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Technical FAQs:April 2013

Sunday, 05 May 2013   (1 Comments)
Posted by: Author: Dieter van der Walt
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Source: Dieter van der Walt

1. Small Business Corporation - s 12E

Q: We have a client, who, the shareholder of is a non-SA resident and is the only shareholder of a SouthAfrican company. He does hold shares in German companies but no other South African companies. Does this business - if all other requirements are met - qualify for small business rate of tax; with the shareholder then not holding any shares in any other SA companies?

A: S 12E(4)(a)(ii) of the Act requires that none of the shareholders should hold any shares or interest in the equity of any other company as defined in s 1 of the Act. The definition of company includes any association, corporation company incorporated under the law of any other country other than the Republic.

2. Small Business Corporation (Definition of "Person")

Q: We would like to get confirmation with regards to the requirement that a business has to meet to be a small business corporation. One of the requirements is that the member should be a natural person. Our query is whether the business will still qualify as a SBC if the shareholder is a trust (as we have it that a trust is also considered as a natural person).

A: The definition of "person” in section 1 of the Income Tax Act includes a trust. The term "natural person” is not defined in the Act, and one therefore has to look at its ordinary meaning – living breathing person. A trust is therefore not a "natural person”.

3. Payment of tax pending objection or appeal s 164 Tax Administration Act

Q: I would like to find out what remedies my client has at his disposal. SARS removed a sum of money directly from his bank account. SARS records indicate that they had left a voice-mail on the client’s phone and then subsequently removed amount directly from the account. We have corresponded directly with the collections agent. The matter has been objected to on numerous occasions with no luck. How should the matter be dealt with formally? 

A: In terms of section 164 of the Tax Administration Act an objection or appeal does not defer or delay the payment of normal taxes unless a senior SARS official suspends such payment pending the outcome of the objection or appeal.

164. Payment of tax pending objection or appeal.—(1) Unless a senior SARS official otherwise directs in terms of subsection (3)—
(a) the obligation to pay tax; and
(b) the right of SARS to receive and recover tax, will not be suspended by an objection or appeal or pending the decision of a court of law pursuant to an appeal under section 133.
(2) A taxpayer may request a senior SARS official to suspend the payment of tax or a portion thereof due under an assessment if the taxpayer intends to dispute or disputes the liability to pay that tax under Chapter 9.

You mentioned that you have objected on numerous occasions. Do you not agree that a person can only object once to a specific assessment? For now I can only suggest that you request in writing that the matter be brought before a senior SARS official and that you request that the matter be deferred until the objection or appeal has been finalised. At least this will stop SARS from taking any further amounts from your client’s bank account.

4. Definition of Motor car s 1 Income Tax Act

Q: We would like to get confirmation that if our client purchases a "panel van” which will be used as a delivery vehicle only, whether our client will be able to claim the input VAT back on the transaction or not.

A: Below please find the definition of "motor car” as found in section 1 of the Value Added Tax Act. Input VAT will be denied in the event that the ‘panel van” falls within this definition. 

"motor car” includes a motor car, station wagon, minibus, double cab light delivery vehicle and any other motor vehicle of a kind normally used on public roads, which has three or more wheels and is constructed or converted wholly or mainly for the carriage of passengers, but does not include—

(a) vehicles capable of accommodating only one person or suitable for carrying more than 16 persons, or
(b) vehicles of an unladen mass of 3 500 kilograms or more; or
(c) caravans and ambulances;
(d) vehicles constructed for a special purpose other than the carriage of persons and having no accommodation for carrying persons other than such as is incidental to that purpose;
(e) game viewing vehicles (other than sedans, station wagons, mini-buses or double cab light delivery vehicles) constructed or permanently converted for the carriage of seven or more passengers for game viewing in national parks, game reserves, sanctuaries or safari areas and used exclusively for that purpose, other than use which is merely incidental and subordinate to that use; or
( f ) vehicles, constructed as or permanently converted into hearses for the transport of deceased persons and used exclusively for that purpose;

5. Capital Gains Tax Primary residence exclusion par 47 of the 8th Schedule to the Income Tax Act

Q: Residential property was bought for R 1 500 000 on 14 December 2009. Taxpayer (owner) resided in the property from 14 December 2009 to 31 October 2010 (11 months).

Property rented out from 1 November 2010 to 31 October 2011 (12 months) and the rental income and expenses declared as a local trade on the owner’s income tax return.

Property was unoccupied (to fix to sell) from 1 November 2011 to 17 January 2012 when ownership was transferred to new owner.

The selling price was R 1 825 000.

My opinion is that the seller does not qualify for the full R 1 500 000 primary residence exclusion but it must be apportioned as the seller only resided in the property for 11 months, rented out for 12 months and vacant for just over 2 months (and he did not himself vacate the property to fix and sell as it was rented out at that stage) out of the 26 months he owned the property.

The taxpayer referred the matter to a SARS consultant who advised that the gain must be disregarded as a primary residence exclusion.

I disagree with the SARS advice.

A: The uninterrupted rule in par 47 of the Eight Schedule to the Income Tax Act requires that the taxpayers’ stay in the residence must have been uninterrupted. The exception to the rule is when the primary residence was offered for sale and the taxpayer vacated the property due to the acquisition or intended acquisition of a new primary residence (par 48).

I agree with your interpretation of the Act.

6. VAT on Duty Free Shops ss 11(1)(m) of the VAT Act

Q: Can you please explain to me how the vat system of a duty free shop works regarding input tax and output tax( standard and zero rates).

A: In terms of ss 11(1)(m) and (mA) of the Value added Tax Act, certain goods supplied to a customs-controlled area enterprise (for example a duty free shop) or Industrial Development Zone shall be zero-rated. Good supplied to a customs-controlled area by a South African vendor in terms of a sale or credit sale agreement shall in most instances be zero-rated as the supplies are effectively treated as an export. The movement of goods by a vendor situated in a customs-controlled area to a person in South Africa will be subject to VAT at the standard rate in terms of s 7(1)(a). VAT would also not be levied on the direct importation of goods into the customs-controlled area from an export country.

As most of the supplies will be regarded exports and VAT charged at a rate of zero, the vendor may claim input VAT on expenses incurred in the furtherance of the enterprise.

7. Expenses deductible from Commission income s 11(a) and s 23(m)

Q: When may expenses be deducted from commission income and what expenses are included. Also, may expenses be deducted from incentive income?

A: Any expense actually incurred in the production of the income is tax deductible provided that it is not of a capital nature in terms of section 11(a) of the Income Tax Act. The negative test on the other hand, section 23(m) of the Act however prohibits expenditure in terms of section 11(a) of the Act in the event that the taxpayer’s remuneration is not primarily (more than 50%) derived from commission. The commission must be directly attributable from that person’s sales or turnover attributable to that person. In other words, say for example a sales manager is paid a profit share on sales made by his sales persons, then that profit share will not qualify as commission for purposes of section 23(m).

8. Rental deductible s 11(a) and s 23(g)

Q: One of my client’s primary residence’s is in one of his CC's. He rented it out while he lived overseas and when he moved back to SA he had to pay accommodation for 4 months because the rental agreement was still valid, may we claim the accommodation for the 4 months against the rental income?

A: The expense does not relate to any form of trade i.e. the expense was not incurred in the production of income and is of a capital nature – section 11(a) read with section 23 (g) of the Income Tax Act.

9. Donations Tax s 55(3) of the Income Tax Act 

Q: When is a donation made or deemed to have been made for Donations tax purposes?

A: It is my understanding that a donation (disposal of the property) will take effect (or be deemed to take effect):

  • On the date that all the legal formalities for a legal donation have been complied with.
  • An oral donation takes effect on the date of delivery.

Therefore, it is my understanding that the disposal will take place or be deemed to have taken place on the date that the donation "takes effect” (s 55(3)) hence, this will be the date when the property was disposed of for purposes of Donations Tax. 


Elsie L. van den Bergh says...
Posted Thursday, 09 May 2013
Question: Private Company has 4 directors. Three have passports from various countries and are not SA residents. They receive directors renumeration and are supposed to declare this income with their country of origin. Will SARS accept my explaination when it comes to the Income Tax Return of the Company whereby these expences do not balance with the Annual Paye Return?.



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