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Documents needed to claim a s6quat tax credit

19 March 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

I have a South African Company client that renders services in Botswana to a Botswana company. The client issues invoices in South Africa. When payment is received, the Botswana Company has deducted a withholding tax.

1.                  Must the Botswana Company issue some sort of written confirmation to enable the RSA Company to claim a Botswana tax paid as a s6quat credit tax?

2.                  If the RSA Company does has an assessed loss, will the benefit of the credit be carried forward to the next year?

A: Question 1

The withholding taxes will only be considered if the company is in possession of the withholding tax certificate issued by the Botswana Revenue services for the year of assessment.  Please ensure the accuracy of the disclosure on the ITR14 with regard to e.g. foreign sales of the taxpayer and the net foreign income.

 

SARS does not necessarily deduct the withholding tax (WHT) on assessment, which requires the taxpayer to lodge an objection.  Please keep all the supporting documentation readily available for this purposes, especially the proof to SARS the source of the income.

 

Question 2

Proviso (b) to sec 20(1) of the Income Tax Act (No. 58 of 1962) (hereinafter referred to as ‘the Act’) states the following:

‘... there shall not be set off against any amount—

(a) . . . . . .

(b) derived by any person from a source within the Republic, any—

(i) assessed loss incurred by such person during such year; or

(ii) any balance of assessed loss incurred in any previous year of assessment,

in carrying on any trade outside the Republic

This proviso therefore has the effect that an assessed loss incurred from carrying on a trade outside of South Africa may not be set off against any income derived from a South African source.

In order for a company to carry forward an assessed loss or balance of assessed loss to the following year of assessment, it must have carried on a trade during the relevant year of assessment. This principle originated from SA Bazaars (Pty) Ltd v CIR 1952 (4) SA 505 (A), 18 SATC 240.

The ‘term’ trade is defined in sec 1 of the Act as follow:

‘...includes every profession, trade, business, employment, calling, occupation or venture, including the letting of any property and the use of or the grant of permission to use any patent as defined in the Patents Act or any design as defined in the Designs Act or any trade mark as defined in the Trade Marks Act or any copyright as defined in the Copyright Act or any other property which is of a similar nature.’

The above definition does not distinguish as to whether a trade must be carried on inside or outside of South Africa order for it to be classified as such. It is therefore submitted that irrespective as to whether the trade is deemed to be carried on in or outside South Africa, as long as the taxpayer ‘carried on a trade’ which needs to be determined by case law, the company would be entitled to carry forward its assessed loss to the next year of assessment. It is submitted that a company need not necessarily carry on a trade during the whole year of assessment, any period of trading will suffice, as long as it involves an active step to produce income.

Conclusion

As stated above the balance of the assessed loss may be carried forward. Special recognition would however have to be given to proviso (b) of sec 20(1) in the event that the trade is deemed to be carried on outside South Africa.

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.


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