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FAQ - 10 January 2018

10 January 2018   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

1. Is a logbook always required when a taxpayer has a travel allowance?

Q: Can SARS request a logbook for Reimbursive Kilometres reported against IRP5 code 3703?

A: Code 3703 is used for amounts related to a claim by an employee that was based on the ‘actual distance travelled’ – see section 8(1)(b)(iii) of the Income Tax Act.  It then is reasonable to accept that the employer will retain some sort of document supporting the distance travelled, but that this may well not be in the form of a logbook.  We submit, where the employee kept a logbook, that it would constitute relevant material.  Principally SARS would be able to call for this from the taxpayer as well for review or audit purposes.  If no logbook was kept, the taxpayer, or employer’s response, to such a request from SARS would then be to point out that it was not kept and that the only documents available are the ones used for the reimbursement.  This would of course have to show the actual distance travelled’ for purposes of the claim. 

2. How do one treat VAT and Tax on transactions between a SA company and a Namibia company?

Q: My client sold a franchise to a Namibia company and also provide various services such as training, printing and advertising to the Namibia Company. My client don't add VAT to the invoice. When the Namibia Company pay all invoices they withhold 10% tax without giving any proof that the tax was paid over to the Namibia Tax authorities. They also don't issue some certificate that my client can use as a claim of the tax they already paid in Namibia. Who is responsible to issue such a certificate or what process should one follow?

A: We accept that with “no VAT is charged on any transaction between SA and Namibia” you actually mean that the transaction qualified for the rate of zero percent under section 11(2) of the Value-Added Tax Act (RSA). 

We accept that tax was withheld under section 35A of the Namibian Income Tax Act – it applies to a “management or consultancy fee” which means “any amount payable for administrative, managerial, technical or consultative services or any similar services, whether such services are of a professional nature or not”.  This would apply to the “various services such as training, printing, advertising, etc to the Namibia company”.  We accept that it doesn’t apply to the sale of the franchise itself.  

The current practice generally prevailing in South Africa in this regard is the following:

“Any foreign-source amount received by or accrued to a resident must be declared in that person’s income tax return.”

“The onus is on a resident to prove that the resident is entitled to a foreign tax rebate under sections 6quat(1A), 6quin and 64N or a deduction under section 6quat(1C).  Consequently a resident must keep adequate written records of amounts of income that qualify for a rebate or a deduction as well as foreign taxes proved to be payable or paid.” 

We therefore agree with you that this implies that a written record is required of the foreign taxes paid.  We don’t know what form of a receipt is issued by the Namibia Revenue Authority to the Namibian resident, but the RSA resident should insist on obtaining some form of record of this payment. 

We accept that these services are rendered (the “various services such as training, printing, advertising, etc to the Namibia company”) in Namibia – in other words, that the source is there.  Paragraph 2 of Article 14, of the RSA / Namibia Treaty does not deem the source of ‘professional services’ to be in Namibia (or to have been derived from Namibia).  

3. Would a nail technician (nail salon) qualify for turnover tax?

Q: The tax payer is a sole proprietor and works as a nail technician specializing in gel and acrylic nails and nail art. Her turnover is R 300 000 per annum. Would she qualify for turnover tax?

A: Please note that SAIT's technical query system policy prescribes that only guidance should be provided in relation to requests submitted.  Opinions or interpretations carry risks against which SAIT is not indemnified and would effectively cause SAIT to compete with its own members.  Guidance implies that sources or references relevant to your request are provided, but that ultimately your professional judgment is required to be applied to the specific circumstances. 

The definition of ‘professional service’ (in the Sixth Schedule) is must the same at the section 12E definition of ‘personal service’.  Judge Mbha made the following comments when the Tax court considered the last-mentioned definition:

“It is accepted generally that the meaning of words in a statute is derived from the common law.  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.”  Note: SARS changed its Interpretation Note after this case. 

SARS, in their micro business guide, states that “professional services are generally rendered by more sophisticated, high-income earning taxpayers, with profit margins that are significantly higher than those assumed in the design of turnover tax.” 

The ordinary meaning of “health” is “The state of being free from illness or injury.” – Oxford dictionary.  The Judge, in the tax case referred to above, didn’t deal with the words “in the field of”.  The issue is whether it may well extend the meaning of the words.  The current practice generally prevailing, in respect of small business corporations, is the ‘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.’ 

It doesn’t include “a nail technician specializing in gel and acrylic nails and nail art”.   

You may well want to obtain a ruling or non-binding opinion from SARS.  

Disclaimer: Nothing in this query and answer 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 answer, SAIT do not accept any responsibility for consequences of decisions taken based on this query and answer. It remains your own responsibility to consult the relevant primary resources when taking a decision.

 


 

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