FAQ - 23 January 2014
22 January 2014
Posted by: Author: SAIT Technical
Author: SAIT Technical
1. Application of paragraph 57 of the Eighth schedule where a CC disposes off all its assets
Q: A close corporation sold all of its assets including goodwill to
the same purchaser. The members of the close corporation have retired subsequent to
Therefore does paragraph 57 of the Eighth schedule apply where a close corporation can disregard up to R 1 800 000 of capital gain or do the
members qualify for the R 1 800 000 "rebate"?
A: Provided that the
requirements of para 57(2) have been met, one then has to consider
whether the asset disposed of would qualify as an "active business asset”.
The term "asset”
is defined in Part 1 of the 8th Schedule and includes property of
whatever nature, whether movable or immovable, corporeal or incorporeal
but excluding any currency (excludes coins made mainly from gold or platinum),
and a right or interest of whatever nature to or in such property.
It is my
understanding that the goodwill being sold would fall within the definition of
"active business asset” and your client may therefore well qualify for relief
in terms of par 57 as the asset (goodwill) was used or held wholly and
exclusively for business purposes.
yourself with para 57 to ensure that all other requirements have been met.
2. Exemption of residential accommodation in terms of the VAT Act.
Q: I have a client that provides retirement cottages to
the elderly. They receive payment for these cottages and the cottages remain
the property of the client. They are registered as a VAT Vendor. I have recently
taken over the client and noticed that they have been completing their VAT201
returns with this income as 60% taxable as it is accommodation that exceeds 45
days. However as this is long term residential accomodation, shouldn't this
qualify as exempt in terms of the VAT act?
A: "Commercial accommodation", is defined as follows (s 1
of the VAT Act):
- Accommodation including the supply of domestic goods and
services, in any house, flat, apartment, room, hotel, motel, inn, guesthouse,
boarding house, residential establishment, holiday accommodation unit, chalet,
tent, caravan, camping site, houseboat or similar establishment, which is
regularly or systematically let out and where the total annual receipts from
the letting thereof is reasonably expected to exceed R60 000 per annum:
in a home for the aged, children, physically or mentally handicapped persons; and
- A hospice.
Once it has been established that the enterprise is supplying
commercial accommodation, the next issue is to establish the value of such
supply. In this regard there is now a single test, will the person stay in the
accommodation for more than 28 days? If not, the supply will be taxed in full.
If however, the person will stay for more than 28 days, then only 60% of the
value of the supply of domestic goods and services will be subject to VAT (s 10
of the VAT Act).
The term "domestic goods and services" has been
expanded to include the provision of meals and the right to use furniture and
fittings where they are supplied as part of the right of occupation in an
Thus, in summary, where accommodation is being supplied, the
first issue is to determine whether or not such accommodation constitutes
"commercial accommodation". If it does, then the vendor must
determine whether the resident will be staying for an unbroken period exceeding
28 days. If not, the all-inclusive charge will be subject to VAT whereas if the
stay exceeds 28 days only 60% of the all-inclusive charge will be subject to
3. Contribution towards a members retirement annuity
Q: If a small business contributes towards a
member's retirement annuity, is the contribution tax deductible in the hands of
the CC, and is there any fringe benefit tax payable in the hands of the member.
amount is deductible by the employer as well as the employee in terms of para 4
of the 4th Schedule to the Income Tax Act. The amount deductible
from the employees' monthly remuneration is however limited to the amount which
would be deductible by the employee in terms of s 11(n) of the Act on