FAQ - November 6
06 November 2013
Posted by: Author: SAIT Technical
Author: SAIT Technical
1. Charging VAT
on taxable supplies to non-residents
I'm having an on-going discussion with a client of mine with regards
to VAT. The client is in the safari business and the discussion revolves around
VAT being charged on their international clients. They are under the impression
that because the client comes from across our borders they do not have to
charge VAT but are still able to claim the input VAT. I feel this is wrong. The
service is performed by a VAT registered South African company and the services
are rendered in this country, thus the company should charge VAT regardless
where their client comes from. Should the client want to claim the VAT back
then they should do so at the border control.
7(1)(a) of the VAT Act provides that VAT shall be levied and paid at 14% for
the benefit of the National Revenue fund on: The value of a supply of goods or
services in the Republic of SA by a vendor in the course of furtherance of an
To fall within the scope of the VAT Act, a payment
(consideration) must be received by a vendor in respect of a taxable "supply”
made by that person.
Section 11(2) of
the VAT Act allows for the zero-rating of certain export related services.
Services physically rendered outside the Republic are zero-rated in terms of
section 11(2)(k). Services supplied to a person who is not a resident in the
Republic are zero-rated provided that certain conditions are met; section
11(2)(l). This provision has created problems for the tourism industry. This is
dealt with in VAT IN Note. 42, kindly see attached. For example, if a tour
operator arranges a tour for a non-resident, while that non-resident is outside
South Africa, then the charge for arranging the tour can be zero-rated. This is
the charge for the work done in making enquiries, planning the itinerary,
booking the hotels, arranging the transport, etc. It does not include the
actual cost of the services supplied by the hotels etc. If the tour operator
books and pays for the hotels, game drives etc. and then on-charges these costs
to the non-resident tourist (even before the tourist arrives in SA) the charge
must be standard rated, because these services will be rendered to the tourist
when he or she is inside SA. In comparison, the arranging of the tour was a
service supplied and rendered while the tourist was outside SA.
implications of the provision for bonuses and the
implications of section 7B
adjust the 2012 provision for bonuses with the actual bonuses paid in April
2013 on the 2012 tax return? Section 7B will not allow the deduction that is
added back in 2012 when submitting the 2013 tax return. If not what will happen
in the 2013 tax computation?Section 7B
will apply from 1 March 2013. This section effectively applies a cash basis of
taxation to variable remuneration paid to an employee from the perspective of
both the employer and employee. Variable remuneration is essential overtime
pay, bonuses, commission, travel allowances and leave pay. If I have made a
provision for bonuses in the 2012 tax computation, I will deduct 2011
provisions for bonuses and add back the 2012 provision. The company pays
bonuses in April every year.
Effective from 1 March 2013, employers will only be able to claim a
corporate tax deduction, to the extent that the payment of the variable
remuneration had been made.Section 7B will have a major impact for corporate taxpayers who
historically claimed a deduction of their bonus provisions. That is, taxpayers
will not be able to deduct inter alia their bonus expense on the "accrual
basis” from 1 March 2013 as they will not have paid the relevant bonuses. They
will only be entitled to a deduction when payment is made, which in all likelihood
will be after the end of their tax year.
From a business income tax compliance perspective, any provisional tax
calculation should take into account the new legislation by treating any forms
of variable remuneration not yet paid as provisions instead of accruals in
their tax computations. This may have significant cash tax consequences for
companies that applied the accrual principle to variable payments in the past.A deferred tax implication may also arise due to a timing difference
between the accounting treatment and the tax treatment of the expense.
3. Deemed disposal on shares in at date of death in
community of estate.
I have a client who
was married in community of property. The wife has died. The estate is accruing
to a testamentary trust of which the husband is the sole beneficiary. The
question now arises on the CGT implications of the shares. Does the CGT on the
deemed disposal at date of death get declared on either spouse or only on the
spouse who died or on neither? The shares sold before death will be accounted
for on both but we are unsure regarding paragraph 40 of the Eighth Schedule.
In terms of par 3(5)(d)
of the Estate Duty Act the following:
d) the expression "property of which the deceased was immediately
prior to his death competent to dispose" shall not include the share of a
spouse of a deceased in any property held in community of property between the
deceased and such spouse immediately prior to his death.Therefore, where spouses are married in community of property the estate
must first be divided in half before the rules are applied.
4. CGT implications on the disposal of a block of
I have a client who
purchased a block of flats (17 units) in a close corporation in 2002 and now
wants to sell it at a profit of approximately R4 million. The question
regarding CGT is whether it is better for him to sell the units straight from
the CC and how CGT will be calculated thereon. The other option is to sell the
whole block to himself as the member and then sell the units one by one from
his personal name. How will the CGT work on that? The question is thus which
will be the most cost effective way to do the transaction.
The purpose of this platform is not to provide opinion but merely advice
and guide relating to technical tax issues.
The following guidance may be useful:
In the event that the CC sells the property out of the CC, then 66.6%
(inclusion rate) of the net profit will be included in the taxable income of
the entity. Further to this the member (as beneficial owner) of the CC may be
subject to a 15% Dividends Tax if this profit is distributed out of the CC.
On the other hand if the member sells his members interest in the CC,
then 33.3% (inclusion rate) of the net profit will be included in his/her
taxable income but the transfer of the members interest may be subject to Security
Transfer Tax at a rate of 0.25%. In addition, he also qualifies for an annual
exclusion from CGT. In this regard it would be important to compare the base
cost of the shares (member's interest) in the CC in the hands of the member to
the base cost of the underlying building in the company. If this is materially
lower, it could impact on the calculation of the capital gain.Lastly, also bear in mind that selling the shares or the property itself
may have different transfer duty and/or VAT implications for the purchaser,
which may in turn impact on the selling price that the person agrees to.
It is recommended that you obtain specialist tax advice based on the
actual facts and circumstances of the particular transaction.