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FAQ - 23 January 2014

Wednesday, 22 January 2014   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical 

1. Application of paragraph 57 of the Eighth schedule where a CC disposes off all its assets

Q: A close corporation sold all of its assets including goodwill to the same purchaser. The members of the close corporation have retired subsequent to the sale.

Therefore does paragraph 57 of the Eighth schedule apply where a close corporation can disregard up to R 1 800 000 of capital gain or do the members qualify for the R 1 800 000 "rebate"?

A: Provided that the requirements of para 57(2) have been met, one then has to consider whether the asset disposed of would qualify as an "active business asset”.

The term "asset” is defined in Part 1 of the 8th Schedule and includes property of whatever nature, whether movable or immovable, corporeal or incorporeal but excluding any currency (excludes coins made mainly from gold or platinum), and a right or interest of whatever nature to or in such property.


It is my understanding that the goodwill being sold would fall within the definition of "active business asset” and your client may therefore well qualify for relief in terms of par 57 as the asset (goodwill) was used or held wholly and exclusively for business purposes.

Familiarise yourself with para 57 to ensure that all other requirements have been met.


2. Exemption of residential accommodation in terms of the VAT Act. 

Q: I have a client that provides retirement cottages to the elderly. They receive payment for these cottages and the cottages remain the property of the client. They are registered as a VAT Vendor. I have recently taken over the client and noticed that they have been completing their VAT201 returns with this income as 60% taxable as it is accommodation that exceeds 45 days. However as this is long term residential accomodation, shouldn't this qualify as exempt in terms of the VAT act?

A: "Commercial accommodation", is defined as follows (s 1 of the VAT Act): 

  • Accommodation including the supply of domestic goods and services, in any house, flat, apartment, room, hotel, motel, inn, guesthouse, boarding house, residential establishment, holiday accommodation unit, chalet, tent, caravan, camping site, houseboat or similar establishment, which is regularly or systematically let out and where the total annual receipts from the letting thereof is reasonably expected to exceed R60 000 per annum:
  • Accommodation in a home for the aged, children, physically or mentally handicapped persons; and
  • A hospice.

Once it has been established that the enterprise is supplying commercial accommodation, the next issue is to establish the value of such supply. In this regard there is now a single test, will the person stay in the accommodation for more than 28 days? If not, the supply will be taxed in full. If however, the person will stay for more than 28 days, then only 60% of the value of the supply of domestic goods and services will be subject to VAT (s 10 of the VAT Act). 

The term "domestic goods and services" has been expanded to include the provision of meals and the right to use furniture and fittings where they are supplied as part of the right of occupation in an all-inclusive charge. 

Thus, in summary, where accommodation is being supplied, the first issue is to determine whether or not such accommodation constitutes "commercial accommodation". If it does, then the vendor must determine whether the resident will be staying for an unbroken period exceeding 28 days. If not, the all-inclusive charge will be subject to VAT whereas if the stay exceeds 28 days only 60% of the all-inclusive charge will be subject to VAT.

3. Contribution towards a members retirement annuity 

Q: If a small business contributes towards a member's retirement annuity, is the contribution tax deductible in the hands of the CC, and is there any fringe benefit tax payable in the hands of the member. 

A: The amount is deductible by the employer as well as the employee in terms of para 4 of the 4th Schedule to the Income Tax Act. The amount deductible from the employees' monthly remuneration is however limited to the amount which would be deductible by the employee in terms of s 11(n) of the Act on assessment.









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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