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FAQ - 29 July 2014

Tuesday, 29 July 2014   (2 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

1. Prescription periods in the context of the Voluntary Disclosure Programme

Q: A South African resident wants to apply for voluntary disclosure relief in respect of his personal income tax matters. The Voluntary Disclosure Programme (VDP) is envisaged due to the fact that material facts were not disclosed in his income tax returns for previous years. SARS assessed the taxpayer based on his misrepresentation. The misrepresentation of material facts in his income tax returns occurred over a period of more than ten years, this includes income from capital gains tax and other income.

When disclosing material facts on a voluntary basis according to the VDP, full and complete facts of the default needs to be submitted to SARS. However, in my opinion, there is no specific time prescription principle stated in the Tax Administration Act (the TAA). Are there any time prescription rules pertaining to the VDP? I could not find any references in the TAA, external guide on VDP and SARS short guide on the TAA, 2011. My conclusion is that the complete history of taxpayer's misrepresentation needs to be disclosed to SARS (e.g. in this case a period of ten years) in order for the VDP application to be accepted by SARS.

How will the time prescription principle from the Income Tax Act interact with the VDP legislation and disclosure described as above. Is there a possible "conflict" between the Income Tax Act and TAA's time prescription principles? Following, if the VDP route is followed, and the complete history will be disclosed to SARS, SARS will include in the VDP agreement tax liabilities for the complete history (e.g. ten years).

A: (1) You are correct that no time prescription period in respect of the non-disclosure and full disclosure for the full period of the relevant non-disclosure must be made to SARS to the extent that the taxpayer still has the information. In our experience SARS mostly does not go beyond 5 years but nothing prevents them from doing so depending on the facts.

(2) Section 99(2) of the Tax Administration Act states that the prescription periods in section 99(1) do not apply where the full amount of tax was not charged as a result of fraud, misrepresentation or non-disclosure of material facts. Usually when the VDP applies the exclusion to prescription also applies so there is no conflict.

(3) As noted SARS does not always go back the full period and have in many instances gone back only the last 5 years. However if the relevant information is available etc. nothing bars them from doing so and that determination would be on a case by case basis.


2. Medical scheme fees tax credit where taxpayer's dependents are on a separate medical aid scheme

Q: I have a client on a basic option medical aid, who put his wife and child on a separate medical aid with more cover. However, although this separate medical aid is in his wife's name, he pays the premiums. I want to know whether an individual can claim a medical tax credit for medical aid contributions he makes for his wife and child, even if they are on their own separate medical aid and not on his medical aid.

A: Section 6A of the Income Tax Act provides for the deduction of the medical scheme fees tax credit. However, it only applies to payments made by the taxpayer for benefits made to the taxpayer and any of his /her "dependents” as defined in the Medical Schemes Act. If the taxpayer's wife and child are on a separate medical aid scheme and are not "dependents” on the taxpayer's medical aid scheme, then only the wife (we assume she is the main member of the other scheme) can claim the medical scheme fees tax credit, not the taxpayer, who is making payment on her behalf. This is confirmed at Part 3.1. of SARS’ ITR12 Comprehensive Guide. 


Carla Posthumus says...
Posted Thursday, 31 July 2014
With regards to the treatment of the medical scheme tax credit FAQ, would the wife as main member of the separate scheme not be prevented from claiming the medical scheme fees tax credit by virtue of not having paid for it herself? Section 8.1.10 "Proof of Medical Expenses" of the Comprehensive Guide to the ITR12 Return for Individuals - External Guide, the specify bank statements and a copy of the tax certificate from the medical scheme as proof of medical expenses: "Where you are liable for the family care and support of a family member...and you have paid the medical scheme contributions for the family member...". This casts some doubt on the legislation v.s. the practice.
Trevor B. Labuschagne says...
Posted Thursday, 31 July 2014
What about the case where the medical aid rules prohibit the dependent from being a dependent of the taxpayer because of age forcing the "dependent" to be a separate member of the scheme e.g. the father (a old age pensioner) is too old to be on the taxpayer's scheme and has to be a member in his own name but the son -- the taxpayer -- pays for his premiums and other medical costs



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