Technical FAQs:April 2013
21 April 2013
Posted by: Author: Dieter van der Walt
Source: Dieter van der Walt
1. VAT - section 11(2)(r)
client provides training courses. He charges VAT on invoices to Standard
Bank Namibia. The training will take place at the client’s offices
in Johannesburg but the trainee is a Namibian resident working for Standard
Bank Namibia. Should we charge VAT at 14%? And what about trainees from
other African countries e.g. Botswana, Kenya, Zimbabwe etc. should we charge
VAT? And what if the invoices are in US Dollar?
A: The Act is silent on whether the person who receives the
training may or may not be present in the Republic at the time during which the
service is rendered and it should therefore not matter. The same should apply
to the other African countries mentioned below.
Provided that all of the requirements of s 11(2)(r) have
been met, the supply will be charged at a rate of zero.
2. Tax Administration Act - objections
Q: Before TAA came into effect, one could apply for a
request for reasons (under Section 107A of the Income Tax Act No 58, specific
reference to rule 3(1)(a) of GN467 GG 24639) within 30 business days from date
of the assessment to SARS; once SARS responded, the taxpayer then had 30
business days from date of the SARS response on request for reasons to
lodge an objection (NOO01 or ADR1 forms) based on the information they
In the past month or so we have received a few
"invalid” objections (NOO01’s) where they say that
the objection was not lodged within prescribed timeframes and no condonation
reason supplied. We then have submit an amended objection giving reasons for
the delay in lodging the objection before the objection can be ‘entertained’.
As far as I can determine,
this process has not changed, or has it?
If no request for reasons are
necessary or requested, one then only has 21 business days to lodge the
Please confirm if the above is correct
as we’re going around in circles with SARS on this and the call centre is
not very helpful with assistance either.
A: In terms of the rules objecting to an assessment, an
objection must be lodged no longer than 30 days after the date of the
assessment. This period may be extended for a period not exceeding 21 business
days in terms of s 104(5) of the TAA unless a senior SARS official is of the
opinion that exception circumstances exists.
3. Income tax - registration of priests
Q: We are doing the financial statements for an NGO. The
question I have is - are the Catholic priests who receive a stipend, board and
lodging including food as well as transport subject to PAYE and must they be registered
for income tax?
A: The provisions of the Fourth Schedule to the Income Tax
Act will apply same as to a normal employee. The priests are most
certainly in employment and receive remuneration; therefore they will have to
register as taxpayers. Fringe benefits from employment must be calculated in
accordance with the provisions of the Seventh Schedule to the Income Tax Act.
4. Income tax - registration of schools
Q: Would you please be so kind to assist me with the following queries:
1. Must a school register for Income Tax?
2. Must they have an Income Tax number?
3. Can a school register for article 18A?
4. Can a school issue article 18A
A: Yes, a school is a taxpayer in its own right. Please refer to Tax Exemption Guide
for Public Benefit Organisations in
South Africa (available on the SARS website), refer to page 17 thereof. The
school, be it an independent or public school may well apply for approval for
purposes of s 18A.
5. Income tax: section 20A
Q: Can you please assist with the
following and did SARS adhere to the provisions of the Act?
·We submitted the client’s ITR 12 via e-filing on the 10th of October 2012.
·The original ITA34 was received
on the same date.
·SARS requested substantiating
documents which we duely submitted via e-filing.
·The client’s balance on his ITSA was unchanged until the 14th of December
when we closed our doors for the festive season.
·We opened our doors on the 7th
of January and as usual went through all unfinished SARS files which were not
finished at the end of the previous year. With the specific client’s file we
requested a new ITSA and saw that the refund on his balance was scheduled to be
payed on the 7th. We assumed that the case was resolved because, as far as we
understand, SARS has never done any form of payment before a case was resolved.
·On the 1st of February we
received an e-mail from a lady working for SARS who informed us that the audit
case was re-opened.
·Now SARS wants the client to
ring-fence the loss made in 2012 and requests him to reimburse SARS with the
amount of the refund payed to him.
A: According to SARS the provisions of s 20A
applies and the loss has been ring-fenced.
According to SARS;
1.) Your client’s taxable
income (before setting off any losses or assessed losses) for the year of
assessment ending 28 February 2012 exceeded the maximum marginal tax rate (R
580,000) for that year of assessment – this was the case.
2.) Your client has incurred
losses 3 out of the past 5 tax years (including the 2012 tax year) and the loss
has become a suspect trade during the 2012 tax year. Check whether your client
had in fact incurred losses in 3 out of the 5 years (2008 – 2012).
Farming is expressly included as a suspect trade - s
20A(2)(b). If point 2 above is in fact correct, then SARS may well ring-fence
An ‘escape hatch’ does however exist – s 20A(3). If the
trade constitutes a business in respect of which there is a reasonable prospect
of deriving taxable income within a reasonable period of time, then the
activity may be regarded a legitimate trade despite suspect classification.
For the taxpayer to displace the burden of proof, he must
have regard to the 6 objective factors in s20A(3)(a) to 20A(3)(f) of the
Act (listed on the letter of audit findings).
Determine whether point 2 above applies
- If not, object to the
assessment on the grounds that the requirement of s 20A(2)(a) have not been met
and the loss can therefore not be ring-fenced. If yes, then consider whether s
20A(3) can be used as an ‘escape hatch’.
6. Income tax and VAT - penalties
Q: One of our clients was hit
with the following penalties:
Under declaration of VAT for
Admin Non Compliance Penalty
The R315000 has been reduced
according to a VDP application.
Interest R107 049.60
Our client is insurance
brokers selling warranties for 2nd hand
cars via second hand motor dealers. They were selling policies, collecting the
premiums from the dealers and also paid the warranty claims on behalf of the
insurance company, to the insured. For a few years we have qualified our audit
opinion on the financials as we could not confirm the amount due to the
There was not a proper
reconciliation done between the insurance company and the brokerage. During the
2012 tax year the insurance company changed their way of doing business and the
insurance premiums were paid directly by the dealers into the insurance company’s
bank account. Thus bypassing the broker. The insurance company now pays the
commissions to the broker after having received the premiums from the second
hand motor dealers. At the end of February 2012 there was a big amount owing to
the insurance company. Again we could not ascertain whether the liability is
actually due to the insurance company. After various correspondences and a
final meeting with the insurance company in Oct/Nov 2012 we obtained a letter
from them advising us that the broker does not owe them any money/premiums. We
then took the amount to the income statement and calculated the VAT (R1 260
000) on the amount and submitted an amended VAT 201 return.We applied for VDP relief.
We have also applied for VDP
relief in respect of Penalties and Interest on the 2012 assessment.
We have now received an Income
Tax assessment for 2012 and the following penalties and interest were raised by
SARS on the assessment:
Penalty – Under
Section 89 Quat(2) interest on
underpayment of provisional
tax R 98 294.45
We would appreciate it if you
could supply us with a letter of objection according to the rules of the TAA in
respect of the VAT Penalties and Interest as well as on the Income Tax
Penalties and Interest.
Should you need the VDP
Agreement, VDP application and the IT 34 for 2012 we would gladly supply it.
A: In terms of s 229(c) of the Tax Administration Act, it grants
100 per cent relief in respect of an administrative non-compliance penalty that
was or may be imposed under Chapter 15 or a penalty imposed under a tax Act, excluding a penalty imposed under
that Chapter or in terms of a tax Act for the late submission of a return or a
late payment of tax.
The penalty charged, R 268,608 (under estimation of
provisional tax) is not regarded an understatement penalty but is rather a percentage
based penalty. The under estimation of the provisional tax gave rise to the
late payment of the tax, and is the penalty expressly excluded from the relief
offered in terms of the VDP.
The penalty may not be remitted for purposes of the VDP.
You may request remittance of the penalty under other provisions of the Act,
and I suggest that you do not enter into the VDP agreement in the event that it
prohibits you from seeking this alternative form of possible relief.