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FAQ - 21 February 2018

Wednesday, 21 February 2018   (3 Comments)
Posted by: Author: SAIT Technical
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Author: SAIT Technical

1. Can a church be classified as a PBO?

Q: Is a church which has its own constitution which receives only donations and tithes/collections subject to tax? It is not registered as an entity, it is just a body. It has the usual church expenses and a salary to the minister.

A: In order for the church, the entity, to enjoy the exemption, it must apply to SARS to be approved as a public benefit organisations.  It must also be registered as a taxpayer.  

SARS explains it as follows in their PBO guide:

“A PBO must submit income tax returns, even if its approval or exemption results in no tax liability. The income tax return enables the Commissioner to annually assess whether the PBO is operating within the prescribed limits of its approval and to determine whether the partial taxation principles have been applied to receipts and accruals derived from a business undertaking or trading activity not qualifying for exemption.”

2. Which assets are excluded when calculating the exit charge?

Q: Are shares held in a private company charged an "exit charge" for CGT purposes, when the shareholder ceases to become a resident? And are the assets of a discretionary trust taxed for CGT purposes when a person whom is a beneficiary of the trust ceases to be a resident?

A: For the purposes of section 9H, 'asset' means an asset as defined in paragraph 1 of the Eighth Schedule.  Section 9H (4) then provides that sections 9H(2) and 9H(3) do not apply in respect of an asset of a person where that asset constitutes:

(a)    immovable property situated in the Republic that is held by that person

(b)    …

(c)     any asset which is, after the person ceases to be a resident or a controlled foreign company as contemplated in subsection (2) or (3), attributable to a permanent establishment of that person in the Republic;

(d)    any qualifying equity share contemplated in section 8B that was granted to that person less than five years before the date on which that person ceases to be a resident as contemplated in subsection (2) or (3);

(e)    any equity instrument contemplated in section 8C that had not yet vested as contemplated in that section at the time that the person ceases to be a resident as contemplated in subsection (2) or (3); or

(f)      any right of that person to acquire any marketable security contemplated in section 8A. 

If the shares in the private company are not one of the ones listed above, we agree with you. 

We also agree that, to the extent that beneficiary has no vested right, there is no interest in an asset of the trust and consequently, no disposal. 

3. Can a taxpayer make a once off contribution for retirement purposes?

Q: Can a taxpayer, over the age of 65 years, make a once-off (ad-hoc) tax deductible contribution to a Retirement Annuity Fund in a tax year, retire from the fund in the next tax year and apply the lump sum tax tables to the withdrawal? Does the increase of the threshold for withdrawals from retirement funds from R75000 to R247500 only take effect on 1 March 2018?

A: There is nothing, in the Income Tax Act, that would prevent the taxpayer from doing so and it doesn’t only apply to a person of the age of 65 either.  In fact, to the best of our knowledge this often happens and the rules of the fund will probably also allow for it. 

The ‘excess amount’, the balance carried forward, will of course, in the first instance, be deducted from the lump sum withdrawal and the balance thereof, if the lump sum is less than that or no lump sum is taken, will reduce the annuity (the section 10C exemption). 

The increase, the R75 000 to R165 000 (in total R247 500), applies since 1 March 2016.  The amendments, brought about by Act 2 of 2016, relate to provident fund amounts and would only take effect 1 March 2018.  This effective date was of course amended, by Act No. 17 of 2017 Taxation Laws Amendment Act, 2017, to 1 March 2019.  In Piet Nel’s view, these amendments don’t have an impact on the R165 000 amount. 

The ‘retirement date’, with respect to commutation of the retirement interest, after age 55, will be the date the person ‘elects to retire’ – see section 1(1) of the Income Tax Act.  As such, it will be a ‘retirement lump sum benefit’ – as defined.  The individual would not otherwise, in other words, by way of a withdrawal be able to take a lump sum from the fund – such as on emigration for instance.  

Disclaimer: Nothing in this query and answer 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 answer, SAIT do not accept any responsibility for consequences of decisions taken based on this query and answer. It remains your own responsibility to consult the relevant primary resources when taking a decision.

Comments...

Rory A. Beddy says...
Posted Friday, 23 February 2018
excellent .THANKS RORY BEDDY
Rory A. Beddy says...
Posted Friday, 23 February 2018
excellent .THANKS RORY BEDDY
Rory A. Beddy says...
Posted Friday, 23 February 2018
excellent .THANKS RORY BEDDY

 

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