FAQ - 19 May 2015
19 May 2015
Posted by: Author: SAIT Technical
Author: SAIT Technical
1. Is the ETI applicable where the employee’s income is below the tax threshold?
Q: An employee earns less than the income tax threshold amount and is therefore not subject to PAYE. How then can the employer earn the employment tax incentive when there is no PAYE to be paid? I thought that the ETI is deducted from the PAYE due?
A: Here’s the draft SARS guide to the ETI Act.
Note point 6 (especially 6.1) titled "Process for claiming the ETI”.
The relevant portions read:
"The practical implementation of the ETI is done by means of a reduction in the employees’ tax that an employer must pay over to SARS every month. The employer’s total employees’ tax liability for the month is simply reduced by the total ETI that the employer qualifies for during that month.”
"The ETI does not affect the remuneration received by the employee, or the employees’ tax deducted from that employee. The employees’ tax certificate (IRP5) that the qualifying employee is entitled to receive must disclose the total remuneration, as well as the total employees’ tax deducted or withheld, disregarding the ETI.”
This is in line with section 2(2) of the ETI Act:
"If an employer is eligible to receive the employment tax incentive in respect of a qualifying employee in respect of a month, that employer may reduce the employees’ tax payable by that employer in an amount determined in terms of section 7 or receive payment of an amount contemplated in section 10(2), unless section 8 applies.”
ETI is deducted from total PAYE that is payable by the employer. It is not deducted from a particular employee’s PAYE.
To the extent that the total ETI claimable exceeds the total PAYE payable, a refund is payable by SARS to the employer per section 10 of the ETI Act.
2. Can you get the s11D incentive if a project is controlled from RSA but the work is done overseas?
Q: In terms of section 11D relating to Research and Development costs, per section 11D(2) the research and development has to be undertaken in South Africa.
"(2) (a) For the purposes of determining the taxable income of a taxpayer that is a company in respect of any year of assessment there shall be allowed as a deduction from the income of that taxpayer an amount equal to 150 per cent of so much of any expenditure actually incurred by that taxpayer directly and solely in respect of the carrying on of research and development in the Republic if….”
We are developing a computer program which would qualify for the allowance however we are using offshore developers for a large part of the research and development but it is controlled from SA. My query is, if we as a South African entity are paying external consultants to do the development on our behalf and all instructions etc. are from SA, would we qualify for the S11D allowance?
A: This is a complex part of the law and you may well want to consult a specialist. We can also only give guidance.
The subsection requires that expenditure be actually incurred by a taxpayer directly and solely on research and development undertaken in the Republic is 150% deductible provided that-
(i) these expenditures are incurred in the production of income;
(ii) the expenditures are incurred in the carrying on of a trade solely within the Republic of South Africa;
(iii) the research and development is approved in terms of section 11D(9); and
(iv) the expenditure is incurred on or after receipt of the approval by the Department of Science and Technology.
The fact that you "are using offshore developers for a large part of the research and development but it is controlled from SA” implies to us that the consultants will actually be doing the research outside the RSA.
Our reading of the words "undertaken in the Republic” is that the actual research must be done in the RSA. The Act doesn’t actually describe what is meant with "undertaken in” the RSA. If the persons doing the research are not in the RSA it may well be seen by SARS that the work is undertaken in the RSA. We also submit that the fact that you will be controlling the research and providing the instructions may well meet the requirement, but we suggest you obtain an opinion in this regard. It is not apparent from the Explanatory Memorandum, but one can assume the intention is that the ownership and benefit of the research must be in the RSA.
As indicated, the Department must approve the research and they require detail of the way it is to be undertaken. It may be advisable to also approach them for an opinion in this regard.
3. Can a vendor claim the transfer duty paid on property purchased prior to VAT registration?
Q: Is a vendor (a partnership) able to claim the transfer duty paid on property purchased prior to it registering as a vat vendor?
A husband and wife jointly purchased an apartment for carrying on a business of short term holiday accommodation. The transfer of property is dated November 2014. There is a partnership agreement between the husband and wife. The partnership is now applying to register as vendor.
A: There are some other issues that must be addressed before we deal with the request.
The first issue is that a partnership is, for value-added tax purposes, a person separate from the partners. The registration must therefore be made in the name of the partnership.
Based on the intended use of the property we accept that the value of taxable supplies (of commercial accommodation) exceeded or will exceed the additional R60 000 threshold – refer to proviso (ix) of the definition of enterprise.
The last point is that the transfer duty can, since 10 January 2012, no longer be deducted. The deduction of the transfer duty was replaced by the tax fraction of the consideration, but see below.
Our guidance assumes that that the partnership will be registered as a vendor and will be using the property of the partnership in the course of making taxable supplies (or partly so).
The registration of a person as a vendor is a tax event envisaged by section 18(4), if the goods or services acquired before the effective date will subsequently be applied for use in the course of making taxable supplies. The requirement (in that section) is that "tax has been charged in respect of that supply.” Because transfer duty was paid it was not acquired from a vendor and section 18(4)(c) will apply – second hand goods.
The deduction is made in terms of section 16(3)(f) and the documents to substantiate the deduction is set out in Interpretation Note 49, item E of Table C – Special deductions against output tax.
Because the goods (or services) are deemed to have been supplied in the tax period (in terms of section 18(4)) of the change in use the deduction must be made in that period. The person has five years from this date to make the deduction if the documents are not available in this period. The same applies to second-hand goods.
4. Are payments received from debtors i.r.o supplies made prior to registration exempt from VAT?
Q: A taxpayer (individual) sole proprietor registers for VAT in Mar 2015 and obtains his registration confirmation from SARS in March 2015.
1. The taxpayer has opted for a cash basis in terms of section 15 of the VAT act.
2. In terms of Section 9(1) and Section 16 of the VAT Act, deposits received from customers to invoices made prior to March 2015, will not be subject to VAT;
3. The taxpayer business consists of professional services only.
Must these payments received from debtors who were invoiced prior to VAT registration must be disclosed on the VAT return as "Exempt or Non Supplies”?
A: Our guidance assumes that SARS approved (in terms of section 15(2)) the application to account for the tax on the payments basis. From the facts it is clear that the receipts (you refer to them as deposits) are in respect of supplies made prior to the effective date of registration as a vendor and consequently are not in respect of taxable supplies. Section 16(3)(b)(ii) then requires that the vendor must account for the output tax in respect of the taxed charged and paid during that period. On that basis we submit that the vendor doesn’t have to account for these receipts. We know that the VAT201 refers to and requires detail with regard to "exempt and non-supplies”.
We submit that the receipt in respect of a supply in a period before registration is not in respect of supply and it is not needed to be accounted for on the return.
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.