Tax – Page 11 – Rust Gold

9 Apr

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.

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)

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

Tax consultancy services: A fringe benefit?

Kirsten Van Tonder

Tax

A recent judgment of the Tax Court sitting in Pretoria highlighted yet again the very broad nature of the employment fringe benefit regime governed by the Seventh Schedule of the Income Tax Act and as applies to goods and services provided to employees through an employer. As a general principle, employees’ benefits received from their employers in whatever form could potentially be treated as part of employees’ remuneration and therefore subject to income tax in their hands. Such fringe benefits are therefore also subject to the PAYE regime and which should be applied by employers in withholding PAYE on the value of such benefits.

Paragraph (i) to the “gross income” definition in section 1 of the Income Tax Act specifically includes in gross income “… the cash equivalent, as determined under the provisions of the Seventh Schedule, of the value during the year of assessment of any benefit or advantage granted in respect of employment or to the holder of any office, being a taxable benefit as defined in the said Schedule…”.

In the particular tax court case, a South African subsidiary company, forming part of an international corporate group, employed non-resident employees as part of a global secondment programme which the group was implementing. In terms of that secondment programme, employees were guaranteed an after-tax salary amount of not less than what the employees would have received in their country of residence while working for the South African subsidiary company. In other words, where a higher tax charge would be levied in South Africa on remuneration earned, the South African subsidiary would carry that cost on behalf of that employee.

In order to implement this complex “Tax Equalisation Scheme”, the South African employer company contracted the services of a firm of tax consultants to assist the non-resident employees to submit their tax returns in accordance with the South African income tax laws, and also to ensure that the returns reflect the correct information to give effect to the “Tax Equalisation Scheme”.

The Tax Court found that the services which the tax consultants provided, although arguably necessary for purposes of fulfilment of the employer’s contractual arrangement towards its employees, were in essence a service rendered to the employees and not the employer, even though the tax consultants’ services were paid for and contracted by the employer. As a result, these services constituted a “benefit or advantage” for the employees as envisaged in the gross income definition quoted above, and moreover such services were provided for the “private or domestic purposes” of the employees in question. As a result, the appeal against the PAYE assessment raised by SARS in the amount of R2.4m was dismissed.

Although a fact-specific judgment, it nevertheless again highlights the very broad nature potentially of the PAYE regime. Given the heavy penalties and other sanctions linked to a contravention of the provisions of the Fourth Schedule (which governs the collection and payment of PAYE, which may also be levied on fringe benefits received by employees), employers are advised to approach the tax consequences of employee benefits with caution.

20 Mar

Your primary residence and capital gains tax

Kirsten Van Tonder

Finance News, Tax

Capital gains tax is somewhat of a misnomer in that it does not represent a tax in and of itself, but rather operates to include a portion of a person’s capital gains realised when an asset is sold in that person’s taxable income, and which taxable income is then subject to income tax. For natural persons, 40% of capital gains realised on assets are included in taxable income, whereas the inclusion rate for legal persons stand at 80%.

Disposing of immovable property would typically give rise to a significant capital gain. However, where that property sold is the primary residence of the person selling it, certain exclusions apply which reduce the ultimate income tax liability of the seller, often even eradicating the capital gains tax effect of the sale altogether.

Paragraph 44 of the Eighth Schedule to the Income Tax Act, 58 of 1962, defines a residence as “any structure, including a boat, caravan or mobile home, which is used as a place of residence by a natural person, together with any appurtenance belonging thereto and enjoyed therewith.” The exclusion does not apply however to any residence but only to a person’s primary residence.

Again, a primary residence is defined as “a residence—

(a) in which a natural person … holds an interest; and

(b) which that person … or a spouse of that person … ordinarily resides or resided in as his or her main residence and uses or used mainly for domestic purposes…”

Theoretically therefore, the exclusion would not apply to holiday homes. The Act is further explicit in that a person cannot have more than one primary residence at any given moment.

The exclusion afforded to disposals of primary residences is quite significant and can operate in either of two potential manners. Firstly, where the selling price of the primary residence is less than R2 million, no capital gains tax will be payable. Secondly, even if the selling price is more than R2 million, up to R2 million of the capital gain will be excluded from being subject to income tax.

Where two persons use the same property as a primary residence and jointly own that property, the R2 million is apportioned between the two of them. In other words, the exclusion applies per property and not per taxpayer. If for example a husband and wife own a house which they sell for a profit of R3 million, each will be taxable on R500,000’s worth of gains (being R1.5million less R1million each).

The exclusion is significant, yet not one to be taken for granted. Many taxpayers make the mistake of transferring their primary residence to a trust structure for estate duty purposes, thereby forfeiting the potential primary residence exclusion if the property is sold in future: by virtue of the definitions above non-natural persons can never have a primary residence and trusts and companies therefore are ineligible for the relief provided.

13 Mar

Tax clearance certificates

Kirsten Van Tonder

Finance News, Tax

Taxpayers may require SARS to issue them with a tax clearance certificate for various reasons. This includes a general confirmation that the relevant taxpayer’s affairs are all in order and up to date (a so-called “Good Standing” tax clearance certificate), or a certificate being required to participate in certain government tenders.

Perhaps most notably in recent times, natural person taxpayers are also requesting “FIA” tax clearance certificates, being tax clearance certificates issued to taxpayers who intend to utilise their R10m annual foreign investment allowances to transfer funds abroad for investment purposes. The South African Reserve Bank (through its authorised dealers (most commercial banks)) will not grant approval for transfer of funds in this manner without confirmation from SARS in the form of a FIA certificate being issued that the individual’s tax affairs are all up to date and in order.

Many do not realise that the issuing of tax clearance certificates is a process specifically regulated by the Tax Administration Act. Any tax clearance certificate must be requested in the prescribed form and manner by a taxpayer or his/her representative. A tax clearance certificate must be issued in the prescribed format and include at least the original date of issue of the tax compliance status confirmation to the taxpayer, the name, taxpayer number and ID number (or company registration number) of the taxpayer.

After receipt of an application in the prescribed form, SARS must either issue or decline to issue the tax clearance certificate requested within 21 business days, or such longer period as may reasonably be required if a senior SARS official is satisfied that the confirmation of the taxpayer’s tax compliance status may prejudice the efficient and effective collection of revenue.

In practice, SARS often takes well in excess of the 21 business days in which to issue tax clearance certificates, especially for purposes of Foreign Investment Allowance applications. In terms of the Tax Administration Act, SARS may not take longer than the 21 days to process such an application, unless there is some form of proof that tax collections may be jeopardised if the certificate is issued (and which will rarely be the case). Where such delays are experienced though, taxpayers are in practice left with very few remedies, which are conceivably limited to either approaching the Tax Ombud (whose recommendations are not binding), the Public Protector or the High Court for an order forcing SARS to make a decision on issuing a certificate. Most taxpayers will therefore, sadly, simply have to endure SARS’ delays in processing tax clearance certificate applications.

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