FAQ - 18 November 2015
18 November 2015
Posted by: Author: SAIT Technical
Author: SAIT Technical
1. May I decline a transfer request on
eFiling if my client’s account is in arrears?
Q: Would you be able to advise me if
it is allowed that a tax practitioner declines a transfer request from another
tax practitioner on SARS e-filing on the grounds that the specific taxpayer
still owes the previous practitioner money?
A: Declining a request on the grounds
of money outstanding would be hindering the taxpayer’s ability to submit his
tax return. We believe that it is unlawful to prevent a taxpayer from submitting
their Income Tax return to SARS and may equally constitute misconduct by the
tax practitioner concerned. It’s the taxpayers right to access the profile
within a reasonable time period to submit his or her tax return remains.
Therefore even if the taxpayer has outstanding fees, the holding practitioner
is obliged to approve the request. SARS does not involve themselves with
3rd party disputes between clients and practitioners and they will not see this
reason as justifiable for non-submission of a tax return.
Please see the notice that SARS has issued on this topic:
practitioners are reminded that they are required by law to provide their
clients with access to their own (the client’s) individual eFiling profiles,
and further not to withhold a client’s eFiling profile from being transferred
to their newly appointed tax practitioner.
practitioner registration and conduct are regulated both in terms of the Tax
Administration Act as well as the Code of Conduct of the Recognised Controlling
Body of which there they are members. As such, preventing a client from gaining
access to his/her eFiling profile or withholding the transfer of their eFiling
profiles, may constitute a criminal offence in terms of section 234 of the Tax
Administration Act. It is also a basis for the lodging of a compliant by SARS
or the taxpayer to the relevant controlling body under section 241 of the Tax
We therefore require you to assist your
clients and ex-clients where appropriate to honour their obligations to SARS
and to exercise their mandate in terms of the services you provide.
2. May I deduct admin expenses from
Q: I have 3
sources of income namely: .
- rental income
- investment income from a Licensed Financial Services Provider
- trust income as a beneficiary in the
form of dividends and capital gains tax.
I draw a monthly salary from the FSP investment.
On their tax statements they have capital gains tax and various interest
income i.e. REIT, foreign and local. The FSP charges 1% commission
per year to administer the portfolio.
May I deduct the admin fee from the FSP as an expense
against the profit that is made on the portfolio and if so under what code or
On the statement there is also a small amount of Brokers
Trustee fees and Vat. May one also deduct those as expenses?
Furthermore, I see there is no more tax relief or exemption
for REIT and foreign interest, when did that fall away?
A: In order
for the taxpayer to make a deduction of "commission and broker’s fee” 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 amount of the expense was incurred in
the production of the income from that trade.
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 rental income
would be derived from a trade.
The next issue is section 23(f). In terms of this no deduction is possible in
respect of the interest (or part thereof) that is exempt from normal tax – the
dividend will not be income or of a foreign dividend the deduction will be
denied. The financial advisor fees
expense will therefore have to be apportioned and only deducted from the
Section 23(g) must also be considered in this
I am aware that SARS’s Practice Note: No 37 (13 January
1995) states the following:
"In the case of a pensioner whose financial affairs
(pensions, annuities, investment income, etc.) are administered by a banking
institution, board of executors or similar institution the administration fees,
including any fees for the completion of tax returns, paid to the institution
will qualify for deduction.
… fees paid will only be allowed as a deduction to the
extent that they do not create a loss.
Where the taxpayer receives income from exempt interest,
other interest and dividends, the fees will be allocated on the income basis
between the various sources of income.”
Another 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.
The same applies to the amounts of the dividends vested by
the trustees – in fact here it is unlikely that a trade is carried on. With regard to the amount of capital gains
vested by the trustees no additional base cost will arise.
The section 10(1)(i) exemption in respect of foreign interest
was deleted from the Act with effect 1 March 2013. The tax treatment of
income from a REIT didn't change that much as far as the investor is
concerned. Income in a collective investment in property never qualified
for the dividend exemption.
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.