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FAQ - June 2013

Friday, 07 June 2013   (1 Comments)
Posted by: Author: Dieter van der Walt
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Author: Dieter van der Walt

1. Foreign income – South African residents

Q: A client of mine pays 20% withholding tax on his salary derived in Mozambique.He is a South African resident for individual income tax purposes and therefore obviously a non-resident for Mozambique.

For his 2013 South African tax return I would assume his earnings are quantified at the prescribed exchange rate.

First question:

Would SARS only tax him on annual assessment (individual year end of 28 February) or would he have to be a provisional taxpayer?

Second question:

The withholding tax he pays in Mozambique, would that be an allowable deduction of some kind?

Third question:

If not an allowable deduction then I assume it works kind of like the new proposal for SA implementing the same plan next year where the non-resident will be refunded by SARS if the 15% results in that non-resident tax-payer exceeding the determined tax liability in his own country?


First question:

The terms "provisional taxpayer” is defined in par 1 of the Fourth Schedule to the Income Tax Act. This excludes persons who receive "remuneration” but also any person if the Commissioner so directs. "Remuneration” expressly includes amounts received by or accrued (for services rendered or to be rendered) to a person by virtue of holding an office or employment (par (c) of the definition of "gross income” s 1).

Your client will be assessed on his world-wide income received by or accrued to him during that year of assessment. Consider whether your client would be in receipt of "remuneration” which would mean that he/she is not liable for provisional tax unless the Commissioner so directs.

Second question:

S 6quat(1)(b) of the Act allows for a rebate or deduction against the taxable income of a resident provided that the source of that income is not from a source within the Republic. In the event that the source of the Income is from a source within the Republic, may s 6quin apply.


In terms of s 6quat(2) of the Act certain requirements have to be met for the rebate or deduction to be allowed in terms of s 6quat(1) of the Act.

a) The foreign taxes paid must be paid on income. The basis of taxation must be substantially similar as that charged on income under domestic tax law i.e. the tax charged must be a tax on income and not any other form of tax.

b) The foreign taxes should be paid or be payable. As the foreign tax credits will only be allowed as a deduction or a rebate in the event that it has been actually paid, or proven to be unconditionally payable. 

c) There must be no right of recovery. It must be proven that the foreign state did not charge a withholding tax which is more than that stipulated in a Double Tax Agreement (DTA). 

d) The taxes must be payable on amounts included in a resident’s taxable income. If for example an assessed loss from a previous year or expenditure in a current year results in a loss, then no foreign credit will be allowed. 

Refer to Interpretation Note No. 18 (Issue 2). I furthermore suggest that you consider whether the provisions of s 10(1)(o)(ii) may apply.

Third question:

Based on the information provided, am I of the opinion that the foreign tax credit will be allowed.

2. Goodwill and Capital Gains Tax

Q: My client owns a Closed Corporation (CC). She does promotions and branding. She has been offered to join another enterprise. She was advised (by another tax consultant) that she should close her CC and sell the CC’s assets (i.e. laptop) to herself. Therefore the new enterprise won’t be buying her CC (and clientele).

The new enterprise has decided to pay her (in her personal capacity) R150 000 which will be paid via a loan account. She has heard that this payment for "goodwill” may give rise to capital gains tax.

I am unsure about this transaction. Can the payment to her be classified as goodwill? I understand that goodwill will arise on the purchase of the CC but that isn’t the case here; maybe goodwill that she will bring her clients with to the new enterprise. There is no contractual relationship between her CC and her clientele. Will the SARS consider this to be a GCT-transaction or will this be treated as a dividend because her loan account will have a debit balance (i.e. owing to the company)?

A: For purposes of the Eight Schedule to the Income Tax Act, the following four requirements have to be met before a capital gain or loss can be calculated:

  1. The transaction has to involve an asset. The term ‘asset’ is defined in par 1 and is wide enough to include virtually any asset.
  2. There has to be a disposal or deemed disposal, this event will trigger CGT.
  3. Determine the base cost of the asset.
  4. The proceeds/selling price must be determined.

Based on the information stated below can I comment as follows: 

  1. Your client has sold an asset, and even though it is not clear as to what the true identity of the asset is, it is something with value, be it goodwill, know how etc. I think it is important to determine as to who holds the ownership of the asset. If for example it is the CC, then, the CC disposed of the asset, and will the transaction suffer CGT in the CC rather than in the individuals hands. This will have an adverse tax effect, as the transaction may furthermore suffer donations tax (s 57 donation on instance of any person) or dividends withholding tax (distribution of gain out of CC/deemed dividend).
  2. For purposes of par 11(1) a disposal has taken place – your client was paid R 150,000.
  3. Consider whether your client applied any capital in order to give the asset value, alternatively the base cost would be nil.
  4. The proceeds/selling price amounted to R 150,000.

It is my understanding that the transaction will be subject to CGT.

3. VAT - submission date 

Q: Could you please clarify the submission date of VAT returns subject to diesel rebates.

A: VAT returns that have a diesel rebate component must be submitted by the 25th or the last working day of the week before the 25th of the month.


Daniel P. Foster says...
Posted Monday, 10 June 2013
With regards to the question concerning foreign remuneration and provisional tax, the answer given is misleading. The definition of Provisional Taxpayer in the 4th Sch specifically excludes a person who is exempt from the payment of Prov Tax in terms of para. 18. This exclusion applies even if SARS have chosen to register someone as a Provisional Taxpayer. Therefore, if the taxpayer is under 65, not carrying on a business and has interest, foreign dividends and rental income not exceeding R20 000pa, they will be exempt from Prov Tax and consequently not a Provisional Taxpayer, as defined. SARS may, in their wisdom, still of course seek to make this person a Prov Taxpayer retrospectively on assessment. There is nowhere on the return to report foreign remuneration specifically, so if it is reported as 'other income', this oftern happens. Penalties & interest leveid should be objected to on the basis noted above (and in terms of s 89quat(3A), if it applies, and while it exists)



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