FAQ - 19 April 2017
19 April 2017
Posted by: Author: SAIT Technical
Author: SAIT Technical
1. Is an Estate required to register for income after date of death if the income is below the tax threshold?
Q: The date of death occurred after March 2016, which is from when SARS changed the way Estates are taxed on income after date of death in that it is no longer taxed in the hands of the heirs. When should the deceased estate be registered?
A: In terms of the new provisions that you refer to, the ‘income’ (and taxable capital gain if any) accruing after date of death, if the individual died on or after 1 March 2016, is taxed in the ‘estate of the deceased person’. The ‘estate of the deceased person’ is a separate taxpayer and is registered as such with SARS. The income tax liability, excluding that on lump sums, that qualify as a deduction, is the tax debt at date of death, which includes amounts deemed to have accrued before the date of death.
To notice given in terms of section 66(1) of the Income Tax Act, 1962 read together with section 25 of the Tax Administration Act, is not yet issued. We therefore don’t know what the requirements would be relating to the estates of deceased persons and whether it will provide relief if the gross income is less than the amounts specified in the notice. It may well be that the same principle will apply as applies for a trust – i.e. a return is required, or a natural person, a return is required if there is a capital gain in excess of R40 000.
2. Can a new trading entity that took over all trading activities claim ETI again on qualifying employees?
Entity traded as a Trust. Due to economic hardship an independent company made an agreement with the trustees to take over 49% of the farm. The trustee are now a director of the new trading entity - a PTY and still trading on the same farm. Can they register for ETI?
A: In the Employment Tax Incentive Act, unless the context indicates otherwise an ‘‘associated person’’, in relation to an employer:
(a) where the employer is a company, means any other company which is associated with that employer by reason of the fact that both companies are managed or controlled directly or indirectly by substantially the same persons;
(b) where the employer is not a company, means any company which is managed or controlled directly or indirectly by the employer or by any partnership of which the employer is a member; or
(c) where the employer is a natural person, means any relative of that employer;
For the purposes of paragraph (c) of the definition of ‘‘associated person’’ above ‘‘relative’’, in relation to any person, means the spouse of that person or anybody related to him or her or to his or her spouse within the third degree of consanguinity, or any spouse of anybody so related.
Under section 6(e), an employee is a qualifying employee if the employee was employed by the employer or an associated person on or after 1 October 2013 in respect of employment commencing on or after that date.
And under section 7(4), if a qualifying employee was previously, on or after 1 January 2014, employed by an associated person in relation to the employer that employs the qualifying employee, the number of months that the qualifying employee was employed by the associated person must be taken into account by that employer for the purposes of this section as if that employee had already been employed by that employer for that number of months.
From the information provided it appears that the employer is a company. The trustee, in his or her capacity as such, is not an employer and paragraph (c) of the definition is not relevant to the issue. Paragraph (b) of the definition may well have relevance.
3. What are the capital gains implications for a transaction between a resident and non-resident?
Q: Non Resident Company owns property in S Africa. Now selling to local buyer in Cape Town. 1) The Company is not registered as a taxpayer in South Africa. 2) Does the foreign company have to register for tax purposes for Capital Gains? And if not against which payment reference number will Withholding taxes be paid?
A: We accept that when you say the company “registered … in the British Virgin Islands” also has its place of effective management outside the RSA. A capital gain will arise in the RSA, in terms of paragraph 2(1)(b) of the Eighth Schedule to the Income Tax Act, and the Eighth Schedule will apply to the immovable immovable property situated in the RSA held by a person who is not a resident (we accept that the house is situated in the RSA). The resulting capital gain must be declared in a return of income in the RSA.
In terms of paragraph 2 of the notice (the 2016 one) given in terms of section 66(1) of the Income Tax Act, read together with section 25 of the Tax Administration Act, the following persons “must furnish an income tax return:
(b) every company, trust or other juristic person, which is not a resident:
(iii) which derived any capital gain or capital loss from a source in the Republic;”
The foreign company is therefore obliged to register as a taxpayer in the RSA.
In terms of section 35A(1)(a) (of the Income Tax Act) as ‘the purchaser’ must pay an amount to a person who is not a resident (‘the seller’), in respect of the disposal by that seller of any immovable property in the RSA, the purchaser must, subject to section 35(2), withhold from the amount which that person must so pay, an amount equal to 7,5% (or 10% from 22 February 2017) of the amount so payable.
The purchaser pays this amount to SARS by submitting the NR02 form to SARS together with the payment. The NR02 (declaration completed by the purchaser) requires the income tax reference number of the seller.
When the seller is not registered as a taxpayer, SARS requires that the NR02 and offer to purchase must be forwarded to email@example.com so that the seller can be registered for income tax before payment is due – see http://www.sars.gov.za/TaxTypes/CGT/Pages/Registration.aspx.
The last part is not in terms of the Income Tax Act and it appears possible to submit the return without the tax reference number of the seller. See also section 35A(3)(b).
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.