FAQ - 9 December 2015
09 December 2015
Posted by: Author: SAIT Technical
Author: SAIT Technical
1. Is a donation received by a trust gross income?
Q: A trustee donates R100 000 per year to a
family trust by physically paying over the R100 000 into the trust’s bank
account.Will this R100 000 received by the trust be seen as
income of a capital nature for income tax purposes or as gross non-taxable
Our guidance is limited to the request.
tax consequences of donations (for the donee (recipient)) are not specifically
dealt with in the Income tax Act. As there is a receipt one must apply
the principles of the definition of gross income (in section 1(1) of the Income
Tax Act) to determine if it will have tax consequences. Our courts have laid
down the law in this regard. According to Judge Smalberger (in CIR v Pick
‘n Pay Employee Share Purchase Trust) "... any receipts accruing to the Trust
were not intended or worked for, but purely fortuitous in the sense of being an
incidental by product. They were therefore non-revenue. That makes them
accruals of a capital nature falling outside the definition of "gross
income" in the Income Tax Act, and therefore not subject to tax.”
Judge Southwood in CSARS v Wyner agreed with this and stated the principle as
follows: "This means that receipts or accruals will bear the imprint of revenue
if they are not fortuitous, but were designedly sought for and worked
taxpayer (the trust) bears the burden to prove that it was a donation and of a
capital nature if it is disputed by SARS.
2. Can SARS increase a provisional estimate even after we’ve
supplied reasons for a lower estimate?
Q: SARS increased our 2016 1st provisional estimation
based on paragraph 19 of the Fourth Schedule after we provided them with
accurate management accounts and explanations on how we calculated our
estimated profit. Can paragraph 19 be applied if we have provided SARS
with fair reason?
A: Unfortunately the wording of para 19(1)(c) is
rather clear: the first provisional tax payment cannot be lower than the basic
amount unless the Commissioner agrees to accept a lower amount. The provision
still leaves it up to the Commissioner to decide where or not to accept a lower
amount, even if the taxpayer has provided very good reasons. But the discretion
to accept a lower amount is still the Commissioner’s.
We can appreciate the fact that this obviously puts your
client in a difficult position, as far as cash flow is concerned. There’s been
some lobbying efforts to amend para 19 precisely to deal with matters such as
yours but they have not succeeded as yet. You may also like to know that the
recently issued SARS Draft Interpretation Note 1on Provisional Tax
Estimates has some interesting comments in this regard:
"If, after requesting a provisional taxpayer to justify an
estimate, the Commissioner is dissatisfied with the taxpayer’s estimate and
decides to increase the estimate, an additional assessment will be issued. In
certain circumstances the Commissioner may base that additional assessment on
an estimate. Provisional taxpayers who are aggrieved with the additional
assessment may object to the assessment. A provisional taxpayer may only object
against the additional assessment issued and not to the Commissioner’s decision
to require the provisional taxpayer to justify the estimate or to furnish
The additional provisional tax payable on an increased
estimate must be settled within a period determined by the Commissioner. The
obligation to pay the increased amount within this period exists even if the
provisional taxpayer lodges an objection or appeal and is subject to a late
payment penalty if not paid within the period permitted” (See page 12 of http://www.sars.gov.za/AllDocs/LegalDoclib/Drafts/LAPD-LPrep-Draft-2015-17%20-%20Draft%20Issue%202%20of%20IN%201%20Second%20Round%20Provisional%20Tax%20Estimates.pdf
But we are not too confident that this will work, especially
given the fact that the Interpretation Note is still in draft form.
3. If SARS requests bank statements as proof of PAYE paid,
should I supply it to them?
Q: Our client is a salaried employee and has been
selected for audit. Since the IRP5 was prepopulated on eFiling, we did
not upload the original certificate as the taxpayer did not receive one. After
the audit, without requesting the original IRP5, SARS disallowed the tax
credits. The taxpayer objected and submitted the original IRP5 to SARS. SARS
then asked for all the client’s pay sheets and bank statements. The taxpayer
got a letter from his employer confirming the PAYE was paid over to SARS and that
he does not have the pay sheets and bank statements as he was not aware that he
must keep such records. Does the taxpayer have to supply SARS with the
requested documents to prove his tax was paid to SARS?
Note the underlined part of section 46(1) of the TAA:
"SARS may, for the purposes of the administration of a tax
Act in relation to a taxpayer, whether identified by name or otherwise
objectively identifiable, require the taxpayer or another person to, within a
reasonable period, submit relevant material (whether orally or in writing) that
Though it is understandably cumbersome for you and the
taxpayer, for the purposes of tax administration it is not unreasonable for
SARS to request the pay sheets and bank statements to really make sure the tax
credits ought to be given.
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.