FAQ - 14 February 2014
12 February 2014
Posted by: SAIT Technical
Author: SAIT Technical
1. Tax implications for trust beneficiaries
Q: Is it compulsory for each and every beneficiary of a
trust to be registered with SARS and if so, is it expected of such a
beneficiary to submit provisional and final tax returns even if such a
person's income is far below the tax threshold?
If money is paid over to a beneficiary of a trust for
purposes of buying a property - would such an amount be taxable income in
the hands of such a beneficiary?
A: A beneficiary of a trust must register as a taxpayer in the event
that income is distributed to that person from the trust (the beneficiary
becomes liable for income tax), the normal rules will apply. The mere fact that
a person is a beneficiary of a trust does not on its own mean that that person
has to register as a taxpayer.
This will depend as to what the identity (capital, interest,
income etc.) of the money which is distributed to the beneficiary is. The
conduit principle will apply, and if for example the trust receives interest
and makes a distribution to a beneficiary, then that person will receive that
amount as interest and it will be taxable in the beneficiary and not the trusts
2. Tax implications on transfer of propoerty
Q: A client has a property and
wants to give it to his daughter as a gift, however when looking at SARS
website they view this as a donation.
- Base Cost +/-
R 300 000.00
- Market Value
+/- R 500 000.00
to SARS they also informed me that not only will the client be liable for
donations tax which is not what I get from the notes as attached but for CGT
and then obviously trf duties.
that in a situation like this what will SARS accept as a market valuation, will
the municipal values suffice for them.
tax, capital gains tax as well as transfer duty requirements will have to be
met in this regard.The
donations tax must be added to the calculation of the base cost in terms of
para 20 of the Eighth schedule to the Income Tax Act.
the municipal value of the property will only suffice if it complies with the
requirements of market value as defined for donations tax, CGT and transfer
pricing purposes. This market value of the property is normally regarded
as the value that a willing buyer has agreed with a willing seller.
3. Deductions in respect of medical expenses
Q: A taxpayer has a mentally disabled brother aged 23, who has been
institutionalised for his entire adult life. The disabled brother is in a home for
disabled people and has been certified as disabled by a duly qualified medical
practitioner. He will never be able to maintain himself and requires constant
Their father recently passed away and left sufficient funds to
provide an income for the disabled brother of R 7000pm (part of this amount is
capital and part interest – not sure of the split). This does not adequately
cover the costs of the home or his basic living requirements and the taxpayer
continues to cover the shortfall and maintain his disabled brother. The
taxpayer has always had him as a dependent on this medical aid.
Since, the disabled brother, now qualifies for normal
income tax, would the taxpayer (Andrew) still be able to claim his disability
expenses against his income and claim him as a dependent on his medical aid?
"dependant” in relation to a taxpayer, as defined in section 18(4A) of the Act,
his or her spouse;
his or her child and the child of his or her spouse;
any other member of his or her immediate family in respect of whom he or she
is liable for family care and support; and
any other person who is recognised as a dependant of that person in terms of
the rules of a medical scheme or fund contemplated in subsection (1)(a)(i)
or (ii), at
the time the contributions contemplated in subsection (1)(a) were made;
the amounts contemplated in subsection (1)(b) or (c) were paid;
or the expenditure contemplated in subsection (1)(d) was incurred and
"dependant” as defined in section 1 of the Medical Schemes Act means –
the spouse or partner, dependant children or other members of the member’s
immediate family in respect of whom the member is liable for family care
and support; or
(b) any other
person who, under the rules of a medical scheme, is recognised as a dependant
of a member.
family” is a particular group of relatives used in rules of law. This group is
limited to a person’s spouse or life partner, parents (including adopted and
step-parents), children (including adopted and step-children) and siblings.
The taxpayers brother would qualify as a dependant of
the main member of the medical aid. The fact that the disabled brother earns a
form of income has no bearing on the provisions of s 18 of the Income Tax Act.
4. Income tax deductions
Q: Are hospital plans deductible for tax purposes?
SARS has disallowed our objection stressing that hospital plans are not tax deductible.
A: In terms of section 18 of the Income Tax Act, only contributions
made to a scheme, registered in terms of the Medical Schemes Act will qualify
as approved contributions.
The product as described, sounds more like an insurance
product and it is suggested that you contact the administrator of the scheme to
confirm whether the scheme is a registered scheme in terms of the MS Act.
5. Registration for Pay-As-You-Earn
Q: A Japanese company
wants to invest in SA and want to set up a ‘representative office’ here to
conduct research. They will initially have one secondee and possibly hire some
local individuals. They want to register for PAYE but most likely will not be
registering the office for income tax (at least, not initially). I called
SARS and was informed by the consultant that a PAYE registration MUST be
accompanied by the entity’s income tax number.
- Is it possible to register the
office for PAYE without having an income tax registration number?
- If not, where can I
find the relevant legislative section / article that indicates that the income
tax registration is a pre-requisite of the PAYE registration?
A: Any branch of
a foreign company should register as an external company in SA in terms of the
S67 of the
Income Tax Act requires every person, that includes the foreign branch
mentioned above, to register as a taxpayer in SA if the person becomes liable:·
any normal tax or·
submit any income tax return
In terms of
the government notice every company which is either a resident or which derives
any gross income or capital gain from a source in the Republic is required to
submit an income tax return. Furthermore, every company incorporated or
established in the country as a result of a DTA would also be required to
submit an income tax return
Should any of
these apply the company should register for income tax in SA.