Training
COTE TAX PRACTIONER EXAMS
VAT
• Indirect Tax
Tax periods s27
A
Taxable supplies ≤ R30 000 000
Farmers > R1 500 000
2 monthly
Jan, March, May…
B
Taxable supplies ≤ R30 000 000
Farmers > R1 500 000
2 monthly
Feb, April, June…
C
Taxable supplies > R30 000 000
Or specific application
1 monthly
D
Farmers ≤ R1 500 000 or a vendor that is a registered micro
business
Bi-annually
February, August
E
F
Annually – last day of YOA
Taxable supplies ≤ R1 500 000 AND specific application
4 monthly June, October, February – Deleted from 1 July 2015
“Enterprise” s1
Any enterprise or activity
carried on continuously or regularly
• Ongoing
• Business owner selling private home?
in South Africa or partly in South Africa
by any person
in the course or furtherance of which
goods or services are supplied for a consideration
whether for profit or not
“Enterprise” s1
Specifically includes:
• Anything done in connection with the commencement or
termination of an enterprise
• The activities of a welfare organisation and foreign donor funded
project.
• The supply of electronic services by a person from a place in an
export country is specifically included in the definition of an
enterprise. This specific inclusion applies where at least two of the
following circumstances are present, namely – the electronic
services are supplied to a South African resident, or – any payment
for such services is made from a South African Bank, or – the
electronic services are supplied to a person with a business address,
residential address or postal address in South Africa where a tax
invoice will be delivered.
“Enterprise” s1
Specifically excludes:
• The supply of services by an employee to his employer
(salaries & wages)
• A hobby
• An exempt supply
• Commercial accommodation not exceeding R60 000 for a
period of 12 months ( from 1 April 2016 – R120 000)
• Certain supplies made by branches or main businesses
situated outside South Africa – eg. Foreign Bank in US –
head office has a branch in Sandton – branch in Sandton –
all supplies of the SA branch will be part of an enterprise
however, supplies of head office outside SA will be
excluded from the definition of enterprise.
VAT Admin
• Must be submitted and payment made within
25 days after the end of tax period.
• If 25th falls on Saturday or Sunday or public
holiday – then last business day before 25th
• If e-filing – submit and make payment on last
business day after the end of tax period as
opposed to 25th
Timing of a supply s9(1)
General rule :
Earlier of
Invoicing; or
Receipt of payment
Deposit deemed to be consideration
(i.e. reduce liability)
OR Deposit that will be forfeited
Value of a supply s10(3)
General rule
If consideration
= money
• Value of supply = Rand value –
excludes VAT
If consideration
≠ money
• Value of supply = Open
market value – includes VAT
SECTION 20
•
•
•
•
•
•
•
•
•
WHERE THE SUPPLY EXCEEDS R5000, certain information must appear on the tax
invoice and must be reflected in South African currency. S20(4). T
The words ‘tax invoice’ in a prominent place
The name, address and VAT registration number of the supplier
The name, address and VAT registration number (if the recipient is a vendor) of the
recipient
an individual serialised number and the date on which the tax invoice is issued
a full and proper description of the goods or services supplied (including an indication
that the goods are second-hand, if that is the case)
the quantity or volume of the goods or services supplied
either
– the value of the supply, the amount of VAT charged and the consideration for the
supply, or
– where the amount of VAT charged is calculated by applying the tax fraction to the
consideration, the consideration for the supply and either the VAT charged or a
statement that it includes a charge for VAT and the rate at which the VAT was charged.
SECTION 20
• WHERE THE SUPPLY DOES NOT EXCEED R5000, an abridged tax invoice
may be issued.
• This abridged tax invoice should contain only the following particulars:
• the words ‘tax invoice’, ‘VAT invoice’ or invoice in a prominent place
• the name, address and VAT registration number of the supplier
• an individual serialised number and the date on which the tax invoice is
issued
• a description of the goods or services supplied (including an indication
that the goods are second- hand, if that is the case)
• either
– the value of the supply, the amount of VAT levied and the consideration
paid for the supply, or
– where the amount of VAT charged is calculated by applying the tax fraction
to the consideration, the consideration for the supply and the VAT charged
or a statement that it includes a charge for VAT and the rate at which the
VAT was charged.
– Output VAT is levied, Input VAT is claimed.
– If an item is inclusive of VAT, 14/114 is used to calculate
the amount of VAT on that item.
– If an item is exclusive of VAT, 14% is used to calculate the
amount of VAT on that item.
12
• References:
– Section 23 to section 25 of the Act
• Compulsory vs. Voluntary registration
• See slides at the end for changes effective from 1 April 2014
– Depends on value (exclusive of VAT) of taxable supplies.
• Separate branches may register as separate VAT vendors if:
– Maintain independent accounting records
– Separately identified:
• Nature of activities or
• Geographic location
13
• Taxable Supplies:
– Standard Rated
– Zero Rated
NB Certain deemed supplies
• Exempt Supplies – non taxable supply
• Denied Supplies – input is denied
14
•
•
•
•
•
•
The supply of goods (seed, feed, fertiliser, etc.) and services for use for agricultural or other
farming purposes
The supply of gold coins, such as Kruger Rands, which are issued by the Reserve Bank
Certain basic foodstuffs; for example, brown bread, maize meal, samp, mealie rice, rice,
pilchards, milk and milk powder, fresh fruit and vegetables (including mealies, but excluding
popcorn), vegetable oil (excluding olive oil), eggs and lentils Dehydrated, dried, canned or
bottled fruit and nuts would not qualify for the zero-rating.
The supply of fuel levy goods (for example, petrol and diesel, including biofuels) and certain
crude oil products used in the production of such goods .
Illuminating kerosene (paraffin) marked as intended for use as fuel for illuminating or
heating, and not mixed or blended with another substance
Certain goods supplied to a customs-controlled area enterprise or Industrial Development
Zone operator in a customs-controlled area
• Goods supplied by a vendor to a foreign company,
– but delivered to a registered vendor (the recipient) in
South Africa, and
– used by the recipient wholly for the purposes of
making taxable supplies
• The supply of controlled animals or things by a
vendor to a public authority, whereby the vendor
receives compensation in terms of s 19 of the Animal
Diseases Act 35 of 1984
• Certain fixed property supplied is zero-rated, if it
is supplied to
• – the Cabinet member responsible for land
reform or
• – any person to the extent that the consideration
is subsidised in terms of the Provision of Land and
Assistance Act, 1993 (Act 126 of 1993)
• Services supplied directly in connection with land
or any improvements to land or movable goods,
where the land or movable goods are situated in
an export country
• The charging of municipal rates (property rates and taxes)
by a municipality
• The zero-rating of municipal rates is, however, not
applicable where such rate is
• – a flat rate charged to the owner of the rateable property
for rates and other goods and services (such as supplies of
electricity, gas, water, drainage, disposal of sewage and
garbage), or
• – a flat rate charged to any person exclusively for the supply
of the other goods and services as mentioned above,
• and such flat rate will be taxed at the standard VAT rate of
14%.
• Services relating to intellectual property rights
(including patents, designs, trade marks,
copyrights,
know-how, confidential information, trade
secrets or similar rights) and the acceptance of an
obligation to refrain from pursuing or exercising
any such rights to the extent that the intellectual
property rights are for use outside South Africa
• Services comprising vocational training of
employees for an employer who is not a resident
and a vendor
Sale of a going concern s11(1)(e) and
18A – Zero Rated
Seller = vendor
Purchaser = vendor
Agreement in writing
Enterprise = going concern
Supply of an enterprise
Exports
Goods
Services
Direct:
Indirect:
Documentary evidence to
zero rate
Can be zero or standard
rated
Performed for
non-resident
outside RSA
21
Exports
Exported Services - Transportation
• The rendering of a transport service to passengers or
goods is zero-rated, according to s 11(2)(a), if
transported from
• a place outside South Africa to another place outside
South Africa, or
• a place in South Africa to a place in an export country,
or
• a place in an export country to a place in South Africa.
Any services comprising the insuring or arranging of
insurance for any of the above passengers will also be
zero-rated (s 11(2)(d)).
Exports
Exported Services – Ancillary services to
exported good
• Where goods are exported and additional
services are supplied, the additional services,
such as the transport and insurance of goods,
will also be zero-rated if supplied to a nonresident that is not a vendor (s 11(2)(e)).
Webinar:
Zero-rated supplies are taxable supplies on which VAT is levied at a rate of 0%.
Certain basic foodstuffs are zero-rated, provided it is not supplied for immediate
consumption (that is, as a meal or refreshment) or added to a standard-rated supply.
These include the following:
•
brown bread
•
dried mealies and mealie rice
•
brown bread flour (excluding wheaten bran)
•
samp
•
hens eggs (that is, not from ostriches, ducks etc.)
•
vegetables and fresh fruit
•
dried beans
•
lentils
•
maize meal
•
rice
•
pilchards in tins or cans
•
vegetable cooking oil (excluding olive oil)
•
milk, cultured milk, milk powder and dairy powder blend
•
edible legumes and pulses of leguminous plants (that is, peas, beans, peanuts etc.)
24
Webinar:
The zero rate will not apply where –
Zero-rated foodstuffs are prepared for immediate consumption, for example –
a glass of milk served in a restaurant;
- a pre-packed salad with salad dressing purchased at a supermarket;
sandwiches and other take-away foods.
A standard rated product or ingredient is supplied together with a zero-rated foodstuff,
for example –
a punnet of vegetables seasoned with herbs and including a stick of butter;
a pack of rice or beans containing a sachet of flavouring;
- a gift hamper consisting of a basket of fruit with chocolates and nuts;
- peri-peri flavoured cooking oil
25
26
• This is a NON TAXABLE supply, therefore:
– NO Input VAT nor Output VAT consequences.
• Remember to look out for the exclusions applicable to
each exempt supply ie.:
– Fee based financial services eg, transfer of shares, loans,
interest, funds – bank charges not exempt, standard rated
– Property developers (residential property)
• If a supply is EXCLUDED from being an exempt supply,
it becomes a taxable supply.
27
• Residential Accommodation
• - The supply of donated goods and services by
an association not for gain is exempt. The
exemption also applies if the goods being
supplied were made or manufactured by the
association, provided that at least 80% of the
value of the materials used consists of
donated goods.
• Other
• The letting of leasehold land to the extent that it is used for
accommodation in a dwelling erected or to be erected on that land
• The sale or letting of land situated outside South Africa
• The supply of services by a
• – body corporate
• – share block company, or
• – housing development scheme
• where the costs of supplying such services are met out of the levies
charged by them are also exempt supplies (s 12(f)). As from 1 April 2014
services by home-owners associations could also qualify for this
exemption. Although provision is made for these supplies to be exempt,
these persons can, however, apply to SARS for the levies to be taxable or
partly taxable. This exemption is not applicable to the supply of services in
connection with the management of a property timesharing
Scheme.
• Other
• The transport of fare-paying passengers (in a bus or taxi, but not a
game-viewing vehicle) and their personal effects by road or railway,
unless the service is subject to VAT at the zero rate
• (s 12(g)), provided that the transport is
• – only by road and railway, but excluding a funicular railway (thus it
is not applicable to air tickets) Local air travel is standard and
overseas is zero rated
• – not for the purpose of courier services, since the exemption
applies to the transport of passengers and their personal effects,
and not to goods, therefore goods by road or rail is standard or
• – for fare-paying passengers (thus a supply of transport services by
a hotel to and from the airport will not be an exempt supply if the
residents of the hotel are not charged separately for
such service).
•
•
•
•
•
•
•
Other
The supply of qualifying educational services by the State, a school, a public higher education
institution or certain institutions in South Africa that meet the definition of a public benefit
organisation in s 30(1) of the Income Tax Act is an exempt supply . The exemption is not applicable
to technical training provided by an employer to his employees or employees of an employer who
are connected persons in relation to that employer.
The supply by a school, university, technikon or college, solely or mainly for the benefit of its
learners, of goods or services (including domestic goods or services) for a consideration in the form
of school fees, tuition fees or payment for board and lodging, is exempt
Membership contributions to employee organisations, such as trade unions, are exempt
The supply of childcare services by a crèche or an after-school care centre are also exempt
All supplies of goods or services by a bargaining council to any of its members to the extent that
the consideration for such supply consists of membership contributions
All supplies of goods or services by a political party to any of its members to the extent that the
consideration for such supply consists of membership contributions
32
•
Denied ito of INPUT VAT, therefore:
If there are no Input VAT consequences, there can be no Output VAT consequences
•
Acquisition of a motor car:
– Motor car as defined
– Denied ito ACQUISITION only ie. ancillary costs are not denied.
•
Entertainment:
– Entertainment as defined
– There are many exclusions to the definition meaning that if a supply falls into an exclusion, it
will have VAT consequences – please read exclusions
– 2014 changes
– 1 April 2014 Amendment, vendors operating taxable transport services who supply
entertainment to passengers and crew as part of those services(reworded).
•
Club Subscriptions:
– Sport, social and recreational clubs only.
– Professional bodies and trade organisations are not denied. Trade unions are exempt
33
Webinar:
DENIAL OF INPUT TAX
The VAT Act provides that input tax is denied on certain expenses even if the expenses
are incurred in the course of conducting an enterprise. These include –
• goods or services acquired for purposes of entertainment;
• membership fees or subscriptions of clubs, associations or societies of a sporting, social
or recreational nature;
• the acquisition of a motor car by a vendor (who is not a motor car dealer or car rental
enterprise); and
• goods or services acquired by medical schemes or benefit funds for the purposes of
health insurance or benefit cover.
34
Webinar:
“entertainment”
As defined in section 1 of the VAT Act
means the provision of any food, beverages, accommodation, entertainment,
amusement, recreation or hospitality of any kind by a vendor whether directly or
indirectly to anyone in connection with an enterprise carried on by him;
35
Webinar:
Club subscriptions of a recreational nature
Input tax may not be deducted on VAT paid in respect of any membership fees to
sporting, recreational and private clubs.
For example, membership of a country club, soccer supporters club, amateur boxing
club, holiday club, tea club, stokvel savings club etc.
However, the VAT incurred on subscriptions to magazines and trade journals which
are related in a direct manner to the nature of the enterprise carried on by the vendor
may be deducted as input tax.
36
Webinar:
VAT on membership fees paid to a professional body such as SAIPA
The VAT on any fees or subscriptions to professional organisations paid by a vendor
on behalf of its employees, may be deducted as input tax.
Trade union subscriptions - exempt
37
Webinar: Professional Tax Technician (SA)
Motor cars
The term “motor car” is defined in the VAT Act and includes vehicles which –
• have three or more wheels;
• are normally used on public roads; and
• are constructed or converted mainly or wholly for carrying passengers.
As a general rule, an input tax deduction may not be made by a vendor if a vehicle
falling within the definition of a “motor car” is acquired, even if it is used in the course
of making taxable supplies and regardless of the mode of acquisition. For example,
the motor car could be acquired by way of outright purchase, importation, ICA,
operating rental agreement or casual hire.
38
• Deemed for Output VAT purposes.
• Taxable supply therefore must provide:
– Time of supply and
– Value of supply
• Supply is deemed to have taken place
therefore it is deemed to be inclusive of VAT:
14/114 is used to calculate Output VAT
39
Fringe Benefits
• To constitute a deemed supply:
Employer –
Employee
relationship
Listed
Seventh
Schedule
fringe
benefit
Taxable
supply for
VAT
purposes
40
• Time of Supply: End of the month of the receipt of the
cash equivalent of the benefit (section 9 (7)).
• Value of Supply: 14/114 x Seventh Schedule fringe
benefit value except for right of use of a motor vehicle
x extent of taxable supplies.
• Motor Vehicle as defined is a denied supply (not
taxable) but right of use of a motor vehicle is
specifically provided for in the VAT act as a deemed
supply for fringe benefit purposes.
41
• Motor Vehicle Fringe Benefit Value of Supply:
1. Determined value always EXCLUDING VAT (reduced by
15% for each 12 month period held by employer before
right of use was granted.
2. Multiply by:
0.3% if Input VAT was denied or
0.6% if Input VAT was not denied
3. Less R85 if employee bears full cost of maintenance
4. Multiply by number of applicable months
5. Multiply by tax fraction (14/114)
6. Apportion to extent of taxable supplies.
42
• In summary, fringe benefits that are subject to
Output VAT (only taxable supplies)- assuming
employer registered VAT vendor:
–
–
–
–
–
Sale of asset below market value
Right of use of assets (excluding entertainment)
Right of use of motor vehicle
Free/cheap services
Release by employer of employees debt to the employer –
where owing for trading stock
NB – If Fringe benefit relates to exempt, zero rated or supply of
entertainment there is no deemed supply and thus no output
VAT is payable on the fringe benefit
43
Indemnity Payments
• Deemed Supply per s 8 (8) if:
–
–
–
–
–
•
No deemed supply per s 8 (8) if:
–
–
–
–
•
•
Ito contract of insurance
Loss incurred in course/ furtherance of enterprise
Loss in relation to taxable supply
Relates to Short term policy
And not long term policy( exempt – financial service)
Goods constituted a non-taxable supply; or
Total reinstatement (stolen or damaged beyond economic repair )of denied supply- motor car or goods
relating to entertainment)
Repairs to motor car - Input was denied at acquisition AND must be damaged beyond economic repair or
theft
But even though input was denied , it was not damaged beyond economic repair or stolen – therefore
deemed supply
Value of supply: 14/114 x Consideration received
Extent of taxable supplies
Time of supply: Date of receipt of payment
x
44
• As long as the indemnity payment is made ito the insured’s
contract of insurance, there will be a deemed supply for the
insured himself at 14/114:
Insurer
Pays
Insured
Insurer
Pays
Third
Party
• If the insured pays the third party – This is a payment ito a
contract of insurance therefore there is a deemed supply –
amount received including VAT – 14/114
45
Cessation of Business
• When a person ceases to be a vendor, there is
deemed to be a supply of all the items in the
business on which the vendor originally claimed
Input Vat on.
• Time of Supply: Immediately before ceasing to be
a vendor (section 9 (5))
• Value of Supply: 14/114 x lower of cost and
market value (section 10 (5))
46
Excessive Payments
• Vendor receives payment in excess of debtor’s debt:
– Initially, no VAT consequences (supply of money)
– If not refunded within 4 months = deemed supply
– Time of Supply: End of the Vat period in which the 4
months ends
– Value of Supply: 14/114 x excess portion of the payment
• If eventually refunded by the vendor:
– Vendor can claim Input VAT on the amount
47
Rental
Agreements
ICAs
48
• The second hand goods rule is a rule relating to
the amount of notional Input VAT claimable on a
purchase of second hand goods as defined from a
non-vendor.
• This rule applies to all second hand goods other
than second hand fixed property.
• Remember: This is a notional Input VAT claim, as
no amount was actually paid as the item was
purchased from a non-vendor.
49
• Requirements:
Previously
owned and used
(s 1 definition)
Used to
generate taxable
supplies
Seller = Resident
Non Vendor
No actual VAT
charged
Goods located in
RSA
50
• No deemed input tax on second-hand goods is available if
• the goods were acquired from a person on a diplomatic or consular
mission of a foreign country established in South Africa
• that was granted a VAT refund as contemplated in s 68.
• ‘Second-hand goods’ are defined in s 1 as
• goods that were previously owned and used, or
• in respect of the transfer of a unit (referred to in Item 8 of Schedule
1 to the Share Blocks Control
• Act), such a unit, and
• certain prospecting and mining rights.
• Second-hand goods do not include animals, gold coins, gold and
goods containing gold.
• If requirements are met:
– Time of Supply: To the extent of payment
– Value of Supply: 14/114 x Lower of cost and market value
• If a vendor exports a good on which notional Input VAT
was originally claimed, there will be no zero-rating
available to the extent that notional input was claimed.
• Remember: There are NO VAT consequences for a new
goods bought from a non vendor and if second hand
motor car or relates to entertainment- input is denied
therefore still no notional input.
52
Extracts from the Explanatory Memorandum to
the VAT Act:
“ While the acquisition of gold and jewellery by
VAT vendors from non-VAT vendors should
allow for the deduction of notional input VAT,
in practice this provision significantly
contributes to creating an enabling
environment to obtain fraudulent input tax
deductions. Jewellery is smelted along with
gold coins and illegally acquired raw gold.”
Explanatory memorandum to Bill
VAT Updates:
• Second hand goods
• Do not include animals and gold coins.
• Amendment –Second-hand goods made from
precious metals (goods containing gold) is
excluded from obtaining notional input
– Effective date: The amendment will come into
operation on 1 April 2015.
New
No VAT
Non - Vendor
2nd hand
Notional VAT
Fixed Property
Vendor
New + 2nd hand
Actual VAT
55
• Fixed property from a vendor:
– Value of supply: Consideration paid
– Time of supply: Earlier of registration or any
payment made (s 9 (3) (d))
– However to the extent of payment
• Fixed Property from a non vendor:
– New: No VAT consequences
– 2nd hand:
• Value of supply: 14/114 x Lower cost and market value
• Time of supply: Earlier of registration or any payment made with
the pre-requisite of registration having taken place AND to the
extent of payment (s 16 (3) (a) (ii) (bb) (A))
56
• Where commercial accommodation is supplied
with domestic goods and services at an allinclusive charge for:
– An unbroken period of greater than 28 days, then
– Consideration in money is deemed to be at 60% of
the all-inclusive charge.
• Therefore, provided that the above
requirements are met, Output VAT will be levied
at only 60% of the all-inclusive charge.
57
Importation
of Goods
Importation
of Services
Output
VAT levied
Output
VAT levied
Done on a
gross basis
Done on a
net basis
58
• Output VAT levied on importation of any good by
any person whether they are a vendor or non
vendor (s 7 (1) (b)).
• Principle:
– The price levied by the foreign seller excludes VAT as
they are not a registered VAT vendor.
– Output VAT is therefore levied on the importation of
the good in order to equate the treatment of imports
to that of the supply of local goods.
59
• The importer is liable for the Output VAT
levied.
Imported via an agent
Direct import
Agent calculates Output
VAT
Importer calculates Output
VAT
Output VAT not on
importer’s Output VAT calc
Output VAT does go on
importer’s Output VAT calc
60
Value of
Supply
Non BLSN
Country
Customs Duty
Value
10% Customs
Duty Value
BLSN County
Non Refundable
taxes and
duties
Customs Duty
Value
Non Refundable
taxes and
duties
61
• Output VAT =
Value of supply x 14%
• The Output VAT levied is a cost incurred on importing that
good and therefore is added to the cost of that good.
• If the good is used in the production of taxable supplies:
– Input VAT IS claimable to the extent of taxable supplies.
– The cost of the good which includes Output VAT as calculated
above is therefore REDUCED by the value of Input VAT
claimed.
• Cost + Output VAT paid – Input VAT claimed
62
63
• Output VAT is levied on the supply of imported
services as defined by any person, whether they are a
vendor or a non vendor.
• Imported Services:
‘..supply of services that is made by a supplier who is a
non resident or carries on business outside the
Republic to a recipient who is a resident of the republic
to the extent that such services are utilized or
consumed in the Republic otherwise than for the
purpose of making taxable supplies – non taxable
supplies.’
64
• Principle:
– Output VAT is only levied when the services will be utilised
for non taxable purposes (thus meeting the definition of
imported services).
Meaning:
Output VAT is only levied when it can NOT be claimed back.
– Services are only utilised for non taxable purposes when:
• They are used by a non vendor.
• They are used by a vendor for non taxable purposes ie. in the
production of exempt supplies.
65
Therefore:
If Output VAT is only levied on imported services to the
extent that they are utilised for non taxable purposes,
And
Input VAT is only claimable to the extent that the item is
utilised in the production of taxable supplies
Then
No Input VAT is claimable on the importation of a
service on which Output VAT has been levied.
66
67
• The connected person provision per s 10 (4) is a rule
affecting the value of supply.
• It applies to the seller - vendor only – therefore looking
at Output VAT and not input VAT
• Principle:
– Supply made for consideration less than market value and
– Supplier and recipient are connected persons and
– The buyer would not be able to claim a full Input VAT
deduction ie:
• The buyer is a non vendor or
• The buyer will not use the good in the production of 100% taxable
supplies
– Value of supply is deemed to be market value.
68
Allocation of input VAT-s17
Per cost
or asset
Taxable use
General use
Nontaxable use
100%
?%
0%
95% rule s17
• 95% or more supplies = taxable supplies
No apportionment, claim 100% input
Allocation of output VAT – s7(1)(a)
Per cost
or asset
Taxable use
General use
Nontaxable use
100%
100%
100%
Adjustments to input and output VAT
- Output Tax – No apportionment – s8(16)
- Exceptions – Fringe Benefits and Indemnity
Payments
Registration of E-commerce
suppliers
• From 1 April 2014
• Foreign suppliers of electronic services, at the
end of the month where the total value of
taxable supplies made by that person has
exceeded R50 000.
73
Registration as a vendor
• Compulsory Registration
• From 1 April 2014
• A person is required to register:
- at the end of the month which the total value of the
taxable supplies for the preceding 12 months exceeded
R1 000 000
- If it is anticipated that the total value of the taxable
supplies would exceed R1 million, if it exceeds this
amount ito a written contractual agreement. Therefore
the removal of the predictive element of the previous
compulsory registration requirements
- E-commerce suppliers as per previous slide
74
Registration as a vendor
•
•
•
-
Voluntary Registration
From 1 April 2014
A person is may register:
if the value of the taxable supplies is more than R50 000 during a previous
12 month period
- He is acquiring an enterprise of which the value of taxable supplies
exceeded R50 000 during the previous 12 months as a going concern
- Total value of taxable supplies has not exceeded R50 000 but can
reasonably be expected to exceed that amount within 12 months from
date of registration as a vendor – register on payments basis until value of
taxable supplies exceeds R50 000
- If that person continuously and regularly carrying on activity listed in a
regulation to be made by the Minister. The consequences of the nature of
that activity are that it is likely to make taxable supplies.
75
The Taxation of Retirement
Benefits
Overview…
1.
2.
3.
4.
5.
6.
What is a Lump sum vs. annuity?
Why do we have separate tax laws upon Retirement?
What are the different types of lump sums one can receive?
Value and form of Lump sums
Concept of cumulative tax
s10C exemption
Lump sums vs. Annuity
Employee can
choose
Lump sum paid out
once off
Fixed amount,
paid out
repetitively, ito a
contract
Second Schedule
Gross Income def
par (a)
Types of lump sums
Lump sums
Received
Lump Sums
from an
Employer
Paragraph (c)
or (cA)
Paragraph (d)
or (f)
Lump sum
from a Fund
Paragraph (e)
and (eA)
Lump sums from employer:
•
•
•
•
•
•
cA) ‘Restraint of Trade’ Received: Amounts received from an employer on
termination of employment, to NOT undertake/ engage in certain occupation/
trade/ employment for a defined period of time.
Although the amounts are capital in nature they will be taxed in Gross Income in
terms of par (cA).
The payment received is NOT a lump sum for these purposes of the second
schedule and is taxed in full in the hands of the individual who received the
restraint payment.
par (d) or (f)- “ Severance Benefits”
Any voluntary reward or amount received or accrued for, in respect of:
the relinquishment, termination, loss, repudiation, cancellation or variation of any
office or employment of any appointment AND
•
•
•
•
•
•
The recipient has attained the age of 55 years OR
Employee suffers from ill heath, is incapable, or infirmity of holding office OR
Termination is due to:
Employer ceasing to carry out trade for which the taxpayer was employed for
Redundant (See later for additional checks!)
IF above requirements are met then the amount received is TREATED AS A LUMP
SUM FROM A FUND.
Lump sums from funds
Lump sums
from funds
Retirement
lump sum
Retirement
Death
Withdrawal
lump sum
Resignation
Type of event = NB
Withdrawal
Lump Sums from Funds – paragraph (e) and (eA)
Paragraph (e) per Gross Income definition
 Retirement fund lump sum benefit or Retirement fund lump sum
withdrawal benefit, other than included in par (eA) (Public Sector
Pension Funds)
“Retirement fund lump sum benefit”
• Refer to par 1, Second Schedule for full definition
• 5 types of Funds affected by Second schedule:
1)
2)
3)
4)
5)
Pensions Fund
Pension Preservation Fund
Provident Fund
Provident Preservation Fund
Retirement Annuity Fund
The value and form of Lump Sums
•
•
•
•
•
Calculating the inclusion into gross income
Amount received from Fund
Rxxx
Less deductions in terms of paragraph 5/6
(Rxxx)
Inclusion in Gross income
Rxxx
PLEASE NOTE: Deductions in terms of paragraph 5/6 are limited to
the actual lump sum benefit received. The deductions can’t create a
loss in the gross income of the recipient.
• Calculating the TAXABLE portion of lump sum received from FUND
• LS received (actual) – deductions permitted per par 5/6 = Taxable
portion of lump sum in Gross Income
• (Therefore, the net portion is the only amount to be included in
Gross Income and NOT the actual Lump Sum received.)
S10C exemption
• S10C now allows for the non-deductible portions
of the contributions once made toward these
funds by the taxpayer, as a deduction against this
annuity income received
 Disallowed contributions i.t.o s11(k) or (n) netted
off against annuity income
 Previously not allowed as a deduction under par
5 or 6 of 2nd Schedule
 Applicable to contributions from any fund
New Legislation
• 2016 Budget Proposal
• A two year postponement of the annuitisation
requirement for provident funds and tax free
transfers from pension to provident funds.
EMPLOYEES’ TAX
Definitions – Remuneration Par 1
•
•
•
•
•
•
Amount of Income
Paid or Payable
To any person
whether in cash or otherwise
whether or not for services rendered
By way of any
– Salary and wages
– Leave pay and allowances
– Bonus and gratuity
– Overtime pay
– Commissions and fees
– Emoluments and pensions
– Superannuation allowance
– Retiring Allowance or stipend
Remuneration (Par 1) Continued
Remuneration specifically includes:
• Gross Income Paragraphs:
– (a) - Annuities
– (c) - Any Amount including Voluntary rewards received for services
rendered or to be rendered or any amount received by virtue of
employment.
– (cA) and (cB)– Restraint of Trade
– (d) – Lump sums received from Employers
– (e) – Retirement Lump Sums and Retirement Lump Sum Withdrawal
benefit
– (eA) – Amounts from Public Sector Pension Funds
– (f) – Amounts received in commutation of amount under employment
contract
– (i) – Fringe Benefits (Cash Value as determined in the 7th Schedule
Remuneration (Par 1)
• Fringe Benefits (paragraph (i))
– Cash Equivalents of Fringe Benefits in terms of
right of use of Company Car
• 80% of the Fringe Benefit Value determined per
paragraph 7 of the 7th Schedule.
• If the employer is satisfied that at least 80% of the use
of the motor vehicle in a yoa will be for business
purposes.
– Only 20% of the Fringe Benefit Value will be Remuneration.
Remuneration (Par 1) Continued
Remuneration specifically includes:
• Allowances in full,
– other than
• travel, or
• subsistence or
• holder of public office
– If subsistence allowance not used by month end, it is remuneration.
• 50% of public holder officer allowance.
• Section 8B or 8C gains.
• Amounts in terms of s 7(11)
Remuneration (Par 1) Continued
Remuneration specifically includes:
• 80% of travel allowance referred to in s8(1)(b)
– If the employer is satisfied that at least 80% of the use
of the motor vehicle in a yoa will be for business
purposes.
– Only 20% of the Allowance will be Remuneration.
– BUT A Reimbursive Travel allowance in terms of
s8(1)(b)(iii) is NOT INCLUDED in definition of
remuneration.
Remuneration Continued
Remuneration specifically excludes:
• Payments to “independent traders”
• Disability pensions.
• Reimbursements
• Paid by employer to employee in course of his employment of Expenditure Actually
incurred.
• Annuity in terms of a divorce order.
• other annuities, purchased or earned are included – paragraph (a) above
• Subsistence allowance
• Unless he receives an allowance but does not spend at least one night away
from home by month end – then is deemed to be remuneration and not
subsistence allowance
Employees Tax
• The Amount of Employees Tax to be withheld
is calculated on the “balance of
remuneration” in terms of Par 2(4) of the 4th
Schedule.
Balance of Remuneration (Par 2(4)
Remuneration
Less:
Deductible contributions to a Pension Fund
– Limited to allowable deductions in terms of s11(k)
• Deductable contributions to a Retirement Annuity Fund
– Limited to allowable deductions in terms of s11(n) (proof to be
provided to the employer)
NB 1 March 2016, deductions under new s11k
• Donations by the employer on behalf of the employee to s
18A recognised institutions
– Limited to 5% of the employees remuneration after deducting
the above
Annual Equivalent
• Employees tax must be deducted from
remuneration of an employee in a specific
month.
– Rebates and Prescribed Tax Tables are based on
Annual Taxable Income
– The Annual equivalent of the balance of
remuneration must be calculated before
employees tax can be calculated.
Definitions
Employer (Par 1)
Any person who pays or is liable to pay to any person any amount by
way of remuneration. It includes an executor or an administrator of a
benefit fund, pension fund, RA fund or any other fund.
Employee (Par 1)
• A person, other than a company, who derives remuneration
(taken to include directors of public companies)
• A person who receives remuneration by reason of services
rendered by that person to/on behalf of a ‘labour broker’
• A labour broker (LB)
• A personal service provider
• Director of a private company
Labour Broker
The definition of an Employee includes:
 A Labour Broker
A Labour Broker is defined as follows (Para 1):
• NATURAL PERSON who conducts or carries on business
• Providing clients with persons to perform work, for reward
or
• Procuring (obtaining) workers for clients, for reward.
• Providing workers, rather than a service.
• Distinction between a labour broker and an independent
trader.
– client pays labour broker who then pays employees
Labour Brokers
• Are specifically excluded from independent traders
• Definition of ‘employee’ includes a labour broker
• Clients must thus pay employees’ tax (PAYE) according to the
tables – if no exemption certificate is held. If held, no
employees’ tax withheld
• The tax withheld can be set-off against provisional tax
payments.
• S 23(k) limits deduction of expenses incurred by Labour
Broker other than salaries
– i.e. can not try to avoid s 23(m) by changing structure of what
is effectively a employment relationship.(Income Tax Purposes)
S23(k) Income Tax Deductions
• S23 No deduction shall in any case be made i.r.o. the
following matters
(k) Any expense incurred by labour broker or personal
service provider ,
Other than expenses incurred on:
• Amounts paid or payable to employees, and amounts included in
TI of employees
• Any expense or deduction in
–
–
–
–
–
–
–
–
–
S11(c) – Legal Expenses
S11(i) – bad debts
S11(l) – employer contributions to funds
S11(nA) – refunds of salaries
S11(nB) – refunds of restraint of trade payments
Expenses for premises
Finance charges
Insurance
Repairs, Maintenance, fuel iro assets used wholly or exclusively for
trade.
Labour Brokers – IRP 30 (Par 2(5)
Client must withhold PAYE when they pay the labour broker his fees
Unless labour broker has an IRP30 exemption certificate, which details:
•
Independent trade
•
Registered as a provisional taxpayer
•
Must be a registered employer
•
Tax affairs up to date
•
Does not derive >80% of GI from one client (the 80% test does not apply if LB
employs 3 or more full time employees not connected persons)
•
May not provide the services of another labour broker to a client
•
Must not be contractually obliged to provide a specified employee to the client.
Personal Service Provider
• A personal service company from this date is
only subject to employees tax if it is a
‘personal service provider’.
• Any remuneration paid to it is taxed at a rate
of 28% for a psp company and 41% if a psp
trust.
Personal Service Provider – Definition
Par 1
• Any company or trust (note NOT an
individual), where any service rendered by the
company or trust to a client is personally
rendered by any person who is connected in
relation to such company or trust. And one of
the following requirements must be met:
Personal Service Provider – Definition
Par 1 Continued
• The person rendering the service to the client would
have been regarded as an employee of the client if the
service was rendered directly to that client; or
• Where the duties of the service must be performed
mainly at the premises of the client, the person or
company or trust is subject to the control or
supervision of the client relating to the manner in
which the services are performed; or
• Where more than 80% of the income of the company
or trust during the year of assessment, from services
rendered, consists or is likely to consist of amounts
relating to one client.
Personal Service Provider – Definition
Par 1 Continued
• A company or trust is excluded from the definition of a
PSP where, throughout the year of assessment, three
or more employees who are on a full-time basis
engaged in the business of such company or trust are
employed. These employees may not be holders of
shares in the company or a settlor or beneficiary of the
trust or be a connected person in relation to that
person.
• Where the definition is met and remuneration is paid
to a PSP and is subject to the deduction of employees’
tax, the employees’ tax withheld may be set off against
the company or trust’s provisional tax payments (paras
21 and 23).
Personal Service Provider
• Once defined as a personal service provider,
– certain deductions are denied to the company or trust in
terms of s 23(k) of the Act.
– This provision prohibits the deduction of any expense
incurred other than any expense constituting an amount
paid or payable to any employee of such a labour broker.
• However in terms of s23(k) the following deductions
are still available:
–
–
–
–
–
S 11(c) – legal expenses
S 11(i) – bad debts
S 11(l) – contributions to funds by employer
S 11(nA) and (nB) – refunds
Expenses relating to premises, finance charges, insurance,
repairs and fuel and maintenance in respect of assets
used wholly and exclusively for the purposes of trade.
Independent Trader
• Definitions of remuneration excludes any
amount paid or payables for services rendered
or to be rendered by any person in the course
of a trade
Carried on Independently of the person whom the
amount is paid or payable (Par 1 Definition of
Remuneration (ii) )
Therefore these amounts are not subject to
employees’ tax
Independent Trader
• The following are not Independent Traders:
A person who is not residents
An employee who is a labour broker or who works
for a labour broker or
Personal Service Provider
Independent Trader
A person will be deemed NOT to be carrying on a trade
independently if:
– Person carries out the trade mainly at the premises of the
service recipient; and
– Person is subject to control or supervision of any other
person as to the manner in which the services are
performed.
• However if:
– Person employed more than 3 full time employees
(excluding connected persons) then IS an independent
contractor.
Interpretation Note 17
Variable Remuneration
• NB – s7B – covered slides under Part 1
Case Law applicable to Gross Income
Definitions
Amount
Cases applicable
Principle learnt in the case
CSARS v Brummeria
If a taxpayer receives a ‘benefit’ and
that ‘benefit’ has an ascertainable
value that accrues to the taxpayer.
The taxpayer must include that
benefit in their Gross Income,
generally at market value. (quid pro
quo)
CIR v Butcher Bros (Pty) Ltd
The Commissioner failed to establish
the amount that represented the
value of leasehold improvements
made by a lessee to a leasehold
property. As no amount was
established by Commissioner,
therefore no amount was included in
gross income of lessor. (Subsequent
inclusion Para (h)- leasehold
improvements of Gross income)
110
Case Law applicable to Gross Income
Definitions
Amount
Cases applicable
Principle learnt in the case
CIR v Lategan
The term ‘amount’ does not only
include money but also value of
every form of property earned by
taxpayer, whether corporeal or
incorporeal, which has a monetary
value.
Lace Properties Mines Ltd v CIR
The general principle is that, if
cash not received, the market
value of such asset(as valued on
the date of receipt or accrual)
should be included in gross income
111
Case Law applicable to Gross Income
Definitions
received by
Cases applicable
Principle learnt in the case
Geldenhuys v CIR
The court held that for an amount
to be received by taxpayer, it
should be received by him for his
own benefit and on his behalf.
MP Finance Group CC (In
Liquidation) v CSARS (2007)
If a taxpayer intends to retain
amounts received for their own
benefit, these amounts will then
constitute their gross income.
Pyott Ltd v CIR (1944) and Brookes
Lemos Ltd v CIR
Deposits should be kept in a
separate trust account and not
utilised for the general purposes of
the business, then they would not
constitute gross income and would
not be subjected to tax.
112
Case Law applicable to Gross Income
Definitions
Cases applicable
Principle learnt in the case
accrued to
CIR v People's Stores (Walvis Bay)
Pty Ltd
‘Accrued to’ means Entitled to the
amount, even if the amount is
only due and payable in the
following year of assessment it
will form part of gross income.
CIR v Witwatersrand Association
of Racing Clubs
The fact that it is throughout
contemplated that no portion of
the profits would remain with the
taxpayer and that there was a
moral obligation to hand over
the proceeds to the charities does
not destroy the beneficial
character of the receipt of those
proceeds by the taxpayer.
Ochberg v CIR or Mooi v SIR
Taxpayer should be
unconditionally to the amount, to
be deemed to be accrued to.
113
Income v capital
• Remember Gross Income excludes receipts of capital in nature.
• Therefore we need to determine by what they mean when they say capital
in nature.
• Section 82 of the Income Tax Act, Section 102 of the Tax Administration
Change
Act states the burden of proof that an amount is capital in nature rests NB!!!!
with the taxpayer
• Note: Intention of the taxpayer should always be considered when
determining if an amount is capital in nature
114
Case Law applicable to Income v Capital
Definitions
Cases applicable
Principle learnt in the case
CIR v Richmond
Decision to sell an asset does not
mean change in intention.
COT Southern Rhodesia v Levy
If taxpayer has mixed intentions
look at the main or dominant
purpose of which asset was
acquired.
scheme of
profitmaking
CIR v Pick ‘n Pay Employee share
purchase trust
The trust had no intention of
carrying on business in shares but
operated ‘primarily as a conduit for
the acquisition of shares by
employees.
mixed or
dual
intention
CIR v Stott
Look at the primary intention,
subdivision of plots could be to
realise the asset to the best
advantage.
CIR v Nel
If something was purchased for
‘keeps’ and an unusual or
unexpected event happens, does
not necessitate change in intention
Intention
115
Case Law applicable to Income v Capital
Definitions
change in
intention
nature of
the ‘asset’
Cases applicable
Principle learnt in the case
CIR v Nussbaum
Scheme of profit making, change
intention.
Natal Estates Ltd v SIR
Look at the history and activities of
the taxpayer, to see if intention is
capital in nature. Determine if
something more has been done to
proof that the intention has
changed to revenue in nature.
CIR v Visser
Income is what capital produces,
the fruit – tree principle.
CIR v George Forrest Timber
Indicates the fixed v floating
principle.
Damages
Fourie Beleggings v CSARS ZASCA
and
37 (31 March 2009)
compensati
on
If they are to fill a whole in profits
then they are revenue in nature.
But if they are to fill a whole in
capital assets then they are capital
in nature.
116
Case Law applicable to GDF
Definitions
Cases applicable
Carrying on Burgess v CIR
trade
Production
of income
Principle learnt in the case
Trade should be given wide
meaning and motive for trade is
irrelevant.
Port Elizabeth Electric Tramway Co Expenditure and income must be
Ltd v CIR
closely related
Joffe & Co (Pty) Ltd v CIR
Expenditure must be necessary
concomitant of the business
operations.
C:SARS v BP South Africa (Pty) Ltd
(2006)
BP South Africa (Pty) Ltd v C:SARS
(2007)
Loan incurred to continue income
producing activities is deductible.
Royalties can be deductible under
the general deduction formula.
117
Case Law applicable to GDF
Definitions
Actually
incurred
Cases applicable
Principle learnt in the case
Edgars Stores Ltd v CIR
Only expenditure you have
unconditional legal obligation can
you claim deduction.
Nasionale Pers BPK v KBI
Provision for bonuses is not
deductible, not yet incurred.
Expenditure can only be regarded
as incurred once a court case has
been resolved.
An allotment or issue of shares
does not involve a shift of assets
of the company even though it
might, but not necessarily, dilute
or reduce the value of the shares
in the hands of the existing
shareholders and that it can
therefore not qualify as an
118
expenditure’
CIR v Golden Dumps (Pty) Ltd
C:SARS v Labat
Case Law applicable to GDF
Definitions
Not of
capital
nature
Cases applicable
Principle learnt in the case
a New State Areas Ltd v CIR
If expenditure is incurred to create
permanent asset is capital in
nature
Rand Mines (Mining & Services) Expenditure creates an enduring
Ltd v CIR
benefit and it adds to the income
earning structure of taxpayer, it is
capital in nature.
119
Trading Stock (Section 22)
• Section 22(2): Opening stock deduction: Lower of Cost and
Market Value.
• Section 22(1): Closing stock addition: Lower of Cost and Market
Value.
• Section 22(8): Recoupments:
– At Cost: If taken for private or domestic use or consumption OR
donated to a PBO, or
– At market value in any other case.
• Section 23F(1) anti-avoidance provision: Stock which has been
given a s11(a) deduction, but which is not on hand at year end
will not be included in the s22(1) closing stock addition, hence,
there will be a deemed addition of the s11(a) amount in gross
income per Section 23F.
• Section 23F(2): Where the full amount will not accrue, the
amount by which the s11(a) deduction exceeds the amount
received will be disallowed and carried forward to the next year
of assessment.
Trading Stock (Section 22)
• Acquisition for no consideration: Deemed
acquisition at market value (s22(4)). Practice
deduction of market value. Will be included in
s22(1) closing stock addition at market value if not
disposed of.
• Shares held as trading stock are always at cost, no
write-down.
• If the taxpayer is a share-dealer, then the shares will
be his/her trading stock and section 22 will apply.
• Consider Section 9C. Qualifying share proceeds will
be capital in nature. Else, if not held for at least 3
years, then revenue in nature.
ICAs
• Instalment credit agreement= ICA and is defined in s1 of
the VAT act (pg 1099 silke).
Instalment credit agreement
corporeal movable goods / machinery or plant movable or
immovable:
 Suspensive sale – par a
- Sold @ stated or determinable sum of money @ a stated or
determinable future date or in whole or in part in
instalments over a period in the future
- Sum includes finance charges stipulated in the agreement
- Aggregate of amounts payable exceeds cash value of supply
- Purchaser conditional owner – seller can take back if P fails
to comply with any terms of the agreement
ICAs
Financial lease- par b
- Rent @ stated or determinable sum of money @
a stated or determinable future date or in whole
or in part in instalments over a period in the
future
- Sum includes finance charges stipulated in the
lease
- Aggregate of amounts payable and residual value
on termination of lease (if any) exceeds cash
value of supply
- Lessee entitled to use for a period of at least 12
months
- Lessee accepts full risk but no ownership
(destruction/loss/insurance/maintenance
/repairs)
ICAs
• The VAT consequences of both the ICA as defined
in par a and par b are the same.
• s8(11) deems the supply of the use or the right to
use to an asset under an ICA to be a supply.
• s9(3)(c) determines the time of supply to be the
earlier of the delivery of goods or the payment of
consideration.
• S10(6) determines the value of supply to be the
cash value.
ICAs
• Cash value is defined in s1 of the VAT act
– Seller/lessor – banker/financier cost including cost
of erection /construction /assembly /installation
include VAT (excl. interest / finance charges)
– Seller/lessor – dealer price : cost normally sold for
cash including cost of erection /construction
/assembly /installation include VAT (excl. interest
/ finance charges)
Income Tax and ICAs
ICA- par a (sale) - buyer
ICA- par b (lease) - lessee
• s24J interest
• No s24J interest (unless s23G sale and
leaseback agreement)
• Claim certain capital allowances
(s11(e), s12C, s12B and s12E)
• Cannot claim capital allowances
• Payments made in terms of
arrangement are not deductible
• Lease payments are deductible
o The input VAT claimable must be
excluded from the cost of the asset
(s23C of the ITA)
o The input VAT claimable by the lessee
shall be excluded from each rental
payment made by him in the same
ratio as such rental payment bears to
the sum of all rental payments in
connection to the lease (s23C of the
ITA). Formula -Input VAT claimable X
current payments/ total payments
Income Tax and ICAs
ICA- par a (sale) - seller
ICA- par b (lease) - lessor
• CGT consequences and possible
recoupment
• No CGT consequences
• Cannot claim capital allowances
• Can claim capital allowances
• Instalments received each month are
not taxed. The cash value (excluding
VAT) of the sale will form the proceeds
on sale
• Rental received gross income
• s24J interest
• No s24J interest (unless s23G- sale and
leaseback agreement)
• VAT is excluded from the proceeds
amount
• VAT is excluded from the rentals
received (s23C)
Rental agreements and VAT
• Rental agreement is defined in s1 of the VAT act.
Rental agreement’ (s 1)
 Agreement for letting of goods (other than per
instalment credit agreement)
• s8(11) deems a rental agreement to be a supply
• s9(3)(a) determines the time of the supply to be
the earlier of the payment and when the rental
becomes due and payable.
• S10(3) the consideration paid for the rental.
Income tax and rental agreement
lessor
lessee
• Rental income- gross income
• Rental payments are deductible
• Claim the capital allowances (see
requirements of relevant section)
• Cannot claim capital allowances
• Remove the output VAT from rental
received- s23C
• Remove the input VAT from the rental
paid – s23C
• No s24J interest (unless s23G sale and
leaseback agreement)
• No s24J interest (unless s23G sale and
leaseback agreement)
Lease premium
Lessor
Lessee
section 11(f) deduction
Special inclusion in the gross
income (para (g) definition.)
- over the lease term (limited
to 25 years),
-apportioned for months the
leased asset is used in
production of income
Leasehold improvements
Lessor
Lessee
Special inclusion in Gross income
(para (h) of the definition).
Section 11(g) deduction on the
contracted costs of improvements
- over the lease term (limited to 25
years)
Special s 11(h) allowance:
- Lease term calculated from date of
completion
- Cost less PV of improvements
over the s11(g) period at 6%
interest
- Apportion for months the asset is
used in production of income
* If the Commissioner deems
necessary
If actual costs exceed contracted costs:
- S 13(1) allowance on the excess if the
lessee uses the leased asset in the process
of manufacture
- No s 13quin allowance (do not own the
property).
Used in
Manufacture
Section 13
Used for Purpose
of Trade
Section 13quin
Residential
Buildings
Section 13sex
Low Cost
Residential
Housing Loans
Section 13sept
Consider Small
Business
Corporation
S12E
Used in Process
of Manufacture
Section 12C
Used for Purpose
of Trade
Section 11(e)
Used for
Renewable
Energy Purposes
Section 12B
Building
Purchase of
assets
Other Depreciable
Assets
Moveable manufacturing assets –
s12C
• Machinery & Plant
• Used directly in the process of manufacture
• By the taxpayer or lessee
• 2nd Hand:
20:20:20:20:20
• New & Unused:
40:20:20:20
– Not available to the lessor if the asset is used by the
lessee
• Allowance is attached to legal ownership
Moveable manufacturing assets – s12C
• Allowance is based on the lower of:
– Cost
– Market Value
• What happens if there is VAT included?
• Includes:
– Installation
– Moving
– Foundation
• Only applicable if brought into use for the first
time
• Not apportioned for time
Moveable assets – s11(e)
• Wear & Tear allowance for moveable assets
used for the purpose of trade.
• Written off over a straight line basis –
Interpretation Note 47
• Apportioned for time
• The default allowance for moveable property
if other provisions are not applicable
Moveable assets – s11(e)
• Allowance is based on the market value
– However, if a cost is given then the cost is the best
indication of a market value.
– Only use market value if a cost has not been
determined
• If an asset is used partly for trade purposes, the
allowance must be apportioned to the extent of
trade.
• Small items – Interpretation Note 47 (4.3.5)
– Cost of Asset less than R7000
– Full write down allowed in the year of purchase
– Small item must function on its own – must not be
part of a set.
Small Business Corporations – s12E
Small Business is defined as:
 (All requirements must be met)







(Pty) Ltd, CC or co-operative
All shareholders are natural persons
Gross income is not greater than R20 million
Not a personal service provider
Shareholders do not hold any other interest in another company –
subject to exemptions
20% of total receipts is not derived from passive income
Small Business Corporations – s12E
• Manufacturing Plant
– New and unused
– By the taxpayer after 01/04/2001
– 100% allowance
• Non-Manufacturing Plant
– Elect 50:30:20; or
– s 11(e) – Small items
• Allowance based on the lower of:
– Cost; or
– Market Value
Buildings used for manufacture – s13

S 13(1) provides for an annual allowance of 5% on
manufacturing buildings

This is an allowance based on the cost of buildings
used in the
Process of manufacture or
 Building used for research and development (s11D)

Buildings used for manufacture – s13
• Capital allowance on
 any new and unused building or
 any new and unused improvements to buildings
 Erected and used wholly or mainly (>50%) used in
the process of manufacture or similar process.
• Allowance is granted on the COST of the BUILDING only
Less
 Leasehold improvements in terms of s11(g)
 If paid a lump sum payment for Land & Buildings together,
need to find a reasonable basis of apportionment to isolate the
cost of the buildings.
• Allowance is subject to a recoupment
Buildings used for manufacture – s13

There are two instances in which purchased buildings
qualify for s 13 allowance

Used buildings s 13(1)(d)

Where the building is purchased from a person or entity which is entitled to the
allowance in terms of s 13 and the building is used by the taxpayer in the
process of manufacture



New Buildings s 13(1)(dA)


If the previous owner was not entitled to an allowance the new owner is not entitled to
an allowance
The allowance is based on the cost to the purchaser and not on the original cost to the
purchaser
Where the purchased building is new and unused, the taxpayer may claim a
s13 allowance
Therefore: If purchased, only claim s13 if:
The building is new and unused; or
 If the seller previously claimed a s13 allowance

Buildings used for manufacture – s13
• S13(3) deferral recoupment,
– The recoupment as calculated is deducted
from the cost of the replacement building.
Deduction on replacement asset:
(Cost of new - recoupment of old) X applicable %
Deferral available for recoupment only, not
on any capital gain (taxed immediately).
Immoveable commercial Propertys13 quin
5% allowance
 New & unused
 Owned and used wholly or mainly in the production of income
of the taxpayer
 Construction commenced post 1 April 2007
 Allowance is based on the lower of:

Cost; or
 Market value


Not apportioned for time
Immoveable commercial Property
s13 quin
• If purchased building/improvement, then cost
is deemed:
– 55% of purchase price of building
– 30% of purchase price of improvement
Immoveable residential Property –
s13 sex
•
•
•
•
•
•
•
5% allowance
5 or more residential units
New & unused
Used for trade situated in South Africa
Construction commenced post 21/10/2008
Not Apportioned for time
Allowance is based on the lower of:
– Cost; or
– Market Value
Immoveable residential Property –
s13 sex
• If units meet the definition of low cost
housing in terms of s 1
• Additional 5% allowance
• If purchased building/improvement, then cost
is deemed:
– 55% of purchase price of building
– 30% of purchase price of improvement
Learnership allowances – s12H
• s 11(a) deduction for expenditure actually
incurred
• R30 000 annual allowance (apportioned for
time) from commencement date
• On completion: R30 000 x no. of completed 12
months, Provided:
– The learnership contract is not less than 2 years
• R50 000 if the employee is disabled
Intellectual Property
• Intellectual Property – s 11(gB)
– Registration, extension, renewal, etc
– Deduction on total expense incurred
• Intellectual Property – s 11(gC) - Acquired
– Brought into use for the first time
– Excludes trademarks
10% Design
> 5000
5% Other
IP
<=5000
100%
Research & Development – s11D
• Revenue in nature
– 100% allowance
– Additional 50% allowance if approved by Department
of Science & Technology
• Capital in nature
– No special allowance
– Use standard allowances
• s 11(e), s 12C, s 13(1)
Recoupment – s8(4)(a)
• Recoup previous allowances claimed when
dispose of a capital asset
• Excludes: s 11D & s 13ter
• Special inclusion in Gross Income: paragraph (n)
• Recoupment = Selling Price (limited to cost)
Tax Value
• Tax Value = Cost – All allowances
Recoupment – s8(4)(k)

Deemed to be sold at Market Value if asset was:
Donated
 Sold to connected person
 Dividend in specie

Recoupment
Market Value
(Limited to
Cost)
Tax Value
Legal expenses
• Section 11(c) provides for the deduction of certain
types of legal expenses NOT
DEDUCTIBLE under s 11(a)…..
152
Legal expenses
• In the production of income?
– Must be linked to the operation entered into for income earning
purposes and not merely serve to protect an existing source of
income
– If not deductible under s 11(a), may be deductible under s 11(c)
• Capital in nature?
– Incurred in the creation of a right to receive income i.e. an
enduring benefit (capital)
– Incurred in the actual earning of the income itself (revenue)
153
Restraint of trade payments
S 11(cA)
 Deduction allowed in respect of
 Amount actually incurred on/after 23 Feb 2000
 In carrying on a trade
 As compensation for restraint of trade imposed on:
Natural person;
Labour broker OR
Personal service company or trust
 LIMITED to income of the person to whom it is paid (the expense
is deductible to the extent it is income to the person it is paid to)
154
Restraint of trade payments
• Limit: deduction shall not exceed in any one year, the lesser of:
– Amount incurred divided by number of years (or part thereof)
during which restraint of trade applies, or
– One third of the amount incurred
• As such, minimum period for write off is 3 years
• Remember:
S 23(l) prohibits the deduction of restraint of trade payments
EXCEPT as provided in s 11(cA).
155
Repairs
• S 11(d)
• Expenditure actually incurred during the year of assessment on
repairs of:
– Property occupied for purposes of trade, or
– Property from which income is receivable (i.e. capable of
being received), and
– Machinery, implements, utensils or articles used for purposes
of trade
156
Repairs
• Meaning of repairs
• The act has no definition, therefore we rely on dictionary:
– restoration by renewal (reconstruction of the entirety to
former glory), or
– replacement of subsidiary parts of the whole
“Materials used do not need to be identical to the original materials
replaced, even if new materials are more expensive” (CIR v African
Products Manufacturing Co Ltd)
• Meaning of improvements:
– increase in income earning capacity,
– creation of a better asset(improvements are not deductible as
they are capital in nature- CGT)
157
Bad debts
 S 11(i)
 When a debtor fails to pay his debt, that debt becomes bad
 Bad debts are deductible if
 due to the taxpayer AND
 included in income in either the current or a prior year of
assessment ( i.e. bad debt arising from sale of goods vs.
arising from loan to employee) AND
 become bad during the year of assessment – cannot
accumulate bad debts and write them off in a later year
All three requirements MUST be met!
158
Doubtful debts
• S 11(j)
• If a debtor fails to pay his debt in good time, the debt becomes
doubtful
• Allowance made at the discretion of the Commissioner (usually
grant 25% of doubtful debts)
• Only if such debts would have been deductible under any other
provision had they become bad
• Only for debts belonging to the taxpayer on last day of YOA
• In practice, no allowance for debts not previously included in
income
• Allowance is added to income in next YOA (thus just postponing
tax)
159
Doubtful debts
In other words:
Add back Previous year’s allowance
Minus Current year’s allowance
160
Annuities to former employees or partners
and dependents Section 11(m)
Former
employee
Former
partner
• Retired due to:
• ill health,
• old age or
• infirmity
• No limit on amount deducted
• Partner for at least 5 years
• Retired due to ill health, old age or infirmity
• No limit on amount deducted
• Amount is
• reasonable in terms of services rendered and profits
made
• not a consideration for interest in the partnership
161
Annuities to former employees or partners
and dependents: Section 11(m)
Dependents of
former
employees /
partners
Lump sum
gratuities not
deductible under
s 11(m)
• No deduction limit
• Has to be dependent of
employee/partner who is deceased
• Had to be dependent immediately
before death
• Does not have to be an
employee/partner who has retired.
162
Micro business - Turnover tax
• Turnover-based tax system
• To alleviate tax compliance costs for very small
businesses (not necessarily to reduce the tax liability)
• Turnover tax is calculated on the turnover(total receipts)
of a micro business and not on its profits
Micro business - Turnover tax
• Elective
• Incorporated and unincorporated enterprises (sole
proprietors / partnerships)
– Certain limitations
• Annual qualifying turnover up to R1million p.a.
• Implementation: Years of assessment commencing on or
after 1 March 2009
Micro business - Turnover tax
• Not subject to both normal tax and the turnover tax
• S 10(1)(zJ) – exempts from normal tax all income
received by or accrued to a registered micro business
conducting business in the Republic
• Exclusions – natural persons – investment income and
remuneration
• Exclusions – business activities carried outside SA by
both co’s and natural persons are not exempt from normal
tax and such activities also do not qualify for the turnover
tax regime
• Dividends Tax – s64F(h) – a shareholder in a registered
micro business is only partially exempt from dividends tax
– total dividend paid does not exceed R200 000
Micro business - Turnover tax
• Para 57A of Eight Schedule provides for the exclusion
from CGT of certain assets sold by a registered micro
business
• Immovable assets/Movable assets
• Business assets not used mainly for business purposes
• VAT – vendors registered under the VAT system may
freely register under the turnover tax system if these
taxpayers believe that it is in their best interest to do so.
• PAYE,SDL and UIF normal rules apply but can apply to
pay biannually
• Donations Tax – normal rules apply
Micro business - Turnover tax
Definitions per para 1 of the Sixth Schedule
• ‘Qualifying turnover’ = total receipts from carrying on
business activities, excluding any – Amount of a capital nature(see later for exception); and
– Government subsidies (exempt from normal tax in terms
of s’s 10(1)(y), 10(1)(zA); 10(1)(zG) and 10(1)(zH).
– YOA is for a period shorter than 12 months- then
compare qualifying taxable turnover to apportioned R1m
for that period
– Receipts – not accruals
– Anti Avoidance – cannot take a business and split into
smaller businesses to ensure that each business is within
the R1m qualifying turnover threshold.
Micro business - Turnover tax
• The tax base for turnover tax is the taxable turnover.
• It is on this taxable turnover that the actual amount of tax
due is calculated
• The taxable turnover is basically all amounts that are
- not of a capital nature
- received by the registered micro business(ie. On a cash
basis)
- during that year of assessment
- from the carrying on business activities in the Republic
• The tax base is only based on this taxable turnover definition.
• The turnover tax regime does not provide for the deduction of
any business related expenditure. As no deductions or
allowances are provided for, the principles of recoupment are
also not relevant to a micro business
Micro business - Turnover tax
•
‘Taxable turnover’ means total receipts from carrying on business,
excluding capital amounts –
– Including (para 6):
• 50% of proceeds on sale of a capital asset NB – not capital gain
 Para 6(a) inclusion: 50% of proceeds included in “taxable turnover”
◦ Immovable property mainly used for business
◦ Other assets used mainly for business
• Investment income of a company / cc (other than dividends and
foreign dividends);
– Excludes (para 7)
• For a natural person – investment income
• Government subsidies); and
Micro business - Turnover tax
– Excludes (para 7)
• Amounts accrued before registration as a micro business AND was
subject to tax – previous YOA was not registered for turnover tax.
For normal tax, you taxed on earlier of receipt and accrual. Amount
accrued therefore included in gross income and subject to normal
tax. Next YOA, now registered for turnover tax as it is a micro
business. Amount that accrued is now received. Therefore no
turnover.
• Amounts refunded by suppliers to a micro business – such receipts
are only refunds of previous expenses and should not be included
in taxable income.
• Amounts refunded to customers by a micro business – when you
sell goods or render services – receipt – included in taxable
turnover. When later refunded as a result of damaged goods or
unsatisfactory services, then such refunds to customers can be
deducted in the calculation of taxable turnover.
Micro business - Turnover tax
• Persons specifically included as qualifying micro
business(para 2)
- incorporated bodies
- natural persons
• Trust not included in the definition of micro business and
can therefore not elect to pay turnover tax
Micro business - Turnover tax
• Persons specifically excluded as qualifying micro
business(para 3 and 4)
- persons with interests in other companies
- investment income and professional service limitation
- personal service providers and labour brokers
- excessive capital receipts
- certain company exclusions
- certain partnership exclusions
Micro business - Turnover tax
• - persons with interests in other companies
• This refers to
• persons (incorporated entities and natural persons) that, at any
time during the year of assessment, hold any shares or have any
interests (unless listed below) in the equity of a private company,
close corporation or co-operative and
• a company, a close corporation and co-operative, if any holder of
its shares or members hold any shares or have any interests
(unless listed below) in any other private company, close
corporation and co-operative. This disqualification would not
apply to the holding of any shares
• in the equity of another company, if the other company
• – has not during any year of assessment carried on any trade, and
• – owned assets of which the total market value exceeds R5 000 or
• – has taken steps to liquidate, wind up or deregister
Micro business - Turnover tax
• The following interests in certain investments are, however,
always permitted:
• shares in listed companies
• portfolios in collective investment schemes
• interests in body corporates established in terms of the
Section Titles Act (Act 95 of 1986) and share block
companies
• interests in venture capital companies as defined in s 12J
• a less than 5% interest in social or consumer co-operatives
• a less than 5% interest in a primary savings co-operative
bank , and
• interests in friendly societies .
Micro business - Turnover tax
•
•
•
•
•
•
•
•
•
- investment income and professional service limitation
Paragraph 3(b) provides that a person cannot be classified as a micro business if more
than 20% of the person’s total receipts consist of
income from the rendering of professional services in the case where the person is a
natural person, and
investment income and income from rendering professional services in the case
where the person is a company.
Why Difference – taxable turnover for natural persons exclude investment income
and for companies it includes investment income.
Investment income is defined in par 1 and is limited to only include
income in the form of annuities, dividends, interest, rental derived in respect of
immovable property, royalties or income of a similar nature, and
any proceeds derived from the disposal of financial instruments.
Professional services include services in the fields of accounting, actuarial science,
architecture, auctioneering, auditing, broadcasting, consulting, draftsmanship,
education, engineering, financial service broking, health, information technology,
journalism, law, management, real estate, research, sport, surveying, translation,
valuation or veterinary science (par 1 – definition of ‘professional service)
Micro business - Turnover tax
• - personal service providers and labour brokers
• If at any time during a year of assessment a person is a
personal service provider or a labour broker without an
exemption certificate, then that person does not quality as a
micro business .
Micro business - Turnover tax
• - excessive capital receipts
• A person does not qualify as a micro business, if the total
amount received by a person from the disposal of
• immovable property, and
• any other capital business asset (other than any financial
instrument)
• used mainly for business purposes,
• exceeds R1,5 million
• over a period of three years
• The three-year period includes the current year of
assessment and the preceding two years of assessment
Micro business - Turnover tax
• - certain company exclusions
• In the case of a company, close corporation and co-operative, that
company, close corporation and co-operative is disqualified as a
micro business if
• the year of assessment ends on a date other than the last day of
February– the year of assessment of a natural person (including a
natural person that is a partner in a partnership) always ends on
the last day of February, which therefore implies that the year of
assessment for a micro business always runs from 1 March to
28/29 February
• any holder of its shares is a person other than a natural person OR
• it is a public benefit organisation or recreational club approved by
the Commissioner
Micro business - Turnover tax
• - certain partnership exclusions
• A person that is a partner in a partnership is disqualified
from being a micro business if
• any of the partners in the partnership is not a natural person
all partners are disqualified when any partner is not a
natural person
• that person is a partner in more than one partnership
• The qualifying turnover of that partnership exceeds R1
million
Micro business - Turnover tax
• Registration – para 1 and 8 – register with SARS
• - Registration is voluntary – not obliged even if you fall
within the definition of a micro business. Registration as
a micro business always applies with effect from the
beginning of YOA
• Where a person deregisters voluntarily or compulsorily
from the turnover tax, that micro business may never reenter the turnover tax system.
• Voluntary Deregistration
• - Unless closes down can only deregister after 3 years
in turnover tax regime
• - effective from beginning of YOA
• - Compulsory Deregistration
Micro business - Turnover tax
• Compulsory Deregistration
- Qualifying taxable turnover > R1m for YOA
- Qualifying taxable turnover WILL > R1m for YOA
- Specifically excluded
- Then deregistration is effective from beginning of month
following the month during which qualifying taxable
turnover exceeded R1m or will exceed R1m.
- No minimum period of being registered as a micro
business applies as in the case of a voluntary
deregistration
- Moves back to normal tax regime with immediate effect,
ie. from the first day of month during which the business
is deregistered from turnover tax
Micro business - Turnover tax
• - therefore is assessed for 2 periods in the YOA
• - One for turnover tax and one for normal tax
• NB – with a voluntary deregistration, only normal tax
once deregistered in a YOA as a voluntary
deregistration is always effective from the beginning of
YOA
Micro business - Turnover tax
• Second interim tax payment –by the end of the yoa ie.
On or before 28/29 February
• SARS does not receive full second payment – levy
interest
• Penalty is levied when the estimate for the second
interim payment is too low
• The penalty levied where the estimated taxable income
for the second interim payment is less than 80% of the
actual taxable turnover for the yoa
Micro business - Turnover tax
• The penalty is calculated as 20% of the difference
between the tax due on –
• - 80% of the actual taxable turnover and
• - the estimated taxable turnover for the second interim
payment
• Election of biannual payments- has the option to make all
payments for employees’ tax, SDL and UIF biannually
• First payment – end of August of the yoa
• Second payment – last day of the yoa, being end of
February
• From seven days after the end of the above mentioned
periods
Micro business - Turnover tax
• Record keeping – para 14
• Simplify administrative burden of a micro business to
ensure it complies with tax legislation
• Records should be kept of the details of all amounts
received during a yoa
• Records of dividends declared
• Assets and liabilities that exceed R10 000 at the end of
the yoa
Micro business - Turnover tax
Years of assessment ending 29 February 2016
Turnover
Rate of tax
R
0 -
335 000
335 001 -
500 000
1% of the amount over R335 000
500 001 -
750 000
R1 650 + 2% of the amount over R500 000
750 001 -
0%
R6 650 + 3% of the amount over R750 000
186