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FAQ - 27 February 2014

25 February 2014   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

1. Employment Tax Incentive 

Q: Is the Employment Tax Incentive available for non profit organisations such as a church where Pay- As-You-Earn is applicable on salaries?

A: Eligible employers

An employer is eligible to receive the employment tax incentive if the employer—

(a) is registered for the purposes of the withholding and payment of employees’ tax by virtue of paragraph 15 of the Fourth Schedule to the Income Tax Act; and

(b) is not—

(i) the government of the Republic in the national, provincial or local sphere;

(ii) a public entity that is listed in Schedule 2 or 3 to the Public Finance Management Act, 1999 (Act No. 1 of 1999), other than those public entities that the Minister of Finance may designate by notice in theGazette on such conditions as the Minister of Finance may prescribe by regulation;

(iii) a municipal entity defined in section 1 of the Local Government:Municipal Systems Act, 2000 (Act No. 32 of 2000); and

c) is not disqualified from receiving the incentive— 

Conclusion 

It is my understanding that only the entities described in s 3 of the Act are disqualified. PBO’s are not expressly listed in this section as a disqualified entity.

 

2. Rollover tax for asset purchased within 12 months

Q: For rollover CGT, if an asset was disposed involuntarily, must the replacement asset be of the same nature or what types of assets can be purchased? In addition must the gain be used for replacement of the full receipt amount of the asset sold?

A: Persons who were dispossessed of their land as a result of racially discriminatory laws or practices may seek compensation under the Restitution of Land Rights Act 22 of 1994. The compensation may be in the form of a restitution of a right to land, an award or compensation. 

A person who has submitted a claim for land restitution effectively disposes of his or her claim for the amount of the award or compensation received. 

Any capital gain or loss on disposal of this nature must be disregarded.

This provision does not apply to a person whose land is expropriated under the Restitution of Land Rights Act. Although para 64A refers to ‘compensation’, this is not compensation paid to the person whose land is expropriated. The type of compensation envisaged in para 64A is that which is of the same nature as a ‘restitution of a right to land’ and ‘an award’, that is, it is compensation paid to a land claimant. A person whose land is expropriated may, however, be entitled to roll-over relief under para 65.

Paragraph 65 enables a person to elect to defer a capital gain when an asset has been disposed of by way of operation of law, theft or destruction. The words ‘operation of law’ were substituted for the word ‘expropriation’ by the Revenue Laws Amendment Act 45 of 2003. Black’s Law Dictionary489 describes these words as follows:

‘Operation of law. The means by which a right or a liability is created for a party regardless of the party's actual intent .’ 

The words are wider than ‘expropriation’ and would cover, for example, a property disposed of pursuant to the gazetting of a land claim under the Restitution of Land Rights Act 22 of 1994. In other words, it is not required of a taxpayer to contest such a claim through the courts in order to secure the roll-over relief conferred by para 65. The relief would not, however, apply to a person who disposes of an asset under the mere threat of the lodging of a claim under any law.

A person can elect that para 65 apply to the disposal of an asset (other than a financial instrument) under the following conditions: 

The asset must be disposed of by way of operation of law (for example, expropriation), theft or destruction.

• Proceeds must accrue to the person by way of compensation (for example, an insurance payout).

• The proceeds must be equal to or exceed the base cost of the asset (that is, a capital gain or break-even situation). When a capital loss arises this provision does not apply, as most persons would want to claim the capital loss in the year of assessment in which it arises. This provision also applies when the proceeds are equal to the base cost of an asset. This is necessary because despite not having a capital gain, a person may have a recoupment under s 8(4), and one of the pre-requisites for the equivalent relief provided by s 8(4)(e) is an election under para 65 or 66. 

• If less than all the proceeds are expended in acquiring a replacement asset para 65 will not apply. It is possible, however, to acquire a replacement asset costing more than the proceeds realised upon the disposal of the old asset. 

• The relief applies when an amount at least equal to the receipts and accruals from the asset disposed of ‘has been’ or ‘will be’ expended to acquire one or more asset referred to in the provision as ‘replacement asset or assets’. The description of the new assets as replacement assets is intended to be more than just a label. The replacement asset must fulfill the same function as the old asset. For example, if a person receives compensation for the expropriation of a farm and invests the proceeds on loan account in a company, para 65 will not apply. A new farm must be acquired. It is also worth noting that the new asset must be ‘brought into use’ – a clear indication that the provision is directed at tangible replacement assets. The use of the words ‘has been’ indicates that it is possible to acquire a replacement asset before disposing of the old asset. When the replacement asset is acquired in advance of the involuntary disposal of the old asset, there should be a causal link that confirms that the new asset is indeed a ‘replacement’. 

• All the replacement assets must be from a deemed South African source under s 9(2), namely,

 any South African immovable property (including shares in a property company under certain conditions),

 any other asset of a resident not forming part of a PE outside South Africa and which is not subject to foreign taxation, and

 any other asset of a non-resident that forms part of a PE in South Africa. 

 

3. VAT on motor vehicles and Employee Tax Incentive

Q: 1.   VAT on double cab vehicles

- A client approached me to say he heard that you can now claim the VAT on the purchase of a double cab vehicle.·        

- When researching the SARS website and contacting SARS – the only information they provide me is the VAT 420 guide which still shows that you cannot claim VAT on a double cab

2. Employee Tax Incentive 

- With regard to the new employee incentive scheme that SARS has introduced, I have tried to establish that if your Emp 201 return results in a refund – does SARS refund the employer?  (One can assume that on average they will receive a refund every month for the first year while that employee is employed) ·        

- When contacting SARS they can’t tell me either as they are not sure how the new mandate works either

A: (1) I am not aware of any amendments or proposed amendments to Section 17(2)(c) of the VAT Act, nor the definition of ‘motor vehicle’ therefore the status quo is the same – a double cab bakkie falls within the definition of ‘motor vehicle’ and therefore an input tax will be denied.

(2) The ETI has its own refund mechanism contained in ss 9 and 10 of that Act. In terms of s 9, any surplus would be carried forward to the next month. In the event that a surplus was carried forward for a continuous period of 6 months, then a refund may be made in terms of s 10. The problem with this is that s 10 has not yet come into effect.

 

4. Pre-March 1998 tax free lump sums from Public Sector Funds

Q: Member transferred government Pension fund to Pension Preservation Fund in August 1995. Would the funds still be deductible or would chages effective  from 01 March 2006 over-ride?

A: The actual lump sum benefit received from a PSPF in consequence of a taxpayers withdrawal, retirement or death is not taken into account in calculating the taxable amount (represented by A in formula C (par2A of the 2nd Schedule)). The amount attributable to pensionable service prior to 1 march 1998 retains its tax free status.



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