FAQ - 23 June 2015
23 June 2015
Posted by: Author: SAIT Technical
Author: SAIT Technical
1. Does farming income distributed by a trust to a beneficiary retain its original nature?
Q: I have a
farming trust, which distributes taxable farming income, to another (rental)
trust. The rental trust is a beneficiary of the farming trust. My question to
you is, when the income is recognised in the rental trust, will it retain its
"original nature” as farming income, or will it be seen as "capital income”?
A: Our guidance
assumes that the farming trust is a discretionary trust and that the
distribution is in terms of a decision by the trustees to vest the amount in
the rental trust. Section 25B(2) applies
and deems the amount to be an amount which has accrued to the beneficiary
(rental trust) and not to the farming trust.
On that basis the nature of the receipt will not change as the receipt
by the first trust is effectively ignored.
We are not sure why you raised the issue, but need to point
out that section 26(1) and the First Schedule of the Income Tax Act applies
only when the taxpayer is carrying on farming operations. There is no definition of the expression
‘farming operations' in the Act. The
question whether a person is carrying on farming operations is one of
fact. In the Kluh Investments case Judge
Rogers explained it as follows:
"Section 26(1) does not apply merely because there has
accrued to the taxpayer income which has ‘derived from’ farming operations; the
section applies to a person carrying on farming operations to the extent that
his income is derived from such operations. Two questions must therefore be
answered: (i) Was the person whom SARS wishes to tax a person carrying on
farming operations during the year of assessment in question? (ii) If so, did
the particular item of income in dispute derive from those farming operations?”
From the facts the second trust may well not be carrying on
2. 5 year old error in a VAT return: does section
98(1)(d)(ii) of the TAA apply?
Q: The taxpayer
(a company) is a VAT Vendor. During its statutory audits (2007/2008), audit
journals were passed which resulted in an increase in input VAT. The accountant
did not realise that he/she has to account for this input VAT on the VAT returns
and that it needs to be done within 5 years from the date of the invoice. The
accountant claimed the VAT in later periods (2013/2014) and the SARS auditor
denied the input VAT claim based on the above section that 5 year period has
Can the vendor request under section 98(1)(d)(i)(aa) and
section 98(2) of the TAA that the 2007/2008 VAT assessments be withdrawn and
that the correct amounts be declared on it based on the fact that the returns
contain undisputed factual errors by the taxpayer? According to section
99(2)(d)(iii) the period of limitations for issuance of assessments does not
apply if section 98(2) is applicable.
Or can the vendor request under section 93(1)(d)(ii) that
reduced assessments be issued for 2007/2008 also based on the fact that these
returns contain undisputed errors by the taxpayer in a return?
A: We accept that
none of the exceptions in section 99(2) applies.
The only option available to the taxpayer would be the one
where the assessment is withdrawn (section 98(2)). Section 93 results in a reduced assessment
and that is caught by the 3 year prescription rule. Where the assessment is withdrawn in terms of
section 98(2) it regards the assessment as not having been issued and
prescription therefore is not an issue.
SARS would therefore not be able to entertain a reduced assessment under
section 93 as section 99 would not permit that.
The taxpayer of course bears the onus to proof that it was,
amongst others, a bona fide error – see the JB Mining case.
3. A portion of a monthly payment to a PBO is a
donation: is it deductible under section 18A?
Q: We have a
client which is a registered PBO in terms of section 30 of the ITA and has
approval to issue 18A certificates. The PBO is considering setting up a loyalty
program whereby members can sign up and make monthly payments to the PBO. The
loyalty program entitles the member to a range of promotional offers. In the
terms and conditions for membership of the loyalty program it is recorded that
the monthly payment is equally split into a donation component and a benefit
component, but the member only ever makes one payment per month to the PBO.
Would the donation component of the monthly loyalty program payment qualify for
section 18A approval?
A: We agree with
you – the parties may find it difficult to meet the onus of proof if it is
disputed that there was a bona fide donation.
Section 18A(1) of the Income Tax Act requires that it must
be "any bona fide donation” paid by the taxpayer to an approved public benefit
organisation and where that donation will be utilised "solely in carrying on
activities contemplated in Part II of the Ninth Schedule”.
The definition in section 55(1) of the Income Tax Act is not
relevant to section 18A and the word ‘donation’ (in section 18A) must take it
ordinary meaning. According to Judge
Marais (in the Welsh case) "The test to be applied at common law to determine
whether the disposition of an asset amounts to a donation properly so called
(as opposed to a remuneratory donation) is so well settled that it hardly needs
repetition. The test is of course that the disposition must have been motivated
by ‘pure liberality’ or ‘disinterested benevolence’. As it was put in De Jager v Grunder, ‘Was die
dryfveer iets anders as suiwer vrygewigheid en welwillendheid jeens die eiser,
was dit geen skenking nie.’ Furthermore,
there is a presumption against donations in our law.”
We don’t know what the "loyalty program” entails. The SARS view, in paragraph 23.11 of the
guide that you refer to that "there must be no quid pro quo, no reciprocal
obligations and no personal benefit for the donor…” is based on the section 55
definition, but we agree with them that " if the donee gives any consideration
at all it is not a donation…” So if the loyalty program provides some benefit
to the person participating in it there will not be a bona fide donation. The words ‘ bona fide’ emphasises in our view
4. How do I submit my tax return if my employer
passed away and never gave me an IRP5?
Q: I was employed
by a close corporation during the period 1 March 2014 until 28 February 2015.
The owner passed away in December 2014. I requested an IRP5 and was told by the
persons who took over the day to day operations that it is not their responsibility
to give it to me.
I have printed all of my bank statements and payslips for
the period and have cross referenced them to the payments received into my bank
account. I also have a copy of his death certificate.
My Question: How should I submit my tax return this year?
What proof should I send with it? Will I be liable to pay PAYE over to SARS if
the cc did not pay what it had deducted from me to SARS? Or will SARS claim it
from the estate? Whom should I ask for the IRP5?
A: Para 13(1) of
the 4th Schedule to the Income Tax Act states that it is the employer’s
responsibility to furnish an employee with an employees’ tax certificate (an
Of course, the employer is an entity, but the member(s) of
the CC would be the people ultimately responsible for making sure they comply
with the tax law.
Note para 13(2) of the 4th Schedule:
"The employees’ tax certificate referred to in sub-paragraph
(1) shall be delivered—
(a) if the employer
who is required to deliver the certificate has not ceased to be an employer in
relation to the employee concerned, within 60 days after the end of the period
to which the certificate relates;
(b) if the said
employer has ceased to be an employer in relation to the employee concerned but
has continued to be an employer in relation to other employees, within fourteen
days of the date on which he has so ceased; or
(c) if the said
employer has ceased to be an employer, within seven days of the date on which
he has so ceased,”
Also not para 13(5):
"It shall be the duty of any employee or former employee who
has not received an employees’ tax certificate within the time allowed by
sub-paragraph (2) forthwith to apply to the employer for such certificate.”
You have to find out who did the accounting and tax
compliance for the CC (was there an internal accountant or was this function
outsourced to another company)?
Perhaps that person still managed to submit the PAYE returns
(EMP201s) and EMP501s.
Just because you did not received an IRP5, it doesn’t
automatically mean the accountant didn’t submit that IRP5 in advance to SARS.
Filing your return
Nevertheless, you can still submit your tax return for the
2015 tax year, but may encounter some challenges.
The first page of the ITR12 will ask you if you received an
IRP5. You can try answering ‘yes’ and see if a completed IRP5 is automatically
generated and shown in the return. If that doesn’t happen, your answer will be
The only place where I’ve found you can disclose your salary
income for that employer is under ‘professional, business and trade
income’. In that section of the return,
you’ll disclose your salary from that CC under ‘other’.
You’ll be assessed and the ITA34 will obviously not show PAYE
which should have been deducted from your final tax liability. As a result,
you’ll have to object and your objection must include a letter to SARS where
you explain your circumstances for why you never got an IRP5 from the CC.
You’ll also attach the payslips as proof that the CC did in fact deduct PAYE
from your salary.
This usually works.
With regards to your question about you being liable for the
PAYE the CC never paid over to SARS, please see the following link for a
similar question we once answered:
Furthermore, before you ask us anything in future, I would
urge you to go visit www.thesait.org.za/news
. This webpage is titled "news and press”. Once there, there is a drop-down
menu next to the phrase ‘Filter news by category’. The drop down menu is handy
as it allows you to look through categories like ‘case law’, ‘transfer pricing
and international tax’, ‘Institute Announcements’ and ‘VAT’. Choose the last 2
categories at the bottom, titled ‘SARS operational and eFiling questions’ and
‘technical and tax law questions’ respectively.
You will find there a lot of questions we have been asked by
members and the answers we provided.
It’s a valuable resource.
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.