Latest updates

Accrual of amount on cession of right to dividends
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • July 06 2018

Dividends are exempt from income tax even if a person receives the dividend by virtue of a cession to that person of the right to receive the dividend. In a notable exception to this principle, if a shareholder cedes the right only to receive dividends (ie, without transferring the other rights attaching to the underlying shares) to a company, the dividend accruing to the company is subject to income tax.

Efficient or inept? Corporate income tax rate and restructuring rules
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • June 29 2018

In 2016 the Davis Tax Committee (DTC) formed a corporate income tax (CIT) sub-committee to prepare a CIT report setting out the DTC's position. To ensure that the recommendations made in the report were practical, the DTC took into consideration South Africa's present economic position as well as its outlook. The DTC recognises that in the context of low economic growth, taxes must be raised in a manner that causes as little disruption to economic growth and employment as possible.

Procedure is everything: win for taxpayers and importance of right to just administrative action
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • June 22 2018

In recent years, taxpayers have frequently been unsuccessful in their disputes with the South African Revenue Service, especially where the dispute has involved the interpretation or application of the substantive provisions of tax legislation. However, where disputes have involved compliance with the procedural requirements of tax legislation, taxpayers have generally had greater success.

Davis Tax Committee releases final reports
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • June 15 2018

The Davis Tax Committee (DTC) recently issued a media statement announcing the publication of four additional final reports and the conclusion of its work based on its terms of reference. The closing report on the work done by the DTC states that the 12 sub-committees consulted widely and that a number of themes emerged from the consultations with various stakeholders. The closing report also mentions some of the challenges faced by the DTC.

Raising jurisdictional issues
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • June 08 2018

The focus of a recent Supreme Court of Appeal case was not the merits of the dispute between the parties, but rather the correctness of the procedure that the taxpayer had followed in its appeal to the Tax Court. The Supreme Court of Appeal held that determining whether the Tax Court's decision was appealable was contingent on whether the decision was one contemplated in the Tax Administration Act.

Status of SARS interpretation notes
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • June 01 2018

A recent Supreme Court of Appeal judgment referred with approval to certain sections of a South African Revenue Service (SARS) interpretation note. The taxpayer appealed to the Constitutional Court, which held that the courts should not have regard to SARS interpretation notes when interpreting legislation, but may do so where SARS's practice is evidenced by an interpretation note which has been recognised by SARS and the taxpayer.

SARS speaks up: clarity provided on taxation of cryptocurrencies
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • May 25 2018

The South African Revenue Service (SARS) recently announced that it will continue to apply normal income tax rules to cryptocurrencies and expects affected taxpayers to declare cryptocurrency gains or losses as part of their taxable income. Due to the growing popularity of cryptocurrencies in South Africa and the absence of legislation concerning their taxation and regulation, SARS's decision to address this issue was widely anticipated.

Tax treatment of doubtful debts to be clarified through statutory amendments
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • May 18 2018

In line with the removal of the remnants of the administrative assessment system in 2015, the South African Revenue Services commissioner's discretion in respect of the doubtful debt allowance was to be deleted from the Income Tax Act. The intention behind this deletion was that, in future, the allowance would be claimed according to certain criteria set out in a public notice. However, according to the recent budget, it is now proposed that the criteria for determining the allowance be included in the act.

Tax rate adjustments
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • May 11 2018

​Although an increase of 1% in the value added tax rate was announced in the budget in February 2018, no adjustments have been made to the top four income tax brackets. Rather, below-inflation adjustments to the bottom three income tax brackets were announced. It was also announced that the primary, secondary and tertiary rebates will be partially adjusted to account for inflation.

VAT increase: what rate should be charged?
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • May 04 2018

The minister of finance recently announced that the standard rate of value added tax (VAT) will increase from the current rate of 14% to 15% from April 2018. Unfortunately, the date of introduction of the new rate leaves vendors little time to amend their systems and implement procedures to ensure that VAT is correctly accounted for from that date. There is also uncertainty as to when supplies still qualify for VAT at 14% and when VAT should be levied at 15%.

SARS issues new Guide to Understatement Penalties – a move towards greater certainty?
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • April 27 2018

One of the key changes to the tax administration regime following the Tax Administration Act's promulgation in 2012 was the conversion from the so-called 'additional tax' regime to the understatement penalty regime. While this shift towards greater certainty has been welcomed, a key challenge remains as the new regime's criteria are open to differing interpretations. In this regard, the South African Revenue Service recently published its Guide to Understatement Penalties.

Recent developments in PBO arena
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • April 20 2018

The South African Revenue Service (SARS) recently issued a press release regarding its intention to investigate possible tax non-compliance in the religious sector. According to SARS, the investigation is in response to, among other things, general reports which have suggested that certain religious organisations and leaders are contravening tax laws and enriching themselves at the expense of tax compliance and their altruistic and philanthropic purpose.

Residential property developers face cash-flow crunch due to VAT on temporary letting of units
  • Real Estate
  • South Africa
  • April 06 2018

Many residential property developers will begin 2018 with a major cash-flow challenge, as they may be faced with a substantial value added tax (VAT) liability in respect of the temporary letting of residential units which have been developed for resale. It is hoped that the South African Revenue Service and the National Treasury will urgently address the problems with regard to the VAT rules concerning the change-in-use adjustments for property developers.

Consecutive asset-for-share transactions
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • April 06 2018

Section 42 of the Income Tax Act allows taxpayers to transfer assets to a company free of immediate tax consequences, provided that certain requirements are met (ie, there is a roll over for tax purposes). However, certain anti-avoidance provisions may be triggered if the company that acquired the assets disposes of them within 18 months of acquisition. The South African Revenue Service recently provided some guidance on this matter in a binding private ruling.

Did the punishment fit the crime? Tax Court reduces understatement penalty imposed by SARS
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • March 30 2018

The imposition of understatement penalties under Chapter 16 of the Tax Administration Act, and the factors to consider when imposing such a penalty, is an issue unresolved by the courts. However, a recent Tax Court judgment has set out some helpful principles in this regard.

Taxation of subsistence allowances – SARS issues new ruling
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • March 23 2018

The South African Revenue Service recently issued Binding Private Ruling 291, which addresses the taxation of subsistence allowances paid by employers to their employees in certain circumstances. The ruling appears to offer guidance regarding the application of Section 8 of the Income Tax Act and suggests that employers may have some leeway in structuring the subsistence allowances that they provide to their employees.

Another ruling on share schemes, but questions remain
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • March 16 2018

The South African Revenue Service (SARS) recently published a binding private ruling on the application of Paragraph 38(1) of the Eighth Schedule to the Income Tax Act to the distribution of shares by a trust to beneficiaries in the context of an employee share scheme. Although SARS stated that Paragraph 38(1) was not applicable to the trust's distribution of shares, the matter is complicated by the interaction between Section 8C of the act and the rules contained in the Eighth Schedule.

SARS provides further clarity on VCCs
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • March 09 2018

The South African Revenue Service (SARS) recently released a binding class ruling which addressed, among other things, the eligibility of a partner in an en commandite partnership to claim a deduction in respect of venture capital shares acquired by the partnership. SARS ruled that subject to the Income Tax Act, each class member will be entitled to claim the deduction pro rata to its proportionate share of the investment in the partnership.

A win against SARS: late delivery of Rule 31 statement
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • February 02 2018

The Tax Court recently delivered a judgment that will be of interest to any taxpayers involved in prolonged disputes with the South African Revenue Service (SARS), particularly where there are delays on the part of SARS. The case involved an application by the taxpayer for default judgment and an application by SARS for condonation for the late filing of its answering affidavit opposing the default judgment application.

Deductibility of legal expenses
Cliffe Dekker Hofmeyr
  • Corporate Tax
  • South Africa
  • January 26 2018

For the purposes of determining a party's taxable income derived from carrying on a trade, the Income Tax Act provides for the deduction of legal expenses which arise during or by reason of its ordinary trading operations. However, in order for a taxpayer to deduct legal expenses, they must relate to a claim, dispute or action at law. Further, they must have arisen during or by reason of the taxpayer's ordinary operations undertaken in the course of its trade and must not be of a capital nature.