FAQ - June 2013
07 June 2013
Posted by: Author: Dieter van der Walt
Author: Dieter van der Walt
Foreign income – South African residents
Q: A client of mine pays 20%
withholding tax on his salary derived in Mozambique.He is a South African
resident for individual income tax purposes and therefore obviously a
non-resident for Mozambique.
For his 2013 South African
tax return I would assume his earnings are quantified at the prescribed
Would SARS only tax him on
annual assessment (individual year end of 28 February) or would he
have to be a provisional taxpayer?
The withholding tax he pays
in Mozambique, would that be an allowable deduction of some kind?
If not an allowable
deduction then I assume it works kind of like the new proposal for SA
implementing the same plan next year where the non-resident will be refunded by
SARS if the 15% results in that non-resident tax-payer exceeding the determined
tax liability in his own country?
terms "provisional taxpayer” is defined in par 1 of the Fourth Schedule to the
Income Tax Act. This excludes persons who receive "remuneration” but also any
person if the Commissioner so directs. "Remuneration” expressly includes
amounts received by or accrued (for services rendered or to be rendered) to a
person by virtue of holding an office or employment (par (c) of the definition
of "gross income” s 1).
client will be assessed on his world-wide income received by or accrued to him
during that year of assessment. Consider whether your client would be in
receipt of "remuneration” which would mean that he/she is not liable for
provisional tax unless the Commissioner so directs.
6quat(1)(b) of the Act allows for a rebate or deduction against the taxable
income of a resident provided that the source of that income is not from a
source within the Republic. In the event that the source of the Income is from
a source within the Republic, may s 6quin apply.
terms of s 6quat(2) of the Act certain requirements have to be met for the
rebate or deduction to be allowed in terms of s 6quat(1) of the Act.
a) The foreign taxes paid must
be paid on income. The basis of taxation must be substantially similar as that
charged on income under domestic tax law i.e. the tax charged must be a tax on
income and not any other form of tax.
b) The foreign taxes should be
paid or be payable. As the foreign tax credits will only be allowed as a
deduction or a rebate in the event that it has been actually paid, or proven to
be unconditionally payable.
c) There must be no right of
recovery. It must be proven that the foreign state did not charge a withholding
tax which is more than that stipulated in a Double Tax Agreement (DTA).
d) The taxes must be payable
on amounts included in a resident’s taxable income. If for example an assessed
loss from a previous year or expenditure in a current year results in a loss,
then no foreign credit will be allowed.
Refer to Interpretation
Note No. 18 (Issue 2). I furthermore suggest that you consider whether the
provisions of s 10(1)(o)(ii) may apply.
on the information provided, am I of the opinion that the foreign tax credit
will be allowed.
2. Goodwill and Capital Gains Tax
Q: My client owns a Closed
Corporation (CC). She does promotions and branding. She has been offered to
join another enterprise. She was advised (by another tax consultant) that she
should close her CC and sell the CC’s assets (i.e. laptop) to herself. Therefore
the new enterprise won’t be buying her CC (and clientele).
The new enterprise has
decided to pay her (in her personal capacity) R150 000 which will be paid
via a loan account. She has heard that this payment for "goodwill” may give
rise to capital gains tax.
I am unsure about this
transaction. Can the payment to her be classified as goodwill? I understand
that goodwill will arise on the purchase of the CC but that isn’t the case
here; maybe goodwill that she will bring her clients with to the new
enterprise. There is no contractual relationship between her CC and her
clientele. Will the SARS consider this to be a GCT-transaction or will this be
treated as a dividend because her loan account will have a debit balance (i.e.
owing to the company)?
purposes of the Eight Schedule to the Income Tax Act, the following four
requirements have to be met before a capital gain or loss can be calculated:
- The transaction has to involve an asset. The term ‘asset’ is defined in
par 1 and is wide enough to include virtually any asset.
- There has to be a disposal or deemed disposal, this event will trigger
- Determine the base cost of the asset.
- The proceeds/selling price must be determined.
Based on the information
stated below can I comment as follows:
- Your client has sold an asset, and even though it is not clear as to
what the true identity of the asset is, it is something with value, be it
goodwill, know how etc. I think it is important to determine as to who holds
the ownership of the asset. If for example it is the CC, then, the CC disposed
of the asset, and will the transaction suffer CGT in the CC rather than in the
individuals hands. This will have an adverse tax effect, as the transaction may
furthermore suffer donations tax (s 57 donation on instance of any person) or
dividends withholding tax (distribution of gain out of CC/deemed dividend).
- For purposes of par 11(1) a disposal has taken place – your client was
paid R 150,000.
- Consider whether your client applied any capital in order to give the
asset value, alternatively the base cost would be nil.
- The proceeds/selling price amounted to R 150,000.
It is my understanding that
the transaction will be subject to CGT.
3. VAT - submission date
Q: Could you
please clarify the submission date of VAT returns subject to diesel rebates.
A: VAT returns that have a diesel rebate
component must be submitted by the 25th or the last working day of
the week before the 25th of the month.