Tax – Rust Gold

4 Aug

The last few months have been extremely tough for small business owners as a result of the global COVID-19 pandemic, and various lockdown measures that have created a challenging trading environment. The South African Revenue Service (“SARS”) has identified this hardship, and as a result, the National Treasury recently tabled the Disaster Management Tax Relief Administration Bill, which would assist micro, small and medium businesses should they seek to utilise this relief.

Although many of these measures have applied in practise, they have not officially been included in a tax bill and will soon have the necessary legislative effect (once promulgated).

To be a candidate to claim relief, a small business must:

Have a tax compliant status;
Conduct a trade during the year of assessment ending after 1 April 2020 to 31 March 2021, and earn gross income of R100 million or less; and
Not more than 20% in aggregate of the gross income can come from interest, dividends, royalties, rental payments, annuities, or remuneration received from an employer (generally aimed at passive income).

The relief offered by the Bill covers the following:

Pay-As-You-Earn (“PAYE”) deferral

Employers can claim a four-month deferral relief from 1 April 2020. To claim, two options are available;

Employers are still required to submit full PAYE returns (EMP201). SARS will issue a statement of account reflecting the relief; or
Calculate the total payable at 65% of the total.

After 7 August 2020, SARS will determine an amount payable in six equal payments to cover the outstanding (deferred) liability.

Employment Tax Incentive (“ETI”)

This programme runs from April 2020 to July 2020 and is claimed in the monthly EMP201. To claim, an employer is required to calculate the total ETI and 65% of the PAYE. The employer then utilises the lessor of the total ETI, or 65% of the PAYE liability to claim relief.

Provisional tax deferral

The period runs from 1 April 2020 to 30 September 2020 for the first payment period, and from 1 April 2020 to 31 March 2021 for the second provisional payment period. The gist of this assistance is that companies are required to pay only 15% of the first provisional payments and 65% (after deducting the first 15%) of the second payment. The remaining 35% will be payable on the third provisional payment date to avoid interest charges on late payment.

Accelerated value-added tax (“VAT”) refunds

From 1 May 2020, VAT vendors can file monthly VAT claims as opposed to every 2 months. Category A vendors can claim this relief from April 2020 to July 2020, and vendors registered under category B from May 2020 to August 2020.

The above relief measures contained in the Disaster Management Tax Relief Administration Bill are bound to bring some welcome cash flow and liquidity relief to struggling SMMEs in South Africa.

For more information on these relief measures, visit www.sars.gov.za/media/pages/tax-relief-measures.

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)

8 Jun

Taxpayers’ details remain protected

Kirsten Van Tonder

Finance News SARS, Tax, Zuma

In the case of the Commissioner for SARS vs Public Protector (23 March 2020) in the Gauteng High Court, the matter of the confidentiality of taxpayer information came up for consideration. This matter has a protracted history stemming from around November 2018. The Public Protector’s office had been actively seeking the (then) president’s tax records for an investigation, and for which the Public Protector issued a subpoena in October 2018.

The Public Protector argued that her office required the personal tax information of former President Zuma as she was investigating a complaint by a political party sourced from a column in a published book, relating to the former president’s alleged tax woes and that he had been receiving a salary from a private security company.

The substance of the Public Protector’s argument was based on the legal concept of jus causa (just cause), stating that this information was essential to her investigation. Interestingly, the former president came out in the Public Protector’s defence and attempted to file an affidavit confirming that she may access these records.

SARS’ argument to deny access to the records was based on section 67 of the Tax Administration Act, protecting the secrecy of taxpayer information. SARS’ refusal was echoed by counsel and based on the premise that the subpoena sought to coerce the production of sensitive information, and which production is a criminal offence according to the Tax Administration Act. SARS further pointed out that the Public Protector is not an “exempted authority” for purposes of providing information. SARS similarly pointed out that the Public Protector had various other avenues available to obtain this information, which was both lawful, and was never attempted (and that she had received advice to this effect).

The Court ruled in favour of SARS, confirming the sanctity of taxpayer secrecy. In his judgement, judge Mabuse confirmed that the Tax Administration Act provides that no current or former SARS employee may disclose taxpayer information to any person who is not a SARS official. The Court further looked at the phrase “just cause”, as contemplated in the Public Protector Act, and denied that this instance was a situation of just cause, warranting the issuing of a subpoena. The Court held that the Public Protector had no valid reasons for seeking the taxpayer information, that she failed to observe legislation and had the wrong impression that she had unlimited powers.

SARS’s application of withholding the information was upheld and the court order that was based on the provisions of the Tax Administration Act, as well as the “just cause” provision held in the Public Protector Act, provided that SARS was entitled to withhold this information. It was further ordered that the Public Protector’s subpoena powers do not extend to taxpayer information.

Taxpayers should take some heart from the judgement, knowing that SARS has the right, and will attempt, to keep their tax matters confidential from other parties, within the boundaries of the law.

19 May

Tax law for employer transport services

Kirsten Van Tonder

Finance News BGR, SARS, Tax

In terms of the Tax Administration Act, the South African Revenue Service (“SARS”) can issue Binding General Rulings (“BGR”) on matters of general interest or importance and clarifies the Commissioner’s application or interpretation of the tax law relating to these matters.BGR 50 provides clarity on the so-called “no-value” provision in respect of the rendering of transport services by an employer to its employees.

Background

Employers may often provide employees with transport services from their homes to the place of employment. Although it typically applies where places of work are remote, such as in the farming or mining sectors, the provision of such services has also become prevalent in urban areas where traffic congestion takes up significant employee hours. In terms of the Seventh Schedule to the Income Tax Act, which deals with fringe benefits, these transport services are taxable as a fringe benefit in the hands of employees. The benefit may, however, attract no value where certain conditions are met, which effectively results in no tax consequences for the employee. Confusion has often arisen on the application of the “no-value” provision, especially where the transport is outsourced to a third party.

Paragraph 2(e) of the Seventh Schedule provides that a taxable benefit is deemed to have been granted by an employer to an employee where the transport service, at the expense of the employer, has been rendered to the employee for private or domestic purposes.

Paragraph 10(2)(b), in turn, provides that such a taxable benefit will attract no value if transport services are rendered by the employer to its employees in general for their conveyance between work and home. The focus of this section is that the “no-value” provision applies where the employer renders the transport service and does not contract it to another party. This is the essence of the distinction for the BGR.

Ruling

Where the transport is not provided directly by the employer (and is outsourced to a specific transport service provider), the employer must make the conditions of the provision of the transport services clear. Transport services:

Should be exclusively offered to employees based on predetermined routes;
Cannot be requested on an ad-hoc basis by employees; and
The contract for the service is between the employer and the transport provider, and no employee is a party to the contract.

The provision and access to general public transport will not be regarded as a transport service provided by the employer and the “no-value” provision will not apply in these circumstances.

14 Apr

The taxing of capital gain

Kirsten Van Tonder

Tax Capital, Gains, Tax

Section 9HA of the Income Tax Act deals with deemed disposals by a deceased person. This section of the Act often causes some confusion, especially where there are heirs or legatees other than the surviving spouse. In terms of the provision, a deceased person is treated as having disposed of his or her assets at the date of death, for an amount received or accrued equal to the market value of those assets as at the date of death.This deeming provision does not apply to the following circumstances:

Assets of, or for the benefit of the deceased’s surviving spouse.
An interest in a resident pension, pension preservation, provident, provident preservation or retirement annuity fund; or a fund, arrangement or instrument outside of South Africa, which provides similar benefits to that in South Africa.
In respect of some long-term insurance policies of the deceased.

The position is, however, different if the surviving spouse of the deceased acquires the assets. In this instance, the deceased is deemed to have disposed of the assets at base cost on the date of the deceased’s death. The surviving spouse essentially steps into the deceased’s position.

In the situation where assets are acquired by heirs or legatee’s, assets acquired are treated as though they were disposed of on the day immediately before the deceased’s death, at the market value of those assets. In this instance, any capital gains are to be included in the deceased’s final tax return covering taxes up to date of death.

The consequence is that, if an heir or legatee acquires assets in this manner, the base cost for them is the market value of the assets on the date of death of the deceased.

The practicalities of death are that there are essentially three different taxpayers involved:

The deceased person is to file a return covering taxes up until the date of death.
Thereafter, the deceased estate is regarded as a “person” for purposes of tax and is required to file a tax return for income earned after death, for each year that the estate is active.
Then finally, any heir or legatee is the ultimate beneficial owner of the assets and acquires the assets, and these then form part of such heir or legatee’s estate from the date of distribution to said person.

Executors of estates should, therefore, exercise caution when dealing with the capital gains tax consequences of a person’s death, as the type of heir or legatee could determine the treatment.

14 Apr

Tax relief amid COVID-19

Kirsten Van Tonder

Finance News COVID-19, Legal, Tax

While South Africa is currently in a state of lockdown during which a significant number of businesses have had to cease operations, some relief from a tax perspective has been announced by the government. Tax-compliant businesses with a turnover of less than R50 million will be allowed to defer (importantly, not have waived) 20% of their pay-as-you-earn liabilities over the next four months, and a portion of their provisional corporate income tax payments, without penalties or interest over the next six months.

There is, however, a legal and practical difficulty in the proposed relief.

Legal

While President Ramaphosa and his Cabinet have alluded to these relief mechanisms, they remain part of the Executive arm of Government. They cannot make law and amendments thereto; that is a function and privilege of the Legislature (Parliament). Without such relief mechanisms being legislated, SARS must impose penalties and interest on late- or short payments in line with existing legislation. It is highly unlikely that Parliament will be convened to make amendments to tax acts to accommodate for the relief. So, what can be done?

SARS can, through a so-called “practise generally prevailing” set-out their application of a tax act. Such a “practise generally prevailing” should be contained in an official SARS publication, which includes a Practise Note. It could, therefore, be considered that SARS issues a Practice Note to indicate how they will apply specific provisions which impose penalties and interest in certain instances. Although not yet tested in law, it is one of the options that could be considered to attach legal consequences to the relief mechanisms which have been proposed. It will be interesting to see what SARS decides to do in this case.

Practical

Persons who deal with compliance related matters will be well aware that penalties and interest are imposed automatically on statements of account when payments are submitted late, or short payments are made. Systems trigger these penalties and interest. Even though SARS’s eFiling system is one of the best electronic filing systems globally, it is unlikely that changes will be made thereto on such short notice.

Unless there is manual intervention from a SARS official, taxpayers who make use of the relief mechanisms, will automatically find themselves in a dispute process. Even though they are fully entitled to the relief (on the assumption that the relief gets properly legislated as indicated above), they will have to go through the process to have penalties and interest remitted.

We suggest, that before any of the relief mechanisms are utilised, taxpayers consult with advisors to ensure that firstly, the relief is legally available, and secondly, how they must manage the dispute process.

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