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FAQ - 06 February 2014

Wednesday, 05 February 2014   (3 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

1. Double tax agreements between South Africa and New Zealand

Q: I have a client who emigrated to New Zealand. He gets an annuity which is paid into his "blocked" bank account in South Africa. This money gets transferred to his New Zealand bank account ,every 3 months, after Pay-As-You-Earn (PAYE) has been deducted. The client has been told that as a new emigrant, he is entitled to a 6 year "tax holiday" in New Zealand.

Does South Africa still have a reciprocal tax agreement with NZ, and will SARS allow him to have his money taxed in NZ and not in SA?

A: Article 17 of the DTA concluded between the Republic of South Africa and New Zealand reads as follows:

Article 17

Pensions and Annuities

  • Subject to paragraph 2 of Article 18, pensions and annuities paid to a resident of a Contracting State shall be taxable only in that State.
  • The term "annuity” means a stated sum payable periodically at stated times, during life or during a specified or ascertainable period of time, under an obligation to make the payments in return for adequate and full consideration in money or money’s worth.

Therefore, the annuity will be taxable in the Republic of South Africa.


2.  Application of Section 13 deductions in terms of the Income Tax Act 

Q:Previously used commercial property:

  • The taxpayer purchased this second hand property  for the first time out of a liquidated estate in a commercial office complex.
  • The property was rented out before, by previous owners / liquidator.
  • The property was purchased for use as office for business and has been used as such from purchase.

Will section 13 quin be applicable and are there any other deductions to consider with regards to the commercial property (apart from the normal business expenses, levies, water & electricity, etc)?

Residential property:

  • Taxpayer is renting out a house and earns rental income.
  • The house was previously a primary residence for the taxpayer, where a portion of the house was used as home office.
  • A section was built onto the house during this period and this was rented out as an office.
  • Thereafter, the full property (including the previously built section that was rented out as offices) was rented out as purely residential property.

Are there any allowances that may be considered against taxable income when normal expenses such as finance charges on bond, property tax, municipal account has already been taken into account?


A:  S13quin is applicable if a taxpayer: 

-owns a new and unused building; and

-that building or improvements are wholly or mainly used by the taxpayer during the year of assessment for producing income;

-in the course of his trade-but excluding the provision of residential accommodation. 


Based on the information provided, an improvement on its own may qualify for the allowance provided that all other requirements have been met. It is unclear whether the residential property generates any income but if this is the case, then the normal expenditure in terms of s 11 may be claimed and where that property does not qualify for one of the s 13 allowances, then no other allowance will be available.

3. Exemption of Home Owners Associations from VAT

Q: In terms of section 12(f)(iv) of the VAT Act, are Home Owners Associations (HOA's) exempt from charging VAT on the supply of services to its members?

If so, on de-registration from VAT, can the capital assets used on which VAT input was claimed originally be re-valued at current market valueand can the repayment to SARS be made over 6 months?

A: As from 1 April 2014, levies paid to HOA will be exempt from VAT in terms of s 12(f)(iv). In terms of s 8(2G) may such an entity pay the exit VAT over a period of 6 months. The supply should be calculated at the lower of cost or fair market value.


4. Fraudulent treatment of pay-as-you-earn

Q: I attend to a number of employees who after years of service, has now been advised that the employer has dealt fraudulently with SARS and has not paid over employees taxes due.

SARS in an audit has two different opinions. One office agrees the employees cannot be held responsible and liable for taxes not paid by the employer and the other has blantantly disallowed the Pay-As-You-Earn credit on the "fraudently" issued IRP'5.

A: Ultimately the liability to withhold employees tax is with the employer in terms of part II of the 4th Schedule to the Income Tax Act. Where the employer did not withhold employees tax from the employee, may the employee be held jointly liable (with the employer) for the payment of the employees taxes. 

In terms of para 13(4) of the 4th Schedule, any employer who deducted or withheld employees tax from an employee must issue that employee with a tax certificate with a tax certificate in a form and manner as prescribed by the Commissioner.


The liability to deduct or withhold and pay any amounts of employees tax over to SARS is with the employer. Provided that the employer therefore deducted or withheld such amounts from the employee, must the employer issue a tax certificate notwithstanding the fact that the employer failed to pay those amounts to SARS. The employee must be able to prove that such amounts were withheld by his/her employer in the form of payslips, service contract etc. Where no employee taxes was withheld from the employee, the employer has the  the right of recovery from the employee, and the employer may refuse to issue a tax certificate to the employee, until such time as the employee has paid such amount owing to the employer – para 5 of the 4th Schedule. 

It is my understanding that the employer in this instance withheld the employees taxes from his employees but failed to pay it over to SARS. Provided that the employees can prove that such amounts were withheld by the employer, SARS must take any amount of employees taxes into account which are proven to have been withheld by the employer. SARS may however, challenge this as the 4th Schedule is not clear in this regard.


Hugo van Zyl says...
Posted Friday, 07 February 2014 New immigrants We work with the migrant community and Immigration New Zealand to help immigrants meet their tax and social support obligations. Some rules specifically affecting migrants, such as the 48-month overseas income exemption and tax residency, are complex. We need to understand different cultures so that we can work effectively with communities and provide them with useful advice.
Hugo van Zyl says...
Posted Friday, 07 February 2014
Question 1 is NZ ONLY to tax unless the subject to clause applies and the 6 year exemption is a 4 year max exemption
Dominik J. Skalet says...
Posted Friday, 07 February 2014
Regarding Question 1: I think the annuities should be taxable only in New Zealand, provided the emigrant gave up tax-residency in SA and is a tax-resident (according to NZ tax law) in NZ...



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