FAQ - July 2013
04 July 2013
Posted by: Author: SAIT Technical
Author: SAIT Technical
1. Employees Tax for a Labour Broker and Personal Service Providers
I handle the tax withheld from a labour broker if the labour broker doesn’t
supply me or my client with an exemption certificate?
reference certificate and number do I use to pay over to SARS?
past we could issue a manual IRP3 but as I understand this has been stopped,
how do you deal with such a case. In this case the Labour broker is not a
natural person but is a company. I know that any labour broker without an
exemption certificate is subject to employee’s tax at the rate applicable to
individuals, but I am not too sure if this will work for a company.
Labour Broker and Personal Service
Provider are each defined in the Fourth Schedule to the Income Tax Act as:
"’Labour broker””- means any natural person who conducts or carries on any business whereby,
such person for reward, provides a client of such business with other persons
to render a service or perform work for such client, or procures such other
persons for the client, for which services or work such other persons are
remunerated by such person”.
"’personal service provider’ means any company or trust, where any
service rendered on behalf of such company or trust to a client of such company
or trust is rendered personally by any person who is a connected person in
relation to such company or trust, and:
Such person would be regarded as an employee of such client if such service was
rendered by such person directly to such client, other than on behalf of such
company or trust; or
where those duties must be performed mainly at the premises of the client, such
person or such company or trust is subjected to the control or supervision of
such client as to the manner in which the duties are performed or are to be
performed in rendering such service; or
where more than 80 per cent of the income of such company or trust during the
year of assessment, from services rendered, consists of or is likely to consist
of amounts received directly or indirectly from any one client of such company
or trust, or any associated institution as defined in the Seventh Schedule to
this Act, in relation to such client, expect where such company or trust
throughout the year of assessment, employs three or more full-time employees
who are on a full-time basis engaged in the business of such company or trust
of rendering any such service, other than any employee who is a shareholder or member
of the company or trust or is a connected person in relation to such person”.
it appears as if you are not be dealing with a labour broker as defined in the
Fourth Schedule and would not have to withhold tax on this ground. You would
however have to consider whether you may be dealing with a Personal Service
Provider if the company fulfils the necessary requirements.
2. Value Added Tax and the Reimbursement for Damages
Q: I have a client, who farms with cucumbers in tunnels and had a power
failure, resulting in the cucumber plants being destroyed. The client
instituted a claim against the electricity company and they paid-out R950 000
The sale of cucumbers is zero-rated. Can the insurance pay-out be
regarded as zero-rated or must the farmer pay SARS at 14%?
terms of section 11(j), a Supply of
goods will be charged with a tax at a rate of zero per cent where the supply
consists of such foodstuffs as are set forth in Part B of Schedule 2. Item 12 of Part B lists vegetables to
be zero rated. If SARS classifies cucumbers as vegetables, the supply of
cucumbers will be zero-rated.
Insurance is defined in section 1 as "the insurance or guarantee against loss,
damage, injury or risk of any kind whatever, whether pursuant to any contract
or law, and includes reinsurance; and "contract of insurance” includes a policy
of insurance, an insurance cover, and a renewal of contract of insurance”. As
the payment is not made in terms of an insurance contract, the payment is not
an "indemnity payment under a contract of insurance or is indemnified under a
contract of insurance by the payment of an amount of money to another person”
as contemplated in section 8(8) and therefore does not give rise to a deemed
Supply, as defined in section 1, "includes
performance of a sale, rental agreement, installment credit agreement and all
other forms of supply, whether voluntary, compulsory or by operation of law, irrespective of where the supply is effected, and any derivative of "supply”
shall be construed accordingly”. In the case of Shell’s Annandale Farm (Pty)
Ltd v C:SARS it was said that
"There is some indication from comparative law that supply is used in the active sense in Customs and Excise Commissioners v Oliver  STC 73 (QBD) the
court interpreted a similar definition of supply in the Finance Act 1972 (the United Kingdom’s VAT legislation) to mean ‘furnishing or serving goods or
services . . . Supply is the passing of possession in goods pursuant to an agreement where under the supplier agrees to part and the recipient agrees to take
possession.’ (at 75). In Databank Systems Ltd v CIR  NZLR 312 (HC) the court analysed the word supply within the context of legislation upon which our Act is based, Goods and Services Act 1985. It examined the dictionary definition of supply and concluded that supply simply means to ‘furnish with or provide’(at 323). Some form of act is required to be a supply for the purposes of VAT legislation. It was held
that the expropriation of land did not constitute a supply as there was no act,
in the active sense, from the vendor to supply (i.e. furnish or provide) the
land to the recipient following the expropriation notice. In that case, the
applicant was not liable for output tax on the compensation received for the
It may in this case be argued that similarly to the expropriation in the
Shell’s Annandale Farm case, the loss of the cucumber crops by your client may
not constitute a supply. If this is the case, the compensation received by your
client would not be subject to VAT as no supply of goods or services was made.
This view is further supported by the fact that there was no recipient (as also
defined in section 1) of the goods (cucumbers).
Given that there is some interpretation and judgement involved in the
above response, it is recommended that your client obtains a tax opinion on
this matter based on the specific facts of the settlement payment made by the electricity company for purposes of remitting penalties in terms of section 223 of the Tax
3. Value Added Tax on the Horse Racing Industry
Q: I have a client who is a
registered Close Corporation (CC). There primary business is horse training,
horse racing and horse stabling.
1) Is the stakes they receive an exempt supply?
2) The CC has never been registered for VAT and the equine body has always
claimed all the input tax on their behalf and refunded them. Yesterday, I
received an e-mail from my client saying that the equine body has now
individually registered all the relevant people for VAT and gave me a VAT
number. They said they would still complete the VAT returns on everybody’s
3) My question to them was, surely now that they are VAT vendors they would
have to charge VAT on stabling, training etc?
4) Is there an agreement between SARS and the horse governing body?
Is it true that my client
has to only show the input on the vat return?
A: In terms of section
8(13) of the VAT Act, there will be a deemed supply of a service by a person to
another person who bets an amount on the outcome of a race. The racing operator
who received the bet should account for output tax on the amount received if
the racing operator is registered as a VAT vendor (see below).
In terms of section
16(3)(d) of the VAT Act, the racing operator will be able to deduct an amount
equal to the tax fraction on the amount of winnings paid out to the person whom
has placed the bet.
stakes they receive will not be an exempt supply, but a taxable supply.I refer you to the
Interpretation Note No 41 (issue) that deals with the Application of VAT on the
Gambling Industry. The link is :http://www.sars.gov.za/AllDocs/LegalDoclib/Notes/LAPD-IntR-IN-2012-41%20-%20Application%20VAT%20Gambling%20Industry.pdf
VAT and the levying of VAT on activities.
manager/trainer (CC) is responsible for stabling, training and looking at the
well-being of horses on behalf of the owner, it will be supplying a service to
the owner. If these services are supplied on a continuous or regular basis, the
manager/trainer will be conducting an enterprise as defined in section 1 of the
If the value of
these taxable supplies made by the manager/trainer exceeds R1 000 000 per
annum, he will be required to register for VAT. The person may voluntary
register for VAT if the taxable supplies made during a 12 month period exceeds
VAT will be levied at the standard rate of 14 %
by the service provider. The owner may be entitled to deduct input VAT; this
will however depend on his/her circumstances. VAT will be levied at the standard rate of 14 %
by the service provider. The owner may be entitled to deduct input VAT; this
will however depend on his/her circumstances
Equine body dealing
on behalf of its members
are not familiar with the operation of the relevant body and its relationship
with its members. Section 54 of the VAT Act does allow a person to appoint an
agent, to whom, among other, invoices can be issued on behalf of its
principal. This appears to be the case. I would however suggest that you obtain
tax advice in respect of this matter based on the specific facts and
relationship that exists between the equine body and its members.
4. Primary Residence Used for Business Purposes
Q: My understanding of Capital
Gains Tax (CGT) in respect of the use of an office at a Primary Residence is
that: Let’s say only 15% of the residence floor space is used as an office.
Thus Company x will claim 15%
of the electricity expenses. Therefore, there will be no impact on the R2 million deduction.
Please advise whether my
understanding is correct.
A: The term ‘primary
residence’ is defined as a residence in which a natural person or special trust
holds an interest and,
regard it as his main residence and must or must have ordinarily resided there,
- must use or have mainly (more than 50%) used it for
Any capital gain, where
the proceeds on the sale of the primary residence does not exceed R 2 million
must be disregarded in terms of para 45(1)(b) of the Eight Schedule to the
Income Tax Act. Sub para(1)(b) does however not apply in the event that the
residence or part thereof was used for purposes of carrying on a trade for any
portion of the period after the valuation date – sub para 4(b).
The exemption of R 2
million in terms of para 45(1)(a) is however still available, subject to par
49. An adjustment in terms of this paragraph must be made to the primary
residence exclusion where the residence is used both for domestic and trade
purposes. In other words, if 15% of the residence is used as an office, 15% of
the capital gain would not qualify for the primary residence exclusion. The
amount of R2 million is however available in respect of the 85% utilized as
The R 2 million
exclusion in terms of para 45(1)(a) applies subject to an apportionment
calculation in terms of para 49.
5. Residential Property and Withholding Taxes
Q: We have a tax client who
is a SA resident and her husband is a resident of the Congo. They jointly own a
residential property in Cape Town in which the SA spouse resides (the husband does not
ordinarily reside in the residence). The purchase price of the property was R2 350 000
plus additions of R200 000.
They are in the process
of selling the property and the selling price is R2 600 000. The
question has come up about Section 35 A of the income tax act. With 50% of the
house being owned by the spouse and occupant, how is the 5% withholding tax
computed, if at all?
Your opinion will be
A: South African CGT on the
As a resident, the wife
would be subject to capital gains tax on the disposal of her portion of the
immovable property in South Africa.
In terms of paragraph
2(1)(b)(i) of the Eighth Schedule, the husband would be subject to capital
gains tax on the disposal of immovable property situated in South Africa.
s the wife resides in
the property, it must be considered whether the primary residence exclusion may
apply. For these purposes, the term 'primary residence' is defined in paragraph
44 of the Eighth Schedule as "a residence—(a) in which a natural person or
a special trust holds an interest; and (b) which that person or a
beneficiary of that special trust or a spouse of that person or
beneficiary— (i) ordinarily resides or resided in as his or
her main residence; and (ii) uses or used mainly for domestic purposes."
From the perspective of
both the husband and the wife, the immovable property would meet the definition
of a primary residence if it constituted the wife ordinarily resided in this
residence as her main residence and it was used mainly for domestic purposes.
You have to consider whether they meet the other requirements for this
primary residence exclusion. If this is the case, the exclusion in
paragraph 45 will apply to. (Note that paragraph 45(2) requires the exclusion
to be apportioned if more than one person holds an interest in the residence,
as is the case here).
If it is not the case,
the capital gain will be taxable in South Africa. Provided however that
the husband is a resident of the DRC, as defined in Article 4 of the SA/DRC
DTA, he would qualify for the relief provided in terms of the SA/DRC DTA
(hereafter referred to as the DTA) (refer Article 1 of the DTA). In terms
of Article 13(1) of the Double Tax Agreement between South Africa, and the
Democratic Republic of Congo (DTA), where a Congo resident disposes of
immovable property which is situated in South Africa, then South Africa may tax
the proceeds. Furthermore, the income derived by the husband from the proceeds
of the sale would be exempt in the Republic of Congo in terms of article 21(a)
of the DTA. South Africa may therefore impose the CGT (if any) referred to
Withholding tax on the
Section 35A(1) states
(hereinafter referred to as ‘the purchaser’) who must pay any amount to any
other person who is not a resident (hereinafter referred to as ‘the seller’),
or to any other person for or on behalf of that seller, in respect of the
disposal by that seller of any immovable property in the Republic must, subject
to subsection (2), withhold from the amount which that person must so pay, an
amount equal to-
(a) 5 per cent of the amount so
payable, in the case where the seller is a natural person..."
Since the property is
jointly owned by the non-resident husband and the resident wife and, the
purchaser will be paying an amount to the husband (non-resident) who have
disposed of his interest in the immovable property. Therefore the proceeds
which accrues to the husband would be subject to the 5 per cent withholding tax
in accordance with section 35A(1). This withholding tax, paid in terms of
section 35A, should however be deducted from the non-resident’s South African
tax liability for the year of assessment during which the property was disposed
of in terms of section 35A(3).
husband (seller) can apply for a directive from SARS in terms of
section 35A(2)(c) and (d) to reduce the 5 per cent withholding tax given the
effect of the base cost as well as paragraph 45 of the Eighth Schedule on his
tax liability. If the husband should apply for this directive, then it must be
indicated on the NR02 declaration form. The processing of the directive is 21