Category: SARS

REQUESTS FOR SUSPENSION OF PAYMENT FROM SARS

Since its introduction, the “pay now, argue later” rule relating to disputed amounts of tax has been and remains to be the subject of much controversy, and rightfully so. The basic premise is that even though you disagree with an amount of tax, once you have been assessed by SARS, the amount becomes due and your obligation to pay the tax, and SARS’ right to recover the tax, is not suspended by any objections or appeals against the assessment or pending court proceedings (i.e. pay the tax, and then dispute it).

Taxpayers do however have some remedy, in that they may request a senior SARS official to suspend the payment of the tax (or a portion), pending the outcome of a dispute against an assessment. Importantly, a taxpayer needs to dispute, or at least intend to dispute, the amount of tax allegedly due before a request to suspend the payment can be made.

In considering the request, the SARS official should consider relevant factors, including:

  • whether the recovery of the disputed tax will be in jeopardy or if there will be a risk of dissipation of assets;
  • the compliance history of the taxpayer with SARS;
  • whether fraud is prima facie involved in the origin of the dispute;
  • whether the taxpayer has tendered adequate security for the payment of the disputed tax and if accepting it is in the interest of SARS or the fiscus; and
  • whether payment will result in irreparable hardship to the taxpayer not justified by the prejudice to SARS or the fiscus if the disputed tax is not paid or recovered.

Taxpayers should not look to abuse the suspension system, as SARS are well within their rights to revoke a decision to suspend payment with immediate effect, if it is satisfied that a taxpayer merely entered into the dispute process on a frivolous or vexatious basis, is employing dilatory tactics, or if there is a material change in the circumstances from when the request was granted. Furthermore, if a request has been successfully granted, but the taxpayer does not object to the assessment, does not appeal after a disallowed objection or proceeds to court, the suspension is revoked with immediate effect.

SARS will not suspend payment of an amount of tax out of own accord once the dispute process has commenced. Taxpayers will need to actively take steps to initiate the suspension, through either e-filing or a branch office visit. A request for suspension of payment is a vital part of the dispute resolution process and should be submitted as soon as possible for an assessment which a taxpayer intends to dispute. If not already along with a request for reasons, it would be good practice to submit the request at the same time as the objection.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.  Errors and omissions excepted (E&OE)

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Additional changes to income tax returns for trusts

The South African Revenue Service (“SARS”) implemented several changes to the income tax returns for trusts (the ITR12T) on 17 September 2018. These changes are in addition to the changes already made on 26 February 2018. The September 2018 changes apply in respect of the year of assessment ending on 28 February 2018. Taxpayers that already saved or submitted the relevant 2018 ITR12T prior to the implementation of the latest changes, will not be presented with any of the new fields for completion.

Similar to the February 2018 changes, these additional changes form part of SARS’ ongoing efforts to promote efficiency and compliance.

Three new fields will be pre-populated on the ITR12T. The first is the “Trust Type”. Validation questions will be presented for a response if the Trust Type is Special Trust Type A or B. The Trust Type may change based on the answers provided.

The second and third fields relate to income from local farming operations (IT48) and income from local partnership farming operations (IT48V). These fields will now include auto-calculations and cater for negative currency to be captured.

Where applicable, trustees will now also be able to select one or both of the following options: “vested” and “discretionary”.

The ITR12T wizard has also been updated to include a question pertaining to imputed income from controlled foreign companies (“CFC”). If this question is answered yes, the ITR12T will display a new container to be completed. Please note that trusts, together with any connected person in relation to the trust, that holds at least 10% of the participation rights in a CFC, will also be required to submit a completed IT10B form (or IT10A form for years prior to 2012).

More fields have been added to the ITR12T with regards to the reduction of debts (section 19 of the Income Tax Act[1]), cash contributions to a rehabilitation trust fund (section 37A of the Income Tax Act) and amounts in respect of certain (tainted) intellectual property (section 23I of the Income Tax Act).

Furthermore, SARS indicated that the following documents should be submitted with the ITR12T (as a minimum) and include financial statements and/or administration accounts, all certificates and documents relating to income and deductions, proof of any tax credits claimed, particulars of assets and liabilities, as well as details of persons or beneficiaries to whom income, capital and/or assets were distributed or vested.

The take away is that trusts should carefully consider these new requirements in order to ensure that the relevant ITR12T is completed correctly. For more information on these new fields, an example of the new ITR12T form is available on SARS’ website for consideration.

[1] No. 58 of 1962

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.  Errors and omissions excepted (E&OE)

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Deduction for photovoltaic solar energy plants

Section 12B(1) and (2) of the Income Tax Act[1] provides for a 50/30/20 income tax deduction in respect of certain machinery or plant owned by the taxpayer and which was or is brought into use for the first time by that taxpayer, for the purpose of his or her trade to be used by that taxpayer in the generation of electricity from, amongst others, photovoltaic solar energy (both for energy of more than 1 megawatt and energy not exceeding 1 megawatt) or concentrated solar energy. The tax deduction also applies to any improvements to the qualifying plant or machinery which is not repairs.

In cases of plant and machinery used in the generation of electricity from photovoltaic solar energy in respect of energy less than 1 megawatt, the taxpayer may write off 100% of the costs of such plant or machinery in the year brought into use.[2]

The cost of any asset for purposes of section 12B also includes the direct cost of installation or the erection thereof.[3]

In a recent binding private ruling (BPR 311) the applicant proposed to install solar power systems at each of the sites it rented to reduce electricity costs. As each system will only be supplemented and not replace the electricity provided by the main grid, it was proposed to generate less than 1 megawatt of electricity.

The taxpayer will purchase the photovoltaic solar panels, appoint and pay independent contracts to perform the installation planning, procure and purchase all other relevant equipment and install the systems at the relevant sites. These systems at each site comprised of the panels, AC inverters, DC combiner boxes, racking, cables and wiring.

In terms of the ruling, the taxpayer was entitled to claim the costs in respect of all the components of each system in terms of sections 12B(1) and (2). As each system will generate less than 1 megawatt of electricity, 100% of these costs were deductible in the year brought into use. No deduction was, however, claimed in respect of the costs of distribution boxes as it did not form part of the photovoltaic solar energy system.

It was furthermore proposed that the taxpayer would incur certain related expenditure as part of the cost of the installation, including the installation planning costs, panel delivery costs and installation safety officer costs. SARS, in this regard, ruled that these costs all formed part of the direct costs of installation and erection of the systems and were therefore deductible in terms of section 12B(3).

Taxpayers installing solar energy systems should therefore carefully consider the tax deductions in terms of section 12B to ensure that all relevant costs are claimed for income tax purposes.

[1] No. 58 of 1962

[2] See section 12B(2)(b)

[3] Section 12B(3)

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.  Errors and omissions excepted (E&OE)

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THE INTERPRETATIVE VALUE OF SARS INTERPRETATION NOTES

In terms of section 4 of the South African Revenue Service (SARS) Act,[1] one of the objectives of SARS is to secure the efficient, effective and widest possible enforcement of tax and related acts. One of the methods employed by SARS in this mandate is through the publication of official documents on the application, or SARS’s interpretation, of the acts which they administer – namely Interpretation Notes, which are generally available to taxpayers.

In a unanimous judgment on 25 April 2018, in the matter of Marshall and Others v Commissioner, South African Revenue Service,[2] the role of Interpretation Notes in the interpretation of statutes was considered. The judgment is of particular importance, since it has been generally accepted that Interpretation Notes provide context to legislation and “constitute persuasive explanations in relation to the interpretation and application of the statutory provision in question”,[3] but the weight that should be attached to Interpretation Notes during statutory interpretation, was unclear.

The case involved the interpretation of two sections of the Value-Added Tax Act,[4] dealing with the VAT treatment of payments received by the South African Red Cross Air Mercy Service Trust for services rendered to provincial health departments. The applicant was of the view that the SCA placed undue reliance on SARS’ Interpretation Note 39 in formulating its interpretation of the relevant sections, since it gives “rise to unequal treatment of the litigating parties and fly in the face of the right to a fair hearing.”

The Constitutional Court found that, in the context of statutory interpretation, an approach whereby reliance is placed on an interpretation which accords with a consistent application by those responsible for the administration of the legislation requires re-examination, especially in a constitutional democracy.

In arriving at a conclusion, Justice Froneman indicated the following:

Why should a unilateral practice of one part of the executive arm of government play a role in the determination of the reasonable meaning to be given to a statutory provision? It might conceivably be justified where the practice is evidence of an impartial application of a custom recognised by all concerned, but not where the practice is unilaterally established by one of the litigating parties. In those circumstances it is difficult to see what advantage evidence of the unilateral practice will have for the objective and independent interpretation by the courts of the meaning of legislation, in accordance with constitutionally compliant precepts. It is best avoided.

This makes it clear that courts should make an objective and independent interpretation of legislation and that Interpretation Notes (and arguably other interpretative materials), should be irrelevant to such an interpretation. Since SARS is often a party to tax litigation, Interpretation Notes containing their interpretation of legislation, cannot be considered independent. Despite the appeal being dismissed based on the finding that the SCA indeed interpreted the legislation independently and objectively, the judgment provides clear indication of the role of Interpretation Notes in fiscal interpretation. In short, it carries no value.

[1] 34 of 1997.

[2] [2018] ZACC 11.

[3] Dambuza JA in Commissioner, South African Revenue Service v Marshall NO [2016] ZASCA 158; 2017 (1) SA 114 (SCA) (SCA judgment).

[4] 89 of 1991 (the VAT Act).

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.  Errors and omissions excepted (E&OE)

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CUSTOMS FOR INDIVIDUALS TRAVELLING ABROAD AND RETURNING TO SA

The South African Revenue Service (SARS) recently published a media release to clarify the confusion about the customs requirements for South African travellers returning from abroad regarding their personal effects (such as laptops and other electronic equipment). The confusion stems from various media reports on the inconsistent treatment of returning travellers by customs officials, some having to pay a fine when they could not produce a proof of purchase.

SARS confirms that in terms of current customs legislation, travellers are not required to declare their personal effects when leaving the country and they cannot be penalised for not doing so. The practical difficulty that travellers face, however, if they do not declare their personal effects on departure is that upon return, customs officials may require that they produce proof of local purchase to prove that the goods are not ‘new or used goods acquired whilst abroad’ and which could attract duty implications. Customs officials have discretionary powers of what would constitute sufficient proof. There is, however, an option available to travellers if they want to ensure that the proof they produce is sufficient for the customs official, and which exists in terms of the ‘registration for re-importation’ framework.

Travellers can complete a TC-01 Traveller Card indicating their intent to register goods for re-importation (the TC-01 form is available on the SARS website for download). The form is very user-friendly and only requires minimum information to be completed, including personal and travel details. A customs official captures the details from the TC-01 form on an online traveller declaration system at a port of departure. After digital authentication, the traveller is presented with a copy to retain the proof of registration. This registration can remain valid for a period of up to six months.

The TC-01 form is also a useful guideline on the goods that may be imported duty-free into South Africa, including 2 litres of wine, 1 litre of other alcoholic beverages, 200 cigarettes and up to 50ml of perfume. Importantly, this allowance is available once every 30 days, and only after 48 hours of absence from South Africa.

SARS has also confirmed that customs officials have been provided with the new guidelines, as well as reinforcing its internal procedures. Although it is likely that there could be some practical issues with the traveller card system initially, it is important that travellers are aware of their rights and start using the system. Travellers are encouraged to download and complete the TC-01 form well in advance of travel and confirm the operating times of the customs desk at the airport where they depart from and return to, to ensure a smoother transition through customs on return.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.  Errors and omissions excepted (E&OE)

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