FAQ - 28 April 2015
28 April 2015
Posted by: Author: SAIT Technical
Author: SAIT Technical
1. How do I apply to SARS for a non-profit company to be allowed to issue s18A tax certificates?
Q: How do you apply for a non-profit company to issue section 18A certificate for donations received? Which forms do you fill out and what supporting documents are required? Is there a specific office where these are submitted? I asked all these questions at the Boksburg SARS branch but could not be assisted. Your timely response will be greatly appreciated.
A: The form that must be used for the application is the same form (the EI 1 Application form) that is used for the approval of the non-profit company as a public benefit organisation. It is important to note that an organisation that is registered as Non Profit Company (NPC) does not automatically qualify for preferential tax treatment. An organisation will only enjoy preferential tax treatment after it has applied for and been granted approval as a Public Benefit Organisation (PBO) by the Tax Exemption Unit (TEU). The eligibility to issue tax deductible receipts is dependent on section 18A approval granted by the TEU, and is restricted to specific approved organisations which use the donations to fund specific approved Public Benefit Activities.
The tax Exemption Guide for Public Benefit Organisations in South Africa (Issue 4) 9at the following linkhttp://www.sars.gov.za/AllDocs/OpsDocs/Guides/LAPD-Gen-G03%20-%20Tax%20Exemption%20Guide%20for%20Public%20Benefit%20Organisations%20in%20South%20Africa%20-%20External%20Guide.pdf ) provides useful information (Paragraphs 23 and 24).
The supporting documents needed are:
A Founding Document – which is either of the following:
Signed and Dated Constitution (if you are an Association of Persons)
Copy of the Memorandum of Incorporation and Articles of Association (if a non-profit company registered with Company Intellectual Property Commission (CIPC)).
Legible certified copies of a valid identity document of all three fiduciary responsible office bearers as well as the Public Officer / Representative (if different from that of the three office bearers).
A copy of a bank statement with original bank stamp or ABSA eStamped statement not more than three months old that confirms the account holder’s legal name, account number, account type and branch code where applicable; or if a taxpayer has opened a new bank account and cannot produce a bank statement, they will need an original letter from the bank on the bank letterhead with the original bank stamp confirming the account holder’s legal name, account number, account type, branch code and reflecting the date the bank account was opened.
Financial Statements must be submitted if the organisation has been in existence for longer than a year (and for each financial year that it has been in existence). If the organisation has been in existence for more than a year, but it has not been in operation (dormant), it must submit an affidavit with its bank statements.
Proof of residential or physical business address.
For the organisation; and
For the Public Officer (if not already registered with SARS as a taxpayer).
2. Will exported goods be zero rated when a foreign customer arranges for the transportation?
Q: If a company exports good across the border and the customer sends their own courier to collect the goods and take them across the border, can this sale be "zero rated” for VAT or must the company use their own courier to have it zero rated?
Or must VAT be charged and the VAT reclaimed at the border?
A: We submit that what we have here is what was previously referred to as an indirect export or a paragraph (d) of the definition of export supply. In terms of the definition of export in section 1(1) of the Value-Added tax Act "exported”, in relation to any movable goods supplied by any vendor under a sale or an instalment credit agreement, means (d) removed from the Republic by the recipient for conveyance to an export country.
The rate of zero per cent will then apply, assuming the required documentary proof will be obtained, if the supplier has supplied the movable goods in terms of a sale or instalment credit agreement and by the recipient the goods have been exported by the recipient and the supplier has elected to supply the goods at the zero rate as contemplated in Part 2 of an export incentive scheme referred to in paragraph (d) of the definition of "exported” in section 1(1).
Regulations were issued on 2 May 2014 (Gazette 37580, notice 316) prescribing the application of paragraph (d) of the definition of "exported" in section 1(1) read with section 11(1)(a) of the Value-Added Tax Act, with the regulations in the attached Schedule..
Principally the recipient must not be a resident of the RSA and Part Two (Section B of the regulations) applies where a vendor supplies movable goods to a qualifying purchaser and those goods are to be exported from the Republic by the qualifying purchaser's agent and the vendor elects to levy tax at the zero rate on the supply of the goods. Paragraph 12(4) and 12(5) of section B set out the obligations of the agent or cartage contractor before the rate of zero per cent can apply. Note that the qualifying purchaser must also comply with the requirements in paragraph 12(6).
3. What is the tax treatment of the expenses which a church pays on behalf of a pastor?
Q: I have a client who is a pastor of a local church. He does not receive an income, but the church pays for all his travelling expenses, him and his wife's pension fund, UIF contribution and PAYE. He also lives in the church house for free and the church also pays for his water and electricity expenses. How should he be taxed on all these items?
A: We assume there is an employer employee relationship between the pastor and the church. In such instance all the taxable benefits such as accommodation and travel should be taxed under the provisions of the Seventh Schedule ITA. If the travel is payment of petrol and maintenance of a private vehicle this will be a travel allowance for tax purposes. The payment of the pastors PAYE & employee UIF will be a taxable benefit (para 7 if a car is provided and para 9 for the accommodation) unless the remuneration of the pastor is grossed up so that the PAYE reflects the amount that would have been withheld. Where only benefits and no cash flows as per the current facts the gross up would have to be done so that sufficient cash to pay the PAYE results, essentially a cash payment would have to be disclosed as accruing. The pension fund for the employee would be treated under the normal rules.
4. How do I calculate the capital gain on the sale of a member’s interest in a CC?
Q: In 2007 four of us started a CC. We each put in R300 000 (which is now the amount of our loan account. I sold my share for R500 000. When we started the CC we took out a bank loan to purchase a property and then rented the premises out. I need to work out the CGT on the sale of my member interest. Would it just be the difference of selling price R500 000 less loan account R300 000 which is R200 000 or can I use some of the legal fees when we purchased the property as part of my base cost?
Is the capital gain only the difference between my sale price and my loan account? Or may I add some of the legal fees onto my base cost?
A: We are not sure that we understand the facts correctly. You state that ‘each member contributed R300 000’, but then that these amounts are now in the loan account. Our guidance assumes that the contribution was in fact advanced by way of a loan. Principally there are two assets, the member’s interest and the loan account.
The base cost of the loan account would then be R300 000 and we don’t have any detail of the base cost of the member’s interest. The guidance / principles that follow apply to both.
With regard to the legal fees when we purchased the property
We accept that the legal fees related to the acquisition of the property and that the property was registered in the name of the CC. As such it does not constitute an amount actually incurred as expenditure directly related to the acquisition or disposal of that asset (the members interest or the loan) – refer to paragraph 20(1)(c)(i) of the Eighth Schedule to the Income Tax Act that refers to the remuneration of consultant or legal advisor for services rendered. It is expenditure incurred by the CC and not by you.
Increase of base cost
Base cost can only be ‘increased’ by expenditure actually incurred and listed in paragraph 20(1) of the Eighth Schedule to the Income Tax Act. From the facts we are not sure that you incurred any expenditure other than the R300 000.
The capital gain will be difference between the amount received in respect of the disposal of the member’s interest and its base cost and with respect to the loan, the amount received less the original amount of the loan.
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.