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FAQ - 14 October 2015

14 October 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical 

1. Should brokerage fees be deductible or included as a part of base cost of shares?

Q: A trust invests in shares via the JSE. Their income consists of capital gains, interest and dividends. SARS didn't allow the expenditure which included broker fees, administration fees, bank charges and accounting fees. All expenditure was added back. We understand the concept of trade as a requirement for Section 11(a). We are of the opinion that the expenses are deductible either as normal expenses or capital expenses which form part of the base cost. Is there another section under which these expenditures can be deducted for tax purposes? 

A: We agree with you that in order for the taxpayer to make a deduction of "broker fees, administration fees, bank charges and accounting fees” it is necessary that the taxpayer must be able to meet the burden of proof that a trade was being carried on, and that the expenses were incurred in the production of the income.  Judge Heher of the Supreme Court of Appeal made the following obiter comment in the Scribante case:

"In addition, borrowing money and re-lending it at a higher rate of interest, thereby making a profit, constitutes the carrying on of a trade...”  The Judge used the Burgess case as authority for this.  Based on the facts we can’t comment on whether or not the taxpayer will be able to prove that a trade is carried on in this respect.  It may well be the passive investment of funds which would not constitute a trade.  

The next issue is section 23(f).  In terms of this no deduction is possible in respect of the income (or part thereof) that is exempt from normal tax – the dividend will not be income (or a part of a foreign dividend) and the deduction will be denied.  The expenses will therefore have to be apportioned and only deducted from the "income” portion.  

A possible reason for thinking the deduction can be made could be the wording in Practice Note 31 (which is not law): "While it is evident that a person (not being a moneylender) earning interest on capital or surplus funds invested does not carry on a trade and that any expenditure incurred in the production of such interest cannot be allowed as a deduction, it is nevertheless the practice of Inland Revenue to allow expenditure incurred in the production of the interest to the extent that it does not exceed such income. This practice will also be applied in cases where funds are borrowed at a certain rate of interest and invested at a lower rate. Although, strictly in terms of the law, there is no justification for the deduction, this practice has developed over the years and will be followed by Inland Revenue.”  My view is that Practice Note 31 is no longer valid and should have been withdrawn.  

In terms of paragraph 20(1)(c) of the Eighth Schedule to the Income Tax Act, the following expenses may be added to the original cost in determining base cost:

"...amounts actually incurred as expenditure directly related to the acquisition or disposal of that asset namely—

(i) the remuneration of a surveyor, valuer, auctioneer, accountant, broker, agent, consultant or legal advisor, for services rendered;

(ii) transfer costs;

(iii) stamp duty, transfer duty or similar duty;"  

It is potentially only the broker’s fee that could be added to base cost.  

2. Should you register for VAT if you’re being paid to transport staff for another company?

Q: We have a client who has a contract with the mines to transport their staff with his minibuses. The mine pays him an amount each month. His income exceeds R1,000,000.00 per annum. 

A: Section 12(g) of the VAT Act states the following supply is exempt from VAT:

"the supply by any person in the course of a transport business of any service comprising the transport by that person in a vehicle (other than a game viewing vehicle contemplated in paragraph (e) of the definition of "motor car” in section 1) operated by him of fare-paying passengers and their personal effects by road or railway (excluding a funicular railway)”

A question raised would be whether the supply qualifies as being exempt due to the fact that it is not the passengers who are paying the fare, but rather the "mine”. In this regard, the book Value Added Tax in South Africa by de Koker/Kruger states:

"The requirement that the passengers must be ‘fare-paying’ does not mean that the passengers themselves must pay a fare. It will suffice if a fare is paid, whether by the person actually using the transport or some other person, for example, an employer on behalf his employees.”

It would therefore seem the supply is exempt. 

Proviso (v) of the ‘enterprise’ definition in section 1 of the VAT Act states "any activity shall to the extent to which it involves the making of exempt supplies not be deemed to be the carrying on of an enterprise”.

Since only persons carrying on an enterprise (as per section 23) may register, it seems your client doesn’t have to register, based on all the information you’ve provided.

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. 


Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.


The Act requires that a minimum academic and practical requirments be set to register with a controlling body. Click here for the minimum requirements of SAIT.

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