Draft Taxation Laws Amendment Bill, 2016: (second batch) Revisions and Additions for Public Comment

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Notable revisions include:

  • Changes to section 7C (trusts and loan accounts) to remove the deemed interest imputation for loans to trust and replacing same with a deemed donation provision and removing the R100 000 annual donations tax exclusion prohibition.
  • Extension of the Employment Tax Incentive to 28 February 2019;
  • Dividends on restricted equity instrument will no longer all be deemed remuneration. The proviso to the income tax exemption for dividends will however still apply in limited circumstances.

For access to the entire revision, please click here.

Irrecoverable Debts and VAT

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In the case of VAT 1247:  XYZ Company (Pty) Ltd v The Commissioner for The South African Revenue Service, the court was faced with interpreting section 22(3) of the VAT Act, notably, in relation to a period before 22(3A) was introduced. Section 22(3) of the VAT Act in essence requires a person who has claimed an input tax deduction to make an output VAT adjustment if the invoice on which the input was claimed has not been settled within a period of 12 months.

The facts of the case are briefly that a supply was made from company A to Company B. Company B proceeded to claim an input tax credit back from SARS and once refunded, paid the Vat portion for the supply to Company A. Company A subsequently paid the VAT on the supply across to SARS and credited the loan account in respect of the invoice and debited a long term liability.  The long term liability was not settled by Company B within 12 months.

The taxpayer argued that crediting the loan account of Company A constituted payment of the invoice and accordingly, section 22(3) should not find application and in addition, there was no prejudice to SARS. SARS, in turn, argued that the debt still existed and was not settled within 12 months and that section 22(3) should apply.

The court in arriving at its decision that section 22(3) does not find application in casu stated that the purpose of section 22(3), per the Explanatory Memorandum to the amendment bill that introduced same, was to prevent abuse of the irrecoverable debt provisions in section 22 that resulted in prejudice to SARS. As there is no prejudice for SARS in this case, the court ruled that section 22(3) does not find application.

It will be interesting to see if SARS appeals this decision as taxpayers may be tempted to henceforth merely move liabilities around on the balance sheet to prevent the application of 22(3). Such temptation should however preferably be resisted without consulting an expert as the judgment is fact specific and the intention of Company A and Company B ostensibly played a vital role in the court’s conclusion together with the fact that there was no prejudice to SARS.

The issue is however mostly moot in relation to group transactions where such transactions fall within the carve out created for same in section 22(3A), introduced with effect from 10 January 2012.

[button url=”http://www.sars.gov.za/AllDocs/LegalDoclib/Rulings/LAPD-IntR-R-BPR-2016-24%20-%20BPR239%20Cash%20Contributions%20made%20to%20a%20special%20purpose%20vehicle.pdf” target=”” size=”small” style=”black” icon=”icon: cloud-download” popup=”” title=””]Download: Irrecoverable debts and VAT[/button]

 

Scams and Phishing Attacks

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Members of the public are randomly emailed with false emails made to look as if these emails were sent from SARS, but are in fact fraudulent emails aimed at enticing unsuspecting taxpayers to part with personal information such as bank account details. Examples include emails that appear to be from returns@sars.co.za or refunds@sars.co.za indicating that tax payers are eligible to receive TAX refunds.

These emails contain links to false forms and false websites made to look like the “real thing”, but with the aim of fooling people into entering personal information such as bank account details which the criminals then extract and use fraudulently.

Please note these are scams and SARS taxpayers should take note of the following:

  • Do not open or respond to emails from unknown sources.
  • Beware of emails that ask for personal, tax, banking and eFiling details (login credentials, passwords, pins, credit / debit card information, etc.) as SARS will never ask taxpayers for such information in an email.
  • SARS will not request your banking details through the phone, email or websites.
  • Beware of false sms’s.

More samples:

Institution Specific Scams: Absa | Capitec | FNB | Nedbank | Standard Bank

Topic Specific Scams: Audit | Personal and Banking Details | Refunds | Payments

Source Specific Scams: Email | Letter/Fax | Phone Call | SMS | Website

 Example of Latest Scams:

Guide on the Determination of Medical Tax Credits (Issue 7)

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The guide provides general guidelines to determine the medical fees tax credit and additional medical aid tax credit for income tax purposes. The guide includes the relevant definitions and formulas as well as detailed examples for purposes of the medical fees tax credit and additional medical aid tax credit calculation.

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BPR 242: Venture Capital Company Investment in Qualifying Companies

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  • This ruling determines –
    • Whether or not the investee is a “controlled group company” and that the shares purchased by the Applicant and Co-Investor is “equity shares”; and
    • The meaning of “hotel keeper” and the allowances that a hotel keeper may claim.
  • The Applicant and Co-Investor intends to invest in qualifying companies that will carry on the business of hotel keepers. They will each appoint a company (manager) to operate and manage their respective hotels. The manager will guarantee certain profit targets per annum.
  • The Applicant intends to exit this investment on or before the 5th year of the investment. The Co-Applicants will sell their respective hotels and distribute the proceeds to their shareholders.
  • The ruling held that each share of the Co-Applicants will constitute an “equity share” and therefore a “qualifying share” and that neither of the Co-Applicants will constitute a “controlled group company” for so long as they do not hold more than 70% of the total equity shares, irrespective of the fact that the Applicant may invest more than 70% of the aggregate share capital in each of the Co-Applicants in monetary terms.
  • The Applicant and Co-Investor can then get a deduction for the funds invested in the Co-Applicants in terms of the venture capital company regime.

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D v Commissioner, SARS (VAT 1390):

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“Whether the delivery of food orders to the taxpayer’s customers constitute a service supplied by it for consideration in the course, or furtherance, of its enterprise (and therefore whether same is within ambit of Value Added Tax Act, No. 89 of 1991). If so,  whether VAT falls to be paid on taxpayer’s delivery charges or whether same should be borne by taxpayer’s deliverers/ drivers (independent contractors).”

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Taxation Laws Amendment Bill & Tax Administration Laws Amendment Bill Update

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The 2016 draft taxation laws amendment bill and draft tax administration laws amendment bill has been published for public comment. Comments are due by 8 August 2016.

2016 Draft Tax Administration Laws Amendment Bill

The draft Tax Administration Laws Amendment Bill, 2016, is hereby published for comment. The draft legislation gives effect to matters presented by the Minister of Finance in the Budget Review 2016, as tabled in Parliament earlier this year.

Members of the public are invited to submit comments on the draft legislation by no later than 8 August 2016 to:

Adele Collins at acollins@sars.gov.za

Click here to download the bill.

2016 Draft Taxation Laws Amendment Bill

Click here to download the bill.

BPR239: Cash Contributions made to a Special Purpose Vehicle Established to Provide Housing to Mine Workers

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This ruling determines the income tax consequences resulting from cash contributions to be made by the applicant to a special purpose vehicle (separate property company) established to provide housing for the employees of the joint venture and the group of companies of which the Applicant forms part. The separate property company (SPV) will obtain funding and provide housing to mine workers, in order for the company to apply for a renewal of its mining rights.

Upon completion of the housing projects undertaken by separate property company, all surplus cash and profits shall be applied to programmes that have as its object the improvement of the social conditions of the communities in or around the area in which the Applicant carries on its business.

Click on the button below to view and download the SARS Binding Private Ruling: BPR 239 Document:

[button url=”http://www.sars.gov.za/AllDocs/LegalDoclib/Rulings/LAPD-IntR-R-BPR-2016-24%20-%20BPR239%20Cash%20Contributions%20made%20to%20a%20special%20purpose%20vehicle.pdf” target=”” size=”small” style=”black” icon=”” popup=”” title=””]BINDING PRIVATE RULING: BPR 239[/button]

BPR 237: Reinstatement of a Deregistered Company to Transfer Immovable Properties

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This Binding Private Ruling deals with the reinstatement of a deregistered company in order to complete a transfer of immovable properties, pursuant to an amalgamation transaction. It concerns section 44(13) of the Income Tax Act, section 8(25) of the VAT Act, and section 9(1)(l)(iB) of Transfer Duty Act.

Click on the button below to view and download the SARS Binding Private Ruling: BPR 237 Document:

[button url=”http://www.sars.gov.za/AllDocs/LegalDoclib/Rulings/LAPD-IntR-R-BPR-2016-22%20-%20BPR237%20Reinstatement%20of%20a%20deregistered%20company%20to%20transfer%20immovable%20properties.pdf” target=”” size=”small” style=”black” icon=”” popup=”” title=””]BINDING PRIVATE RULING: BPR 237[/button]

Charging VAT on Supplies Made by Another?

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The recent case of D v Commissioner for South African Revenue Service (VAT 1390), which is an appeal referred by the taxpayer to the Western Cape Tax Court after being dissatisfied with the decision by the Tax Board, reconfirms that supplies made by an independent contractor to the taxpayer and recovered from customers by the taxpayer is subject to VAT in the hands of the taxpayer.

The facts of the case are briefly that a taxpayer had engaged the services of certain drivers to collect and deliver goods to customers . The taxpayer would invoice the customer a VAT inclusive charge and would plainly list the amount payable to the driver on the invoice excluding VAT.  The customers would settle the full invoice amount and the taxpayer would in turn pay over the disbursement charge to the relevant driver.

The Tax Court held that the taxpayer is liable for the VAT on the disbursement as representing consideration received by the taxpayer for rendering services by the taxpayer to its customer. The fact that the drivers were independent contractors and the fact that the amounts were required to be paid over to the drivers were held by the court to be irrelevant.

Taxpayers who are required to pay amounts invoiced by them over to third parties should take care to ensure VAT is correctly accounted for and it is recommended that professional advice be sought in this regard. Failure to correctly account for VAT gives rise to penalties, interest and possible criminal prosecution.