Tax Technical FAQs: June 2012
28 June 2012
Posted by: SAIT Technical
VAT: VAT ON LABOUR
Q: I am a building
contractor. When I invoice my client I show labour costs separately on the
invoice. Should I charge VAT on the recovery of my labour cost?
A: The vendor will
not pay VAT on salaries paid to employees (see the third proviso to paragraph
(c) of the definition of an "enterprise" in section 1), but when a
part of the salaries paid to employees are recovered from other vendors, the
recovery thereof is subject to VAT in terms of section 7(1)(a) as the vendor is
regarded as having supplied a "service" as defined in section 1 to
the other vendors.
OF A RESIDENCE FROM A COMPANY OR TRUST
Q: I want to make
use of the relief offered in terms of paragraph 51A of the Eight Schedule to
the Income Tax Act. My question is whether there is a limitation on the size of
the land same as which can be found in par 44 (Primary Residence Exclusion).
A: No, there is no
limitation on the size of the land in terms of par 51A
INCOME TAX: ENDOWMENT POLICIES
Q: Is there any tax
payable on endowment policies?
A: Endowments are
governed by the Long-Term Insurance Act and are therefore taxed within the
investment. This is referred to as the ‘four funds approach which are 'pools'
for individuals, companies, corporates and those that are untaxed. This tax is
paid within the fund and on behalf of the investor. The result is that the
proceeds will be free of any tax purely because it has already been paid within
The only exception
to this is second-hand policies (where you are not the original beneficial
owner) where CGT will also be payable by the investor on deemed disposal and on
top of CGT already paid within the fund.
INCOME TAX: ASSESSED LOSSES – TRADING REQUIREMENT
Q: I have a company
which has an assessed loss but the company has been dormant for a period of 18
months. I have tried to get new business during this period but was
unsuccessful. Can the assessed loss be carried forward or will it be forfeited?
A: Before a company
can carry forward its assessed loss from the immediately preceding year of
assessment (the "balance of assessed loss”), it must have carried on a trade
during the current year of assessment. If it fails to do so, it will forfeit
the right to carry forward its balance of assessed loss in terms of section
20(1)(a). This principle was firmly entrenched in our law by the
landmark case of SA Bazaars (Pty) Ltd v CIR 1952 (4) SA 505 (A),
18 SATC 240.
Interpretation Note No. 33 as a guideline.
CAPITAL GAINS TAX: DISPOSAL OF A PROPERTY FROM A
COMPANY OR TRUST
Q: Does the
provisions of paragraph 51A of the Eight Schedule to the Income Tax Act provide
relief from Donations Tax?
A: No, it doesn’t.
No specific donations tax exemptions were introduced to deal with the disposal
of a residence under para 51A. The donations tax consequences must therefore be
dealt with under the existing donations tax provisions in ss 54 to 64 contained
in Part V of the Act.
INCOME TAX: WEAR AND TEAR ALLOWANCE
Q: Taxpayer is a Pty
owning vacant land. An unrelated third party wishes to erect manufacturing
premises on the land at its own cost in exchange for a long lease with reduced
rentals. Tennant cannot own the building since the structure imputes to the
land and becomes the property of the landlord. Furthermore the tenant will
expense the cost of the building over the lease period. Landlord incurs no
direct cost in erecting the building. Who may claim the 5% building allowance?
A: A ‘depreciable
asset’ is an asset as defined in the Eight Schedule to the Income Tax Act;
(a) property of
whatever nature, whether movable or immovable, corporeal or incorporeal,
excluding any currency, but including any coin made mainly from gold or
(b) a right or
interest of whatever nature to or in such property;
The person who has
the right or interest in that property, is the person that may claim the
VAT: INPUT TAX ON UNIFORMS
Q: I have a client who owns a BP
Fuel station. She has to buy/supply a uniform for the workers to wear every day
while at work. It is clearly identifiable, etc. Can she deduct this uniform
expense for VAT purposes for her business? (Can she claim input tax on it?)
A: Generally, the VAT charged by a vendor to
another vendor on any goods or services acquired for the business will qualify
as input tax in the hands of the recipient. It does not matter if the goods or
services are acquired for the purposes of consumption or use by the business
itself, or for the purposes of making a supply to another person. It is
important that input tax is only deducted insofar as the supplies are used for
the purposes of making taxable supplies in the course or furtherance
of the enterprise.