FAQ - 26 August 2015
26 August 2015
Posted by: Author: SAIT Technical
Author: SAIT Technical
Can a farmer who has not yet made any income be
registered for VAT?
Q: How do I register a start-up farmer for VAT? There
is no income as income will only be earned in a few years. Which documents do I
need to have the VAT registered as there is a large amount of start-up and
A: Section 23(3)(d) of the VAT Act states:
"Notwithstanding the provisions of subsections (1) and (2),
every person who satisfies the Commissioner that, on or after the commencement
that person is continuously and regularly carrying on an
activity of a nature set out in any regulation made by the Minister in terms of
this Act and in consequence of the nature of that activity is likely to make
taxable supplies only after a period of time, may apply to the Commissioner for
The relevant regulation, which I’ve provided below as a
link, specifically mentions agricultural and farming activities.
You may therefore register for VAT.
Here is the regulation: http://c.ymcdn.com/sites/sait.site-ym.com/resource/resmgr/2015_SARS_-_May/LAPD-LSec-Reg-2015-10_-_Regu.pdf
Point number 5.7.1 of the following SARS Guide will show you
which documents are needed for the purposes of a VAT registration:
In case you didn’t know, if your farming client is already
registered for income tax and has an efiling profile, you can register him for
VAT on efiling through the RAV01 form.
You may then still be informed that you must go to a SARS
branch for a VAT interview, but you will not have to spend too much time at the
branch because you’ve already captured the required information on the SARS
system through efiling.
Please read from page 58 onwards of the attached guide for
details on how to register for VAT through the RAV01 form on efiling.
Is the loss of future earnings due to medical negligence
Q1: Please provide further clarity on whether SARS
taxes the award in medical negligence matters for future loss of earnings.
If so, at what rate would they quantify same? At the lump
sum payment or would it be calculated at the actuarial determination on yearly
A1: The taxpayer will bear the onus of proof if the
matter is disputed by SARS. The general principle in this regard has been
quoted (with approval) from Silke by Judge Kroon in the Stellenbosch Farmer’s
winery case as follows:
"An amount received by way of damages or compensation for
the loss, surrender or sterilisation of a fixed capital asset or of a
taxpayer’s income-producing machine is a receipt of a capital nature.
. . .
In order for compensation for the cancellation of a trading
contract to constitute a sum of a capital nature, it is sufficient if the
contract constitutes a substantial part of the business, and the cancellation
need not have the effect of destroying or materially crippling the whole of the
taxpayer’s income producing structure.”
The Judge then found that "the taxpayer, which did not carry
on the business of the purchase and sale of rights to purchase and sell liquor
products, did not embark on a scheme of profit-making, and that it did
discharge the onus of establishing that the receipt of R67 million was of a
Based on the information provided the taxpayer would be able
to discharge the onus – due to negligence of a third party and not business
related. The fact that it was based on future earnings is not
We don’t have enough information to comment on whether or
not the right to the compensation constituted an asset and the possible capital
gain consequences. In terms of paragraph 59 of the Eighth Schedule a
natural person must disregard a capital gain or a capital loss determined in
respect of a disposal that resulted in that person receiving compensation for
personal injury, illness or defamation of that person or a beneficiary of that
Q2: We are aware that this is the consequence of the
loss or damage to a capital asset. When dealing with the loss of future
earnings in the case of an individual, does this have the same consequences?
A2: Apologies, I didn’t elaborate on my statement:
"the fact that it was based on future earnings is not relevant.” I had the
comment by Judge Musi in WJ Fourie Beleggings CC v CSARS (the high court
decision) in mind. The Judge (CJ) said:
"If the amount to be paid is computed with reference to
future loss of profits the receipt will remain of a capital nature. The method
used to compute the sum therefore does not necessarily determine the nature of
From the footnote it is clear that this was from ITC 254: 7
SATC 56 p58.
This point wasn’t raised in the Supreme Court, but I submit
it is a valid one. Judge Musi seems to have favoured the approach
followed in Burmah Steam Ship Company Ltd v CIR. The Judge then concluded
that "an amount paid by way of damages or compensation takes on the character
of the loss in compensation for which it has been paid.” It was against
this context that I felt the fact that that the quantum of the damages is
determined with reference to loss of future revenue is not relevant. It
does not, as stated by Judge Musi, determine the nature of the sum.
The nature of the receipt must be determined according to
the principles alluded to in the first response.
Can a deduction for contributions made to a RA fund be
claimed against a taxable capital gain?
Q: Is the 15% RA deduction allowed on a taxable
capital gain and where do I find the relevant clause(s) in the Income Tax Act?
My client sold a non-residential property at a profit. A 15% RA contribution is
allowed on taxable income. Does it apply to a taxable capital gain as well?
A: SARS explains it well enough in their CGT guide
(paragraph 23.4.3) – we copied that for ease of reference:
"A taxpayer will not be able to claim 15% of a taxable
capital gain for the purposes of determining the allowable portion of
retirement annuity fund contributions. This treatment follows from the wording
of s 11(n)(i)(aa)(A) which provides a deduction in respect of
‘(A) 15 per cent of an amount equal to the amount remaining
after deducting from, or setting off against, the income derived by the taxpayer
during the year of assessment (excluding income derived from any
retirement-funding employment (being the income or part thereof referred to in
the definition of "retirement-funding employment” in section 1), and any
retirement fund lump sum benefit, retirement fund lump sum withdrawal benefit
and severance benefit) the deductions or assessed losses admissible against
such income under this Act (excluding this paragraph, sections 17A, 18 and 18A
and items (c) to (i), inclusive, of paragraph 12(1) of the First Schedule); or’
Since a taxable capital gain is not included in ‘income’ as
defined but rather in taxable income, the 15% limitation may not be calculated
on a taxable capital gain.”
We agree with this view. Section 26A specifically
states that a taxable capital gain is included in taxable income. The
definition of taxable income in section 1(1) confirms that it is the amount
after deducting from income plus the inclusions.
The excess contributions will be carried forward.
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.