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.
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.
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.
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.
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.
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.
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.
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.
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.
The process of applying for a value added tax (VAT) ruling is quite efficient and comes at no cost to the applicant. Such a ruling provides guidance as to the South African Revenue Service's views on certain transactions before entering into them and therefore mitigates the risks of proposed transactions. As there is virtually no risk in applying for a VAT ruling, it is advisable to apply for such a ruling in cases of uncertainty.
The Tax Court recently issued its decision in a case concerning a taxpayer's claim for R90 million as an expense or loss during the 2007 assessment year, the deduction of which was prohibited by the South African Revenue Service. Among other things, the court had to consider whether the taxpayer had been carrying on the trade of selling coal when it had paid the R90 million and whether the expense had been incurred in the production of income or for trade purposes.
The debt reduction provisions provided for in the Income Tax Act have been the subject of significant debate since their introduction. As a result, the National Treasury included various proposed changes to the provisions in the first draft of the Taxation Laws Amendment Bill 2017. Following consultation on the bill, the National Treasury recently published a revised bill, which contains further significant amendments.
Under the Tax Administration Act, a Tax Court judgment regarding an appeal under the dispute resolution provisions contained in the act must be published for general information purposes. The South African Revenue Service recently published a raft of Tax Court judgments that have thus far been handed down in 2017, which provide for interesting reading and cover a broad range of procedural and administrative issues.
The Tax Court recently addressed the question of whether a taxpayer is entitled to condonation for the late filing of an appeal under the Tax Administration Act. The Tax Court referred to a Constitutional Court judgment which found that a delay cannot be a determining factor in condonation applications. In addition, it noted that other important considerations should be taken into account, such as whether the omission or failure was the applicant's fault and the extent of the delay.
Section 12O of the Income Tax Act provides an incentive to stimulate the domestic production of films in the form of an exemption from normal tax for income derived from the exploitation rights of a film. The South African Revenue Service recently issued guidance reflecting its interpretation of this provision.
Following the implementation of the Organisation for Economic Cooperation and Development's Base Erosion and Profit Shifting Action Plans, which impose country-by-country reporting requirements on multinational enterprises, taxpayers can no longer – or at least cannot easily – strategically escape taxation by shifting their profits to low or no-tax jurisdictions. This is because the South African Revenue Service has become aware of issues regarding tax avoidance and is actively taking steps to address them.
Under the Value Added Tax Act, vendors were previously prohibited from claiming notional input tax deductions for the acquisition of second-hand goods comprising gold or goods containing gold in an attempt to curb fraudulent notional input tax deductions regarding the acquisition of gold and gold jewellery. However, the amendment had a negative impact on legitimate transactions in the industry, so the definition of second-hand goods was recently amended in order to limit the extent of the exclusion.
The Mthatha High Court recently ruled that the South African Revenue Service (SARS) had failed to comply with Section 96 of the Tax Administration Act in ordering an additional assessment of a taxpayer's income tax. The case reaffirms the fact that just as taxpayers have a duty to pay tax, SARS has duties that it must fulfil in order to be entitled to collect this tax.
South African Revenue Services decisions are generally subject to the internal remedy available under Section 9 of the Tax Administration Act. However, decisions that are given effect to in an assessment or notice of assessment are excluded, since assessments generally have the separate remedy of objection and appeal. A recent memorandum on the Draft Tax Administration Laws Amendment Bill proposes that such decisions be subject to the remedy under Section 9 of the act.
There has been a great deal of uncertainty surrounding the claiming of value added tax (VAT) input credits, particularly where mixed taxable and non-taxable supplies are made and in the context of expenses relating to corporate actions. This uncertainty regarding the deductibility of input tax credits in certain instances has created a VAT risk for many vendors. The courts and the South African Revenue Service have differing views on this matter.