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FAQ - July 25

Thursday, 25 July 2013   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

1. Tax implications of winnings


We have a client who won R 500 000 in a competition held by a big local and international company. The question is whether, or not, there will be Income Tax payable on the winnings?  I know that there were proposals in the 2011 TLAB, but as far as I am aware, it was never implemented. 


The nature of the winnings from the competition must first be considered. If the amounts are received fortuitously without the person having done anything to earn the amounts, the winnings should be of a capital nature. If however the person had to do something in order to receive the amount or designedly worked to make a profit, the amount may be included in gross income in terms of paragraph (c) of the definition of gross income. Refer to the case of CSARS v Kotze, where the taxpayer provided information to the police in exchange for a reward as well as the principles laid down in the case of CIR v Pick 'n Pay Employee Share Purchase Trust regarding the nature of amounts received. 

A capital gain in respect of a disposal relating to any form of gambling, game or competition must be disregarded in terms of par 60 of the Eight Schedule of the Income Tax Act, provided that that person is a natural person and the game or competition is authorised by and conducted in terms of the laws of the Republic.

2. Effect of a home study on primary residence exclusion for CGT


Please advise on my understanding of the implications of Capital Gains Tax (CGT) in respect of the use of an office located in a primary residence.  If, for example, only 15% of the residence’s floor space is used as an office and 15% of bond interest, electricity etc is claimed for Income Tax purposes there will be, according to my understanding, no impact on the R 2 million primary residence exclusion. 


The term ‘primary residence’ is defined as a residence in which a natural person or special trust holds an interest and,

  • must regard it as his main residence and must or must have ordinarily resided there, and
  • must use or have mainly (more than 50%) used it for domestic purposes

 Any capital gain, where the proceeds on the sale of the primary residence does not exceed R 2 million, must be disregarded in terms of par 45(1)(b) of the Eight Schedule to the Income Tax Act. Subpar (1)(b) does however not apply in the event that the residence or part thereof was used for purposes of carrying on a trade for any portion of the period after the valuation date – subpar 4(b).

The exemption of R 2 million in terms of par 45(1)(a) is however still available, subject to par 49. An adjustment in terms of this paragraph must be made to the primary residence exclusion where the residence is used both for domestic and trade purposes. In other words, if 15% of the residence were used as an office, 15% of the capital gain would not qualify for the primary residence exclusion. The amount of R 2 million is however available in respect of the 85% utilised as residence. 


The R 2 million exclusion in terms of par 45(1)(a) applies subject to an apportionment calculated in terms of par 49.

3. Calculation of depreciation on use of company owned vehicle


I am trying to calculate the entire employee and Value-Added Tax fringe benefits on the payroll-program for company owned vehicles. According to SARS the value to be used in both cases is the cost less 15% depreciation for each year until the employee takes possession of the vehicle. Dilemma: some vehicles were bought in 2005 and 2007 that has no depreciated value. I have looked on the SARS website and read all about it, but there is no indication of what to do if the vehicle is depreciated to NIL. What do we do in this case?


Income Tax:

For purposes of calculating the fringe benefit, to be placed on the private use of an employer provided vehicle, one firstly have to determine the ‘determined value’ of the vehicle in terms of par 7(1) of the Seventh Schedule to the Income Tax Act. The ‘determined value’ of the motor vehicle is one of the following: 

  • Original cost to the employer (excluding finance charges and interest) provided that the vehicle was acquired by him under a bona fide agreement of sale or exchange (par 7(1)(a)), or
  • Its retail market value when the employer first obtained right of use, if held by the employer under a lease or was acquired on termination of a lease. The ‘determined value’ for a lease contemplated in par (b) of the definition of ‘instalment credit agreement’ in s 1 of the VAT act is its cash value as defined in s 1 of that Act (par 7(1)(b)), or
  • If none of the above applies, the market value when the employer first obtained the vehicle, or right of use thereof (par 7(1)(c)).

 The ‘determined value’ may be reduced by 15% for each completed period of 12 months on the reducing balance method if the employee was granted the use of the vehicle not less than 12 months from the date on which the employer first obtained the vehicle or right of use thereof (provision (a) to par 7(1)). Unlike the straight-line method of reducing the value, the reducing balance method should not give a nil value for vehicles purchased in 2005 and 2007.


Determine which of the 3 provisions will be appropriate to determine the ‘determined value’ and apply the 15% depreciation rate per completed 12 month periods to reduce this value where applicable.

Value-Added Tax

Paragraph (1) of Government Notice 2835 of 1991, which provides directions for purposes of sections 10(8) and (13), has a similar definition of determined value. There are however slight differences to consider (e.g. cost excludes VAT for purposes of this regulation while it may not be the case for paragraph 7).

 The requirement of the regulation is however similar to paragraph 7 as it allows a 15% per annum reducing balance reduction in the determined value of the vehicle.



Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.

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