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Technical FAQs:April 2013

26 April 2013   (0 Comments)
Posted by: Author: Dieter van der Walt
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Source: Dieter van der Walt

1. Registration as tax practitioner – s 240

Q: Please explain what the TAB recommends regarding the qualifications for registration as a tax practitioner with SARS? How does this affect SAIT members?

A: There are no major changes to current law except one additional requirement to be registered as a tax practitioner. A person may notbe registered as a tax practitioner if during the five years before his or her application for registration he or she has: 

  • been removed from a related profession or professional body for dishonesty, or 
  • been convicted of theft, fraud, forgery or uttering a forged document, perjury or statutory offence of corrupt activities, or any other crime involving dishonesty

for which the person has been sentenced to two years imprisonment without the option of a fine. 

2. Employment requirements to qualify as a SBC – s 12E(4)(d)

Q: I have a client who operates in a close corporation. The business offers a research and development service.According to me this falls under the personal services ambit.  In order to qualify as a small business corporation, she needs to employ three unconnected employees for a full year.  Unfortunately she has only employed three unconnected employees for about 60% of this year.Can she still claim as a small business corporation?  

A: Section 12E(4)(d) makes use of the wording: "…throughout the year of assessment…”. This would then indeed suggest that the requirements to qualify as a SBC have not been met.

3. Input VAT: costs relating to a "motor vehicle” – s 17(2)(c)

Q: VAT cannot be claimed on a motor vehicle, but can we claim VAT on the so called "on the road”-costs such as number plates and the cost of a maintenance plan if it appears on the same invoice as the motor vehicle? Can we claim the VAT on the maintenance plan if we purchase it separately?

A: Where the purchase of the service/motor plan is included in the purchase price of the car i.e. one supply of goods, the VAT on the acquisition of the motor car including the service plan will be denied in terms of section 17(2)(c), read with the definition of "motor car” in section 1. 

However, where an additional or extended service/motor plan is purchased as a separate supply or the service plan is purchased as an extra-cost item, the vendor will be entitled to claim an input tax deduction of the VAT charged on the service plan if it is acquired for consumption or use in the course of making taxable supplies.

4. Non-residents: Foreign employment income

Q: A taxpayer (salaried employee) was born in South Africa, but left South Africa after school. He married a lady from the Republic of Slovak and they reside there permanently. He visits his family in South Africa twice a year for about a week at a time. He started working for a South African company. He does work in Afghanistan for the company. They pay him every month and he rotates as a base manager. Therefore, if he is not in the Republic of Slovak, he is in Afghanistan (apart from the short visits to South Africa). Due to the fact that the employer does not know how many days he will be in South Africa, they deduct normal PAYE off his salary each month. For the year from 1 March 2011 to 29 February 2012 he was: 5 days in South Africa, 233 days in Afghanistan, 128 days in Republic of Slovak. When doing the calculation for the exempt income, I used the 233 days that he was working for the company in Afghanistan, to determine the exempt income.  I therefore did not take into account the rest of the days, even though he was also not in South Africa and he gets paid each month (even when he is not working in Afghanistan). We received confirmation that the exempt income has been allowed, but I am now wondering whether I did the calculation correctly.  Should he be paying any SA taxes?  Should I have shown the full income as exempt income?  His secondment letter stipulates that he was seconded to Afghanistan for the periods while he worked there as base manager and then furthermore states that he resides in the Republic of Slovak while not working in Afghanistan.

A: Your client is certainly not ‘resident’ or ‘ordinarily resident’ for domestic tax purposes. The physical presence test, par (a)(ii) of the definition of ‘resident’ would not be met by your client.

In this instance your client, being a non-resident for tax purposes would only be taxable if the source of the income was from a source within the Republic. The Special Court has consistently laid down that the source (or originating cause) of income from employment and other services rendered, is the service. This is irrespective of the place where the contract is made or where the remuneration is paid. The source of remuneration would therefore be located at the place where the services are rendered.

Your client is not liable to pay tax in the Republic by virtue of not being a ‘resident’ and the remuneration paid to him for his services is not from services rendered from a source within the Republic. 

5. VAT: Zero-rating of indirect exports under EIS

Q: I have a client, a Cape Town CC (hereafter referred to as ‘X’), who is involved in exporting goods to a client of theirs in Karachi, Pakistan. X purchases the goods that are exported from a Johannesburg based company (referred to as "Y”). The goods are packed into containers on Y’s premises, are sealed and then trucked to Durban from where it is exported to Pakistan. X merely facilitates the process (including payment from the buyer in Pakistan) which is then paid over to Y. X has been informed that this is normal practice for many companies. Y, however, has raised VAT on the invoice at the standard rate, whereas client X believes that the transaction is an "indirect export” which should be zero-rated. Y refuses to issue zero-rated invoices. I need clarity on the following questions:

  1. Is the transaction a "zero-rated”-transaction for X and Y?
  2. If so, how can X enforce the "zero-rated” status on Y’s invoices?

A: The EIS (VAT Export Incentive Scheme – Notice 2761 Government Gazette 1947 of 13 November 1998) deals with transactions where ownership of the goods changes in South Africa. The recipient of the goods or his cartage contractor takes delivery in South Africa and somebody other than the South African vendor exports the goods. Where the recipient of the goods, for example, contracts with a cartage contractor to deliver the goods to him in an export country, the export of the goods will be regarded as an indirect export but will be subject to VAT at the standard rate (s 11(1)(a)(ii)(aa)). 

An exception to this rule applies in respect of exports by sea or air, in which case the supplier (that is the SA vendor) may at his own discretion and risk decide to apply the zero rate (Part2 of the EIS).

Am I correct to say that the supplier invoices your client, and in return your client invoices its foreign client? In terms of part II of the EIS, the rate of zero may only apply where the vendor supplies (invoices) the goods to a ‘qualifying purchaser’. In terms of part I of the EIS, a ‘qualifying purchaser’ is a non-resident, a tourist, a foreign enterprise or a foreign diplomat. 

It is therefore my understanding that the supplier did not make the supply to a ‘qualifying purchaser’ (your client). Your client will however make the supply to a ‘qualifying purchaser’ by virtue of that purchaser being a non-resident. This may change in the event that your client merely acts as an agent on behalf of the principal as contemplated in terms of section 54 of the Value Added Tax Act. This would result into the supply being deemed to be made by the principal (your clients’ supplier). 

6. Exempt government grants – s 12P

Q:  With regards to section 12P, "Exemption of amounts received or accrued in respect of governmentgrants”, what is the difference between a taxable and a non-taxable government 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.

7. Suspension of payment (tax pending objection or appeal) - s 164

Q: Please can you assist me with the compilation of a Section 163 Application required by SARS to have payment suspended in terms of an ADR1 submitted? 

A: I think you are rather referring to clause 164 of the TAA (Payment of tax pending objection or appeal), as a preservation order has not yet been granted by a court. 

As I am sure you are aware, the suspension of payment pending an objection or appeal is not automatic. An application has to be made to the Commissioner in a form as prescribed by the Commissioner. I could not find a standard form issued by the Commissioner, nor a description of the process to be followed. Please contact the collection agent dealing with the specific case and enquire as to the format of your application.

8. Debit loan in a company & dividends tax  

Q: My client is a member of a CC.  For the 2012 year of assessment she took a salary of R130 000 and has a loan due to the company of R812 349.Is the loan due by her a deemed dividend and therefore liable for dividends tax?

A: Yes, the loan will be regarded a deemed dividend provided that no interest is charged on the loan at the ‘official interest rate’ as defined in par 1 of the 7th Schedule to the Income Tax Act (s 64C(3)(d)).

9. SARS’s requirements for financial information provided by companies

Q: A client was advised by SARS officials that auditing of financial statements is not required. According to them, he only needs to provide SARS with a trial balance in order for them to fill in his tax return. Our client now feels that he does not need financials drawn up, and we are charging him unnecessarily. Do all companies need a review or an audit, or can the tax return be done on basic financials? Can the client really just take his cashbook/ trial balance to SARS and file his company’s tax return?

A: In terms of Companies Act of 2008, the requirement to conduct either and audit or independent review is determined after the calculation of a companies’ Public Interest Score (PIS).

  • PIS 350 or more : Audit required (private company)
  • PIS 100 to 349 : Independent Review (private company)
  • PIS 0 to 99 : No requirement provided that the shareholders are also directors of the company (private company)

In terms of s 28 of the Act, all companies must keep accurate and complete accounting records, and all companies must produce annual financial statements each year within 6 months after the end of their financial year which meet the requirements in terms of their PIS (s 30). An owner-managed company is however exempt from an audit or an independent review in terms of s 30(2)(A) provided that the company changed its MOI’s to remove any audit requirement.

The Income Tax Act/Tax Administration Act

S 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. The same provisions can be found in s 73 of the ITA. 

Conclusion

It is my understanding that SARS may well accept a trial balance as a source for purposes of completing tax returns however; the Commissioner may request a certificate or statement to test the reliance of the source and may call for further verification or audit. Where your client may not be in contravention of the ITA or TAA, he may well be acting in contravention of the Companies Act. 


WHY REGISTER WITH SAIT?

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.

MINIMUM REQUIREMENTS TO REGISTER

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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