FAQ - 1 July 2015
30 June 2015
Posted by: Author: SAIT Technical
Author: SAIT Technical
1. Does section 7(8) apply where a resident lends
to a foreign trust at an interest rate below prime?
Q: If a South
African resident loans money to a foreign trust and raises interest on this
loan but not at the prime rate will section 7(8) apply to the portion of the
income that is "under" the prime rate?
A: We accept that
section 31 of the Income Tax Act doesn’t apply.
For section 7(8) to apply an amount must be received by or
accrue to any person who is not a resident by reason of or in consequence of
any donation, settlement or other disposition made by any resident.
The courts have held (with regard to section 7(5)) that the
potentially all-embracing words 'other disposition' should also mean other
gratuitous disposition (Joss v SIR 1980 (1) SA 664 (T), 41 SATC 206; Ovenstone
v SIR1980 (2) SA 721 (A), 42 SATC 55). As a result of this approach to the
section the courts found that were there to be both an onerous and a gratuitous
element to the transaction an apportionment would be permissible. Thus if a
person sells assets to a trust set up for the benefit of his minor children at
fair market value but refrains from charging interest on the loan, the
transaction is partly onerous (the sale) and partly gratuitous (the interest-free
We submit that the same will apply for purposes of section
7(8) and that an apportionment is therefore required. The adjustment is not necessarily based on
the prime rate.
2. Do you need to have an original tax invoice in
your possession before you can claim input VAT?
Q: Can a vendor
claim input VAT if the tax invoice is scanned and emailed or MUST the tax
invoice be an original? Many companies that I ask to send me the original say
it is not necessary.
A: A supplier can
fax a copy of a tax invoice, but it must be on plain paper. SARS won't accept a faxed invoice that's on
fax paper as opposed to normal paper because it fades and it can't guarantee
the integrity of the information.
We submit that a tax invoice may be sent by e-mail only if
the electronic invoicing requirements have been met - see VAT 404 para
13.8. It basically requires that tax
invoices send by email must be sent in encrypted format (at least 128 bytes),
over a secure line or contain an electronic signature.
3. Where do you disclose a REIT dividend on the new
Q: Do you know
where one would insert the REIT dividend on the new trust return? I know it is a local dividend which must be
taxed. Should it be included under ‘Other Income’?
distribution from REIT consists of multiple sources and if declared against the
wrong code a SARS review letter would be received.
Principally dividends distributed by a REIT must be
disclosed as dividends and interest paid as interest. Dividends distributed by a REIT will be
subject to dividends tax, after any applicable exemptions or reductions. Such
dividend will be included in the shareholder's gross income (paragraph (k) of
the definition of "gross income” in section 1(1) of the Income Tax Act) and
will not qualify for a dividend exemption (section 10(1)(k)(i)(aa)).
An amount of interest received by or accrued to a person
during a year of assessment in respect of a debenture forming part of a linked
unit in a REIT, is deemed to be a dividend received by or accrued to the person
(section 25BB(6)(a)). Such amount will
however not qualify for a dividend exemption (section 10(1)(k)(i)(aa)) and will
therefore be subject to normal tax in the shareholder's hands. The interest is
also deemed to be a dividend by the REIT for dividends tax purposes (and not
interest paid by the REIT for purpose of Interest Withholding Tax) (section
25BB(6)(c)). The amount will therefore be subject to dividends tax, after any
applicable exemptions or reductions.
That is why it is best to obtain the analysis from the REIT
– they normally provide it with the codes to be used on the IT12.
4. Should business trips on the gautrain be
included under code 3702 (reimbursive allowance)?
Q: My client receives
a salary under code 3601. However his IRP5 for 2014 also has a reimbursive
travel amount under code 3702. The clients has provided us with the schedules
making up the claim. Some of the payments received within the 3702 code total
are for Gautrain trips. Are the Gautrain trip costs tax deductible?
The ITR12 only accommodates a reimbursive deduction for a
vehicle. How do we handle this situation? It will be most gratefully
appreciated of one of the tech’s could please help.
A: According to
the SARS guide 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)(i)(aa) refers to "travelling on business, as
contemplated in paragraph (b)” and it is only paragraph (b)(i) that doesn’t
refer to a motor vehicle ((ii), (iii) and (iv)) or vehicle (in (iiiA)). Section 8(1)(b)(i) refers to "transport
expenses” which could well include Gautrain costs, but its purposes is then
only actually to deem travel between home and work to be private travel. SARS’s Interpretation Note 14 (which sets out
the current practice prevailing) only deals with motor vehicle costs.
We therefore submit that an allowance for Gautrain costs is
not a "travel allowance” as envisaged by section 8(1)(a) and that the codes
3701 or 3702 is not appropriate and must be reflected against another
The problem is that the employee will then not be able to
reduce the allowance on assessment.
It is not clear why the allowance was not dealt with in
terms of section 8(1)(a)(ii).
5. Must the VAT Notice of Registration show that a
vendor is a farmer?
Q: We registered
three farming companies for VAT during May 2014 and SARS issued a Notice of VAT registration, but the notice
do not state that the companies are registered as farmers in terms of paragraph
7 of the VAT act. I went to the SARS offices last year and explained that we
need a VAT certificate for these companies that reflects the fact that they are
farming entities in terms of paragraph 7 of the VAT Act, but a senior official
there informed me that the new registration system at SARS do not show that
paragraph on the notification and SARS is in process of correcting the matter.
I then recently
phoned SARS to determine what we should do and it was explained to me that I
have to contact the head office of SARS at 012 422 2000.
Our client urgently needs these certificates so that his
suppliers will not charge him VAT on his farming supplies and we do not know
what to do to get it, because it seems like no one at SARS can help us with
A: You are
referring to the certificate mentioned in paragraph 2 of the Part A of Schedule
2 (to the Value-Added Tax Act – specifically section 11(1)(g) the Zero Rate: Supply
of Goods Used or Consumed for Agricultural, Pastoral or other Farming
Purposes). In terms of Interpretation
note 31 the recipient must obtain a copy of the recipient’s VAT 103 form,
authorising the recipient to acquire the goods contemplated in Part A of
Schedule 2 at the zero rate. A vendor
must, on registration, still receive the VAT103.
In the past it was accepted that the supplier was obliged to
confirm with SARS under section 6(2)(d) whether the recipient is a registered
vendor, as the supplier will not otherwise know whether the notice of
registration is valid. This section was
deleted in 2011. We are not sure if it
is requirement that this must still be obtained from SARS, but it is not
relevant to your request.
The SARS head office number is 012 422 4000, but we suggest
that SARS’s failure to assist the client may well be a service matter that
could be referred to the Tax Ombud.
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.