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FAQ - September 10

10 September 2013   (4 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

Question : Section 12B

I am dealing with a client who in interested in purchasing a fairly large Photovoltaic (PV) Solar power generation system.I need some clarity on the Interpretation of Section 12 B, (H) (ii), which is where I am dealing with them.Firstly , can any enterprise that spends money on a system to supplement their electricity usage apply for the 50/30/20 depreciation allowance as per (h).. generation of electricity from.... solar energy. Or as per (h) ...for the purpose of his or her trade ...    

How does subsection (2) relate to this and I am not sure what the intention of SARS is with regard the supporting structure to be included?How does Leasing of the Asset affect the eligibility of the Enterprise to claim the deduction contemplated by 12B. I would appreciate your input or perhaps to put me in touch with someone who is versed in the Energy Saving aspect of Allowances and Deductions with SARS.

Answer:

S 12B of the Income Tax Act (the Act), specifically section 12B(2), provides an accelerated capital allowance over a three year period, on a 50/30/20 basis, for assets used in the generation of electricity from sunlight, wind, hydro or biomass. A requirement of sub par (h) of this section is that the asset must be brought into use for purpose of his trade. If the taxpayer uses the electricity generated to supplement his existing electricity for purposes of his trade, this requirement should be met. To qualify as a depreciable asset for purposes of s 12B, the asset must have either be owned by the taxpayer, or acquired by the taxpayer in terms of  paragraph (a) of the definition of an "instalment credit agreement” as defined in s 1 of the Value Added Tax Act (this refers to an instalment purchase, as opposed to a lease).

The allowance in terms of this s of the Act will not be available to the taxpayer in the event that of a lease agreement if the requirements of para (a) of the definition of an "instalment credit agreement” are not  met - in this case, the lease payments may be deductible as incurred under section 11(a). Sub section (3) includes in the cost of the assets; "…the direct cost of the installation or erection thereof…”. Any cost of the installing or constructing the asset will therefore also qualify for the section 12B allowances. THe proviso to section 12B(1) also makes provision for an allowance in respect of the foundation or structure that the asset is attached to.

Question: VAT

I have a client who is not sure if the following transaction should be zero rated or not. They develop educational software which they sell to schools. They also have a monthly newsletter which is web based. A company in London who represents Disney, are advertising on this newsletter for teachers positions available in China. In essence – an overseas company are advertising  for overseas positions on our client’s web based newsletter. The charge that this SA company makes to the London company, should it be zero rated?  

Answer:

I think that firstly one has to consider as to the nature of the supply which your client makes to the London company. "Goods” are defined as:

-          Corporeal moveable things
-          Fixed property
-          Any real right in such thing or fixed property, and
-          Electricity 

"Services” is also widely defined and includes the granting, cession or surrender of any right or the making available of any facility or advantage. Ss 8 and 18(3) of the VAT Act furthermore has certain deeming provisions, none of which would have any bearing on the transaction described below. 

As the advertisement cannot be regarded "goods”, and is also not specifically  in this definition, one has to accept that the supply constitutes a supply of "services” as advertising space (a facility) is made available.

In terms of s 11(2)(l) of the Act, the supply of a service will be zero rated if the services are directly supplied to that non-resident (as defined for VAT purposes (please note this differs from income tax)). The zero-rating does not apply if, amongst other, (1) the non-resident (or any other person to whom the service is rendered) is in the Republic at the time the services are rendered (refer section 11(2)(l)(iii) or (2) the service is directly connected to movable property situated in the Republic at the time when the service is rendered (refer section 11(2)(l)(ii)). 

There may be two problems in this case in applying the zero-rating. Firstly, it appears as if the service (advertising space) is made available in a South African newsletter (i.e. possibly movable incorporeal property in South Africa). Case law in New Zealand however suggests that the advertising medium may be a step removed from the service rendered (i.e. no longer directly in connection with the medium/property) and would not necessarily result in the service directly being in connection with movable property in South Africa. An argument may also exist that the electronic newsletter does not constitute 'property' and that section 11(2)(l)(ii) should therefore not apply. Given the uncertainty and interpretation involved in applying section 11(2)(l)(ii), it is recommended that your client consider obtaining a tax opinion from a tax practitioner in this regard.

It is submitted that a foreigner who advertises in a local publication which is read by persons in South Africa should not fall within section 11(2)(l)(iii) as the benefit derived by these persons reading the advertisement is incidental to the service supplied to the foreigner (refer Explanatory Memorandum on the Taxation Laws Amendment Bill, 1998, p 37) (also refer Juta Commentary on the VAT Act).

Question: Medical

My client is employed and his wife is unemployed. However, the medical aid is in the name of the wife and the medical tax certificate is obviously issued in the name of the wife. Can I deduct the medical deduction from the husband’s taxable income?

Answer:

Only qualifying expenditure incurred and paid in respect of yourself and certain other persons may be taken into account in the determination of the medical allowance. These other persons are your spouse, your children and your dependants, as described. 

The term "spouse”, defined in section 1 means –

in relation to any person, a person who is the partner of such person –
(a) in a marriage or customary union recognised in terms of the laws of the Republic;
(b) in a union recognised as a marriage in accordance with the tenets of any religion; or
(c) in a same-sex or heterosexual union which the Commissioner is satisfied is intended to be permanent.

Your clients wife would therefore qualify as his spouse. The deduction is only claimed in respect of expenditure paid and is claimable by the person who pays the expense. S 18 of the Income Tax Act.

Question: Epilepsy

I have a client whose son has severe Epilepsy. the child is in a special school with only 8 kids in a class because he needs special attention. He also needs to be watched 24/7 because he can have a seizure anytime.

He is on Epilim as chronic medication.

Does Epilepsy count as a disability/ impairment medical deduction on the IT12. The specialist who treats the patient does not want to complete the prescribed Sars form as he says the child is not disabled, he only suffers from Epilepsy.

Answer:

A disability, as defined in section 18(3) means a moderate to severe limitation of a persons ability to function or perform daily activities as a result of a physical, sensory, communication, intellectual or mental impairment, if the limitation

(a) has lasted or has a prognosis of lasting more than a year; and
(b) is diagnosed by a duly registered medical practitioner in accordance with criteria prescribed by the Commissioner.

A physical disability can be described as a condition or dysfunction, of a permanent nature, which requires the person who has such a condition or dysfunction to use special equipment or receive medical treatment in order to perform general life functions. A temporary condition or illness that can be treated with, for example, medication or exercise is not regarded as a physical disability. It is not a requirement that the condition result from physical injury. Medical conditions such as diabetes can also result in a physical disability.

Physical disabilities include 

  • bad eyesight;
  • hearing problems;
  • diabetes;
  • paralysis of a portion of the body;
  • multiple sclerosis;
  • asthma; and
  • brain dysfunctions such as dyslexia, hyperactivity or lack of concentration.

The term physical impairment is not defined in the Act but in the context of s 18(1)(d) it has been interpreted as a disability that is less restraining than a disability as defined. In order for a person to be disabled, as defined in section 18(3), the person's ability to function or perform daily activities must have been impaired moderately to severely by the physical, sensory, communication, intellectual or mental impairment. For a person to be viewed as disabled for tax purposes, a prognosis by a medical practitioner is required (ITR-DD form). An impairment would therefore exist where a persons ability to perform daily activities suffers a restriction which is less than moderate or severe. In order to qualify for the deduction in section 18(1)(d), the expenditure must further be necessarily incurred in consequence of this impairment that affects the person's ability to function.

Conclusion

A qualified medical doctor would be in the best position to determine whether the child does in fact suffer from a "disability" vs a "physical impairment". If not a "disability", the condition would rather be a
"physical impairment". It might well be the case that the child suffers a "disability” rather than a "physical impairment” and you might once again want to discuss with your doctor.  

Comments...

Lorna L. Rich-Bowles (Gray) says...
Posted 18 September 2013
Epilepsy: If the condition is so chronic I would suggest actually going to Social Services to apply for a disability grant- after all if you are a tax paying individual why not reap the benefits provided by your taxes - the grant relieves the burden of the condition to a small extent. However, when applying the taxpayer would be advised to return a week or two later with the child for a Social Services appointed Dr. to examine the child and take the childs history into account in deciding if the child qualifies for a grant. If the Dr. gives an affirmative decision I would then ask him if he would be prepared to complete the required SARS disability form. I have recently seen 2 Epilesy sufferer applicants at my local Social Services offices. One had already been as disabled and the other was a pending or new application - I couldn't quite follow the outcome as the conversation was not in English.
Lorna L. Rich-Bowles (Gray) says...
Posted 18 September 2013
Medical: Personal Experience- my husband retired and no longer had a taxable income whereas I was now the taxable income person we transferred all debit orders to my bank account . At year-end the question arose "who claimed the medical benefit in their tax return?"I contacted SARS & was advised that I could claim the contributions but would need to submit at least 6 bank statements proving payment for contributions and chemist accounts. We ensured thereafter that all medical expenses were paid either via EFT from my bank a/c or with my credit card if it was prescriptive medications or other SARS aaceptable medical expense. My advice to the tax paying client - ensure you are paying all expenses via a banking account and not in cash and transfer med. aid contribution payments to his bank a/c. The medical aids don't have a problem with this as long as contributions are received.
Edward P. van Schalkwyk says...
Posted 17 September 2013
Is the answer on the question on "MEDICAL" YES or NO?
Hendrik Kok says...
Posted 12 September 2013
See in the SARS LIST OF QUALIFYING PHYSICAL IMPAIRMENT OR DISABILITY EXPENDITURE where they refer to aids for epilepsy, perhaps this is an indication that epilepsy is in fact a qualifying disability - http://www.sars.gov.za/AllDocs/OpsDocs/Guides/LAPD-IT-G08%20-%20List%20of%20Qualifying%20Physical%20Impairment%20or%20Disability%20Expenditure%20-%20External%20Guide.pdf

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