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FAQ - 2 September 2015

02 September 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

1. Can SARS change the estimated taxable income used for the 1st IRP6?  

Q: Are SARS entitled to increase the estimated taxable income we sent them for the first provisional tax return even though we have backed it up with a detailed tax computation?

A: Para 19(1)(c) of the Fourth Schedule states:

"the amount of any estimate so submitted by a provisional taxpayer (other than a company) during the period referred to in paragraph 21 (1) (a), or by a company (as a provisional taxpayer) during the period referred to in paragraph 23 (a), shall, unless the Commissioner, having regard to the circumstances of the case, agrees to accept an estimate of a lower amount, not be less than the basic amount applicable to the estimate in question, as contemplated in item (d).”

The underlined part above shows that if the circumstances warrant it, the Commissioner may agree to accept an estimate which is lower than the basic amount. It is therefore not automatic that the estimate must be lower than the basic amount.

However, para 19(3) does still give the Commissioner licence to reject the lower estimate if he is dissatisfied with it.

Furthermore, section 3(4) of the Income Tax Act lists the different decisions made by the Commissioner, which can be disputed. Unfortunately, this particular issue is not on that list. So it seems SARS can actually increase the estimate to the basic amount.

2. Must you still be living in your primary residence at time of sale to qualify for the CGT exclusion?

Q: If a taxpayer sells his primary residence, but he is not living in it at the time of the sale, then can it still be considered his "primary residence” for CGT purposes? This is assuming that it was not rented out when he was not living there and was vacant.

A: In terms of the definition (in paragraph 44 of the Eighth Schedule to the Income Tax Act) a ‘primary residence’ means "a residence—

(a) in which a natural person or a special trust holds an interest; and

(b) which that person or a beneficiary of that special trust or a spouse of that person or beneficiary—

(i) ordinarily resides or resided in as his or her main residence; and

(ii) uses or used mainly for domestic purposes”. 

The "renting out this property” will not meet the ‘domestic purposes’ test and will be seen as trade use, unless paragraph 50 applies.  You have indicated that that doesn’t apply. 

In terms of paragraph 48 a natural person (or a beneficiary of a special trust) is treated as having been ordinarily resident in a residence for a continuous period (not exceeding two years), if that person did not reside in that residence during that period for any of the following reasons—

(a) at the time the residence was that person’s primary residence it had been offered for sale and vacated due to the acquisition or intended acquisition of a new primary residence;

(b) that residence was being erected on land acquired for that purpose in order to be used as that person’s primary residence;

(c) the residence had been accidentally rendered uninhabitable; or

(d) the death of that person.

The Act allows for an apportionment of the gain where the person was "not ordinarily resident in that residence throughout the period … during which that person or special trust held that interest…”  Refer to paragraph 49 and the SARS CGT guide deals with this in Chapter 11.  

3. Are the insurance proceeds received as a result of the disablement of a taxpayer tax-free?

Q: It is my understanding that, with effect from 01 March 2015, section 10(1)(gI) exempts proceeds from a policy of insurance which relates to the disablement of a taxpayer.

If the policy of insurance started paying out a monthly annuity before 01 March 2015, are the proceeds received on or after 01 March 2015 exempt in terms of section 10(1)(gI) or are the proceeds only exempt if the policy starts to pay out on or after 01 March 2015 for the first time?

A: You are correct that section 10(1)(gI) (as been inserted by section 23(1)(i) of Act 31 of 2013) came into operation on 1 March 2015 and is to apply in respect of amounts received or accrued on or after that date.  The events covered are the "death, disablement, severe illness or unemployment of a person who is the policyholder in respect of that policy of insurance…”

The Act doesn’t have a requirement that the amount received (or accrued) must be by way of a lump sum and the exemption should therefore also apply to an annuity.  In the 2013 Explanatory Memorandum it was stated that "… all pay-outs on life, disability and severe illness policies will be tax-free, irrespective of whether the payout takes the form of a lump sum or an annuity.” 

It also applies to the receipt on or after 1 March 2015 and the fact that it commenced before the time is therefore irrelevant.  

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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