FAQ - 25 November 2015

Author: SAIT Technical

1. Should all trust beneficiaries be registered for Income Tax?

Q: Should a beneficiary of a trust register for income tax if they:Receive no distributions?

or

Receives distributions that are below the taxable threshold?

or

Receives no distributions but holds a loan in the trust?

A: A person must register for normal tax if that person is "a person chargeable to tax” (according to section 151 of the Tax Administration Act).  A person chargeable to tax is a person upon whom the liability for tax due under a tax Act is imposed and who is personally liable for the tax (section 152).  

It then is a question of what ‘chargeable to tax’ mean.  The Afrikaans text, for section 153, uses the words ‘aanspreeklik vir belasting’, but in other places in the Act ‘aan belasting onderhewig’ is used.  The Income Tax Act, before it was amended by the Tax Administration Act, used the words ‘liable to taxation’.  

The word ‘tax’, when used in the Income Tax Act, means ‘tax or penalty imposed’ and when used in the Tax Administration Act, it also uses the words ‘imposed under a tax Act’.  Normal tax is calculated by applying the applicable rates to taxable income (that equals normal tax payable) and then deducting the rebates therefrom.  A taxpayer’ means any person chargeable with any tax leviable under this Act.  

In terms of section 143(1) the ‘basic principle in tax law is that it is the duty of SARS to assess and collect tax according to the laws enacted by Parliament and not to forgo a tax which is properly chargeable and payable.’  

Section 169(1) provides that ‘an amount of tax due or payable in terms of a tax Act is a tax debt due to SARS…”  

From the above it appears that ‘chargeable to tax’ should be interpreted to mean ‘liable to pay tax’.  On that basis, a person below the tax threshold should not have to be registered as a taxpayer.  

Section 66 now refers to ‘persons who are required to furnish returns for assessment’.  Such a person is also not required to submit a return unless one the following circumstances apply: 

"… a natural person …

who carried on any trade in the Republic (other than solely in his or her capacity as an employee);

who had capital gains or capital losses exceeding R30 000

who is a resident and to whom any income or capital gains from funds in foreign currency or assets outside the Republic could be attributed in terms of the Act;

who is a resident and held any participation rights, as referred to in section 72A of the Act, in a controlled foreign company; 

to whom an income tax return is issued or who is requested by the Commissioner in writing to furnish a return, irrespective of the amount of income of that person”

2. Can a taxpayer claim medical tax credits for contributions paid on behalf of a parent?

Q: Can a taxpayer who pays his parent's medical aid contribution claim it on his tax return if he’s able to prove that the contributions are deducted from his income? His parents are not registered for income tax as they do not earn income.

A: We accept that the question relates to the 2015 or later year of assessment.  

You are correct that the requirement is that medical scheme fees tax credit applies in respect of fees paid by the person to a medical scheme registered under the Medical Schemes Act – see section 6A(2)(a)(i).  The amount of the medical scheme fees tax credit in respect of benefits to the person and one dependant.  For the purposes of section 6A a ‘dependant’ in relation to a person means a ‘dependant’ as defined in section 1 of the Medical Schemes Act – see section 6A(4).  In terms of the  Medical Schemes Act a "dependant” means (a) the spouse or partner, dependent children or other members of the member's immediate family in respect of whom the member is liable for family care and support.  

According to the SARS guide the "term "immediate family” in the definition of "dependant” in the MS Act refers to a particular group of relatives used in rules of law. This group is limited to a person’s spouse or life partner, parents (including adoptive and step-parents), children (including adopted and step-children) and siblings.”  

The guide provides the following example:

Example 5 – Contributions to different medical schemes

Facts:

GE paid monthly contributions of R2 500 to ABC Health SA, a registered medical scheme. The contributions are for himself, his spouse and their two children. They are all considered dependants under the rules of the medical scheme. GE also paid monthly contributions of R1 500 to Tip Top Health (a registered medical scheme) for his mother who is dependent on GE for family care and support, and is a dependant as defined in section 1 of the MS Act.

Result:

The total monthly contributions of R48 000, that is, R30 000 (R2 500 × 12) + R18 000 (R1 500 × 12), are regarded as qualifying contributions in GE’s hands in that applicable year of assessment.

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.