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FAQ - 15 July 2015

Wednesday, 15 July 2015   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

1. How do I remove ‘gap cover’ insurance fees from the medical contribution amounts on an IRP5? 

Q: One of our clients provided us with her IRP5 and medical aid certificate for us to submit her Income Tax return. I noticed that the medical deductions per the IRP5 is higher than the medical aid contributions per the medical aid certificate.

I enquired what caused the difference and heard that the GAP Cover contributions were also deducted as part of the medical aid contributions. I know that GAP cover is insurance and not medical expenditure, so the GAP cover contributions may not be deducted.

How do I rectify this?

If I leave it as it is, our client will get a greater deduction than what is allowed. I am not able to deduct the difference on the return and only positive amounts are allowed.

A: We are not sure what the "medical deductions per the IRP5” are that you refer to.  For the 2015 year of assessment the employer cannot make a deduction of contributions to a medical scheme from the net remuneration of the employee – see paragraph 2(4) of the Fourth Schedule to the Income Tax Act.  Paragraph 9(6) allows that there must be deducted from the amount to be withheld or deducted by way of employees’ tax the amount of the medical scheme fees tax credit that applies in respect of that employee (in terms of section 6A) if—

(a) the employer effects payment of the medical scheme fees as contemplated in section 6A(2)(a); or

(b) the employer does not effect payment of the medical scheme fees as contemplated in section 6A(2)(a), at the option of the employer, if proof of payment of those fees has been furnished to the employer. 

The tax credit applies in respect of fees paid by the taxpayer to a registered medical scheme. The number of persons (dependants) for whom you make contributions to a medical scheme will determine the value of the credit. The amount of the medical scheme contribution tax credit is:

R257 in respect of benefits to the taxpayer;

R257 in respect of benefits the taxpayer’s first dependent;

R172 in respect of benefits to each additional dependent.

These amounts will in all probability not agree to the contributions made to the fund, but you are correct that the employer, against code 4005 (3810 and 4474), must only include the actual fees paid by the employer.  If the GAP Cover contributions are not fees it should have been excluded from the amount on the IRP5.  The medical  scheme  fees  tax  credit  will  be  reflected  next  to  source  code 4116 only if the medical  contributions were paid by the employer. 

Your concern is correct that the amounts reflected on the IRP5 (the wrong ones) may well be used for the additional medical expenses tax credit and SARS may will only pick this up if a review is called for.  It may therefore be appropriate to request the employer to correct the IRP5 as the employee has no opportunity to correct this on the IT12.

2. Is the sale of grass (to be used by a riding school as animal feed) exempt from VAT?  

Q: Is the sale of grass for horse feed classified under raw materials and thus exempt from VAT?

A farmer sells grass for horse feed to a riding school, which does not have a VAT certificate indicating that all grass purchases are exempt from vat. The farmer is a VAT vendor. 

A: There is no exemption from value-added tax that would apply where a registered vendor (the farmer) supplies "horse-feed” to the recipient (the riding school).  We do agree that the rate of zero per cent is not available either.  Section 11(1)(g) provides that a supply may be zero rated if the supply is of goods used or consumed for agricultural, pastoral or other farming purposes as are set forth in Part A of Schedule 2, provided such supply is made in compliance with such conditions as may be prescribed in the said Part.  Item 1 in paragraph 1 of the Schedule refers to animal feed, but then prescribes the following condition: 

"The provisions of paragraph 1 shall apply only if—

(a) the Commissioner, in respect of a vendor registered under this Act, is satisfied that that vendor, being the recipient of any such goods, carries on agricultural, pastoral or other farming operations and has issued to him a notice of registration in which authorization is granted whereby the goods concerned may be supplied to him at the rate of zero per cent…”

As the riding schools VAT103 doesn’t have the authorisation the condition is not met and the supply is to be charged at the standard rate (14%).

3. How is transfer duty calculated when someone buys an interest in a property-owning company? 

Q: Would you please let me know the process for sorting out a transfer duty problem (deemed transfer duty, actually). 

One of my clients owned 50% interest in a property-owning close corporation and has recently bought the other 50% interest, so that he now owns 100% of the members’ interest.  We have asked a conveyancer to assist with the payment of deemed transfer duty but this isn’t going very well (the deemed transfer duty calculation is four times what it should be).  If possible we would like to deal with someone other than the call centre regarding this query.

Would you please let me know whether we can contact a SARS branch manager or anyone else to assist in this regard? 

A: You can contact the SARS branch manager.  In SARS’s Transfer Duty Guide (2013 version) it is stated that "general queries on transfer duty matters and transactions lodged on eFiling should be sent to and technical queries and refund applications can be forwarded to  The guide is available at the following link: 

We are not sure what you mean by "deemed transfer duty”.  From the facts we accept that the "50% interest in property owning close corporation” is in fact a "member's interest in a residential property company” (as envisaged in paragraph (d) of the definition of ‘property’ in section 1 of the Transfer Duty Act.  The term ‘residential property company’ is also defined in section 1 of the Act.  The sale (or acquisition) thereof is a ‘transaction’, as defined in section 1 of the Act – see paragraph (b). 

The transfer duty is then levied on ‘the value of (any) property’ which is principally the consideration payable by the person who has acquired the property or the declared value of the property – see section 5(1). 

Section 6 provides for certain amounts to be added to the consideration.  It is quite possible that the SARS is (or will be) of opinion that the consideration payable or the declared value is less than the fair value of the property in question. 

SARS may then determine the fair value of that property, and thereupon the duty payable in respect of the acquisition of that property will have to be calculated - in essence the duty is based on the greatest of the fair value (so determined) or the consideration payable or the declared value – see section 5(6). 

You will notice that the definition of fair value (in section 1) in this regard would be the fair market value of the property held by the CC without taking into account, amongst others, any loan as is attributable to the member’s interest – see example 10 in the guide referred to above. 

Note also that section 2(5) requires that the transfer duty rates in terms of section 2(1)(b) cannot be applied directly to the consideration for the individual transaction (the acquisition of the 50%). The fair value of the entire property must first be established and only then are the rates applied to that value.  See examples 20 and 21 in the guide.

Disclaimer: Nothing in these queries and answers should be construed as constituting tax advice or a tax opinion. An expert should be consulted for advice based on the facts and circumstances of each transaction/case. Even though great care has been taken to ensure the accuracy of the answers, SAIT do not accept any responsibility for consequences of decisions taken based on these queries and answers. It remains your own responsibility to consult the relevant primary resources when taking a decision.  




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