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FAQ – 15 July 2014

Tuesday, 15 July 2014   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

1. VAT implications on a cost order made by a court

Q: If a court ruled a cost order in your favour and the government pay you the amount, is there VAT payable on that amount?

A: The VAT Act does not have a specific provision dealing with this that we are aware of as it does in section 8(8) of the VAT Act for indemnity and insurance payments. 

The costs award made by the taxing master would take into consideration whether the VAT input can be claimed by the successful party as a denial of the VAT would result in a higher out of pocket cost to the litigant (see Price Waterhouse Meyernel v Thoroughbred Breeders’ Association 2003 (3) SA 54 (SCA)). 

In the normal course the attorneys/advocate would charge VAT to its client and the client may, depending on the facts claim the input tax. The taxpayer would on the awarding of costs then become entitled to either a VAT inclusive amount if he carried the VAT cost through a denial of the VAT input or the VAT exclusive amount if he did claim the VAT input. It would further seem unlikely that the payment to the successful party could be construed as "consideration” as defined in s1 of the VAT Act as it was not in relation to services or goods supplied by the successful party. Neither does there seem to be any "supply” as defined in s1 of the VAT Act by the successful party to any other person in respect of the amount received. On the face of it, it would seem that there are no VAT consequences for the successful party in respect of the amount received in terms of the cost order. 

Due to the fact that there seems to be no clear answer it may be advisable to obtain further professional on the matter or where possible even a ruling from SARS.    

2. Definition of "normal retirement age” in sec 1 of the ITA

Q: What is considered to be retirement age for an individual to qualify for the R315 000 tax free portion (2014 tax year) on their retirement withdrawal?

A: We assume that you are enquiring in respect of early retirement. We are not aware of a specific stated age in respect of retirement from pension and provident funds.  A person is entitled to have the lump sum treated for tax purposes as a withdrawal benefit (i.e. higher excluded amount as indicated below for 2014) if the amounts is in terms par 2(1)(a)(i) Second Schedule to the Income Tax Act ("ITA”) following such persons retirement. "Retire” is defined in par 1 when a person becomes entitled to the amount in the definition of "retirement date” in s1 ITA. Par (a) of the definition of "retirement date” refers to the lump sum that is payable from the fund after meeting par 2(1)(a)(i) (i.e. death or retirement) or upon reaching "normal retirement age”. The latter is defined in s1 ITA as meaning the date when the member becomes entitled to retire from employment for reasons other than sickness, injury or infirmity. 

Thus the "retirement age” is determined in accordance with the employment conditions between the employer and employee. Though it seems that there is no minimum retirement age, in practice SARS would probably not approve the employers provident /pension fund rules if it did not have a stated minimum age which has historically been 55 years as alluded to in your enquiry. To confirm the "retirement age” you would have to confirm with the employer what the age of retirement is or has been agreed with the employee in terms of his or her employment terms.



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