Does the withdrawal of cash from a CC by a member qualify as a ‘reportable arrangement’?
19 March 2015
Posted by: Author: SAIT Technical
Author: SAIT Technical
Q: A member of a
CC has drawn cash from the business. He now has a debit loan account. Do I need
to declare this as a reportable arrangement to SARS?
A: Sec 36 of the
Tax Administration Act (No. 28 of 2011) (hereinafter referred to as ‘the TAA’),
provides that the following ‘arrangements’ shall be constitute ‘excluded
arrangements’ and will therefore not be subject to the provisions of Part B of
Chapter 4 in terms of sec sec 35(3) of the TAA:
‘(1) An ‘arrangement’ is an excluded ‘arrangement’ if it is—
(a) a debt in terms of which—
(i) the borrower receives or will receive an amount of cash
and agrees to repay at least the same amount of cash to the lender at a determinable future date; or
(ii) the borrower receives or will receive a fungible asset
and agrees to return an asset of the same kind and of the same or equivalent
quantity and quality to the lender at a determinable future date...’
Therefore should the director agree to repay the amount at a
set date, the agreement would not fall within the provisions of Part B of
Chapter 4, provided that the main purpose was not to maintain or enhance a ‘tax
benefit’ e.g. to avoid, postpone or reduce a tax liability.
In order for the disclosure requirements to apply to an
arrangement, it must either be listed in public notice in terms of sec 35(2) of
the TAA or it must provide a ‘tax benefit’ to the ‘participant’ and one of the
requirements listed in sec 35(1)(a) to (e) must be met. From the outset, it
does not seem as if a normal debit loan from a company would fall within this
provisions as it would not confer a ‘tax benefit’ upon the promoter and neither
a ‘financial benefit’ nor ‘tax benefit’ upon the company.
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.