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FAQ - July

17 July 2013   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

1. Company vehicle - Logbook requirements

Question 

We have customers that have a company provided vehicle, they only drive private kilos, but have to pay for their own fuel. These customers don’t have logbooks, because it is all private. The question on e-filing, is there a log book – if you answer this question no, everything blanks out and you can not fill in anything. 

Last year these same customers went to SARS with a page they received from work with their kilos, price of the vehicle and from when to when they had the car, and SARS did a additional assessment and paid the customers out. 

How can you do this on efiling?

Answer

It is our understanding that by "customers that have a company provided vehicle", you mean your clients are persons who have to right to use a vehicle owned by the company that the are employed by and this right is conferred to them by reason of their employment. If this is not the case, the response below may be different.Where the value of the private use of a employer provided motor vehicle was calculated in terms of par. 7(4) of the Seventh Schedule to the Income Tax Act, and the employee and the employee had to bear the full cost of fuel for the private use of such vehicle, may that value be reduced in terms of par. 8(b).

Par 8(b) requires that the taxpayer kept accurate records of private kilometres travelled during the year/period to the satisfaction of the Commissioner. Interpretation Note 72 (par 4.5.2.) states that "it is crucial that employees keep accurate records (for example, in the form of a logbook) of business mileage travelled". It is submitted that this statement acknowledges that the records can be kept in any form, but preferably a logbook. Interpretation Note 72 states that the logbook must include the opening meter reading on the first day of the year of assessment, the closing reading on the last day of the year of assessment and details about business travels. It is specifically mentioned that details about private travels need not be recorded. It is therefore submitted that if your client kept records of the total mileage (i.e. closing reading less the opening reading) and all of these kilometers travelled were for private purposes, this may still constitute a logbook or acceptable record of private kilometers travelled. (it would however not be sufficient evidence of business kilometers, if any)

The value calculated in terms of par 7(4) may be reduced by applying the rate per kilometre for fuel fixed by the Minister in the Gazette for the purpose of s 8(1)(b)(ii) and (iii) of the Act.  These rates are determined on the cost of the vehicle and are the same rates used for purposes of claiming against a travelling allowance. 

Conclusion 

The reason as to why the blocks per your clients return is greyed out is because your client did not maintain a logbook as required, and the requirements for purposes of par 8 of the Seventh Schedule were not met. It is suggested that you consult the requirements of par 4.5.2. of Interpretation Note 72 to consider whether the records kept by your clients would constitute a logbook as required (particularly, as they only travelled for private purposes). You may then be able to answer the question on e-filing regarding the logbook as yes, depending on the circumstances. 

2. Para 51A of the Eighth Schedule - Trust owns property

Question

Hi I have a client who wished to avail himself of the Para 51A of the Eighth Schedule and sec 20 of the Transfer duty act. the transaction is in respect of a property held by a company the shares of whom is held by a discretionary family trust. There is also potential donations tax implications for the client. The problem now arose that the registration of the transfer was delayed and it is only now up for registration in the deeds office. Obviously the company is also not deregistered yet and as such full compliance with the provisions of the section is now impossible. I instructed the client and the transfer attorneys to hold of on transfer until such time as I have clarity on the way forward. What I would like to ask is: What is SARS' s view in respect of these requirements? Will it suffice that in the six months from the date of signature of the deed of sale and the various resolutions that they have proceeded with transfer of the property (although not yet completed)? I am under the impression that this is the only requirement outstanding before finalisation of the audit and the deregistration of the company can take place. 

Answer

Requirement for disposal prior to 31 December 2012

Paragraph 51A of the Eighth Schedule to the Income Tax Act does not lay down any time limit for registration of the property in the name of the acquirer. The requirement of the paragraph is merely that "the disposal takes place on or before 31 December 2012" (that is the disposal in the case described in the query by the trust which appears to be the last layer of entities that the property has to pass through to the relevant natural person). For purposes of par 51A the time of disposal of an asset by a company to a shareholder is the date on which it is distributed as contemplated in terms of par 75. The "date of distribution” for purposes of par 75 is defined in par 74:

"date of distribution”, in relation to any distribution, means the date of payment of the distribution—

(a) by a company subject to the condition that it be payable to a shareholder of the company registered in that company’s share register on a specified date, in which case it must be that date;
(b) by a company to a shareholder of that company otherwise than by way of a formal declaration of a dividend, in which case it must be the date on which the shareholder became entitled to that distribution; or
(c) by the liquidator of a company to a shareholder of that company in the course of the winding up or liquidation of that company, in which case it must be the date on which the shareholder became entitled to that distribution;

The SARS Guide to Par 51A states that in respect of a distribution to a beneficiary of a trust "the distribution of an asset of a trust by a trustee to a beneficiary to the extent that the beneficiary has a vested interest in the asset, the date on which the interest vests [paragraph 13(1)(a)(iiA)]".

Requirement regarding liquidation of company or termination of trust

Furthermore, the requirement in par 51A(1)(d) that steps must be taken to liquidate the company 6 months after the date of disposal as contemplated in par 51A(1)(a) will only be effective from the "date of distribution” (in terms of the above definition, the declaration date) as that is in effect the date of disposal. This does not mean that the company has to be finally liquidated, but merely that the necessary steps as contemplated in s 41(4) of the Act must have been taken;

Section 41(4) Steps to be taken within six months of disposal of residence
 (a)(i)(aa)  Companies and close corporations Lodge resolution under section 80(2) of the Companies Act 71 of 2008.
 (a)(i)(bb)Co-operatives – Not applicable
 (a)(i)(cc)Foreign companies Comply with similar foreign law relating to liquidation of companies if that foreign law so requires
 (a)(ii)Dispose of all assets and settle all liabilities except for assets required to satisfy any –
• reasonably anticipated liabilities to any sphere of government of any country, and
• costs of administration relating to the liquidation or winding-up.
 (c) Submit a copy of the resolution to SARS
 (d) Submit all outstanding returns or information to SARS required under any law administered by the Commissioner or obtain the necessary extension from SARS. This must be done by the end of the six-month period.

Paragraph 9.2.5. of the SARS Guide of Par 51A states that "Steps must have been taken to terminate the trust. Paragraph 51A is not prescriptive as to what steps must be taken as this will largely depend on the terms of the trust deed. Most trust deeds contain a termination clause which will set out what is required of the trustees."

Conclusion

Firstly, the disposal had to take place prior to 31 December 2012 – you should consider whether this is the case based on the above guidance. Secondly, if the disposal took place prior to 31 December 2012, consider whether the steps as contemplated s 41(4) were taken to liquidate the company and trust within the required time-frame.

3. Qualifying Medical Scheme

Question

The client has health insurance through Liberty Life in addition to his existing medical aid. The question is thus if the premiums are also deductible for tax (Medical aid contributions/expenses). In my opinion it will be deductible reliant on the requirement of it being paid to a registered Medical Scheme. Liberty Life is not a registered medical scheme.

Answer

S 18(1)(a) of the Income Tax Act allows as a deduction any contributions made to any medical scheme registered under provisions of the Medical Schemes Act, 1998 (Act No. 131 of 1998).

Section 23(m)(iii) does however specifically allow the following (even in the case of a person earning remuneration): "any deduction which is allowable under section 11 (a) in respect of any premium paid by that person in terms of an insurance policy, to the extent that— (aa) it covers that person against the loss of income as a result of illness, injury, disability or unemployment; and (bb) the amounts payable in terms of that policy as contemplated in item (aa) constitutes or will constitute income as defined" (emphasis added).

We would suggest that you consider the terms of the policy to determine whether it may qualify for a deduction in terms of section 11(a) as contemplated in section 23(m) (broadly referred to as income protection policies).

Conclusion 

Based on the information provided, the service provider is not registered as a medical scheme in terms of the Medical Schemes Act, and will the contributions not be allowed to be taken into account for purposes of s 18 of the Act. It is my understanding that the contributions relate to an insurance product rather than a medical scheme product.

4. Royalty Income

Question

If a person receives royalty income is he exempt from the payment of provisional tax? According to 4th schedule a natural person under 65 are not required to pay provisional if he does not derive any income from the carrying on of any business. Business is not defined in the Act. Is royalty income included as income from carrying on of any business?

Answer

I assume that the person which you are referring to is ordinarily resident in the Republic ("resident”) and that the person will therefore be subject to tax on the royalty income irrespective of the source.

The definition of "provisional taxpayer”, in para 1 of the Fourth Schedule to the Income Tax Act includes;

- Any person who derives income from amounts which does not constitute "remuneration” as defined in para 1 of the Fourth Schedule. As the royalty income does not constitute remuneration, the person would meet the definition of a provisional taxpayer.

The exemption that refer to is contained in para 18(1)(c) of the Fourth Schedule and states:
"any natural person who on the last day of that year will be below the age of 65 years and who does not derive any income from the carrying on of any business, if-
(i) the taxable income of that person for the relevant year of assessment will not exceed the tax threshold; or
(ii) the taxable income of that person for the relevant year of assessment which is derived from interest, foreign dividends and rental from the letting of fixed property will not exceed R20 000"

You are correct in stating that the term business is not defined in the Act. It is also not defined or clarified in the SARS Guide on Provisional Tax. In an earlier version of the Tax Exemption Guide for Public Benefit Organisations in South Africa (issued in October 2007) SARS' view was " Business is not defined in the Act. However, based on tax law, it is generally accepted to include anything which occupies the time, attention and labours of man for profit. There are no hard and fast rules in determining what is business. However, a number of factors will be taken into account, such as the intention, motive, frequency and the nature of the activity." Depending on the nature of the royalty income, it may fall outside this meaning of a business if it is passive income.

It must however be noted that in order to qualify for the exemption from provisional tax, the other requirements of para 18(1)(c) must also be met.


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