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FAQ - 24 August 2016

Wednesday, 24 August 2016   (0 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

1. Can a capital gain on the sale of shares be offset against a loss on the sale of a primary residence?

Q: My client sold his primary residence in 2016 incurring a R1.1 million loss. In the same year he sold shares for a gain of R200k. Can I offset the gain against the loss or is the loss on the primary residence ring-fenced?

A: In terms of paragraph 45 of the Eighth Schedule to the Income Tax Act the general principle is that a natural person must, when determining an aggregate capital gain or aggregate capital loss, disregard so much of a capital gain or capital loss determined in respect of the disposal of the primary residence of that person or that special trust as does not exceed R2 million; or a capital gain determined in respect of the disposal of the primary residence of that person or that special trust if the proceeds from the disposal of that primary residence do not exceed R2 million.  

In terms of paragraph 6, a person’s aggregate capital gain for a year of assessment is the amount by which the sum of that person’s capital gains for that year, exceeds the sum of that person’s capital losses for that year.  To the extent that the loss was disregarded it is not a capital loss.  We therefore agree with your view.

2. Is SARS allowed to demand payment on a VAT Account that is in dispute with SARS?

Q: A few weeks ago, a client of mine received documentation that his VAT refunds dating back the last three years were automatically denied. No reason was provided.

A: Note: all references to section are to sections in the Tax Administration Act (unless otherwise indicated).  

A suspension of debt request is made if the taxpayer (vendor in this instance) intends to dispute (or disputes) the liability to pay.  It is made under section 164, and is made to suspend "the obligation to pay tax”.  If not made, the obligation to pay tax is not suspended – see section 164(1).  It is therefore not until "the outcome of the objection or the appeal” is known, but due to the suspension request that SARS "cannot request immediate payment”.  

Relevant to your issue is section 164(6).  In terms thereof, during the period commencing on the day that SARS receives a request for suspension under subsection and ending 10 business days after notice of SARS' decision has been issued to the taxpayer, no recovery proceedings may be taken unless SARS has a reasonable belief that there is a risk of dissipation of assets by the person concerned.  

You say that "SARS ignored … the suspension and said that he needs to pay the full outstanding VAT”.  This doesn’t appear to be a notice from SARS (as envisaged above) that they will not suspend the debt.  If so, it is not in terms of the Act.  

3. What are the tax implications of transferring assets from a PBO to the SOE?

Q: A PBO wants to transfer all its assets and liabilities to a state owned enterprise.

A: A public benefit organisation, approved by SARS under section 30 and which is a non-profit company, trust or association established in the RSA, can on dissolution transfer its assets to (bb) any institution, board or body which is exempt from tax under the provisions of section 10 (1)(cA)(i), which has as its sole or principal object the carrying on of any public benefit activity; or (cc) the government of the Republic in the national, provincial or local sphere, contemplated in section 10(1)(a) - see section 30(3)(b)(iii) of the Income Tax Act.  Such a transfer would then have no tax consequences for the PBO.  We accept that the assets were not used for trading purposes.  Any other transfer will have tax consequences.  

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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