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FAQ - 14 February 2014

12 February 2014   (0 Comments)
Posted by: SAIT Technical
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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 hands.


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

Tax Liability :

When speaking 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.

Further to that in a situation like this what will SARS accept as a market valuation, will the municipal values suffice for them.

A: Donations 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. 

Furthermore, 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 medical care.

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? 

A: A "dependant” in relation to a taxpayer, as defined in section 18(4A) of the Act, means – 

(a) his or her spouse;

(b) his or her child and the child of his or her spouse;

(c) any other member of his or her immediate family in respect of whom he or she is liable for family care and support; and

(d) 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 paid.

A "dependant” as defined in section 1 of the Medical Schemes Act means – 

(a) 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.

"Immediate 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 Companies Act. 

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:·        

  • For any normal tax or·        
  • To 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.


WHY REGISTER WITH SAIT?

Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.

MINIMUM REQUIREMENTS TO REGISTER

The Act requires that a minimum academic and practical requirments be set to register with a controlling body. Click here for the minimum requirements of SAIT.

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