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Tax Technical FAQs: June 2012

28 June 2012   (2 Comments)
Posted by: SAIT Technical
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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.

CGT/DT: DISPOSAL 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 fund.

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.

SARS issued 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;

 "asset” includes—

(a) property of whatever nature, whether movable or immovable, corporeal or incorporeal, excluding any currency, but including any coin made mainly from gold or platinum; and

(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 allowance.

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.

 

Comments...

Michael G. White says...
Posted 24 August 2012
Exports zero-rated to make exporters' goods more competitive and vice versa for importers' goods.
Stephene Sathiga says...
Posted 30 July 2012
what is the rational of zero rating exports( was it to lure investment?) and the rational of vat on imports was to encourtage proudly south african goods/services? let alone the consumption element.

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