FAQ - 10 June 2014
10 June 2014
Posted by: Author: SAIT Technical
Author: SAIT Technical
1. VAT implications
upon deregistering as a vendor
Q: My client owns
a commercial property which he used to earn taxable rental income. He
deregistered as a vendor due to the enterprise falling below the R 1 million
threshold. He now wants to sell the commercial property. Would he be liable to
levy output tax on the sale of the property? He never claimed an input tax
deduction on the property.
A: We are not
sure why you state that "no …input …” deduction was made as you state that the property
is "a commercial property…”. From the facts provided it seems that
the property was used for purposes of making taxable supplies, presumably by
way of rentals. We then assume that the application to deregister was
made after this.
Where a vendor deregisters the vendor is deemed, similar to where the
vendor ceases to be a vendor, to have supplied all goods (other than any goods
in respect of the acquisition of which by the vendor a deduction of input tax
under section 16(3) was denied in terms of section 17(2) or would have been
denied …) or right capable of assignment, cession or surrender which in either
case then forms part of the assets of his enterprise, in the course of his
enterprise immediately before he ceased to be a vendor (section 8(2) of the VAT
Act). The vendor had an obligation to inform SARS of this – section
24(3). An output tax would then arise on this supply which is deemed to
be made for a consideration in money equal to the lesser of the cost to the
vendor of the acquisition of the goods (the property) or the open market value
(section 10(5) of the VAT Act).
The disposal thereafter will then not be of an enterprise asset and no
further output tax will arise – transfer duty will however be payable.
We accept that the application to deregister is not brought with tax
avoidance in mind, but wish to point out that SARS may, in terms of section
24(2), cancel the vendor’s registration with effect from the last day of the
tax period during which SARS was so satisfied that the value of taxable
supplies will be less than R1 million, or from such other date as may be
determined by SARS. SARS must notify the vendor of the date on which the
cancellation of the registration takes effect.
2. Disposal of an
asset to a partnership in which the taxpayer’s wife has a 50 per cent interest
Q: An individual owns an asset
fully in his name. He formed a partnership with his spouse and contributed an
asset to the partnership. Does the disposal of the asset by the individual to
the partnership trigger capital gains tax? If so, in what percentage and please
refer to the section in the Act. Would there be any donations tax implications?
providing this guidance, it is assumed that that the partnership shares income
and capital in a 50/50 ratio and that the husband donates the asset to the
For income tax purposes, a partnership is not a separate legal entity
and the partners will be taxed according to sec 24H of the Income Tax Act (No.
58 of 1962) (hereinafter referred to as ‘the Act’). As to the disposal of the
asset, the husband would, in terms of par 33 of the Eighth Schedule to the Act
be deemed to have disposed of 50 per cent of the asset to the wife in the
partnership. Given either the fact that (a) his wife is a connected person to
him in accordance with par (a)(i) of the said definition in sec 1 of the Act or
(b) the fact that the asset is donated to the partnership, par 38 of the Eighth
Schedule may apply to the disposal which would cause the proceeds to be equal
to the market value of the 50 per cent share of the asset that is disposed of.
Par 38 is however made subject to par 67 (in terms of par 38(1)). Par 67 of the
Eighth Schedule would apply to the disposal and the husband would therefore be
able to disregard the capital gain/loss from the disposal to the
As to the donations tax part of the question, sec 56(1)(b) may provide
an exemption for a donation made to a spouse where the spouses are still
married. It should however be noted that by donating the asset to the
partnership, the husband could open the backdoor for SARS to invoke the
provisions of sec 7(2)(b)(i) of the Act if the circumstances warrant it.
3. Can a commission earner register as an
employer where he employs a person at his own cost?
Q: Can a person working full time for commission at an employer, register
at SARS as en Employer to pay his Personal Assistant? My client is an employee
at a major bank. He earns commission and his IRP5 is issued with income under
code 3606. All expenses is paid by him. He has appointed an admin person to
assist with his admin tasks and as a personal assistant to do his appointments
etc. He has to pay her from his personal account. The PA's salary will be just
under the tax threshold, but UIF will have to be paid and IRP5/IT3 must be
A: The commission
earner would be regarded as an ‘employer’ as defined in par 1 of the Fourth
Schedule to the Income Tax Act (No. 58 of 1962) (hereinafter referred to as
‘the Act’) as he/she is paying ‘remuneration’ (a salary) as defined in par 1 of
the Fourth Schedule to the Act to his/her personal assistant. The proviso to
par 15(1) of the Fourth Schedule to the Act, however, provides that an employer
would not be required to register as such if ‘... no one of such employer’s employees
is liable for normal tax...’. Given the fact that the remuneration paid by the
commission earner to his personal assistant is less than R 70 700, he
would not be required to register as an employer (for the 2015 year of
assessment) as the employee would not be liable for normal tax. No liability to
withhold employees tax would therefore come into existence.
For SDL purposes, SDL would have to be levied in terms of
sec 3(1) read with sec 3(4) of the Skills Development Levies Act (No. 9 of
1999) (hereinafter referred to as ‘the SDL Act’), if there is an
‘employer’ paying remuneration to an ‘employee’ as defined in sec 1 of the SDL
Act and no exemption applies. However, sec 4(b) would exempt the
employer (commission earner) from withholding SDL as the remuneration paid by
him to his personal assistant and other employees (if applicable) would not
exceed R500 000 during a 12 month period. No SDL would therefore
have to be contributed and the commission earner would not have to register for
Sec 4 of the Unemployment Insurance Contributions Act (No. 4
of 2002) (hereinafter referred to as ‘the UIC Act’) would apply as the
commission earner would be regarded as an ‘employer’ and the personal assistant
would be regarded as an ‘employee’ as defined in sec 1 of the UIC Act.
Consequently, the commission earner would be liable to deduct UIF from the
remuneration paid to the personal assistant in terms of sec 5 of the UIC Act,
which must be paid to the Unemployment Insurance Commissioner in terms of sec 9
of the UIC Act. The employer would be required to register in terms of sec 10
of the UIC Act.