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FAQ - 17 June 2015

17 June 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

1. RAF deduction: must you first deduct travel expenses from non-retirement funding income? 

Q: Does one first deduct the travel ‘deduction’ from gross non-retirement funding income in order to calculate the allowable retirement annuity deduction?

A: According to the definition in section 1(1) of the Income Tax Act ‘retirement-funding employment’ means—

(a) in relation to any employee or the holder of an office (including a member of a body of persons whether or not established by or in terms of any law), who—

(i) in the case of such employee, derives in respect of his employment any income constituting remuneration as defined in paragraph 1 of the Fourth Schedule (but leaving out of account the provisions of paragraphs (c) and (cA) of that definition and including the amount of any allowance or advance in respect of transport expenses contemplated in section 8(1)(b), but not an allowance or advance contemplated in section 8(1)(b)(iii) which is based on the actual distance travelled by the recipient, and which is calculated at a rate per kilometre which does not exceed the appropriate rate per kilometre fixed by the Minister of Finance under the said section 8(1)(b)(iii), and excluding any retirement fund lump sum benefit and any retirement fund lump sum withdrawal benefit) and is a member of or, as an employee, contributes to a pension fund or provident fund established for the benefit of employees of the employer from whom such income is derived…

The important point is that ‘retirement-funding employment’ is in the first instance "income constituting remuneration”(which an allowance would not be), but it is then specifically stated that "the amount of any allowance or advance in respect of transport expenses contemplated in section 8(1)(b)” is included.  We submit that it is the amount of the allowance and not the amount that must be included in taxable income that will then be the amount derived from retirement-funding employment.  In other words, the amount expended can’t be deducted. 

2. Must landlords supply tenants with IT3(b)’s for interest on rental deposits?  

Q: I understand that as from February 2015 SARS require landlords to supply tenants with IT3(b) certificates for interest paid on rental deposits. Are you able to confirm that this is correct?

If so, what is the correct procedure/process?

A: You mention ‘as from February 2015’ – please note that this not a new requirement.  What changed was that, in terms of the public notice issued on 5 April 2013, the returns of information to must be submitted by third parties in terms of section 26 of the Act:

2.10 Any person, who for their own account carries on the business as an estate agent as defined in the Estate Agency Affairs Act, 1976, and who pays to, or receives on behalf of, a third party, any amount in respect of an investment, interest or the rental of property; and

2.11 Any person, who for their own account practices as an attorney as defined in section 1 of the Attorneys Act, 1979, and who pays to or receives on behalf of a third party any amount in respect of an investment, interest or the rental of property. 

If the landlord is not one of the parties listed it is not necessary to file the return – see also the SARS guide at http://www.sars.gov.za/AllDocs/OpsDocs/Guides/GEN-ENR-01-G03%20-%20Guide%20to%20Third%20Party%20Data%20IT3%20submission%20via%20eFiling%20-%20External%20Guide.pdf

Section 69 of the Income Tax Act that required that IT3(b)'s be issued.  It was then deleted by the Tax Administration Act.  Section 26 of the Tax Administration Act provides that "the Commissioner may by public notice require a person who employs, pays amounts to, receives amounts on behalf of or otherwise transacts with another person, or has control over assets of another person, to submit a return with the required information in the prescribed form and manner and by the date specified in the notice.”

This doesn’t include the landlord; the notice is also limited to the person who receives amounts on behalf of another person.

3. Are non-resident beneficiaries taxable on the capital distribution from a resident trust?

Q: Will non-resident beneficiaries be liable for tax on the capital distribution from a resident trust?

The trust has 2 beneficiaries who has a vested right on the Capital of the trust on termination. The trust is in the process of being terminated and all the listed shares held has been sold and the capital is to be distributed to the non-resident beneficiaries. The question is, as the beneficiaries had a vested right in the capital, did they effectively "own" the shares due to the vested right, and therefore not liable to pay tax on the capital profit or are they liable because the shares was owned and sold by the trust and the CGT distributed to them?

I know that non-residents are only liable for CGT in respect of immovable property sold in SA and not on the sale of shares in a share portfolio. I am of the view that as they did not own the shares directly, and the shares were sold by the resident trust and the capital gain distributed, that it should be taxable as a CGT distribution.

A: In terms of the Eighth Schedule to the Income Tax Act non-resident beneficiaries are treated differently to resident beneficiaries.  Paragraph 80(2) (that applies to your request) specifically mentions that the so-called attribution of the gain is only made to ‘a trust beneficiary who is a resident’.  SARS explains their view as follows (in the CGT guide):

"The intention of the legislature in not providing for attribution to non-resident beneficiaries was to prevent loss to the fiscus, since non-residents are only subject to CGT on a limited range of assets (immovable property in South Africa and assets of a permanent establishment in South Africa). The capital gains are derived by the trust and are clearly within South Africa’s taxing jurisdiction. South Africa has a right to keep such capital gains within its jurisdiction by only permitting attribution to resident beneficiaries. There is accordingly no question of discrimination against non-resident beneficiaries. The legal maxim expressio unius est exclusio alterius supports the view that by specifically only mentioning a resident beneficiary in para 80(1) and (2) the legislature intended to exclude non-resident beneficiaries.”

The result of this is that the gain will be taxed in the trust. 

You say that the beneficiaries have "a vested right on the capital of the trust on termination” and our guidance therefore assumed that this vested right was only acquired after the disposal.  They therefore did not "effectively "own" the shares” as you say – see paragraphs 11(1)(d) and 13(1)(a)(iiA) of the Eighth Schedule.  

4. Are travel reimbursements considered ‘remuneration’ for UIF purposes? 

Q: Travel allowance (SARS code 3702) is taxed on assessment and is not subject to PAYE. As UIF is calculated on gross taxable earnings would travel reimbursements in this category be considered UIF earnings?

We don’t normally include this in UIF earnings as it is not taxable on payroll, but strictly speaking is this is a taxable earning?

A: In terms of the Unemployment Insurance Contributions Act, 2002 (section 6) the amount of the contribution payable is one per cent of the remuneration paid or payable to that employee.  In terms of section 1 of that Act "remuneration” means "remuneration” as defined in paragraph 1 of the Fourth Schedule to the Income Tax Act, but does not include any amount paid or payable to an employee -

(a) by way of any pension, superannuation allowance or retiring allowance;

(b) which constitutes an amount contemplated in paragraphs (a), (cA), (d), (e) or (eA) of the definition of "gross income” in section 1 of the Income Tax Act; or

(c) by way of commission.  

Remuneration (in the Income Tax Act – Fourth Schedule) specifically includes a portion "of the amount of any allowance or advance in respect of transport expenses referred to in section 8(1)(b), other than any such allowance or advance contemplated in section 8(1)(b)(iii) which is based on the actual distance travelled by the recipient, and which is calculated at a rate per kilometre which does not exceed the appropriate rate per kilometre fixed by the Minister of Finance under section 8(1)(b)(iii)”. 

Code 3702 is to be used for "a reimbursement for business kilometres exceeding 8 000 kilometres per tax year or at a rate exceeding the prescribed rate per kilometre or the employee receives any other form of compensation for travel.”

Section 8(1)(b)(iii) applies "where such allowance or advance is based on the actual distance travelled by the recipient in using a motor vehicle on business (excluding the said private travelling), or such actual distance is proved to the satisfaction of the Commissioner to have been travelled by the recipient, the amount expended by the recipient on such business travelling shall, unless the contrary appears, be deemed to be an amount determined on such actual distance at the rate per kilometre fixed by the Minister of Finance by notice in the Gazette for the category of vehicle used”. 

In such a case it would then not be remuneration and no unemployment insurance fund contribution is determined on that amount.  

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. 


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