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FAQ - 14 June 2016

14 June 2016   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

1. Are administration, consultancy and asset management fees tax deductible?

Q: I receive a monthly pension under Sanlam's Selector Income Option. Each month the fees listed above are deducted. They are not deducted from my pension but decrease the value of my capital amount. Are these fees tax deductible?

A: In order for a taxpayer to make a deduction of these fees (or other expenses) 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.  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 of a foreign dividend the deduction will be denied.  The fees expense will therefore have to be apportioned and only deducted from the "income” portion.  Section 23(g) may also present a problem 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.”  

2. Under what circumstance are days extended when appealing? 

Q: When will the days be extended when objecting to an assessment or SARS outcome?

A: The current practice generally prevailing is that a senior SARS official may extend the date for lodging an appeal by –

  • 21 business days, if satisfied that reasonable grounds exist for the delay; or
  • up to 45 business days, if exceptional circumstances exist that justify an extension beyond 21 business days.  

According to that practice "each case must be considered according to its own merits in order to determine whether the reason for requesting an extension of more than 21 business days is exceptional and therefore justifies the requested extension.”  

SARS believes that, "although not directly relevant to section 104(5), section 218 nevertheless provides an indication of the type of things which, taking into account the particular facts and circumstances, may constitute exceptional circumstances for purposes of section 104(5). For example, exceptional circumstances may include –

  • a natural or human-made disaster;
  • a civil disturbance or disruption in services;
  • a serious illness or accident; and
  • serious emotional or mental distress.

The mere existence of one of these factors is not sufficient. The taxpayer would need to demonstrate that the factor was the reason for the delay.”  

3. Must a medical doctor issue a VAT credit note for an adjustment to the value of a VAT invoice? 

Q: A medical doctor is a registered VAT vendor and issues VAT invoices for medical procedures performed. In some cases the value of the procedure needs to be altered because of a number of reasons, for example an incorrect medical aid tariff code used or a discount allowed. Can an adjustment be made to the invoice? 

A: Section 21 of the Value-Added Tax Act applies "where, in relation to the supply of goods or services

by any registered vendor—

(b) the nature of that supply has been fundamentally varied or altered; or

(c) the previously agreed consideration for that supply has been altered by agreement with the recipient, whether due to the offer of a discount or for any other reason…”  

Where a tax invoice has been provided, and the amount shown as tax charged in that tax invoice exceeds the actual tax charged in respect of the supply concerned, section 21(3) requires that the supplier must provide the recipient with a credit note, containing the particulars set out in section 21(3).  

If the actual tax charged in respect of the supply concerned exceeds the tax shown in the tax invoice as charged, the supplier must provide the recipient with a debit note containing the particulars set out in section 21(3).  

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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