FAQ - 2 August 2016
02 August 2016
Posted by: Author: SAIT Technical
Author: SAIT Technical
1. Do occupational
therapists fall under the personal service definition?
Q: Under the
definition of personal service 12E (4) d, medical is also mentioned. Does any
medical related profession fall under this word/definition?
A: In terms of
section 12E(4)(d) of the Income Tax Act a "personal service” in relation to a
company, means "any service in the field of … health … if…” the other
requirements apply (we accept that they do and that the company is not an
The basic rule of interpretation is that the meaning must,
unless a statute provides otherwise, or unless it would result in an absurdity,
be taken to be the ordinary meaning of the word which can be found in a
dictionary of established authority.
This principle was specifically confirmed in a Tax Court case (in case
12680) where the interpretation of the term "personal service” as used in
section 12E was considered.
The current practice generally prevailing (which changed
from issue 5) is that "in general, a personal service refers to a service
rendered for which the income derived is mainly a reward for the personal
efforts or skills of an individual. In determining whether a service falls
within the ambit of a "personal service” as defined, the ordinary grammatical
meaning is given to each word in that definition. The words "any service in the
field of” preceding the categories of services listed in the definition suggest
that a wide interpretation must be applied to these categories. Therefore, the
list must be interpreted to include every service in the specified field
irrespective of whether it is of a professional nature.”
According to the Oxford Dictionary, health means "the state
of being free from illness or injury: (he was restored to health)” or "a person’s
mental or physical condition: (bad health forced him to retire). Occupational therapy means "the use of
particular activities as an aid to recuperation from physical or mental
2. What is the
procedure to request a remittance of penalty?
Q: SARS has imposed
understatement penalty in terms of Section 213 of the TAA. We lodged an
objection but did not specifically object to the understatement penalty. SARS
has now disallowed the objection. Do we have to lodge an appeal for relief in
terms of the underestimation penalty or can we use the remedies available in
A: We accept that
the penalty is the 10% late payment penalty as an understatement penalty is
levied under section 222. You mentioned
that it relates to value-added tax and we accept that the reference to an
underestimation penalty is not correct.
The grounds for an underestimation must be based, in the first place, on
the ones set out in paragraph 20 of the Fourth Schedule of the Income Tax
The correct procedure is to request a remittance of the
penalty (under section 215 - procedure to request remittance of penalty). Such a request should have been done on or
before the date for payment in the ‘penalty assessment’ – we accept that it
would then be too late to do so now.
It is our view that one can also object to the penalty in
the ADR1 – i.e. together with the objection to the VAT217. Problem is that if the ADR1 didn’t contain
the grounds for the remittance request, it would be too late to do so now as it
requires a new objection. We also submit
that you can’t include this in the appeal as rule 10(3) provides that the
taxpayer may not appeal on a ground that constitutes a new objection against a
part or amount of the disputed assessment not objected to under rule 7.
3. How is the free accommodation
fringe benefit for workers in shared accommodation determined?
Q: Employer runs
waste water works and has old houses and hostels where they allow some
employees to reside - they are in SINGLE rooms in hostels - or where houses are
used they mostly share the house with other employees. How will the fringe
benefit be determined?
A: The taxable
benefit, under paragraph 2(d) of the Seventh Schedule to the Income Tax Act,
arises when "the employee has been provided with residential accommodation
(whether furnished or unfurnished and with or without board, meals, fuel, power
or water) either free of charge or for a rental consideration payable by the
employee which is less than the rental value of such accommodation as
determined under the applicable provisions of paragraph 9.
In terms of paragraph 9 of the Seventh Schedule the cash
equivalent of the value of the taxable benefit derived from the occupation of
residential accommodation is the rental value of such accommodation (as
determined under subparagraph (3), (4) or (5) of paragraph 9 in respect of the
year of assessment).
The general rule is that the "C” in the formula (in
paragraph (9(3)) represents a quantity of 17%.
It is only where the general rule does not apply (i.e. where the "C” in
the formula will either be 18% or 19%) that the Act refers to "accommodation
(which) consists of a house, flat or apartment consisting of at least four
With regard to the "SINGLE rooms in hostels” we submit that
the 17% will apply. Where the houses are
shared, the Act doesn’t provide for the benefit to be adjusted on the basis
that it was provided to more than one employee.
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.