FAQ - 06 February 2014
05 February 2014
Posted by: Author: SAIT Technical
Author: SAIT Technical
1. Double tax agreements between South Africa and New Zealand
Q: I have a client who emigrated to New Zealand. He gets an annuity which is paid into his "blocked" bank account in South Africa.
This money gets transferred to his New
Zealand bank account ,every 3 months, after Pay-As-You-Earn (PAYE) has been deducted. The client has been told that as a new emigrant, he is entitled to a
6 year "tax holiday" in New Zealand.
Does South Africa still have
a reciprocal tax agreement with NZ, and will SARS allow him to have his money
taxed in NZ and not in SA?
A: Article 17 of the DTA concluded between the Republic of South
Africa and New Zealand reads as follows:
Pensions and Annuities
- Subject to paragraph 2 of Article 18, pensions and annuities
paid to a resident of a Contracting State shall be taxable only in that State.
- The term "annuity” means a stated sum payable periodically at
stated times, during life or during a specified or ascertainable period of time, under an obligation
to make the payments in return for adequate and full consideration in money or money’s worth.
Therefore, the annuity will be taxable in the Republic of South Africa.
2. Application of Section 13 deductions in terms of the Income Tax Act
Q:Previously used commercial property:
- The taxpayer purchased this second hand property for the first time out of a liquidated estate in a commercial office complex.
- The property was rented out before, by previous owners / liquidator.
- The property was purchased for use as office for business and has been used as such from
Will section 13 quin be applicable and are there any other deductions to consider with regards to the commercial property (apart from the normal business expenses, levies, water & electricity, etc)?
- Taxpayer is renting out a house and earns rental
- The house was previously a primary residence for the taxpayer, where a
portion of the house was used as home office.
- A section was built onto the house
during this period and this was rented out as an office.
- Thereafter, the full
property (including the previously built section that was rented out as
offices) was rented out as purely residential property.
Are there any allowances that may be considered against taxable income when normal expenses such as finance charges on bond, property tax, municipal account has already been taken into account?
A: S13quin is applicable if a taxpayer:
-owns a new and unused building; and
-that building or improvements are wholly or mainly used by the
taxpayer during the year of assessment for producing income;
-in the course of his trade-but excluding the provision of residential accommodation.
Based on the information provided, an improvement on its own
may qualify for the allowance provided that all other requirements have been
met. It is unclear whether the residential property generates any income but if
this is the case, then the normal expenditure in terms of s 11 may be claimed
and where that property does not qualify for one of the s 13 allowances, then
no other allowance will be available.
3. Exemption of Home Owners Associations from VAT
Q: In terms of section 12(f)(iv) of
the VAT Act, are Home Owners Associations (HOA's) exempt from charging VAT on the supply of services to its members?
If so, on de-registration
from VAT, can the capital assets used on which VAT input was claimed originally be
re-valued at current market valueand can the repayment to SARS be made over 6
A: As from 1 April 2014, levies
paid to HOA will be exempt from VAT in terms of s 12(f)(iv). In terms of s
8(2G) may such an entity pay the exit VAT over a period of 6 months. The supply
should be calculated at the lower of cost or fair market value.
4. Fraudulent treatment of pay-as-you-earn
Q: I attend to a number of employees who after years of service, has
now been advised that the employer has dealt fraudulently with SARS and has not
paid over employees taxes due.
SARS in an audit has two different opinions. One office agrees
the employees cannot be held responsible and liable for taxes not paid by the
employer and the other has blantantly disallowed the Pay-As-You-Earn credit on the
"fraudently" issued IRP'5.
A: Ultimately the liability to withhold employees tax is with the
employer in terms of part II of the 4th Schedule to the Income Tax
Act. Where the employer did not withhold employees tax from the employee, may
the employee be held jointly liable (with the employer) for the payment of the
In terms of para 13(4) of the 4th Schedule, any
employer who deducted or withheld employees tax from an employee must issue
that employee with a tax certificate with a tax certificate in a form and
manner as prescribed by the Commissioner.
The liability to deduct or withhold and pay any amounts of
employees tax over to SARS is with the employer. Provided that the employer
therefore deducted or withheld such amounts from the employee, must the
employer issue a tax certificate notwithstanding the fact that the employer
failed to pay those amounts to SARS. The employee must be able to prove that
such amounts were withheld by his/her employer in the form of payslips, service
contract etc. Where no employee taxes was withheld from the employee, the employer has the the right of recovery from the employee, and the employer may refuse to issue a tax certificate to the employee, until such time as the
employee has paid such amount owing to the employer – para 5 of the 4th
It is my understanding that the employer in this instance
withheld the employees taxes from his employees but failed to pay it over to
SARS. Provided that the employees can prove that such amounts were withheld by
the employer, SARS must take any amount of employees taxes into account which are proven
to have been withheld by the employer. SARS may however, challenge
this as the 4th Schedule is not clear in this regard.