20 April 2010
Amounts received by an auctioneer/agent
Professor R C Williams
Binding Private Ruling 012 concerns a South African resident company (“the taxpayer”) which carried on business as an auctioneer and agent for the sale of livestock.
The issue was whether the total amount reflected on the taxpayer’s invoices in relation to the buyers and sellers who transacted with the taxpayer constituted “gross income” of the latter or whether only the taxpayer’s commission and service fee formed part of gross income.
Two types of transaction were in issue; firstly, private transactions in which the taxpayer located a willing buyer for the seller’s livestock; and, secondly, auction transactions in which sellers brought their livestock to the auction, where it was auctioned to the highest bidder. Ownership in the livestock passed from seller to buyer on the fall of the hammer.
In the case of both private transactions and auction transactions, the taxpayer would draw up an invoice between itself and the seller and another invoice between itself and the buyer. The invoice between the taxpayer and the seller would reflect the taxpayer’s commission and service fee as deductions.
The taxpayer would then collect the funds from the buyer, deduct its commission and service fee, and pay the balance to the seller.
The question was whether, in these circumstances, the total amount on the invoice issued by the taxpayer should be included in its gross income.
The binding private ruling stated that it was issued “subject to the following condition and assumption”, namely that the taxpayer acted only as agent or auctioneer in the transaction.
On the basis of this condition and assumption, the ruling states that only the commission and service fee and the costs recovered under the transaction formed part of the taxpayer’s gross income.
The unsatisfactory feature of this BPR is that it assumes the very issue that it was supposed to determine, namely, whether on the given facts, the taxpayer did indeed act only as agent or whether (as in CIR v Witwatersrand Association of Racing Clubs 1960 (3) SA 291 (A), 23 SATC 380) the taxpayer acted as a principal.
As in the Witwatersand Association of Racing Clubs case, the mere fact that the taxpayer, in the course of its business, collects money from A, always intending to pay it over to B, is not conclusive. The question is whether, as a matter of law, the amount in question was received by the taxpayer beneficially (in which event it forms part of his gross income and the fact that he later remits the moneys to another person does not undo the beneficial receipt) or whether it was received by the taxpayer in the capacity of agent (in which event, the amount accrues to the principal).
The transactions in question were “proposed” transactions and not a fait accompli.
One wonders why, rather than make up invoices in this dangerous (from a tax point of view) manner and then incur the trouble, expense and delay of applying for a binding private ruling, the taxpayer did not rather arrange for the invoices and other documentation to reflect unambiguously its role as a mere agent in the transaction.
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