Carrying the credit forward if there’s an assessed loss
19 March 2015
Posted by: Author: SAIT Technical
Author: SAIT Technical
Q: I am still in
the dark about this question.
The RSA company might have a loss/ assessed loss for the
year ended February 2015. This transaction with the Botswana company was done
in the 2015 year of assessment.
Presume that the Botswana Revenue Service do issue a WHT
Because of the loss for the 2015 year of assessment, there
will be no tax payable by the RSA Company. Will this WHT be:
1. Carried forward
to the next year of assessment or
2. Will it be
handled the same as provisional tax and be refunded to the taxpayer because of
the loss for the year.
withholding taxes may be claimed as a rebate in terms of sec 6quat of the
Income Tax Act (No. 58 of 1962) (hereinafter referred to as ‘the Act’),
provided that the requirements of sec 6quat(1) are met. Sec 6quat(1A)
determines that the rebate would be equal to:
‘ ... the sum of any taxes on income proved to be payable to
any sphere of government of any country other than the Republic, without any
right of recovery by any person (other than a right of recovery in terms of any
entitlement to carry back losses arising during any year of assessment to any
year of assessment prior to such year of assessment)...’ (own emphasis added).
You would therefore have to consider, whether the
withholding taxes may be recovered from the Botswana Unified Revenue Service
(BURS) by your client. If not, then your client may be entitled to the sec
In terms of sec 6quat(1B), the rebate (which would equal the
taxes proved to be payable to the government of any country other than South
Africa without any right of recovery from such country) must be limited to an
amount calculated as follow:
Normal tax payable by the resident x taxable income
attributable to services rendered in Botswan /total taxable income.
Therefore, should your client not have a normal tax
liability for the 2015 year of assessment, which may be as a result of an
assessed loss, then the rebate would be equal to zero for the said year of
assessment. Sec 6quat(1B)(a)(ii) determines what happens should the rebate be
so limited (which may very well be the case with your client) and states the
‘where the sum of any such taxes proved to be payable
(excluding any taxes contemplated in paragraphs (iA) and (iB) of this proviso)
exceeds the rebate as so determined (hereinafter referred to as the excess
amount), that excess amount may—
(aa) be carried forward to the immediately succeeding year
of assessment and shall be deemed to be a tax on income paid to the government
of any other country in that year; and
(bb) be set off against the amount of any normal tax payable
by that resident during that year of assessment in respect of any amount derived
from any other country which is included in the taxable income of that resident
during that year, as contemplated in subsection (1), after any tax payable to
the government of any other country in respect of any amount so included during
such year of assessment which may be deducted in terms of subsections (1) and
(1A), has been deducted from the amount of such normal tax payable in respect
of such amount so included...’ (own emphasis added).
Therefore, in terms of item (bb), provided that the taxpayer
receives income from a source outside the Republic during the 2016 year of
assessment which is included in his taxable income, the rebate for the 2015
year of assessment may be carried forward to the 2016 year of assessment and
may be deducted from the normal tax liability after the 2016 year of
assessment’s sec 6quat rebate has been deducted.
Sec 6quat(1B)(a)(iii) determines that this ‘excess amount’
‘...shall not be allowed to be carried forward for more than seven years
reckoned from the year of assessment when such excess amount was for the first
time carried forward’.
Whether the withholding tax may be recovered by the taxpayer
would depend on the practice of the BURS. Should it not be refunded by the BURS
and the taxpayer has not right of recovery (other than set out in sec
6quat(1A)), the taxpayer would be entitled to a sec 6quat rebate which would be
rolled-over to succeeding years of assessment, should the taxpayer not have a
tax liability or income from a non-SA source in a relevant year of assessment.
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.