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FAQ - June 2013

Thursday, 27 June 2013   (2 Comments)
Posted by: Author: Dieter van der Walt
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Author: Dieter van der Walt

Q: I refer to `n situation of one of our new clients who joined our company at the beginning of the month. 


The client (an individual) earns income from donations as well as a bookstore. The former accountant took the bank statements and declared all income under the "business-income or income from a sole proprietor-category” on the client’s ITR12.  The client contacted me on the 6th of June after SARS enquired about outstanding debts that include penalties and interest. After I gathered all information relating to the case, I found out that SARS required documentation concerning the amounts declared on the ITR12, which the former accountant neglected to provide. Thereafter SARS has written back all expenses and issued a revised assessment on the 4th of April 2013. The assessment indicates the following: "1st due date 01 May 2013, 2nd due date 31 May 2013”. The former accountant did not inform the client of the revised return and therefore the client was astonished when SARS enquired about the payment of the outstanding debts since the initial assessment had a NIL-effect. 

The legal aspect as to whether, or not, the income constitutes donations has already been clarified with SARS and there is no doubt that these amounts constitute donations.  I submitted an objection at the SARS office in Paarl on 13th of June 2013 since the client’s profile on e-filing was not transferred to our profile on e-filing. The objection was disallowed by SARS since the client failed to comply with the 30 day-cycle required in terms of the Tax Administration Act (TAA). 

  • What should I do now since SARS is adamant that the objection will not be allowed since it was not made within the 30 day-cycle (due to the administrative recklessness of the former accountant)? The submission and assessment of the ITR12 is completely and absolutely incorrect.
  • Is there any provision in the TAA that protects the taxpayer in a situation where SARS insists on an assessment that is legally incorrect?
  • Does the 30 day-cycle refer to calendar days or weekdays and from which date must it be calculated (assessment date or "2nd due date”)?
  • SARS requires a reason for the delayed submission and I will indicate that we were appointed by the client to handle this case afterwards because of the negligence of the former accountant. 

A: Section 102(1)(b) states that the taxpayer bears the burden of proving that an amount or item is deductible. If after having been request to provide such proof, the taxpayer does not do so (which appears to have been the case here), SARS would be entitled to disallow the deduction. 

An objection must be lodged ‘in the manner, under the terms, and within the period prescribed in the ‘rules’ ” in terms of s 104(3) of the Tax Administration Act Rule 4(e) provides that an objection must be lodged:

  • 30 days after the date of the assessment (not 1st or 2nd date), or
  • 30 days after the date that a response is received from SARS to a request for the reason for an assessment under Rule 3.

For purposes of the Rules, 'day' is defined in Rule 1 as "a day contemplated in section 83(23) of the Act" (reference to the Income Tax Act). Before its repeal, this section defined a day to be any day excluding a Saturday, Sunday or public holiday. It therefore referred to business days.

The reference in the Rules has not been updated. A ‘day’ is not defined in the Tax Administration Act, but a ‘business day’ is, meaning: 

"business day” means a day which is not a Saturday, Sunday or public holiday, and forpurposes of determining the days or a period allowed for complying with the provisionsof Chapter 9, excludes the days between 16 December of each year and 15 January of thefollowing year, both days inclusive;The reference to days in Rule 4 is therefore to business days. 

 ‘Date of assessment’ is defined in s 1 of the Tax Administration Act as meaning: 

"date of assessment” means—

(a) in the case of an assessment by SARS, the date of the issue of the notice of assessment; or
(b) in the case of self-assessment by the taxpayer—

(i) if a return is required, the date that the return is submitted; or
(ii) if no return is required, the date of the last payment of the tax for the tax period or, if no payment was made in respect of the tax for the tax period, the effective date;

From the information provided, it appears as if this date would be 4 April 2013. The client therefore had 30 business days from 4 April 2013 to object to the revised assessment. The period prescribed within the rules as to when an objection must be lodged appears to have lapsed. However, you may request that the late objection be condoned in terms of s 104(4) of the Tax Administration Act in the event that reasonable grounds exist as to why the objection is submitted late. That period may not be extended if any of the provisions of subsection 5 applies.

"(4) A senior SARS official may extend the period prescribed in the ‘rules’ withinwhich objections must be made if satisfied that reasonable grounds exist for the delay inlodging the objection.

(5) The period for objection must not be so extended—

(a) for a period exceeding 21 business days, unless a senior SARS official is satisfiedthat exceptional circumstances exist which gave rise to the delay in lodging the objection;
(b) if more than three years have lapsed from the date of assessment or the ‘decision’; or
(c) if the grounds for objection are based wholly or mainly on a change in a practicegenerally prevailing which applied on the date of assessment or the ‘decision’." (emphasis added)

Any request for extension of the objection period and for the senior SARS official to consider the objection must be worded to justify why you are of the view that reasonable grounds exist for the late submission and if the period in section 104(5) has been exceeded (which may be the case), why exceptional circumstances existed. The following guidance from the Short Guide the Tax Administration Act issued by SARS may be useful in this regard.

Firstly, SARS is of the view that the term 'reasonable' in reasonable grounds means: " "having sound judgement; moderate; ready to listen to reason; not absurd; within the limits of reason; not greatly less or more than might be expected; tolerable; fair”. Essentially, for a decision to be reasonable the Commissioner is required to consider all relevant matters. The Constitutional Court has held that there is no absolute standard of reasonableness – what is "reasonable” would depend on the particular circumstances of each case."

SARS' view on the concept of exceptional circumstances is: "it contemplates something out of the ordinary and of an unusual nature."

It should however be noted that the discretion to allow an extended period for objection nevertheless remains with the senior SARS official.

2. Can a wig qualify as qualifying physical impairment or disability expenditure?

Q: I have a tax client who has recently underwent chemo therapy as a result she lost all her hair and purchased a wig, may I claim the cost under medical deductions on her income tax return?

A: The list of qualifying physical impairment or disability expenditure lists a wig as a prosthetic, provided that the person claiming the expense has suffered abnormal hair loss due to disease, accident, or medical treatment for purposes of s 18(1)(d) of the Income tax Act.

The SARS Tax Guide on the Deduction of Medical, Physical impairment and Disability Expenses (Issue 3) however states a prescribed expense does not automatically qualify as a deduction by mere reason of its listing; the other requirements of section 18(1)(d) must also be met to qualify for a deduction.The term "physical impairment” is not defined in the Act but in the context of s 18(1)(d) it has been interpreted as a disability that is less restraining than a "disability” as defined. In order for a person to be disabled, as defined in section 18(3), the person's ability to function or perform daily activities must have been impaired moderately to severely by the physical, sensory, communication, intellectual or mental impairment. For a person to be viewed as disabled for tax purposes, a prognosis by a medical practitioner is required (ITR-DD form). An impairment would therefore exist where a person’s ability to perform daily activities suffers a restriction which is less than "moderate or severe”.

In order to qualify for the deduction in section 18(1)(d), the expenditure must further be necessarily incurred in consequence of this impairment that affects the person’s ability to function.


Your client may claim the cost of acquiring the wig as a medical expense for purposes of s 18(1)(d) if you are of the view that the client's hair loss affects her ability to function or perform daily activities and she therefore had to necessarily incur the cost to acquire the wig in consequence of this impairment. The expense will however be subject to the limitation of deduction provision in terms of s 18(2)(c) of the Act. If however you are of the view that her hair loss does not affect her ability to function and perform daily activities, the expenditure to acquire the wig will not be necessarily incurred in consequence of an impairment and will not be deductible expenditure as contemplated in section 18(1)(d).

It is submitted that, based on the specific circumstances of the taxpayer, you would have to determine whether the hair loss constitutes a physical impairment as discussed above.Please note that although no specific form or prognosis from a medical practitioner is required in order to deduct expenses incurred in consequence of physical impairment in section 18(1)(d), the taxpayer would be required to prove that the condition affects her ability to function and therefore constitutes a physical impairment as contemplated in section 18(1)(d) to be entitled to a deduction (refer section 102 of the Tax Administration Act).

3. VAT implications: expense incurred relates to more than one company in the same group

Q: We have two legal entities in our group. If company A is invoiced for an expense, but actually the costs are for BOTH company A & B equally:

  • Should company A invoice 50% of the cost out to company B (excluding VAT)? What happens if the expense had no VAT? Do you still charge VAT to company B?)? Is company B allowed to claim the input VAT?

If the expense is in the name of Company B but company A pays it: 

  •  Should it go directly to the loan account in company A’s books and Company B raise the invoice and claim the Input? If not what is the correct treatment for VAT purposes? 

A: In terms of the definition of input tax (and section 17(1) of the VAT Act), input tax can be deducted "where the goods or services concerned are acquired by the vendor wholly for the purpose of consumption, use or supply in the course of making taxable supplies or, where the goods or services are acquired by the vendor partly for such purpose, to the extent (as determined in accordance with the provisions of section 17) that the goods or services concerned are acquired by the vendor for such purpose. In addition, section 16(2) states that "No deduction of input tax in respect of a supply of goods or services, the importation of any goods into the Republic or any other deduction shall be made in terms of this Act, unless—(a) a tax invoice or debit note or credit note in relation to that supply has been provided in accordance with section 20 or 21 and is held by the vendor making that deduction at the time that any return in respect of that supply is furnished". Section 20 amongst other require that the tax invoice must contain the name and VAT number of the recipient in order for that person to be able to deduct input tax. 

If a company therefore acquires services from a third party for purposes of the business (taxable supplies) of another person (even if it is a connected person), that company would not be able to deduct input tax on this supply of services to the extent that the services are acquired for purposes other than the acquiring company's taxable supplies. In other words, the company acquiring the services would only be able to deduct input tax on the portion of the services acquired for the purposes of making its own taxable supplies. 

There could be a number of ways around this problem; the specific argument followed would depend on the circumstances of the expenditure and group in question and it is recommended that you obtain tax advice based on these circumstances. The following guidance may however be useful to consider:

  1. If the first company acquired all the services for making taxable supplies it would be entitled to deduct input tax. This company would render a service if it makes the benefit of the services acquired available to the other group companies. If this service is rendered in exchange for consideration, this would be a taxable supply. The consideration could be in the form of a management or administration fee. If this argument is followed, the first company (Company A) would acquire the services for purposes of (1) making its own taxable supplies to customers and (2) providing the management/administration service for which it earns the management or admin fee (which, as a taxable supply, would also be subject to VAT). Company A would invoice Company B for this service. This supply, as a management/administration fee, would be subject to VAT irrespective of whether the initial supply was subject to VAT. Company B, which acquires the management/administration service from Company A, would then be entitled to deduct input tax on the management or admin fee if this management/administration service is acquired for purposes of Company B's taxable supplies. This would overcome the problem that the invoice was issued to Company A even though Companies A and B benefit from the service. The group of companies would in total be able to deduct the input tax, in the hands of the correct company benefitting from the service, while the fee to pass the costs on would be neutral from a VAT perspective.
  2. Section 54(2) of the VAT Act states "For the purposes of this Act, where any vendor makes a taxable supply of goods or services to an agent who is acting on behalf of another person who is the principal for the purposes of that supply, that supply shall be deemed to be made to that principal and not to such agent: Provided that such agent may nevertheless request that he be provided with a tax invoice and the vendor may issue a tax invoice or a credit note or debit note as if the supply were made to such agent." Depending on the relationship (agent/principal relationship) between the group companies, it can be argued that the single invoice issued to Company A was partly in respect of services acquired by Company A on behalf of Company B, as an agent of Company B. If this argument is followed, Company A can claim input tax to the extent that the services was acquired for purposes of its own taxable supplies and Company B, to the extent that Company A acquired it for purposes of Company B's business. This would however depend on the relationship within the group as well as whether the requirements of section 54 have been met.

4. Deductibility of medical expenses incurred in foreign currency 

Q: I have a client who is permanently resident in South Africa but only earns income in Dubai so he will be taxed on his Dubai income in SA. He contributes to a medical aid in the UK. Can he claim the medical aid contributions (convert the contributions from Pound to Rand at the average exchange rate) as a deduction in his tax return? I cannot find any publications or sections of the Income tax act that allows or disallows foreign medical aid contributions. Please can you advise if my client can claim the medical contributions in his 2013 tax return?

A: S 18(1)(a)(ii) of the Income Tax Act allows as a deduction contributions to any fund which is registered under any similar provisions as the Medical Schemes Act, 1998 Act No. 131 of 1998).

S 18(1)(c) of the Income Tax Act allows as a deduction any medicines supplied or services rendered outside the Republic which are similar to the expenditure in respect of which a deduction may be made in terms of paragraph (b) of s 18(1).


The expenditure may be included in your client’s tax return if they have met the requirements of the Act. The expenses are subject to the limitation of expenses formulas as can be found in the Act (same as South African expenditure).


SAIT technical says...
Posted Monday, 08 July 2013
Dear Steven Many thanks for your valuable input. We take note thereof and agree with your interpretation.
Steven L. van Zyl says...
Posted Monday, 01 July 2013
Regarding the late objection for the inclusion of donations in the return the practitioner would need to appeal against the decision to disallow the late filing as provided for by s104(2)(a) of the TAA. He should also consider requesting the revision of the assessment under section 93 of the TAA on the basis that there is agreement that there has been an error by SARS. Also, the assessment is probably not valid because the disallowance of the deductions inidcates that SARS has not applied their minds as it is irrational to consider that a business can operate without incurring expenditure. The taxpayer can always resort to the Promotion of Administrative Justice Act to try and get SARS to see reason.



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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