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FAQ – 4 December 2013

04 December 2013   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

1. Definition of a Personal Service Provider

Q: A CC is not a PSP if the CC has 3 or more independent employees besides the member rendering the personal service.

The question that I now have: 

  1. Must these 3 or more independent employees deliver the same service as the member or,
  2. Can the CC have the member and 2 employees rendering the service and an administrative person or secretary as 3rd independent employee?

Most of the opinions I have received said option 2 would qualify as well as a CC NOT being a PSP.

A: Below please find an example as per Interpretation Note: No. 35. From this is it is clear the 3 or more full time employees need not be directly involved in rendering the specific service, but must be actively involved engaged in the business of such company or trust of rendering any such service. An administrative person would therefore qualify provided that all other requirements have been met.

Example 1 – Classification of a personal service provider 

Facts:

X is the only member of ABC Close Corporation (the CC). She providesinformation technology consulting services. The CC employs two other consultants and an administrative assistant, all of whom are employed on a fulltime basis for the full year of assessment and none of whom are connected persons in relation to X.

Result:

Because the CC employs three full-time employees for the full year ofassessment, who are not members of the CC or are not connected persons inrelation to X, the CC will not be classified as a personal service provider.

Conclusion

Even though an administrative person may not be directly involved in the income generating service provided by a company or trust, that person is still actively involved in the business of that company or trust.

2. Interest on Provisional tax

Q: If we do online tax for a provisional taxpayer, the 2013 returns only have to be in by the end of January 2014. From which date will the taxpayer pay interest?

A: This payment is also known as "additional” or "topping-up” provisional payment. If such a payment is made; it must be paid not later than the ‘effective’ date.

  • Where the year of assessment ends on 28/29 February the effective date is seven months after the financial year end, which is 30 September.
  • For an approved financial year end which ends on a date other than 28/29 February, the effective date will be six months after the financial year end e.g. financial year end is 30 April 2013, the effective date will therefore be 31 October 2014.
  • The payment in the third period is a voluntary payment which any provisional taxpayer can make. However taxpayers (other than companies) with a taxable income more than R50 000 or companies with a taxable income of R20 000 or more, may make a third voluntary payment to avoid interest in terms of section 89quat(2) being levied on any underpayment of tax on assessment.
  • The purpose of this payment is therefore to enable taxpayers to pay the difference between employees’ tax and provisional tax already paid for the year and the total tax liability for the year of assessment.

3. Definition of a financial instrument & Small business asset exclusion 

Q: This question relates to the valuation of assets for a company which owns shares and receives dividends which is its main business. Can I claim the R1.8 million small business exemption as if it’s a financial instrument? SARS declined the claim. Are shares financial instruments for tax purposes - for Accounting IAS, shares are a financial instruments. SARS seem to say that a financial instrument is an interest bearing instrument and not shares.

A: A ‘financial instrument’ is defined in s 1 of the Income Tax Act and includes inter alia loans, options, forward exchange contracts, shares, participatory interests in collective investment schemes, index linked investments and bank deposits.

Paragraph 57(1) contains two definitions that apply for the purposes of par 57. 

‘"Active business asset”means— 
(a) an asset which constitutes immovable property, to the extent that it is used for business purposes; or 
(b) an asset (other than immovable property) used or held wholly and exclusively for business purposes, 

but excludes— 
(i) a financial instrument; and 
(ii) an asset held in the course of carrying on a business mainly to derive any income in the form of an annuity, rental income, a foreign exchange gain or royalty or any income of a similar nature.’

Conclusion

The exemption will not be available to your client as shares are regarded financial instruments and are therefore not "active business assets”.

4. Interpretation Note 31 (Issue 3): Documentary proof required for the zero-rating of goods or services

Q:Has the SARS VAT 262 Form been withdrawn and if so what document must be used to zero-rate repair services?

A: Goods temporarily imported into SA should fall under 11(2)(l)(ii)(aa) ("in connection with movable property (excluding debt securities, equity securities or participatory securities) situated inside the Republic at the time the services are rendered, except movable property which—(aa) is exported to the said person subsequent to the supply of such services..."). Interpretation Note 31 (Issue 3) requires the normal information as well as proof of the export and it would seem that that the proof of export should not be proven on any specific form.


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