FAQ - 30 October 2014
28 October 2014
Posted by: Author: SAIT Technical
Author: SAIT Technical
1. Medical expense
deduction for the hearing impaired
Q: I have a
client whose child is hearing disabled. The doctor completed the ITR-DD form
and stated the child's disability is "moderate”. The child is, however, in a
school with small classes because of his disability.
just rejected the medical deduction because the disability is moderate and not
Where in the Income Tax Act does it say that moderate cases
are rejected; is it also possible to object and what section of the law can I
A: In terms of
section 6B (or possibly section 18) a ‘disability’ means a moderate to severe
limitation of any person’s ability to function or perform daily activities as a
result of a physical, sensory, communication, intellectual or mental
impairment, if the limitation—
(a) has lasted or has a prognosis of lasting more than a
(b) is diagnosed by a duly registered medical practitioner
in accordance with criteria prescribed by the Commissioner.
It therefore includes a moderate limitation. SARS discusses this issue (moderate) in
paragraph 9.3.2 Guide on the Determination of Medical Tax Credits and
Allowances (Issue 4).
are not sure what the relevance of ‘small classes’ are, but submit that, if the
rejection was solely on the basis that it was moderate, the taxpayer should
object. We accept that it was diagnosed
by a duly registered medical practitioner in accordance with criteria
prescribed by SARS – see the guide.
2. Deductibility of
cellphone expenses for members of Parliament and the Legislature
members they receive a monthly allowance which is not included in the income
and therefore does not reflect on the IRP 5 certificate. On assessment we can
therefore only claim cellphone expenses which exceeded their yearly allowance.
The members of Legislature also receives an allowance, but this allowance is
reflected under code 3713 on their IRP 5 certificates. What amount will the
Member of Legislature be able to claim against his Public Office Bearers
In my opinion, due to the fact that the member of
Legislature did not get the benefit of the expense during the tax year and was
taxed in full thereon, he should be able to claim the full cellphone claim on
his POB allowance.
A: Our guidance
assumes that each of the individuals concerned are a holder of a public office
as defined in section 8(1)(e).
The principle is that cell phone expenses can only be
‘deducted’ if the holder of the public office receives an allowance. If not
section 23(m) will apply. We are not sure why the allowance does not reflect on
the IRP5 and can’t comment on that. It is possible that section 8(1)(f) is
relevant in that instance. We copied it below:
"Where it is expected of any person contemplated in
paragraph (e) (i) to defray any expenditure referred to in paragraph (d) out of
his salary received as the holder of any public office, an amount equal to a
portion (which shall be determined by the National Assembly or the President,
as the case may be, as provided for in the Remuneration of Public Office
Bearers Act, 1998 (Act 20 of 1998)) of such salary shall for the purposes of
paragraph (d) be deemed to be an allowance granted to such person.” In that
instance section 23(m) will not apply.
In all instances the allowance granted to the holder of any
public office to enable him or her to defray expenditure incurred by him in
connection with such office is for the purposes of section 8(1)(a) deemed to
have been expended by him or her to the extent that expenditure relevant to
such allowance and not otherwise recoverable by him has actually been incurred
by him for the purposes of his office in respect of—
(i) secretarial services, duplicating services, stationery,
postage, telephone calls, the hire of office accommodation and the maintenance
of such accommodation;
(iii) hospitality extended at any official or civic function
which the holder of such office is by reason of the nature of such office
normally expected to arrange.
The emphasis is on the phrase "actually incurred …”.
3. Objecting to
penalties and interest levied by SARS on provisional tax top-up payment being
late due to late processing of payment by a bank
Q: Our client’s provisional
tax top-up payment was not processed by the bank on time therefore payment was
received by SARS on the 1st October instead of 30 September. This resulted in
penalties and interest being levied by SARS. Please advise the best channel to
follow to have this amount reversed as clearly it was not the client’s fault.
A: It is possible
that the penalty that was levied in this instance is the understatement penalty
– refer to paragraph 20 of the Fourth Schedule. We submit that the reason then
is that the final estimate was less than the required 80% of taxable income. The
only ground for objection would then be to satisfy SARS that the estimate "was
seriously calculated with due regard to the factors having a bearing thereon
and was not deliberately or negligently understated”.
4. Employee using
private vehicle (fuelled by the employer) for work purposes
Q: If an employee
uses his private vehicle for business purposes e.g. for deliveries, meeting
with clients etc. and the company provides the fuel for these trips, will this
be an expense for the company? Furthermore, will this expense be taxable in the
vehicle owner’s name? Note that he doesn't receive a travel allowance or other
A: The table on
page 14 of the SARS guide for employers in respect of allowances (2015 tax
year) shows in which circumstances a travel allowance is subject to Employees'
Tax and the relevant code under which it must be reflected on the IRP5/IT3(a)
certificate. Against the item "Fuel and
expenses paid by the employer (e.g. petrol, garage and maintenance cards)” it
states that employees’ tax must be withheld and it must be reflected against
The employee will make a deduction (on assessment) and if
that is less than the amount so reflected it will be taxed.
The employer will make a deduction under section 11(a).
5. What is meant when a
Double Tax Agreement (DTA) is signed but not ratified?
Q: I would like
to provide an opinion on investing in Chile. The DTA between SA and Chile is
however only signed but not ratified. What does this mean?
A: This is dealt
with in section 108 of the Income Tax Act (and of course the Constitution
allows for it). The process is as follows:
The two countries sign the agreement after it has been
negotiated. It must then be ratified by
both countries. In terms of the RSA ratify means ‘approval by Parliament of any
such agreement, as contemplated in section 231 of the Constitution’. The next
step would then be to notify, by publication in the Gazette, the arrangements
thereby made. The arrangements so notified shall thereupon have effect as if
enacted in the relevant Act.
The agreement with Chile is therefore not effective
6. Interest-free loans
donated to a special trust – section 7 attribution
Q: At SAIT’s 2014
Trust Back to Basics seminar, it was suggested that donors should charge interest
on loans to a trust otherwise a disposition would arise which would be taxable
in the donor’s hands. Kindly confirm if this is the case for a special trust.
A: The courts have
held that an interest-free loan can indeed constitute an "other disposition”
for the purposes of section 7 of the Income Tax Act and would therefore apply
to a special trust as well.
SARS states in their Draft Guide on the Taxation of Special
Trusts that "section 7(2) to 7(8) may have the effect that the income of a
trust is taxable in the hands of the person who made a donation, settlement or
other disposition to a trust. In some situations this rule will apply even if
the amounts have been vested in a beneficiary, such as when the beneficiary is
a spouse and tax avoidance is involved or when the beneficiary is a minor child
or when the donation is revocable at the instance of the donor.”
7. Objection involving
the section 10(1)(gC) exemption
Q: I have a
client who rendered services both inside SA and outside SA. During the period
outside SA he continued to contribute to his SA pension fund. He retired on 31
January 1999 and receives a pension and an annuity from his retirement fund.
The retirement fund withholds PAYE on the full pension and annuity, and issues
IRP5s at year end showing the pension and annuity income as fully taxable. When
completing his tax return, I have always apportioned the pension and annuity
income and claimed a deduction for that portion of his pension and annuity
which relates to services rendered offshore. SARS has always in the past
allowed this deduction.
In the 2013 tax year, the same procedure as above was
followed, except that the IRP5 figure on the IT12 tax return had to be amended
as there is no longer a place on the IT12 to claim the deduction for the exempt
portion of the pension and annuity. SARS initially raised an assessment as per
the return submitted, but then raised an additional assessment to tax the
exempt portion of the pension and annuity.
A letter requesting reasons for the taxation of the exempt
portion of the pension and annuity was sent to SARS. SARS responded to advise
me that the Notice of Objection was invalid as the requirements of section
10(1)(gC)(ii) have not been met. A NOO was
submitted on e-filing objecting to the disallowance of the deduction for the
exempt portion of the pension and annuity. SARS responded to advise that the
Notice of Objection was invalid as the requirements of section 10(1)(gC)(ii)
have not been met. A further NOO was submitted on e-filing objecting to the
"Invalid" notice above from SARS. SARS responded to advise that the
Notice of Objection was disallowed as section 10(1)(gC)(ii) had not been met.
A Notice Of Appeal (NOA) was submitted on e-filing. SARS
responded to advise that the "Invalid" notice from SARS had been
withdrawn and the objection would be considered. In a further letter SARS
advised that the NOA submitted on efiling was invalid as the objection still
had to be considered. SARS advised "Disallowance of Objection" as
section 10(1)(gC)(ii) had not been met, and advised that a notice of appeal
could be lodged. A second NOA was submitted on e-filing. No correspondence
received from SARS but on e-filing if I click on the second NOA it states
"Rejected by SARS" and a message pops up to state "Dispute
process not followed. Request for objection not lodged."
Please advise if my understanding of section 9(2)(i) and
section 10(1)(gC)(ii) is correct. I also request assistance on how I take this
matter further with SARS as in my opinion I have exhausted the options
available to me in terms of e-filing.
A: In our view
your interpretation of the law is correct and the pro-rata exemption would
apply to resident taxpayers who have rendered foreign services which created
the relevant pension amount. However the letter from SARS states two
requirements namely the foreign service and that the fund paying the pension
must be foreign which in your case it is not. The latter they seem to use as a
requirement for foreign source. You have not addressed this latter requirement
in your objection or appeal. In this regard it would be useful to address this
matter by citing the source rule in the CIR v Lever Bros case which is the
originating cause (i.e. the foreign service contributions) and not where the
fund is located.
In respect of the
practical matter of filing the appeal, should the eFiling system not allow you
to file, we would advise you to file manually. We would furthermore advise that
you concurrently lay a complaint to the Call Centre that the eFiling system is
unlawfully prohibiting you from filing the appeal. Following the call centre
complaint and escalation to SSMO, should you still not succeed please contact
us so that we can attempt to escalate the matter to head office prior you
filing a formal complaint to the Tax Ombud. We understand that the proposed
route is laborious and frustrating but it is however required that you follow
the internal remedies first.
Disclaimer: Nothing in this query and answer should be construed as
constituting tax advice or a tax opinion. An expert should be consulted for
advice based on the facts and circumstances of each transaction/case. Even
though great care has been taken to ensure the accuracy of the answer, SAIT do
not accept any responsibility for consequences of decisions taken based on this
query and answer. It remains your own responsibility to consult the relevant
primary resources when taking a decision.