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FAQ - 18 November 2015

18 November 2015   (0 Comments)
Posted by: Author: SAIT Technical
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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:

Tax 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. 

Tax 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 Administration Act. 

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 interest earned?

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 deduction.

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 "income” portion.  

Section 23(g) must also be considered in this instance.  

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. 

 


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