Act’) were inserted to perform the same function as that of section 7, namely to attribute income in cases in which the taxpayer has disposed of that source of income by means of donation, settlement or other disposition.Paragraph 73 of the Eighth Schedule to the Act was inserted to limit the total amount that is attributed to the donor in a year in which both income (in terms of section 7) and a capital gain (in terms of the attribution paragraphs 68 to 72) are to be attributed.
The unclear construction of the section and, it is submitted, the inaccurate interpretation of this paragraph by the South African Revenue Services (‘SARS’) has made it difficult to interpret this paragraph.This article attempts to evaluate prevailing legal precedent and to apply such precedent to the paragraphs on attribution in order to arrive at an appropriate interpretation of paragraph 73.The approach adopted by SARS is also examined in the light of the above interpretation and application of prevailing legal precedent.Lastly, amendments to the legislation are proposed to clarify the legislation and to provide a structured approach in the consideration of the intention of the legislature.
Woulidge Distribution, Joss Capital gains tax, Ovenstone Anti-avoidance, Section 7, Paragraphs 68 to 72, Paragraph 73, Interest-free loans, Attribution
Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.