FAQ - 5 October 2016
05 October 2016
Posted by: Author: SAIT Technical
Author: SAIT Technical
1. What are the tax implications of tax free saving accounts open for children?
Q: A number of clients are contributing to Tax Free Savings Accounts for their children. Is it necessary to register these children as taxpayer and submit tax returns for the sole purpose of disclosing the Tax Free Savings Account?
A: Section 68(3) of the income Tax Act is relevant to the issue raised by you. It requires the parent to include in his (or her return) any income received by or accrued to or in favour of any of that parent’s minor children either directly or indirectly from that parent (section 67(3)(a)(i)), or any income deemed to be that parent’s income in terms of subsection (3) or (4) of section 7 (section 67(3)(b)).
Because the receipts or accruals in respect of a tax free investment is exempt from normal tax (see section 12T(2)) it is not income and consequently there is no obligation to include it in the return of the parent.
For the same reason, it is not necessary to register the child as a taxpayer – see section 67(1) – the child must only apply to be registered if he or she becomes liable for any normal tax.
2. Is it necessary to apply for a new tax directive if the remuneration receivable is in a foreign currency?
Q: The employee is to receive a gain from the vesting of shares under section 8C of the Income Tax Act. The gain is receivable in EURO. Does the employee need an application for a tax directive? What will the implications be as the rand equivalent is being estimated due to the actual date of payment being a few days later?
A: Section 8C(2)(a)(ii) requires the amount by which the market value of the equity instrument to be determined at the time that it vests in the taxpayer (the employee) and the sum of any consideration in respect of that equity instrument. In addition, the provisions of section 24I doesn’t apply to an individual – it is not an exchange item.
We submit that no new directive is required and it is not necessary to estimate either.
3. Is it required to declare capital gains on foreign shares on a South African resident tax return?
Q: My client lives and works in America but is a South Africa Resident. He has Capital Gains on Foreign shares that he traded in. I am not sure whether I must declare this on his tax return? The transactions are in dollars purchased at various dates and sold at various dates. Do I need to calculate the R/Dollar exchange rate for each transaction to get to the nett Gain / loss for all the shares?
A: The disposal must be declared in the return of income and paragraph 43 of the Eighth Schedule to the Income Tax Act would apply. The SARS CGT Guide explains this well and the following comments are taken from the guide:
“Generally there are two ways of translating a capital gain or loss into rand, namely, a simple method and a more comprehensive method. Under the simple method the capital gain or loss is determined in the foreign currency and then translated to rand at the time of disposal. Under the comprehensive method the expenditure is translated to rand at the time it is incurred while the proceeds are translated to rand at the time the asset is disposed of. The comprehensive method picks up the effect of currency appreciation or depreciation on the base cost of the asset. Thus in times of a depreciating rand the comprehensive method will result in a lower base cost and higher capital gain or lower capital loss while the converse will be true in times of an appreciating rand when compared to the simple method.”
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.