In deciding whether to invest abroad and which country to invest in, taxpayers will usually consider whether South Africa has a double tax agreement with that country. However, taxpayers should also ensure that they comply with South Africa's exchange control rules when making an offshore investment. One of the biggest pitfalls to avoid in this regard is the creation of a loop structure, which is considered to be a serious contravention of these rules.
An amendment to the Eighth Schedule to the Income Tax Act, as proposed in the draft Taxation Laws Amendment Bill, seeks to clarify that capital losses between connected persons will be ring-fenced where a person redeems its interest in the other person (eg, a company) and the two persons are connected. The amendment directly addresses the discrepancies ensuing from Income Tax Case 1859 and clarifies the legal position in respect of the redemption of shares.
The draft Taxation Laws Amendment Bill 2018 has proposed a number of significant legislative amendments, including with regard to the allowance for doubtful debts set out in Section 11(j) of the Income Tax Act. The proposed amendments envisage separating the tax treatment of two defined categories of taxpayer – namely, those which use International Financial Reporting Standards 9 for financial reporting purposes and those which do not.
The draft Taxation Laws Amendment Bill, which was recently published for public comment, represents a first for South African taxpayers as it introduces legislative provisions regarding cryptocurrencies. The draft bill is indicative of the National Treasury's approach to the tax treatment of cryptocurrencies, with the proposed amendments demonstrating an identifiable impact on cryptocurrency traders at the outset.
The supply of cryptocurrencies can cause administrative difficulties with regard to the value added tax (VAT) system. As such, the former minister of finance recently proposed that the VAT legislation be amended. In the interim, the South African Revenue Service has stated that it will not require persons to register for VAT for the supply of cryptocurrencies until there has been policy clarification in this regard. The exemption of cryptocurrency transactions from VAT is undoubtedly the preferred route.