Kirsten Van Tonder – Page 25

9 Apr

If you are self-employed or a business owner, you have to pay company tax in South Africa. How much business tax you pay and what deductions you can claim will depend on the size and type of your business.

What is company tax?

Company tax (also called, “corporate income tax”) is what keeps our economy functional. There exists different business categories, who all have to go through registration procedures and have to pay tax. Tax is a rather complicated matter, which is why a lot of people choose to rather pass it on to professional business accountants.

Who needs to pay company tax?

All registered businesses in South Africa have to pay company tax on their worldwide income to SARS. Companies based outside of South Africa, but operating in South Africa, must pay tax on income derived from within South Africa only. The type of companies that have to pay company tax in South Africa include:

listed and unlisted public companies
private companies
close corporations
co-operatives
collective investment schemes
small business corporations
share block companies
body corporates
public benefit companies
dormant companies

What steps must be taken?

Register as a taxpayer. Every business liable to tax under the Income Tax Act, 1962, must register with SARS as a taxpayer. You can register once for all different tax types, using the client information system.

Submit annual tax return. Every registered taxpayer must submit a return of income twelve months after the end of the financial year. Returns can be submitted electronically or manually via SARS.

Submit provisional tax returns. Every company must submit provisional tax returns. Your first provisional tax return must be submitted six months from the start of the year, and the second at year-end, and must contain an estimate of the total taxable income earned or to be earned for that period. Payment of the tax must accompany the return. A third “top-up” payment may be made six months after year-end.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

9 Apr

Medical scheme fees tax credit

Kirsten Van Tonder

Tax Medical scheme fees, MTC, Tax

Section 6A of the Income Tax Act[1] provides for a medical scheme fees tax credit (“MTC”), or rebate, which reduces the amount of income tax payable by a natural person (hereinafter referred to as the “taxpayer”). The MTC applies to the fees paid by the taxpayer to a registered medical scheme for his or her own benefit or for the benefit of his or her dependents.

The MTC is a fixed monthly amount which increases based on the number of dependents. For the 2017/2018 year of assessment (1 March 2017 to 28 February 2018), the credit is R303 for the taxpayer, a further R303 for the first dependent and R204 for each of the taxpayer’s additional dependents.

A “dependent” in relation to a taxpayer for purposes of section 6A is defined in the Medical Schemes Act.[2] With reference to the member of the medical scheme (here the taxpayer), it includes the spouse or partner of the taxpayer, any dependent children or other members of the taxpayer’s immediate family in respect of whom the taxpayer is liable for family care and support as well as any other person who, under the rules of the relevant medical scheme is recognised as a dependent of the taxpayer.

Contributions paid by the employer of a taxpayer are also deemed to have been paid by that taxpayer to the extent that the amount has been included in the income of that person as a taxable benefit. Contributions by an employer made after an employee has retired carries no fringe benefit value.[3] The converse is also true: where an employer pays an ex-employee’s total contributions to a medical scheme, the benefit will have no value for tax purposes and the ex-employee will not be entitled to claim the MTC for the months after retirement. Should the ex-employee, however, pay any portion of the contributions to the medical scheme during the months after retirement, he or she will be able to claim the MTC for those months. This is due thereto that in order to claim the MTC, it is merely required that fees are paid by the taxpayer. Any contribution paid by the taxpayer should therefore give rise to the MTC.

In summary, any fees paid by the taxpayer him- or herself (whether the full contribution or not), the estate or employer (provided that the amount is taken into account as a taxable benefit) are taken into account for the purposes of MTC as contributions paid by the taxpayer.

[1] No. 58 of 1962

[2] No. 131 of 1998

[3] Paragraph 12A(5)(a) of the Seventh Schedule to the Income Tax Act

9 Apr

Claiming VAT input on “pre-enterprise” expenditure

Kirsten Van Tonder

Tax SARS, Tax, VAT

In terms of section 17 of the Value-Added Tax Act, 89 of 1991, a registered VAT vendor is entitled to claim back any amounts of VAT paid on goods and services acquired or imported that will be used in the furtherance of that particular VAT enterprise. The ability to claim input VAT in this manner is however limited to VAT vendors only and the wording of section 17(1) makes it clear that input tax may only be claimed in respect of goods and services supplied to a vendor – in other words, a person that is already a registered vendor at the time that the goods or services are supplied to him/her.

Section 18(4) of the VAT Act provides relief for persons incurring expenses in the form of goods or services being supplied to them in anticipation of a VAT enterprise being set up. In terms of that provision, and notwithstanding section 17, where VAT is paid on goods or services acquired by a person and those goods or services will subsequently be supplied as part of a VAT enterprise, those goods or services on which VAT was paid historically will be deemed to have been supplied to that VAT vendor only at the stage that those goods or services are used by it to supply its own VAT supplies. In other words, the provision enables the person, who earlier would not have been able to enter a claim for input tax, to claim input tax on those goods and services supplied to him/her previously, before becoming a VAT vendor.

The relief is not only limited to goods or services supplied to the now-VAT vendor and on which VAT was paid, but also extends to second-hand goods which were previously acquired by it and is now also used in the furtherance of its VAT enterprise.

From a practical perspective, we often find in practice that SARS disallows such claims for input tax on the basis that the claiming vendor’s VAT number does not appear on the invoice which it would submit in support of its input VAT claim subsequently. This is obviously incongruous, since the VAT-claiming vendor under these circumstances could not have had its VAT number appear on the invoice of another vendor which supplied goods or services to it, simply since the vendor would not have had a VAT number at that stage, yet is perfectly eligible to submit a VAT input claim in terms of the provisions of section 18(4). We would argue that SARS’ approach is contradictory to the wording of section 20(4)(c) of the VAT Act which requires the following to appear on invoices submitted by vendors in support of an input tax claim:

“… the name, address and, where the recipient is a registered vendor, the VAT registration number of the recipient”.

Clearly, where a vendor submits an invoice to claim input VAT on “pre-enterprise” expenditure incurred, that vendor will not have been a registered vendor at that time, therefore in our view highly arguably not required to have its own VAT number on an invoice in order to support a claim for input VAT on “pre-enterprise” expenditure.

20 Mar

VAT Increase and Accounting Systems

Kirsten Van Tonder

Tax 1 April, Increase, VAT

As you are aware, the National Treasury announced an increase in Value Added Tax (VAT) from 14% to 15% effective 1 April 2018.We urge you to ensure that your accounting systems are set up to process transactions at the new VAT rate of 15% from 1 April 2018. This is to avoid any penalties or interest due to an under declaration or an over claim on your VAT201 return.

Also note that vendors under Category B (March/April), Category E (annual return) and most farmers registered under Category D VAT reporting periods, will have transactions subject to the VAT rate of 14% and 15% which must be correctly reflected on the VAT201 return.

Feel free to contact us should you have any questions or require assistance.

20 Mar

Withdrawal of vat relief for residential property developers

Kirsten Van Tonder

Finance News

Section 18B of the Value-Added Tax Act was introduced effective 10 January 2012 in a bid to grant relief for residential property developers caused by the slump in the property market at that time. Many property developers, registered for VAT, would develop residential properties with a view to dispose of these properties in the short-term as trading stock and as part of its VAT enterprise. However, following the global financial crisis of little less than a decade ago, many property developers found themselves in a position where they were increasingly forced to rent out residential properties once a development was completed due to the slower rate at which properties could be disposed of compared to earlier.

The letting of residential property is typically exempt from VAT. Due to a change in use of the properties therefore (albeit temporarily) from being held for sale as trading stock to now being put up to be let in the interim while being on market constituted a change in use of the properties. Due to the change in use of the properties, from being used to make taxable VAT supplies in the ordinary course of business and being sold as trading stock by the developer, to now being used to make VAT exempt supplies in the form of being used to generate residential rental income, the provisions of section 18(1) of the VAT Act would ordinarily have applied. In terms of section 18(1), where goods have been acquired previously for purposes of making VATable supplies, and these goods are subsequently used to make exempt supplies, the VAT vendor must be deemed to have disposed of all those assets for VAT purposes. In other words, even though no actual disposal of assets has taken place, such a disposal is deemed to take place for VAT purposes and which gives rise to output VAT having to be accounted and paid for by the developer based on the open market value of the property at that stage.

As one could quite easily imagine, having to account for output VAT in these circumstances may be prohibitive, especially considering that the value of a property will likely have been enhanced due to the development and that VAT inputs thus far claimed by the developer would be overshadowed by the output VAT amount that is now required to be claimed.

It is in acknowledgement hereof that section 18B was introduced to the VAT Act in 2012. In terms of that provision, property developers were granted a 36-month grace period within which to sell properties, and during which time these residential properties could be rented out without a deemed supply being triggered for VAT purposes.

When introduced originally, it was made clear at that stage that the relief for temporary letting as explained above will only be in effect until 1 January 2018. However, it is arguable that the property market has not recovered sufficiently yet for the relief to be withdrawn at this stage.

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