FAQ - 15 January 2015
14 January 2015
Posted by: Author: SAIT Technical
Author: SAIT Technical
1. Where a vendor is liable for VAT a month before obtaining a VAT number from SARS
Q: A customer of mine registered his company for VAT during October 2014. Apparently SARS approved his VAT registration in December, but stating that he is liable for VAT from 1 November 2014. He has already invoiced his customers in November with no VAT. Should he now re-invoice? How do I calculate his VAT return?
A: The Value-Added Tax Act or SARS guides don’t deal with the issue raised.
We don’t know if the application to be registered was made under section 23(1)(a) (more than R1 million) or not. Our guidance will therefore be general in nature – all references to sections are to sections in the Value-Added Tax Act. The effective date of registration depends on this. See also section 23(4).
In terms of the legislation a person (company) can only issue a tax invoice if it is a registered vendor. Section 7 also refers to the supply by a vendor. Of course a vendor includes a person who is required to be registered, but we don’t know if that is the case. That then means that the person (you refer to a customer) not registered as a vendor can’t levy output tax. We don’t know if the person requested an earlier effective date. If so we suggest you escalate the matter to a senior SARS official to obtain a registration number.
We submit that the best course of action would be to ask SARS for an opinion of how to treat this if they backdated the effective date.
2.SARS method of communication to a taxpayer without an email address
Q: My client approached a SARS branch for completion of an income tax return, the SARS consultant then completed the return for him. However, the client does not have an e-mail address and received no correspondence via post to say that he needs to provide supporting documents. Therefore, his allowable expenses were disallowed and he was taxed on only his income.
If a Taxpayer goes to a SARS branch for assistance, and they don't have an e-mail address, why can SARS not mail correspondence via post?
A: You have not stated whether your client agreed with SARS as to the primary means of communication with him. It is not automatic that SARS will post correspondence where a taxpayer does not have an email address.
Perhaps your client should communicate this to SARS going forward. I would recommend also encouraging your client to open an efiling account. This would definitely make life easier.
Nevertheless, SARS should post correspondence when a taxpayer has communicated to them that this should be the primary means of communication.
Look at section 251(c)(ii) of the Tax Administration Act (TAA):
Delivery of documents to persons other than companies.
If a tax Act requires or authorises SARS to issue, give, send, or serve a notice, document or other communication to a person (other than a company), SARS is regarded as having issued, given, sent or served the communication to the person if…sent to the person by post to the person’s last known address, which includes…the person’s last known post office box number or that of the person’s employer.
The legislation clearly provides for the posting of correspondence by SARS to the taxpayer.
Regarding the disallowance of deductions for allowable expenditure, you are certainly free to object to that. You should also request SARS for a suspension of payment of the assessed tax, pending finalisation of the objection [see section 164 of the TAA], otherwise SARS will expect payment notwithstanding your objection.
3. Employer repaying employee’s study loan – fringe benefit
Q: I have a client who hired a newly qualified student and agreed to pay her study loan. The student completed her degree last year and immediately thereafter started to work at Company ABC. As her degree is applicable to her line of work, Company ABC decided to take over the study loan obligation amounting to approximately R110,000 which must be paid back over a period of four years. There is a work back payback agreement with her on the basis that Company ABC will pay the monthly instalment (R 2,500) on her behalf to the institution, and she has to work back an equal period of time that it will take to repay the study obligation which is approximately 4 years.
I have looked at SARS Interpretation Note 66 and the SARS Employer’s Guide in respect of Fringe benefits. Both these sources state that where an employer takes over a study loan obligation from a previous employer no value is to be placed on the fringe benefit in certain circumstances. Extract from the SARS Employer’s Guide:
No value shall be placed on the benefit should the new employer grant a low interest or interest free loan to the employee in order to enable him/her to recompense the previous employer, such new loan cannot be regarded as a study loan in respect of which no benefit is considered to arise. However, a refund of any bursary, study loan or similar assistance by an employer on behalf of his/her employee to the employee's previous employer, is not regarded as a taxable benefit, if:
- The employee‘s previous employer made a grant on condition that the employee rendered service to the employer for an agreed period
- On termination of service before the expiration of the period agreed upon, the employee is liable to refund an amount to his/her previous employer
- Upon accepting employment with a new employer, the outstanding amount is refunded to the previous employer by the new employer on behalf of the employee
- The employee consequently is liable to work for the new employer for a period not shorter than the remaining period which he/she should still have worked for the previous employer.
My interpretation of the SARS Guide and Interpretation Note 66 is that in this particular case the employee would be taxed on the R2500 paid by the employer as repayment of her study loan, despite the fact that she is required to work for the employer for the period it would take to repay the loan. Had she been employed by some other employer first, and Company ABC hired her and took over the study loan from the previous employer the amount would however NOT be taxable. This does not seem fair to me. I would appreciate your comments on the matter.
A: The relevant part in the Income Tax Act that deals with this is paragraph 2(h) of the Seventh Schedule. This is because ‘the employer has, whether directly or indirectly, paid any debt owing by the employee to any third person (other than an amount in respect of which item (i) or (j) applies), without requiring the employee to reimburse the employer for the amount paid or the employer has released the employee from an obligation to pay any debt owing by the employee to the employer”.
We agree with your view that the ‘no value’ in terms of paragraph 13(3) of the Seventh Schedule does not apply. We agree that the reason is that no study assistance was granted by a previous employer where the employee assumed an obligation to render services to the former employer for an agreed period. The current employer also didn’t pay an amount to the former employer on the employee’s behalf.
We can’t comment on whether or not this is fair – it is the correct application of the law.
Disclaimer: Nothing in these 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.