FAQ - 5 August 2015
05 August 2015
Posted by: Author: SAIT Technical
Author: SAIT Technical
1. What code must you use to declare REIT dividends in a tax return?
Q: We have been receiving certificates from investment companies with REIT dividends and a tax code 4238 on these. There is however no such code on the tax returns that we can see and we are therefore unsure of where to reflect these on the 2015 tax returns.
A: The comprehensive guide to the ITR12 return for individuals (on page 8) states the following:
"If you received dividends distributed by a Real Estate Investment Trust (REIT), the amount will be reflected next to source code 4238 on the IT3(b) certificate issued to you by the REIT. On your ITR12 return, insert this amount next to source code 4214 and in the description field insert the description as "‘income from a REIT”.”
The reason for this is that dividends (other than those received by or accrued to or in favour of a person that is not a resident or a dividend contemplated in paragraph (b) of the definition of ‘dividend’) distributed by a company that is a REIT doesn’t qualify for the section 10(1)(k) exemption from normal tax.
2. Will it help if you seek VDP relief for VAT returns which should have been submitted but were not?
Q: I wish to apply for VDP relief in terms of Tax Administration Act (‘TAA’) for my client who had not submitted VAT returns. When I phoned the VDP call centre they advised that they do not accept applications for non-submission of returns.
How do I proceed if SARS refuses to accept the VDP application?
A: Section 229(c) of the TAA specifically states that there is no VDP relief for the Chapter 15 TAA administrative penalties incurred as a result of the non-submission of a return or the late payment of tax.
These are the penalties that your client is likely facing/will face due to the non-submission of returns and the non-payment of tax.
It is very unlikely that understatement penalties will be levied as a result of the non-submission of returns.
Our opinion then is that even if you would have received the VDP relief, it would not have been useful to you because it would not cover the applicable penalties anyway.
3. Can SARS require a director to repay an amount previously loaned to him by a company?
Q: A deferred payment arrangement with SARS was entered into but was not paid accordingly by the client, resulting in a civil judgement being served by SARS. The company does not have cash resources to settle the amount. The bulk of the tax owed relates to directors’ remuneration which was paid but no PAYE was deducted. One of the directors (who is also a majority shareholder with a 65% interest) owes the company R1 million, which was previously loaned to him.
Since the company has neither the cash resources nor assets to pay the debt and the matter relates to the payment to directors, is SARS going to seek recovery of the money from the directors by asking them to pay in their loans?
A: SARS could invoke various sections in Chapter 11 of the Tax Administration Act (‘TAA’), ranging from section 179 to 184. These deal with the recovery of tax from a company’s debtors, the management of the company itself, shareholders, etc.
Section 180 of the TAA puts the director (who also owns 65% of the company) at risk of SARS pursuing him for collection:
"A person is personally liable for any outstanding tax debt of the taxpayer to the extent that the person's negligence or fraud resulted in the failure to pay the tax debt if—
(a) the person controls or is regularly involved in the management of the overall financial affairs of a taxpayer; and
(b) a senior SARS official is satisfied that the person is or was negligent or fraudulent in respect of the payment of the tax debts of the taxpayer.”
Another potentially applicable provision is section 179(1) of the TAA:
"A senior SARS official may by notice to a person who holds or owes or will hold or owe any money, including a pension, salary, wage or other remuneration, for or to a taxpayer, require the person to pay the money to SARS in satisfaction of the taxpayer's outstanding tax debt.”
So you are correct, the director who owes the company R1 million may can be required by SARS to pay them (SARS) instead in satisfaction of the PAYE owed by the company.
SARS can also go after the directors via the Fourth Schedule to the Income Tax Act. Ultimately PAYE is an advance payment of income tax due by an employee or director; the employer is merely an ‘agent’ of SARS, assisting it with the collection thereof. If the employer doesn’t deduct it, SARS can go after the directors themselves and seek collection from them.
The question is whether those directors disclosed the remuneration earned from the company in their ITR12s. If they did, then SARS would have taxed them on that income and to the extent that the company can prove that those directors have already paid the tax, then the company’s own PAYE liability should be reduced accordingly.
Also note paras 5(2) and 5(3) of the 4th Schedule:
"Where the employer has failed to deduct or withhold employees' tax in terms of paragraph 2 and the Commissioner is satisfied that the failure was not due to an intent to postpone payment of the tax or to evade the employer's obligations under this Schedule, the Commissioner may, if he is satisfied that there is a reasonable prospect of ultimately recovering the tax from the employee, absolve the employer from his liability under sub-paragraph (1) of this paragraph.
An employer who has not been absolved from liability as provided in sub-paragraph (2) shall have a right of recovery against the employee in respect of the amount paid by the employer in terms of sub-paragraph (1) in respect of that employee, and such amount may in addition to any other right of recovery be deducted from future remuneration which may become payable by the employer to that employee, in such manner as the Commissioner may determine.”
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.