FAQ - 7 April 2015
08 April 2015
Posted by: Author: SAIT Technical
Author: SAIT Technical
1. What is the tax treatment for a licence fee paid
for operating a petrol station?
Q: One of my
clients has paid a licence fee to a petrochemical company for the operation of
a petrol station for an indefinite period. How do I handle a transaction like
this? Am I able to write this amount off over a period of time?
A: There is in
our view not a capital allowance for this licence fee and it will only be
deductible if it is revenue rather than capital in nature and deductible per
s11(a) ITA. In CSARS v BP SA Pty Ltd 2006 ZASCA 61 (25 May 2006) the court held
that a prepaid rental payment which was incurred to secure petrol stations
selling its petrol for 20 years, which in our view sounds similar to the
purpose of the license fee paid, was connected to the capital structure and not
income operations, thus being capital in nature.
As noted you would have to apply the various capital v
revenue test to conclude on this matter after determining exact purpose and
intention for the payment.
2. Is PAYE of 35 per
cent deductible from the payment to a sub-contractor?
Q: One of my
clients, who is a member of a CC, is working at a TV station doing
subcontracting in sound. The accounts department there has told him that if he
invoices the station in the CC’s name they will deduct 35% tax. Apparently if
he invoices in his personal name then he will need to obtain a tax directive.
Is this correct?
A: We assume that
the close corporation is contracted to do the work, i.e. the client is not
doing the work in his own name. The
obligation to deduct employees’ tax would then only arise for the TV station if
the CC is a personal service provider as defined in paragraph 1 of the Fourth
Schedule to the Income Tax Act. Based on
the facts provided we are not sure why they consider the CC to be one.
We are not sure where the 35% comes from – it may well be
based on an old SARS guide. As a
personal service provider that is a company (the close corporation would be
one) is only taxed at 28% the tax to be deducted cannot exceed that. The rate of 28% can be reduced if a tax
directive is obtained.
We assume that the new agreement will be entered into in
terms of which the services are no longer rendered by the CC (i.e. the proviso
to paragraph (c) of the definition of gross income in section 1(1) of the
Income Tax Act doesn’t apply), but by the member. The issue of employees’ tax would then only
arise if the individual is an employee – i.e. not carrying on a trade
independently or deemed not to be carrying on one. A directive would then be necessary if the
employee can make deductions that are not prohibited by section 23(m).
3. How do I re-submit a
Q: I have
recently discovered, whilst going through my calculations for provisional tax
period 201502, that the profit used at that stage was understated. It was based
on a net profit "year-to-date” from pastel that a clerk obtain for me (which was
incorrect). What is SARS view on correcting this and can SARS waive the
potential penalties for understatement?
A: Yes, you
may request for the correction of an IRP6.
See 5.4 of the document on this link:
The penalty for the underpayment of provisional tax is dealt
with in para 20 of the 4th Schedule to the ITA.
Para 20(2) states:
"Where the Commissioner is satisfied that the amount of any
estimate referred to in subparagraph (1) was seriously calculated with due
regard to the factors having a bearing thereon and was not deliberately or
negligently understated, or if the Commissioner is partly so satisfied, the
Commissioner may in his or her discretion remit the penalty or a part thereof.”
Based on this provision, you may request SARS to remit the
penalty by writing a letter and sending it either to the pcc email address for
your region, or by dropping it off at a SARS branch.
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.