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Tax Technical Frequently Asked Questions

24 October 2012   (0 Comments)
Posted by: Stiaan Klue
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Q: I know that there were talks of changes to the claiming of a notional input tax on property transactions where previously the vendor was entitled to claim a notional input tax based on the amount of transfer duty paid by that vendor if property was purchased from a non-vendor. The proposed change was that the vendor was now entitled to a claim of 14/114 of the lesser of the market value or the cost price of the property. My question is, was these proposed amendments enacted?

A: Section 16(3)(a)(ii)(bb) of the Value Added Tax Act – Fixed property as second hand goods.

The deemed input VAT can only be claimed once;

· The fixed property is registered in the name of the vendor and can only be claimed in as far as payment has been made for the supply

The effective date of this change is the date of promulgation of the 2011 Amendment Act (10 January 2012).


Q: What is meant with commercial accommodation, and is VAT at the standard rate charged?

A: The supply of commercial accommodation is a taxable supply. Commercial accommodation includes board or lodging supplied together with domestic goods or services (for example, meals, laundry services, the use of a telephone) in a house, flat, apartment, room, hotel, guest house etc. The total receipts for the supply of the commercial accommodation must exceed R60 000 for a period of 12 months before the activity will fall within the definition of an "enterprise” as defined.


Q: Does DWT tax become payable on declaration of a dividend

A: The DWT only becomes payable when the beneficial owner of the dividend has received the dividend or has become entitled to the dividend.


Q: I have a debit loan account in my company, can this be deemed a dividend.

A: Yes, in terms of section 64(2)(g) Income Tax Act however, will not apply in the event that interest is charged on the loan at the "official rate” as defined in paragraph 1 of the Seventh Schedule (section 64C(4)(d).

Where a connected person is released or relieved from any obligation, the amount of the value extraction will be equal to the amount of the release or relief provided by the company, section 64P. This has the effect that a dividend may be declared, which is equal to the amount of interest that should have been charged on the loan.


Q: Can you advise whethera professional person, say a clinical psychologist, can deduct [from fees charged to existing clientsexpenditure incurred on studying towards a PHD ,which qualification it is hoped will enhance earning potential.

A: The expenses incurred in acquiring a formal qualification is of a capital nature and does not meet the requirements of section 11(a) of the Income Tax Act and no deduction for these expenses is allowed anywhere else in the Income Tax Act. Expenditure incurred in creating or acquiring, improving or extending the taxpayers income-earning structure is of a capital nature; by contrast, expenditure incurred in operating that structure is of a non-capital (revenue) nature. In this instance your client is the income-earning structure and the fact that he is studying towards a PHD means that he is improving or extending that structure – himself (CIR v George Forest Timber Company Limited 1924 AD 516, 1 SATC 20).


Q: Should a VAT vendor charge VAT to a government department if it renders services to that department?

A: The charging of VAT does not depend on who the recipient is. Section 7(1) of the VAT Act requires that VAT must be charged on "the supply by any vendor of goods or services supplied by him the course or furtherance of any enterprise carried on by him" unless the supply is specifically exempt in terms of one of the provisions of s 12. Supplies to the Government are not specifically listed as an exempt supply.


Q: I a vendor pays for accommodation and meals for an employee who is away on business on behalf of the vendor, will the vendor be able to claim input VAT on those expenses.

A: Input tax will not be denied in the event that the vendor pays for any meal refreshment, or accommodation of a vendor, his employee or any self-employed natural person who is required to be away from his usual place of business for at least one night. A self-employed person is a person who is not an employee of the vendor but who invoices the vendor for services rendered. A vendor may only claim the input tax on the personal subsistence of a self-employed natural person where the self-employed natural person is

- by reason of his contractual obligation of the vendor

- obliged to spend any night away from his usual place of business

In the case where an employee who is out of town takes a client out for dinner, the cost in such case will be regarded as a "mixed supply", and as such, must be apportioned between the employee's subsistence and the entertainment element. This means that whilst input VAT will be denied in respect of the client's meal, it will be claimable in respect of the employee's meal.

The apportionment would not apply if the employee took a client out for a meal whilst at his home office - in this case, the entire input VAT would be denied.


Q: I’m thinking of forming a trust through which I will channel my income (consulting fees), and thereafter make a distribution out of the trust to my wife to reduce my tax rate, would this be legal?

A: I wish to draw you attention to the matter of Meyerowitz v CIR 1963 (3) SA 863 (A), 25 SATC 287.

In this matter the taxpayer created a trust and channeled certain receipts (received by virtue of the taxpayers labour) through the trust, after which a distribution was made to certain beneficiaries. The issue was whether the taxpayer formed the trust for purposes of a tax avoidance scheme within the scope of section 103(1) of the Act. It was held by the court in the affirmative based on the abnormality that the fruits of the taxpayers labour accrued not to him but to the beneficiaries of the trust. You might also want to consider whether your have entered into an "impermissible avoidance arrangement” in terms of sections 80A-80L of the Act.


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.


The Act requires that a minimum academic and practical requirments be set to register with a controlling body. Click here for the minimum requirements of SAIT.

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