Tax Technical FAQs: April 2013
08 April 2013
Posted by: Author: Dieter van der Walt
Source: Dieter van der Walt
VAT: Deposits for commercial property
Q: We received conflicted answers from SARS, Estate Agents and
Accounting firms; we would like to know what the correct procedure is that we
must follow regarding the following: On commercial property do we need to add
VAT on rental deposits for new contracts? We are registered for VAT.
A: deposit does not fall
within the ambits of the definition of "consideration” s 1 of the Value Added
is however important that the deposit be held in a separate trust account as to
not form part of gross income. Only when the deposit is used against lost rent
or damages will VAT become payable, and landlords are advised to make mention
in their lease contracts that the deposit is inclusive of VAT as to make sure
that the net amount, after the deposit has been utilised is a full month’s
rent. SARS acknowledges that no supply has taken place until such time as the
deposit is utilised.
SBC: Personal service income
Q: Two attorneys in partnership have recently converted into
an incorporated entity (Inc.). The Inc. has appointed 2 employees; and there
are therefore 4 employees total (including directors). Not more than 80 per
cent of income is from one source. Will the Inc. qualify as a SBC?
A: Not more than 20% of the total receipts and accruals
may consist of income from rendering personal services. Legal services are
expressly included in the definition of "personal service”. Section 12E(4)(d)
provides that the corporation throughout the year of assessment employed 3 or
more full time employees (other than shareholders of the company) who
are on a full time basis involved in the business of the company.
It is my understanding that your
client will not qualify as a SBC.
Income Tax: Conversion of foreign currency amounts
Q: Kindly confirm how the
conversion of Pounds Sterling to Rands is applied to income from property
rental in the UK? Does SARS accept the average conversion for the tax period or
is there a table that they publish, or do I use the conversion rate at the end of
that particular month that the income was received in the client's bank account
A: Persons other than natural persons and trusts
(non-trading) must use the spot rate on the date that the amount was received
in terms of s 25D(1) of the Income Tax Act.
persons or trusts (non-trading) may use the average exchange rate for the year
in terms of s 25D(3).
Income tax exemption: section 10(1)(e) - receipts of a body
corporate or similar entity
·Our client is a home owners association.
·Our client gets one electricity bill from ESKOM per
month for the entire estate’s electricity (for example R100 000).
·Then our client sends out invoices to all the
residents for the payment of the electricity bill (for example R125 000).
·The reason why the invoice amount is higher than the
actual electricity bill is to make provision for an administration fee as well
as in case of the electricity box having to be repaired or replaced.
Our question is whether the difference between the
R125 000 and the R100 000, will be taxable income in the hands of the home
A: A levy which is payable to a body corporate or similar
body (share block co, or association) is expressly exempt from Income Tax in
terms of s 10(1)(e) of the Income Tax Act. Any receipts and accruals other than
levies, received by or accrued to such a body is exempt to the extent that such
an amount does not exceed R 50,000 – s 10(1)(e)(B)(ii).
VAT: Commercial accommodation
Q: We have a client who owns a café/restaurant and above
the café he has a lodge, which consists of 30 furnished rooms which he hires
out on nightly, weekly accommodation.
is VAT registered and the café and lodge’s VAT are declared on a single VAT
return. He declares his café sales and lodge income as taxable sales on his VAT
does not charge VAT to his lodge customers and does not issue tax invoices to
them. In other words he does not tell customers the room is
R200 plus VAT, he charges them a flat fee of say R200 per night and then
declares the R200 as VAT sales together with the shop sales.
later this year he will be getting a group of students (paid for by government)
who are government funded to do a training course in South Africa. The students will
be accommodated at his lodge for accommodation and meals. He will be required
to submit a tax invoice to government for his services.
understand there may be a concession applicable to this type of establishment. Kindly
advise us on this. If so, how could we go about applying for this concession for
I have read somewhere that the output vat on
accommodation is calculated at: 200 x 60% x 14/114, is there such a
scenario when it comes to vat on accommodation or did I understand incorrectly?
A: Would you not agree that the accommodation would in any event fall
within the definition of "commercial accommodation” and that VAT should be
charged at the standard rate on the supply?
"commercial accommodation” means—
(a) lodging or board and lodging, together
with domestic goods and services, in any house, flat, apartment, room, hotel, motel,
inn, guest house, boarding house, residential establishment, holiday
accommodation unit, chalet, tent, caravan, camping site, houseboat, or similar
establishment, which is regularly or systematically supplied and where the
total annual receipts from the supply thereof exceeds R60 000 in a period
of 12 months or is reasonably expected to exceed that amount in a period of 12
months, but excluding a dwelling supplied in terms of an agreement for the
letting and hiring thereof;
(b) lodging or board and lodging in a home
for the aged, children, physically or mentally handicapped persons; and
(c) lodging or board and lodging in a hospice.
accommodation ("commercial accommodation”) Board
and lodging is not always taxed on the full amount of consideration. This is an
attempt to treat people living in commercial accommodation on a similar basis
as those living in their own or rented homes. When a person stays for longer
than 28 days in any hotel,
guesthouse, inn, boarding house, retirement home, or similar establishment, only 60% of an all-inclusive charge for accommodation and domestic
goods or services will be subject to VAT. Domestic goods and services include
the provision of meals, and certain facilities or amenities such as furniture,
fittings, telephone, television, radio, cleaning, maintenance, electricity,
gas, air conditioning and heating, where it is included in the price, and as
part of the accommodation supplied.
domestic goods and services, or other goods and services which are charged or
supplied separately, and which are not included in the tariff, will attract VAT
at 14%. VAT is calculated on the full tariff only if the person stays for 28
days or less. However, if a person books in for a continuous unbroken period of
longer than 28 days, VAT is levied on only 60% of the charge from the first
Income tax: deductibility of
expenses incurred in the production of commission
Q: Could you please assist us with the following query?
When may expenses be deducted from commission income and what expenses are
included. Also, may expenses be deducted from incentive income?
A: Any expense
actually incurred in the production of the income is tax deductible provided
that it is not of a capital nature in terms of section 11(a) of the Income Tax
Act. The negative test on the other hand, section 23(m) of the Act however
prohibits expenditure in terms of section 11(a) of the Act in the event that
the taxpayer’s remuneration is not primarily (more than 50%) derived from
commission. The commission must be directly attributable from that person’s
sales or turnover attributable to that person. In other words, say for example
a sales manager is paid a profit share on sales made by his sales persons, then
that profit share will not qualify as commission for purposes of section 23(m).
Income tax: the
taxability of trust income
Q: One of our client’s
Trust holds 100% of the shares in a company. Can the trust draw a
commission/salary from the company and pay the tax thereon. In other
words can the Company show that as a tax deductible expense and then the trust
or the beneficiaries pay the tax?
A: The trust may well receive salary/commission and
distribute to beneficiary/trustee, provided that the trust deed makes provision
for income distributions. This may only be done in the event that that salary
or commission is distributed to the person who rendered the services relating
to the salary/commission.
I wish to refer you to the matter of
Meyerowitz v CIR 1963 (3), 25 SATC 287;
taxpayer received income in a trust of which he was a trustee for services
rendered directly by him, and distributed the proceeds to his children. The
court found that this was a scheme in terms of section 103 of the Income Tax
Act, as one cannot distribute the "fruits” of one’s own labour to someone else.
The court ignored the existence of the trust and taxed the taxpayer on the full