BUDGET & TAX UPDATE 2018 2018 BUDGET & HIGHLIGHTS Where is - - PowerPoint PPT Presentation

BUDGET & TAX UPDATE 2018

2018 BUDGET & HIGHLIGHTS

Where is most of our tax collected?

YEAR TAX TYPE

PIT CIT VAT FUEL LEVY CUSTOMS DUTY EXCISE DUTY OTHER

2015/16 36,4% 18,1% 26,3% 5,2% 4,3% 3,3% 6.4% 2016/17 37,2% 18,1% 25,3% 5,5% 4,0% 3,1% 6,7% 2017/18 38.1% 17,3% 24,7% 5,6% 4,3% 3.3% 6,7% 2018/19 37.6% 17,2% 25.9% 5.8% 4,0% 3,2% 6,4%

3

Gross tax revenue (before tax proposals) 1 285 146 Budget 2018/19 proposals 36,000 Direct taxes 7,310 Personal income tax 7,510 Revenue from not fully adjusting for inflation 6,810 Revenue if no adjustment is made 14,155 Bracket creep adjustment

• 7,345

Medical tax credit adjustment 700 Corporate income tax (Special Economic Zones)

• 350

Estate duty increase 150 Indirect Taxes 28,690 Increase in value-added tax 22,900 Increase in general fuel levy 1,220 Increase in excise duties on tobacco products 420 Increase in excise duties on alcoholic beverages 910 Increase in ad valorem excise duties 1,030 Increase in environmental taxes 280 Introduction of health promotion levy 1,930 Gross tax revenue (after tax proposals) 1,321,146

4 Impact of tax proposals on 2018/19 revenue

2018 Budget Highlights

• R36 billion proposal.
• VAT is levied at the standard rate of 15% on the supply of goods and services

by registered vendors. The tax rate was 14% until 31 March 2018

• Effective Personal income tax increases by not providing full relief for inflation.
• 52c/l increase in fuel levies: – comprising 22c/l for general fuel levy & 30c/l in

Road Accident Fund levy.

• From 1 April, the duty will be levied on the dutiable value of an estate at a rate
• f 20% on the first R30 million and at a rate of 25% above R30 million.
• Donations tax rate increases from 20% to 25% on donations of more than R30

million.

• Alcohol & tobacco excise duties to increase between 6 & 10% - potentially raising

R4.3 billion additional revenue

• Increase in ad valorem customs duties on ‘luxury’ items consumed by

wealthier individuals – for example, cars and ‘smart phones

5

TAX UPDATES & CHANGES

6

Tax Tables – Individuals

2018/19 2017/18 Taxable Income (R) Rate of Tax (R) Taxable Income (R) Rate of Tax (R) 0 - 195 850 18% 0 – 189 880 18% 195 851 - 305 850 35 253 + 26% 189 881 – 296 540 34 178 + 26% 305 851 - 423 300 63 853 + 31% 296 541 – 410 460 61 910 + 31% 423 301 - 555 600 100 263 + 36% 410 461 – 555 600 97 225 + 36% 555 601 - 708 310 147 891 + 39% 555 601 – 708 310 149 475 + 39% 708 311 - 1 500 000 207 448 + 41% 708 311 – 1 500 000 209 032 + 41% 1 500 001 and above 532 041 + 45% 1 500 000 and above 533 625 + 45%

7

Rebates

2019 2018 Rebates for natural persons (R) (R) Under 65 – Primary 14 067 13 635 65 and over – Secondary 7 713 7 479 75 and over - Tertiary 2 574 2 493

8

Tax Thresholds

2019 2018 (R) (R) Under 65 78 150 75 750 65 to 74 121 000 117 300 75 and over 135 300 131 150

9

Monthly Medical Scheme Contribution Tax Credits

2019 2018 (R) (R) Taxpayer+ ​310 303 First dependant 620 606 Each additional dependant 209 204

10

Local Interest Exemption & Tax Free Investment

2019 2018 (R) (R) Under 65 23 800 23 800 Over 65 34 500 34 500

11

Tax Free Investments

• The annual limit on contributions remained at R33 000. The lifetime limit remains at R500

000

Capital Gains Tax Exclusions

2019 2018 (R) (R) Annual exclusion 40 000 40 000 Annual exclusion in year of death – gains and losses 300 000 300 000 Primary residence exclusion 2 million 2 million Disposal of small business by natural person if

• ver age 55 or due to ill-health or death

1.8 million 1.8 million Max market value of assets to qualify as a small business 10 million 10 million

12

Capital Gains Tax Effective Rates – YOA commencing 1 Mar 2018

Taxpayer Inclusion Rate (%) Statutory Rate (%) Effective Rate (%) Individuals 40 0 – 45 0 – 18 Trusts Special 40 18 – 45 7.2 – 18 Other 80 45 36 Companies Ordinary 80 28 22.4 Small business corporation 80 0 – 28 0 – 22.4 Employment company (personal service provider) 80 28 22.4 Foreign company (Permanent establishment) 80 28 22.4 Micro-business subject to turnover tax

13

Travelling Allowance

• Deemed expenditure table with effect from 1 March 2018

– See revised table in the Tax Guide – Taxpayers are required to record business travel in log book

14

Retirement fund lump sum withdrawal benefits

2018/2019 2017/2018 Taxable Income (R) Rate of Tax (R) Taxable Income (R) Rate of Tax (R) 0 – 25 000 0% 0 – 25 000 0% 25 001 – 660 000 18% 25 001 – 660 000 18% 660 001 – 990 000 114 300 + 27% 660 001 – 990 000 114 300 + 27% 990 001 and above 203 400 + 36% 990 001 and above 203 400 + 36%

15

16

Retirement fund lump sum benefits or severance benefits

2018/2019 2017/2018 Taxable Income (R) Rate of Tax (R) Taxable Income (R) Rate of Tax (R) 0 – 500 000 0% 0 – 500 000 0% 500 001 – 700 000 18% 500 001 – 700 000 18% 700 001 – 1 050 000 36 000 + 27% 700 001 – 1 050 000 36 000 + 27% 1 050 001 and above 130 500 + 36% 1 050 001 and above 130 500 + 36%

Standard company tax remains unchanged at 28%

2018/19 2017/18 Non-mining companies 28% 28% Close corporations 28% 28% Employment companies 28% 28% Non-resident companies (SA sourced income) 28% 28%

17

Withholding Tax

• 20% is withheld by the entities paying the dividends to the individuals – No changes announced

in 2018

• Disposal of immovable property by non-residents

– 7.5% individual, 10% company, 15% trust – No changes from previous Tax Year

• Interest paid to non-residents at 15% (imposed on interest from a South African source payable

to non-residents) - No changes from previous Tax Year – Exempt if paid by any sphere of SA government, a bank or debt is listed

• Royalties (s49B)

– 15% from 1 January 2015

• Foreign entertainers and sportspersons
• – 15%
• Service fees

– No withholding tax but qualifying fees may fall into the provisions of reportable arrangements

18

Foreign Dividends

19

• Most foreign dividends received by individuals from foreign companies

(shareholding of less than 10% in the foreign company) are taxable at a maximum effective rate of 20% via the normal tax system (not dividends tax).

• No deductions are allowed for expenditure incurred to produce foreign

dividends.

Small Business Corporations – YOA ending between 1 Apr and 31 Mar

This year, government will respond to the Davis Tax Commission’s report on tax administration and introduce draft legislation to give effect to some of its recommendations 2018/2019 2017/2018 Taxable income (R) Rate of Tax (R) Taxable income (R) Rate of Tax (R) 0 – 78 150 0% 0 – 75 750 0% 78 151 – 365 000 7% 75 751 – 365 000 7% 365 001 – 550 000 20 080 + 21% 365 001 – 550 000 20 248 + 21% 550 001 and above 58 930 + 28% 550 001 and above 59 098 + 28%

20

Micro Businesses – YOA ending between 1 Mar and 28/29 Feb

2018/2019 2017/2018 Taxable turnover (R) Rate of Tax (R) Taxable turnover (R) Rate of Tax (R) 0 – 335 000 0% 0 – 335 000 0% 335 001 – 500 000 1% 335 001 – 500 000 1% 500 001 – 750 000 1 650 + 2% 500 001 – 750 000 1 650 + 2% 750 001 and above 6 650 + 3% 750 001 and above 6 650 + 3%

21

Subsistence Allowances & Fringe Benefits

• Travel in the Republic

– meals and incidental costs: R416 (was R397) per day – Incidental costs only: R128 (was R122) per day

• Travel outside the Republic

– Details of these amounts are published on the SARS website under Legal Counsel / Secondary Legislation / Income Tax Notices / 2018.

22

Transfer duty – Natural and juristic persons

Agreements on or after 1 March 2018 Agreements on or after 1 March 2017 Taxable income (R) Rate of Tax (R) Taxable income (R) Rate of Tax (R) 0 – 900 000 0% 0 – 900 000 0% 900 001 – 1 250 000 3% 900 001 – 1 250 000 3% 1 250 001 – 1 750 000 10 500 + 6% 1 250 001 – 1 750 000 10 500 + 6% 1 750 001 – 2 250 000 40 500 + 8% 1 750 001 – 2 250 000 40 500 + 8% 2 250 001 – 10 000 000 80 500 + 11% 2 250 001 – 10 000 000 80 500 + 11% 10 000 001 and above 933 000 + 13% 10 000 001 and above 933 000 + 13%

23

Increases in Fuel Levies effective on 4 April 2018

The general fuel levy will increase by 22 cents per litre and the Road Accident Fund Levy will increase by 30 cents. This will push up:

• The general fuel levy to R3.37 per litre of petrol and to R3.22 per litre of diesel
• The road accident fund levy to R1.93 per litre for both petrol and diesel.

24

25

Sin Taxes

• Excise duties increases on 22 February 2018:

– Cigarettes from R14.30 per pack of 20 cigarettes to R15.52 (8.5%) – Tobacco R16.07 per 50 grams to R17.44 (8.5%) – Cigars from R75.86 to R82.31 per 23g (8.5%) – Traditional African beer no increase – Wine from R3.61 to R3.91 a litre (8.8%) – Spirits from R56.50 to R61.30 on a 750ml bottle (8.5%) – Beer, cider, alcoholic fruit beverage from 146.9c to 161.5c a can (10%)

26

Tax on Sugar-Sweetened Beverages

• Health promotion levy, which taxes sugary beverages, will be implemented from 1

April 2018.

• SA has the worst obesity rate in sub-Saharan Africa
• Denmark, Finland, France, Hungary, Ireland, Mexica and Norway have introduced

a tax on sugar-sweetened beverages

27

Measures To Protect The Income Base

• The National Treasury, in close cooperation with the Reserve Bank, the Financial

Intelligence Centre and the South African Revenue Service, is taking several steps to detect, disrupt and deter illicit financial flows.

• These measures include increasing capacity, coordinating a national risk

assessment and improving information sharing between various agencies.

• In line with G20 recommendations, policy measures to deal with transfer pricing

and base erosion by multinational companies are been implemented and continue to be tightened.

• The implementation of country-by-country reporting will enable SARS to ensure

that companies pay their fair share of tax in SA.

28

Business Incentives

• Approval special economic zones that will make qualifying companies

subject to a reduced corporate tax rate, and enable them to claim an employment tax incentive for workers of all ages;

• Government has streamlined the administration of the research and

development tax incentive;

• These measures will promote investment in those manufacturing and

tradable services sectors that encourage exports, job creation and economic growth;

29

Carbon Tax Bill Proposal,

• Parliament is currently considering the draft Carbon Tax Bill, which will

assist South Africa to meet its climate change commitments to reduce our carbon emission;

• The tax will be implemented from 1 January 2019;
• The polluter-must-pay-principle to apply to activities which harm the

environment, like the dumping of plastics into our oceans and threatening

• f marine life.

30

Davis Tax Commission & Other Reforms

• This

year 2018/19, government will respond to the Davis Tax Commission’s report on tax administration and introduce draft legislation to give effect to some of its recommendations.

• Government will also take steps to implement the customs modernisation

programme currently implemented by SARS, to give effect to the new customs and excise legislation passed in 2014.

• President will establish a commission of inquiry into tax administration and

governance at SARS.

Donations

• Donations Tax rate increases from 20% to 25% on donations of more than

R30 million

• The first R100 000 of property donated in each year by an individual is

exempt from donations tax.

• In the case of a taxpayer who is not an individual, the exempt donations are

limited to casual gifts not exceeding R10 000 per annum in total.

• Section 56(1) - dispositions between spouses and South African group

companies and donations to certain public benefit organisations are exempt from donations tax. 31

32

Exemption for Employer-Provided Bursaries

• No monetary limit for bona fide bursaries given to an employee to study.
• Exemption apply only if employee agrees to reimburse employer if studies not

completed (except for death, ill-health or injury).

• Relative of employee bursaries have limits (Proxy does not exceed R600 000)

– Basic Education R20 000 – Higher Education R60 000

33

Fee-Free Higher Education and Training

• New first-year students;
• Family income below R350 000 per annum
• At universities and TVET colleges in the 2018 academic year
• Funded for the full cost of study.
• NSFAS students at university will have their loans for 2018 onwards converted to a

bursary.

34

VAT

• VAT is levied at the standard rate of 15% on the supply of goods and services by

registered vendors. The tax rate was 14% until 31 March 2018.

• The increase in the VAT rate will cause the prices of most consumer products to

increase by at least 7%

• A vendor making taxable supplies of more than R1 million per annum must register

for VAT.

• A vendor making taxable supplies of more than R50 000 but not more than R1

million per annum may apply for voluntary registration. Certain supplies are subject to a zero rate or are exempt from VAT.

VAT History

• It is levied in terms of the Value-Added Tax Act 89 of 1991. The South

African Value-Added Tax Act makes allowance for exemptions, exceptions, deductions and adjustments that effectively lower the VAT liability.

• Has been raised at 14% of taxable supplies since 1993
• Zero-rated, e.g. petrol, diesel and basic food items such as brown

bread, milk and fruit

• Exempt supplies

– Financial Services – Education , Crèche and after care (School fees and Tuition) – Salaries – Union Membership fees – Transport for fare paying passengers

35

36

SARS Interest Rates

• Rate of interest (from 1 August 2017)

– Fringe benefits - interest free or low interest loan (official rate) 7.75% p.a.

• Rates of interest (from 1 November 2017) Rate

– Late or underpayment of tax 10.25% p.a. – Refund of overpayment of provisional tax 6.25% p.a. – Refund of tax on successful appeal or where the appeal was conceded by SARS 10.25% p.a. – Refund after prescribed period or late payment of VAT 10.25% p.a. Customs and Excise 10.25% p.a. or notice

37

Accrual of Interest Payable by SARS

• Interest payable by SARS can accrue over a number of years
• Interest payable by SARS should be deemed to accrue on date of payment

2017 Amendments

2017 Amendment Acts

• The Rates and Monetary Amounts and Amendment of Revenue Laws Act
• No. 14 of 2017 – 14 December 2017
• Taxation Laws Amendment Act No. 17 of 2017 – 18 December 2017
• Tax Administration Laws Amendment Act No. 13 of 2017 – 18 December

2017.

39

Tax Administration Laws Amendment Act No. 13

• f 2017 – 18 December 2017

Individuals

Repeal of foreign employment income exemption – S 10(1)(o)(ii)

• Prior to 2001, South Africa applied a source-based system of taxation. All income which

was from a source in South Africa and certain types of income which were deemed to be from a source in South Africa were taxable in South Africa

• However, from 1 March 2001 South Africa moved to a residence based system of
• taxation. This means that South African residents are subject to tax on their worldwide

income

• An exemption in terms of Section 10(1)(o)(ii) was introduced to prevent double taxation
• f the same employment income between South Africa and the foreign host country
• The above section is now repealed and as a result all South African tax residents will be

subject to tax on foreign employment income earned in respect of services rendered

• utside South Africa with relief from foreign taxes paid on the income under section

6quat of the Act

42

Measures to prevent tax avoidance through the use of Trusts – S 7C

• An anti-avoidance measure aimed at curbing the tax-free transfer of wealth to trusts

through the use of low-interest or interest-free loans , advances or credit was introduced in 2016

• In order to make these types of tax avoidance schemes less attractive to taxpayers, the

anti-avoidance measure under section 7C came into effect on 1 March 2017 and applies to all new loans, advances or credit and loans, advances or credit that were already in existence on the date it came into effect

• Since the introduction of the anti-avoidance measure, it has come to Government’s

attention that taxpayers have discovered ways to avoid the deemed annual donation triggered by the anti-avoidance measure.

• In order to curb the abovementioned avoidance, it is proposed that interest free or low

interest loans, advances or credit that are made by a natural person or a company (at the instance of a natural person) to a company that is a connected person in relation to a trust should also fall under the anti-avoidance measure.

43

Special Purpose Trusts – S 7C

• Trusts are used for various purposes other than to facilitate the transfer of wealth through the

use of interest free or low interest loans, advances or credit. As a result, various uses of trusts and/or loans are specifically excluded from the application of the anti-avoidance measure. The include:

• special trusts that are established solely for the benefit of persons with disabilities;
• trusts that fall under public benefit organisations
• vesting trusts (where the vesting rights and contributions of the beneficiaries are clearly

established);

• loans that are advanced to a trust, to the extent that a loan used by the trust for funding the

acquisition of the primary residence of the lender;

• a loan that constitutes an affected transaction a
• loans provided to the trust in terms of a sharia compliant financing arrangement; and
• a loan that is subject to the anti-value stripping provisions of section 64E(4) of the Act

44

General deductions allowed in determination of taxable income Sections 11(a), 11(e)

• For the purpose of determining the taxable income derived by any person

from carrying on any trade, there shall be allowed as deductions from the income of such person so derived— (a) expenditure and losses actually incurred in the production of the income, provided such expenditure and losses are not of a capital nature; (e) save as provided in paragraph 12(2) of the First Schedule, such sum as the Commissioner may think just and reasonable as representing the amount by which the value of any machinery, plant, implements, utensils and articles (other than machinery, plant, implements, utensils and articles in respect of which a deduction may be granted under section 12B, 12C, 12DA, 12E(1) or 37B) owned by the taxpayer or acquired by the taxpayer as purchaser in terms of an agreement contemplated in paragraph (a) of the definition of “instalment credit agreement” in section 1 of the Value-Added Tax Act and used by the taxpayer for the purpose

• f his or her trade has been diminished by reason of wear and tear or

depreciation during the year of assessment 45

Set-off of Assessed Losses - Section 20(1)

• For the purpose of determining the taxable income derived by any person

from carrying on any trade, there shall, subject to section 20A, be set off against the income so derived by such person— (a) any balance of assessed loss incurred by that person in any previous year which has been carried forward from the preceding year of assessment: Provided that no person whose estate has been voluntarily or compulsorily sequestrated shall be entitled to carry forward any assessed loss incurred prior to the date

• f

sequestration, unless the

• rder
• f

sequestration has been set aside, in which case the amount to be so carried forward shall be reduced by an amount which was allowed to be set off against the income of the insolvent estate of such person from the carrying on of any trade; (b) any assessed loss incurred by a person during the same year of assessment in carrying on any other trade either alone or in partnership with others, otherwise than as a member of a company the capital whereof is divided into shares 46

Limitation of Allowances Granted to Lessors of Certain Assets — Sections 23A

For the purposes of this section— “affected asset” means— (a) any machinery, plant or aircraft which has been let and in respect of which the lessor is or was entitled to an allowance under section 12 or 14bis, whether in the current or a previous year of assessment, other than any such machinery, plant or aircraft let by him under an agreement of lease formally and finally signed by every party to the agreement before 15 March 1984; or (b) any machinery, plant, implement, utensil, article, aircraft or ship which has been let and in respect of which the lessor is or was entitled to an allowance under section 11(e), 12B, 12C, 12DA or 37B(2)(a), whether in the current or a previous year of assessment, other than any such machinery, plant, implement, utensil, article, aircraft or ship let by him under an agreement of lease formally and finally signed by every party to the agreement before 19 November 1988, but excluding any such asset let by the lessor under an operating lease or any such asset which was during the year of assessment mainly used by him in the course of any trade carried on by him, other than the letting of any such asset; 47

Corporate

Clarifying the Value-Added Tax Treatment of Leasehold Improvements

• A lessee may, during the period of a lease agreement effect

improvements on the leasehold property that belongs to the lessor

• In terms of the common law, improvements that become permanently

attached to the leasehold property become the property of the lessor

• Currently, the VAT Act does not provide guidelines in respect of the

Value Added Tax (VAT) treatment of leasehold improvements effected by the lessee to the leasehold property during the period of a lease agreement

49

Clarifying the Value-Added Tax Treatment of Leasehold Improvements

50

• The lessee shall be deemed to have made a taxable supply of goods to the

lessor to the extent that the leasehold improvements are made for no

• consideration. The value of this supply is deemed to be NIL in these
• circumstances. There is no deemed supply if the lessee, being a vendor,

uses the leasehold improvements wholly for purposes of making exempt supplies.

• Where leasehold improvements are supplied to the lessor by the lessee, as

contemplated in the new section 8(29), the lessor shall be deemed to have made a taxable supply of goods in the course or furtherance of its enterprise, to the extent that the lessor, at the time of completion of the leasehold improvements, uses the fixed property otherwise than for making taxable supplies.

VAT Vendor Status of Municipalities – S 8 of the VAT Act

• The Local Government Elections that took place on 3 August 2016 resulted in structural

changes of some certain municipalities. Some municipalities were disestablished,

• thers have merged, some have been renamed and some have changed their

municipal boundaries, but continue to exist in their altered form. As a result, the affected municipalities had to either cancel their VAT registrations or apply for new VAT registrations, and possibly, transfer assets, where applicable

• At issue is the fact that the VAT Act does not currently provide for interim measures in

this regard. As a result, SARS issued a Binding General Ruling (No. 39) outlining interim measures to deal with this situation.

• In order to address the unintended VAT consequences as a result of the structural

changes to certain municipalities, changes were made in the VAT Act to provide interim measures in these instances, in line with the provisions of the SARS Binding General Ruling No. 39.

51

Business Incentives

Additional Deduction for Learnership Allowance - Section 12H

• Section 12H provides additional deductions to employers for qualifying

learnership agreements. These additional deductions are intended as an incentive for employers to train employees in a regulated environment in

• rder to encourage skills development and job creation.
• Training contracts qualifying for these deductions are learnership agreements

and apprenticeships registered with a SETA. These additional deductions consist of an annual allowance and a completion allowance.

53

Employment & Growth Incentives

• Approval special economic zones that will make qualifying

companies subject to a reduced corporate tax rate, and enable them to claim an employment tax incentive for workers of all ages;

• Government has streamlined the administration of the

research and development tax incentive;

• These

measures will promote investment in those manufacturing and tradable services sectors that encourage exports, job creation and economic growth;

54

International Tax

Refinements of the Domestic Treasury Management Company Regime Qualifying Criteria – S1, 24I and S25D

• In 2013, Government introduced a domestic treasury management

company regime for exchange control and tax purposes. The regime was aimed at encouraging listed South African multinational companies to relocate their treasury operations to South Africa

• Under this regime, listed South African multinational companies are

allowed to establish one subsidiary to manage the group treasury functions without being subject to exchange control restrictions that apply to companies incorporated in South Africa

56

Refinements of the Domestic Treasury Management Company Regime Qualifying Criteria – S1, 24I and S25D

57

• For tax purposes, the regime provides relief in respect of unrealised

foreign currency gains and losses in that the domestic treasury management company is permitted to use its functional currency, other than the Rand, for currency translations

• In view of the above, the requirement that a company must be

incorporated or deemed to be incorporated by or under any law in force in South Africa was removed.

Extending the Application of CFC Rules to Foreign Trusts and Donations

• South African residents are subject to tax on a worldwide basis. In order

to curb avoidance, the Act contains CFC rules generally aimed at preventing South African residents from shifting tainted forms of taxable income offshore by investing in CFCs.

• However, foreign entities such as foreign trusts and foreign foundations

do not fall within the ambit of South African CFC rules.

58

Extending the Application of CFC Rules to Foreign Trusts and Donations

59

• Similarly, foreign partnerships do not fall within the scope of the South

African CFC rules. However, the South African residents will still be taxed

• n their share of foreign partnership income.
• Government has, since 2008, been concerned that the current CFC rules

do not capture foreign companies held by interposed trust or foundations.

• As a result of this, changes have been made to the Act

Tax Administration Laws Amendment Act No. 13

• f 2017 – 18 December 2017

Interest from SARS – S 7D of IT Act

• When interest is payable by SARS on amounts refundable the taxpayer is
• bliged to include the amount of interest in the taxpayer’s gross income on

the earlier of the year in which such interest accrues or is received

• Where interest accrues over more than one year of assessment it gives rise

to practical difficulties as technically assessments for previous years may have to be reopened to reflect the correct amount of interest that accrued to the taxpayer in respect of the relevant years of assessment

• In order to create certainty and simplify the taxation of interest payable by

SARS, the Income Tax Act has been amended to provide that interest payable by SARS only accrues on the date of actual payment.

61

Micro Businesses – S48C of the IT Act

• Qualifying micro businesses (with turnover up to R1 million a year) and small business

corporations (with turnover up to R20 million a year) are eligible for preferential corporate income tax rates.

• Where a registered micro business exceeds the R1 million turnover threshold during a

particular year of assessment, it is required to notify the Commissioner accordingly within 21 days from the date on which the qualifying turnover of the registered micro business so exceeded the threshold.

• There was previously no transitional measures for micro businesses that have grown

sufficiently during the course of a particular year of assessment to migrate into the small business corporation tax regime.

• The amendment enables the deregistered micro business to transition smoothly by

exempting the micro business from any penalties for underpayment of tax to which the micro business would otherwise have become liable solely as a result of being deregistered due to its qualifying turnover exceeding R1 million.

62

Tax Free Investments S64 of the IT Act

• The Tax Administration Laws Amendment Act, 2016, exempts persons who

derive a dividend from a tax free investment (section 12T of the Income Tax Act) from submitting a return in respect of that dividend.

• Retirement funds are tax exempt savings vehicles, as is the case with tax

free investments, and the exemption from submitting returns is now also extended to these funds.

63

Pension, Provident & Retirement Fund Contributions – para 2 of 4th Schedule to IT Act

• For purposes of calculating income tax, employees are able to deduct

contributions to pension, provident and retirement funds from their income in terms of section 11(k).

• The deduction is limited to the lesser of R350 000 or 27,5 per cent of

remuneration or taxable income. Contributions under these limits are deducted in full.

• Where the capped amount of R350 000 per year applies, the application of

the cap for employees’ tax purposes is now spread over 12 months.

64

Court Case

Purchase Price Consideration - Case No.: 14005

• Merits - The issue in this appeal from the Commissioner’s assessment of the taxpayer’s

gross income for the company’s 2013 tax year is whether the amounts of the purchase price consideration in respect of certain stands of immovable property sold by the taxpayer in the course of trade, in terms of deeds of alienation entered into during the 2013 tax year, accrued to the taxpayer in that tax year notwithstanding that the taxpayer received payment against transfer of the properties to the purchasers only in the 2014 tax year. The Commissioner has assessed the taxpayer for income tax on the basis that the amounts accrued in the 2013 tax year on the grounds that the taxpayer became entitled to the proceeds of the sales during the 2013 tax year. In the alternative, the Commissioner contends that the proceeds are, in any event, deemed, in terms of s 24(1) of the Income Tax Act 58 of 1962, to have accrued to the taxpayer during its 2013 tax year.

• It was established in the evidence of the taxpayer’s managing director that the

proceeds of the sales were shared with a joint venture partner. The detail of this arrangement is not important. This case is concerned only with that part of the proceeds that accrued to the taxpayer during its 2013 tax year

• Judgment: 30 May 2017 - Appeal was dismissed. No cotss ruling (See s 130 of the Tax

Administration Act)

Assessment in Respect of VAT - Case No: VAT 1247

• Merits:This is an appeal against an assessment by the respondent, the

Commissioner for the South African Revenue Service (‘SARS’), issued against the appellant, the CLDC, in respect of liability for Value-Added Tax (‘VAT’) in terms of s 22(3) of the Value-Added Tax Act 89 of 1991 (‘the Act’).

• Judgement: The appeal succeeds with costs

67

High Court Ruling – Input tax deduction

• South Atlantic Jazz Festival (Pty) Ltd v CSARS – HC A129/2014 WC 6 February 2015
• The court case considers whether a supplier’s failure to issue a tax invoice, despite being

demanded by the vendor to do so, precludes the vendor from applying the provisions of either S 20(7) or S 16(2)(f) of the VAT Act to claim an input tax deduction

• The appellant staged international jazz festivals on an annual basis for which it concluded

sponsorships from various parties

• In terms of these sponsorship contracts the sponsors paid money and provided goods

and services for the festival

• The appellant then provided branding and marketing services to the sponsors
• It was common cause between the parties that the contracts represented barter

transactions

• All parties were registered vendors

68

High Court Ruling – Input tax deduction

• The appellant was liable to declare output VAT on the value of the supply of its branding

and marketing services but failed to do so

• SARS raised additional assessments based on the values and terms stipulated in the

sponsorship contracts

• Appellant did not contest the output tax liability but contented that it should be entitled to
• ffset the liability with the input tax attributable to the supplies made to the sponsors in

terms of either sections 20(7) or 16(2)(f) of the VAT Act

• The appellant’s reliance on the said sections stemmed from the fact that the sponsors

never issued tax invoices in terms of section 20 and that the contracts should therefore serve as proof of entitlement to a deduction of input tax

• The Commissioner disallowed the inputs on the basis that the appellant was not in

possession of a valid tax invoice

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High Court Ruling – Input tax deduction

• The Court held that there must be an existence or availability of sufficient documentary

records

• The Court accepted that the sponsorship contracts constituted sufficient documentary

evidence

• The following was held by Binns-Ward J at paragraph [15]:

“…If the documents were good enough for the Commissioner to assess the appellant’s

• utput tax liability, it is impossible to conceive, having regard to the character of the

particular transactions, why they should not also have been sufficient for the purpose of computing the input tax which should have been deemed to have been levied by the sponsors…”

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Thank You

For more information please contact the Fasset Call Centre

• n 086 101 0001
• r visit www.fasset.org.za