FAQ - 13 July 2016
13 July 2016
Posted by: Author: SAIT Technical
Author: SAIT Technical
1. What are the rules when submitting an objection?
Q: How do we get SARS to approve or accept the objections we send to then? How should we write the ground reasons and reason for late submission.
A: It is section 104, read with the rules, that deals with the period within which objections must be made. The current practice generally prevailing in this regard is set out is Interpretation Note 15 and reads as follows:
“An objection that is not lodged within the time limit of 30 business days is an invalid objection. Under section 104(4) a senior SARS official may extend the period for lodging an objection if satisfied that reasonable grounds exist for the delay in lodging the objection. The extension may be granted after the 30 business day period has elapsed or alternatively, taxpayers can request an extension before the expiry date of that period if aware that the deadline will not be met.
The TA Act does not prescribe the manner in which the discretion to extend the period for lodging an objection under section 104(4) should be exercised. The senior SARS official’s decision must comply with the requirements for administrative justice which are contained in section 33 of the Constitution of the Republic of South Africa read with the Promotion of Administrative Justice Act. In particular, the senior SARS official’s decision must be reasonable. Essentially, for a decision to be reasonable, the senior SARS official is required to consider all relevant matters.
For the purpose of considering an extension to the period for lodging an objection, the senior SARS official is required to consider all relevant matters. These would include –
- the reasons for the delay;
- the length of the delay;
- the prospects of success on the merits; and
- any other relevant factor, for example, SARS’s interest in the determination of the final tax liability in view of the broader public interest relating to budgeting and fiscal planning
Despite these factors being relevant to the exercise of a discretion, they are neither all-embracing nor individually decisive and each case must be considered on its own merits.”
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 the 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.”
It is on the strength of the above that we submit that SARS may not accept the reasons provided. This in itself, constitutes a decision by SARS and can be objected to.
2. What documentary proof is needed for second had goods?
Q: A client of mine claimed notional input tax on two second hand machines which was purchased by one of the members for way under market value. SARS has requested a proof of payment for the machines. What documents do we need to provide?
A: The documentary proof required (when a deduction is made in respect of second-hand goods - paragraph (b) of the definition of input tax) are the following:
a) VAT 264 form.
b) Proof of payment.
In addition to the above, the following information and documents must be verified and retained by the vendor making the deduction:
One can also say that ‘proof of payment’ is required in terms of the Act, because the input tax, as defined in paragraph (b), is the lessor of the consideration in money given by the vendor or the open market value of the supply. It is not payment by the member, when the goods were originally acquired, but the consideration in money given by the close corporation.
3. How is the capital gains on the sale of shares calculated?
Q: When calculating the capital gains on the sale of shares, the company owns a property which it is selling the shares of, what can I exclude from the proceeds or use to increase the base cost?
A: The base cost of an asset acquired is determined in terms of paragraph 20 of the Eighth Schedule to the Income Tax Act – specifically in sub-paragraphs (1)(a) – (1)(f).
The general rule is that it is the “expenditure actually incurred in respect of the cost of acquisition or creation of that asset” that will be the starting point in the calculation of the base cost of the “shares sold”. The cost of acquiring the shares in a company would fall under the expenditure envisaged in sub-paragraph (a). It is determined with reference to the shareholder and is not influenced by whatever expenditure was incurred by the company. The ‘current assets’ of the company similarly has no impact on the cost of the shares.
The loans by the shareholders to the company are assets in their own right. In other words, there is a base cost. If disposed of for no value, paragraph 38 may apply, or if reduced, paragraph 12A would, unless section 19 applies.
The “costs of marketing to sell” can only be added under paragraph 20(1)(c).
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.