FAQ - 27 November 2014
26 November 2014
Posted by: Author: SAIT Technical
Author: SAIT Technical
1. Remission of fixed amount penalty for the non-submission of a return
Q: An employee of a client of mine is in trouble with SARS. He has a whole load of penalties for non-submission of income tax returns.
When I submitted the returns he was actually assessed with a refund, however because of the outstanding admin penalties it was not refunded. I requested remittance of penalties in light of the outstanding IT Returns having been submitted but this was rejected – no reason given. I appealed, also rejected – no reason given.
Can anyone help?
A: These seem to be the fixed amount administrative non-compliance penalties addressed in Chapter 15 of the Tax Administration Act (the TAA); specifically sections 210 and 211. My statement is based on the fact that you submitted that the penalties are for the non-submission of a return.
Sections 217 and 218 deal with the remittance of penalties imposed in terms of chapter 15 of the TAA.
You stated "I requested remittance of penalties in light of the outstanding IT Returns having been submitted but this was rejected – no reason given.”
The fixed amount non-compliance penalties are not remitted just because you fixed the non-compliance (i.e. submitted the outstanding returns). They are imposed for each month that the non-compliance continues. When you ultimately fix the non-compliance, that doesn’t change the fact that you were non-compliant for all those previous months. This is why SARS rejected your remittance request.
Furthermore, section 217(1) sets out when the fixed amount penalty can be remitted:
(1) If a ‘penalty’ has been imposed in respect of—
(b) an incidence of non-compliance described in section 210 if the duration of the non-compliance is less than five business days,
SARS may, in respect of a ‘penalty’ imposed under section 210 or 212, remit the ‘penalty’, or a portion thereof if appropriate, up to an amount of R2 000 if SARS is satisfied that—
(i) reasonable grounds for the non-compliance exist; and
(ii) the non-compliance in issue has been remedied.
From the information you’ve provided, it does not seem your client will qualify for remittance under this provision.
Your other option could be section 218, which provides for the remittance of penalty in exceptional circumstances. Section 218(1) states:
SARS must, upon receipt of a ‘remittance request’, remit the ‘penalty’ or if applicable a portion thereof, if SARS is satisfied that one or more of the circumstances referred to in subsection (2) rendered the person on whom the ‘penalty’ was imposed incapable of complying with the relevant obligation under the relevant tax Act.
(2) The circumstances referred to in subsection (1) are limited to—
(a) a natural or human-made disaster;
(b) a civil disturbance or disruption in services;
(c) a serious illness or accident;
(d) serious emotional or mental distress;
(e) any of the following acts by SARS—
i. a capturing error;
ii. a processing delay;
iii. provision of incorrect information in an official publication or media release issued
by the Commissioner;
iv. delay in providing information to any person; or
v. failure by SARS to provide sufficient time for an adequate response to a request
for information by SARS;
(f) serious financial hardship, such as—
i. in the case of an individual, lack of basic living requirements; or
ii. in the case of a business, an immediate danger that the continuity of business
operations and the continued employment of its employees are jeopardised; or
(g) any other circumstance of analogous seriousness.
If any of the above are applicable to your client, you can request for the penalties to be remitted based on section 218.
2. Whether dividends withholdings tax is payable on a CC’s purchase of a member’s interest
Q: A close corporation (CC) has two members. The one member is going to resign his membership for a compensation of Rx. He will be subject to CGT. The remaining member then has a 100% member’s interest in the CC with a reduced value because of the payment.
If a CC purchases a members interest per section 39 is dividends withholding tax payable on the amount of the purchase?
A: Based on your reference to section 39 of the Close Corporation Act we accept that the transaction is one whereby payment is made by the corporation in respect of its acquisition of a member's interest in the corporation. We accept that all the requirements of the Close Corporation Act in this regard were observed.
From an Income Tax point of view the contributed tax capital of the company (close corporation is a company for tax purposes) is reduced when the member's interest in the corporation is acquired. The transaction is therefore one whereby an amount is transferred or applied by a company that is a resident for the benefit or on behalf of any person in respect of any share in that company and that amount is transferred or applied as consideration for the acquisition of any share in that company. It is therefore a dividend as defined in section 1(1) of the Income Tax Act, but not to the extent that the amount so transferred or applied results in a reduction of contributed tax capital of the company.
The amount that reduces the contributed tax capital is a return of capital (as defined in section 1(1) of the Income Tax Act) and is in respect of the disposal of the member’s interest (and a capital gain). The rest of the amount (the R350k less the return of capital) is a dividend subject to the dividends tax.
3. Is there a tax disclosure obligation in RSA for a non-resident earning income from RSA company for services rendered abroad?
Q: I have to submit a client’s income tax return for 2014 and I’m not sure if this income should be included or not. By this income I mean the income he is generating from the company registered in RSA. I am not sure as the client is not an RSA resident, but a Canadian resident. Therefore should the income (salary) be declared to RSA authorities or Canadian authorities?
Secondly, the company deducts PAYE every month on this salary. So should the answer for the question above be that she should declare the income in Canada and not in RSA; does she still have to pay PAYE on the remuneration or will she take the gross amount to Canada and get taxed on it there.
PS: by foreign income I mean that he is a resident of Canada and generating income in RSA. So this would be foreign (not Canadian) income.
A: In the additional information provided you have confirmed that the client is a resident of Canada. You also confirmed that the income, earned after the client emigrated from the RSA, is in respect of services rendered outside the RSA. On that basis, the income (salary) will not be gross income in the RSA. It is an accrual to a non-resident that is not from a source in the RSA. The source of income from services is where the services are rendered.
The RSA employer (company) does not have to deduct employees’ tax from this as it is not income (as defined in the Income Tax Act).
As indicated we can’t comment on the foreign tax laws, but we submit that Canada will be taxing this income. The client should contact a tax practitioner in Canada to find out what her obligations are to report this income.
The position may well not change when the withholding tax on services becomes effective in the RSA.
Disclaimer: Nothing in this queries and answers 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 answers, SAIT do not accept any responsibility for consequences of decisions taken based on these queries and answers. It remains your own responsibility to consult the relevant primary resources when taking a decision.