TAX CLEARANCE CERTIFICATES: LAW CHANGES

TAX CLEARANCE CERTIFICATES: LAW CHANGES

The importance of a tax clearance certificate for most businesses cannot be overstated. It often happens though that SARS raises an assessment giving rise to an unexpected tax liability that affects the business’ tax standing. This, in turn, almost always adversely affects the business. Simply paying the extra tax assessed to ensure the business is in good standing again is not always an option, especially if the taxpayer intends disputing the underlying assessment. Where a taxpayer intends disputing the assessment, the taxpayer can request SARS to suspend the payment of the tax liability pending the outcome of the dispute. As...

TRANSFER DUTY EXEMPTION AND CORPORATE TRANSACTIONS: ASSET FOR SHARE AND UNBUNDLING TRANSACTIONS

TRANSFER DUTY EXEMPTION AND CORPORATE TRANSACTIONS: ASSET FOR SHARE AND UNBUNDLING TRANSACTIONS

The Income Tax Act, No. 58 of 1962 (“the ITA”), contains certain provisions colloquially referred to as “the corporate roll over provisions”. In short, these provisions allow certain transactions to take place without triggering immediate adverse income tax (including capital gains tax), VAT, Transfer Duty or Securities Transfer Tax consequences. The taxes that would have had to be paid were it not for these special rules is effectively deferred until a later stage provided all requirements are satisfied. These provisions include section 42 (asset for share transactions), 44 (amalgamation transactions), 45 (inter group transactions), 46 (unbundling transactions) and 47 (liquidation...

TAX LAW IN ACTION – LATE OBJECTIONS AND EXCEPTIONAL CIRCUMSTANCES

TAX LAW IN ACTION – LATE OBJECTIONS AND EXCEPTIONAL CIRCUMSTANCES

An individual taxpayer recently realised that he should have been assessed to a refund in respect of his 2017 year of assessment.  This is associated with the so-called “183/60 day exemption”. Instead of a refund, SARS assessed the taxpayer to a liability.  The trouble was that the assessment against which an objection lied was more than two years old (but not more than three years old). On the facts of the case there appeared to be no exceptional circumstances that could justify the delay in submitting the objection.  Therefore an objection would almost certainly be rejected. After closer scrutiny of...

TAX TIPS – FOREIGN TRUSTS

TAX TIPS – FOREIGN TRUSTS

South African beneficiaries of foreign trusts who receive distributions from those trusts are, in most cases, liable to tax in respect of such distributions. The anti-avoidance measures in section 25B and paragraph 80 of the Eighth Schedule to the Act also specifically provide for distributions out of trust capital to SA beneficiaries to beneficiaries to be taxable in certain instances. Applying these anti-avoidance measures require of taxpayers to deemed the foreign trust a resident of South Africa and then establishing if the trust would have paid tax in SA on the receipts that created the capital from which the distribution...

THE EMPLOYEE’S BAD DEBT DEDUCTION

THE EMPLOYEE’S BAD DEBT DEDUCTION

Many businesses are struggling to make ends meet. Unfortunately, in these circumstances, employers may be unable to pay salaries but nevertheless still issue IRP5 certificates indicating the salary to which the employee became entitled (despite the fact that it may not have been actually paid). This is often not well received by the employee when the time comes for that employee to file his/her tax return – why should he/she be paying tax on money not received? Without getting too technical, the fact that salary was not actually received does not, in most cases, negate the requirement for the employee...

TAX LAW IN ACTION – CLAIMING PAYE CREDITS

TAX LAW IN ACTION – CLAIMING PAYE CREDITS

We recently resolved a case involving a company claiming PAYE credits. The facts of the case are briefly that when the company filed its annual tax return, it claimed PAYE credits. The PAYE credits so claimed however was in fact PAYE paid over by the company in respect of its employees and were not PAYE credits of the company. The reason why it was claimed on the return was that the PAYE credits were prepopulated on the annual tax return – the taxpayer thought at the time that since it was pre-populated on the return, SARS wanted the taxpayer to...

TAX TIPS – SECTION 24C

TAX TIPS – SECTION 24C

Upfront payments are common in many industries but especially in construction and manufacturing. These upfront payments often defray costs that will be incurred over more than one tax year. The trouble from a tax perspective is that the full upfront payment is taxable with deductions to be incurred in following years not being deductible. That is unless the taxpayer qualifies for an allowance for future expenditure in terms of section 24C. Section 24C allows qualifying taxpayers to effectively claim expenses to be incurred in a next tax year in the year that the payment is received so that ultimately, the...

TAX TIP – LESSOR’S WEAR AND TEAR ALLOWANCE

TAX TIP – LESSOR’S WEAR AND TEAR ALLOWANCE

Taxpayers who let certain assets may qualify for a wear and tear deduction in respect of that asset. Under certain circumstances, the wear and tear deductible in respect of those assets are effectively limited to the rental income generated from that asset. Lessors should therefore be mindful of the applicable tax legislation governing wear and tear deductions on assets under lease to ensure that excess wear and tear is not deducted as doing so will expose the taxpayer to a wide range of penalties which could be as high as 200%. By way of example: A taxpayer who lets a...

TAX TIP:  R&D APPROVAL AFTER TAX RETURN SUBMISSION

TAX TIP: R&D APPROVAL AFTER TAX RETURN SUBMISSION

To claim a deduction of 150% under section 11D of the Act, the taxpayer needs approval from the Minister of Science and Technology. Without the approval, the deduction cannot be claimed under section 11D. It often happens in practice, however, that approval is granted only after the taxpayer’s year of assessment for which the deduction is sought and after the tax return for that year has been submitted. In these cases, taxpayers are allowed to request SARS to allow the deduction in the year of assessment to which the expenditure relates under section 11D(20) of the Act. In fact, a...

TAX LAW IN ACTION:  TAX REFUNDS

TAX LAW IN ACTION: TAX REFUNDS

A taxpayer was assessed to a refund (corporate income tax) in respect of its 2017 year of assessment in the amount of roughly R8m and in respect of its 2018 year of assessment in the amount of roughly R6m. The 2018 year of assessment was under audit. The 2017 refund came about in a reduced assessment consequent upon a successful dispute process. SARS refused to release the 2017 refund on the basis of the 2018 audit. The taxpayer formally requested the 2017 refund. This was rejected by SARS on the basis of the ongoing 2018 audit. The approach adopted and...