Tax Technical FAQs: March 2013
30 March 2013
Posted by: Author: SAIT technical
Source: SAIT Technical
VAT: Zero-rating of tour packages
Q: Company A is a South African company and trades as a tour
organizer. Company A obtains tour packages to Israel from a tour
operator/travel agent outside South Africa. The package includes all flights
and airport taxes to and from Israel, hotel accommodation, sight-seeing, bus
transport, breakfast and dinners. Company A then adds its "commission/fee/profit"
to the price and makes the tour package available to South Africans as an all-inclusive
tour to Israel. The South African tourist will pay Company A the full tour
price where after Company A will settle the tour cost with the foreign tour
operator/travel agent before departure and retain his portion of the package
offered as his "administration fee/commission/profit". My question
now is: Should Vat be levied at 14% on the full tour price as offered to South
Africans, should Vat only be levied on the "administration fee/commission",
or should vat be levied at 0% as the service is rendered as an export service and
because the final consumption of the service is outside the Republic?
A: The South
African VAT system is a destination based tax that imposes tax on goods or
services consumed in the Republic, regardless of where the goods are produced
or services are supplied. Exports which are not consumed in the country are
therefore free of tax, and imports which are consumed in the country are taxed
when imported. Accordingly, supplies of goods or services consumed in the
Republic, regardless of to whom the goods or services are supplied, are taxable
at the standard rate for VAT purposes. Where consumption of the goods or
services supplied will occur outside the Republic, provision is made for such
supplies to be zero-rated.
• Zero-rated - the fees/commission charged by
the local entrepreneur for the service of arranging the tour package will be
zero-rated according to section 11(2)(ℓ) of the VAT Act if the foreign
entrepreneur and the foreign tourist, i.e. the recipients, are outside the
Republic at the time the service of arranging the tour package is rendered.
• Standard–rated - the fees/commission charged
by the local entrepreneur for the service of arranging the tour package will be
standard-rated according to section 7(1)(a) of the VAT Act if the foreign
entrepreneur or foreign tourist, i.e. the recipient, is in the Republic at the
time the service of arranging the tour package is rendered.
VAT: R 1million threshold section 23
a vendor invoices over the R1m mark and did not expect to do so it would be expected
that VAT would be paid over the R1m mark and onwards? Is this the case?
A: Your client has to be registered as a VAT vendor within 21 days from the
day (date of liability in the application form) the R 1m mark had been
exceeded, or when he becomes liable to register as a VAT vendor – s 23 of the
VAT Act. This does not mean that your client will have to account for output
VAT on invoices issued from this date as your client may off course not charge
VAT without a VAT number being issued.
CGT: Refinancing of a commercial property that was purchased cash
Q: A company wants to purchase a commercial property to use for its own
office needs. It will purchase the property cash and then refinance the
property for the same amount. I expect there would be no capital gains tax? Can
it be presumed that when the property is sold it is free from the standard
exclusion from CGT?
A: No there will be no Capital Gains Tax as there is no disposal event of
an asset; it is merely a refinance transaction. Because it is a commercial
property, the exclusion will not apply to it. It is only applicable to a
"residential property” as defined.
CGT: Base cost of a post valuation date asset
property was purchased at the end of January 2004, would the base cost be the
purchase price plus costs plus subsequent costs of improvements? I am assuming
this as the property was purchased after 1 October 2001.
A: That is correct; the costs incurred during the sale of the property are
also part of the base cost.
CGT, Donations tax and Securities Transfer Tax: Transfer of shares from one shareholder to another
Q: I have a private
company that wants to transfer shares from one shareholder to another - what
tax implications are there? I presume CGT and transfer tax. The shares are
transferred at no cost - do I have to value the shares? Does the transfer of
the shares have to be registered or noted anywhere besides the company's share
A: The transaction may potentially be subject to CGT/Donations
Tax/Securities Transfer Tax;
a disposal or donation is made which is not at an arm’s-length, then the
provisions of par 38 of the Eighth Schedule may apply. The disposal will be
treated as a disposal at the market value of the asset.
transaction may well fall within the definition of a "donation”, "any
gratuitous disposal of property, including any gratuitous waiver or
renunciation of a right” – section 55(1) of the Income Tax Act.
tax rate of 0,25 per cent will be charged on the market value of the security
regardless whether no consideration is paid for the securities.
Income tax exemption: Section 10(1)(o)(ii) - employment outside South Africa
Q: My problem is with Section 10 (1)(o)(ii) of the Income
Tax Act. My client worked for an Angolan company for a period stretching over
three years. She was paid from the SA holding company. Code on IRP5 3651.
Payment was made from SA company purely because the subsidiary in Angola was
not set up yet. The task of my client was to set up an entity in Angola. When
she was in SA she was not required to work for the SA company at all. All the services
were rendered outside SA.
My client met the 183 days and 60 continuous days as
set in paragraph (aa) and (bb). The period chosen as per paragraph (aa) was May
to Apr the following year (any 12 month period). SARS now wants to tax the
months March and April preceding the start of the 12 month period. They contend
that the last line of paragraph (bb) starting with "and those services were
rendered during that period or periods” enables them to tax my client
It is my opinion that as long as my client has met the
requirements of paragraph (aa) and (bb) the full income for the year is exempt.
No services were rendered in SA. My client was in and out of
SA during the 2 months in question. The client was not required to work in SA
at all. The client was back in SA for periods of time to renew her visa and was
on leave during that period. The client’s contract was with the Angolan
is my understanding that there will be exempt from normal tax, any remuneration
earned from services rendered while outside of the Republic in the event that
the requirements of s 10(1)(o)(ii) have been met. This would mean that services
rendered while in the Republic during the 12 month period would not be exempt.
my mind pars’ (aa) and (bb) rather stipulates the requirements of the exemption
and par (ii) stipulates as to what exactly would be exempt from normal tax.
remuneration as defined in
paragraph 1 of the Fourth Schedule
Received by or accrued to any
person during any year of assessment in respect of services rendered outside the Republic by that person for or on behalf of any
employer, if that person was outside the Republic-
for a period or periods exceeding 183
full days in aggregate during any 12 months period commencing or ending during that
year of assessment; and
for a continuous period exceeding 60
full days during that period of 12 months, and those services were rendered
during that period or periods:
a person who has already complied with the exemption
requirements of section 10(1)(o)(ii) in a year of assessment, spends vacation
leave or sick leave in South Africa during the same year of assessment, the
remuneration received by the person during the period of leave will continue to
be exempt from tax in terms of section 10(1)(o)(ii) to the extent that the remuneration
is attributable to the number of vacation or sick leave days credited to the
employee in respect of and during the period of service outside South Africa
under a vacation or sick leave scheme operated by the employer that is similar
to vacation or sick leave schemes that generally prevails in the South Africanbusiness community for persons employed in South Africa.
is my understanding that your client’s "remuneration” will only be exempt in
the event that the leave taken by her while in the Republic accrued to her
during the period/periods while she rendered services outside the Republic.
Income tax: Expatriates
the foreigner works in SA for a year the company will obviously deduct tax from
him and he will have to register either via Eazyfile or per It77. The tax
liability would be the same as any other taxpayer as the services were rendered
here, is that correct?
he only be on contract here for a short period, for instance 6 months and then
return to his country of origin not to return again? Do we apply for a tax
number, do a tax return, get a tax clearance and ask for deregistration once
this is finalised?
3) Is there a
special unit that deals with these returns or are they submitted via e-filing?
I trust that the source of the income
would be from "remuneration” (employment). Yes, Employees tax would have to be
deducted, and the taxpayer would have to submit a return. The service is
rendered here, and the source of the income would be here and tax will be
charged at the normal statutory rates. Please however note that one has to
consider the provisions of any Double Tax Agreement.
Yes, as the person will not be required
to submit a return in the future, one should apply for de-registration.
Yes, an expatriates unit has been formed
late last year.
Income tax: section 12P
Q: In terms of the new section 12P, "Exemption of amounts received or
accrued in respect of government Grants”, we were wondering what is the difference
between a taxable and a non–taxable government grant ? We are battling to
understand the concept of an exempt grant. I would take this to mean that
the money received should not form part of my taxable income, however the Act
then goes on to state "any amount allowed to be deducted from that
person’s income in terms of section 11 for that year of assessment must be
reduced to the extent of the amount of that government grant” surely this is
then not really an exempt grant?
A: A comprehensive legislative list of
exempt grants will be published and updated annually. The purpose of this
Ministerial authority is to provide exemption for certain grants devised
between the annual budget periods. The list as published can be found in the 11th Schedule and will apply to grants
received or accrued on or after 1 January 2013.
the case of exempt grants, a comprehensive set of anti-double-dipping rules
will apply. Stated differently, the use of exempt grant funding should not be
allowed as a means of achieving a further net tax reduction that can be used
against non-grant earnings. Application of the anti-double-dipping rules will
vary depending upon the allocation of the grant funding received. More specifically,
these rules will apply as follows:
a. If an exempt grant
is awarded to the taxpayer and the grant is used to fund the acquisition,
creation or improvement of trading stock or to reimburse expenses so incurred,
the cost price of the trading stock must be reduced by the amount of the grant.
If an exempt grant exceeds the cost price of the trading stock, the excess will
reduce the taxpayer’s allowable deductions (to the extent these deductions are
b. If an exempt grant
is awarded to the taxpayer and the grant is used to fund the acquisition,
creation or improvement of an allowance asset or to reimburse the cost so
incurred, the base cost of the allowance asset must be reduced by the amount of
the grant. If the grant exceeds the base cost and the asset is an allowance
(i.e. depreciable) asset, the base cost of that asset will be deemed to be zero
and the excess grant funding will reduce the taxpayer’s allowable deductions
(to the extent these are otherwise available) (see d. below).
c. If an exempt grant
is awarded to the taxpayer and the grant is used to fund the acquisition,
creation or improvement of a capital asset or to reimburse expenses so
incurred, the base cost of the capital asset must be reduced by the amount of
the grant. If the grant exceeds the base cost and the asset is a capital asset,
the base cost of that asset will be deemed to be zero.
d. If an exempt grant
is awarded to the taxpayer and the grant is "not” used to fund the acquisition
of an asset that is trading stock; an allowance asset or a capital asset, the
taxpayer must reduce the section 11 deductions otherwise allowed. In addition,
if the grant exceeds the total amount of otherwise allowable deductions, the
excess will be carried over into the next year (so as to potentially reduce the
following year’s deductions). The "double dipping” provisions will not apply
where the grant was taxable.
Income tax: Small Business Corporations section 12E
Q: My understanding was that you may only be the director
of one company to qualify for small business tax rate. The Income Tax Act only
refers to shareholders. Does this mean you can be a director of more than one
company (and all other criteria is met) and qualify for the small business tax
rate? Is it only the shareholders that need to not hold shares in any other
A: In terms of s 12E (4)(a)(ii) the shareholders or members of the
company may not hold shares or
any interest in the equity of any other company. This does not refer to a
directorship in a company as a director of a company may not necessarily hold
equity in a company.
VAT: Insurance excess
Q: Can you maybe refer me to the relevant section of the VAT Act that deals
with insurance excess?
of our clients received an invoice for the excess portion that they had to pay
on an insurance claim. This invoice showed no VAT. The panel beaters advised us
that this is due to the fact that the VAT Act specifically states no VAT on
insurance excess. I can’t find anything pertaining to this in the VAT Act and
was wondering if you could maybe provide some guidance?
is my understanding that current general practise is that where the sum insured
is stated in the policy as VAT-inclusive, and the excess is calculated as a
percentage of the value of the claim, the excess payment would be deemed to
include vat. Please have a look at the VAT 421 Draft Guide for Short Term
Insurance. Please refer to page 39 thereof.
Tax Administration Act: Registration as a tax practitioner section 240
are a small accounting practice registered for e-filing. If the practitioner
does not qualify to register on your board of tax practitioners, what will the
A: No registration is required if that person is under the direct
supervision of a person who is registered as a tax practitioner – s
Tax Administration Act: Statement of account section 28
Q: Please can you give me some guidance? We have a client that we did
audited financials for, and filed his tax return as such.
He made enquiries with SARS and they said he does not need an audit, he
can merely bring his Trial Balance in and they will fill in his tax return.
all Pty's have to have a review or audit, or can the tax return be done on
the client really just take his cashbook/ TB to SARS and file his company tax
28 of the TAA makes provision for the Commissioner to call for, and if he may
so require, a certificate or statement from the taxpayer setting out the
details of the extent of the persons (preparer of the financial
statements/accounts) examination of the books of accounts and related
documentation and whether this discloses the true nature of the transactions,
receipts, accruals, payments or debits in so far as it may be ascertained by
the examinations. This is not a request for audited AFS, but rather a method
for SARS to evaluate the degree of reliance that may be placed on the financial
statements to consider further verification or audit by SARS.
is my understanding that SARS may well accept a trial balance as a source for
purposes of completing a tax return however, the Commissioner may request a
certificate or statement to test the reliance of the source and may call for
further verification or audit.