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Does the withdrawal of cash from a CC by a member qualify as a ‘reportable arrangement’?

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

Conclusion

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.


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