Transcript Fasset

Budget & Tax
Update
2007
The morning ahead

2007 Budget

2006 Tax update

The Small Business Tax Amnesty and Amendment of
Taxation Laws Act 9 of 2006

The Second Small Business Tax Amnesty and
Amendment of Taxation Laws Act 10 of 2006

The Revenue Laws Amendment Act 20 of 2006

The Second Revenue Laws Amendment Act 21 of
2006
2006 Tax update - Appetiser

Small business tax amnesty

Waiver of additional tax, penalty and interest

Recreational clubs and PBOs

Scientific or technological research and development

Small business corporations

Section 103 and the new general anti-avoidance rules

CGT

VAT
2007 Budget – Highlights

Replacing the secondary tax on companies with a
dividend tax, reducing the rate from 12.5% to 10% and
broadening the base

Personal income tax relief for individuals amounting to
R8.4 billion

Abolishing the retirement fund tax

Treating the sale of shares held for more than 3 years
as capital gains

No change in VAT, CGT, Donations Tax or Estate Duty
rates

Wage subsidy and social security tax reform
Personal income tax

Reduction in personal tax

Tax thresholds

Rebates

Interest exemption

Couple over 65 earning only interest

R190 000 tax free

Monetary caps on medical aid contributions

CGT
Corporate tax rates

No change to basic rates

SBCs revised tables

STC
Other taxes, rates


Estate duty

Rate remains unchanged

Primary abatement increases NB: revisit wills
Donations tax

Rate remains unchanged

Tax free threshold increases
Transfer Duty

No change
Savings and retirement
reform

Move to expenditure model of taxing retirement funds

Tax treatment of contributions to pension, provident and
RAFs to be phased in over time


Favourable tax treatment of basic savings element

Some tax encouragement above basic element

No special tax treatment above a specified ceiling
Aim to encourage savings by lower and middle income
earners
Savings and retirement
reform

Abolition of retirement fund tax


Effective 1 March 2007
Simplifying retirement fund thresholds

Lump sum withdrawal rules too complex

Withholding tax on lump sums received by persons
earning below R43 000p.a abolished
Taxation on dividends

Worldwide model – shareholder level with treaty relief

STC – company level

SA company tax rate inflated by STC for comparison
purposes

STC to be replaced with a tax on dividends
Taxation on dividends cont.


Anti-avoidance measure effective immediately

Amalgamation transaction sec 44(9)

Additional measures around corporate
reorganisations to be proposed
First phase – 1 October 2007

STC renamed a dividend tax at company level

Tax base broadened

Cover all distributions not just profits

Provision for return of capital subject to antiavoidance

Tax rate reduced from 12.5% to 10%

Targeted exemption for amalgamation transactions
Taxation on dividends cont.

Second phase – 2008

Legal liability for dividend tax moved from company to
shareholder

Company must withhold the tax @ 10%

Implementation depends on renegotiation of several
tax treaties

Imputation system will not be followed

Final withholding tax

Companies to apply tax treaty to foreign shareholders
Gains on long term equities


Current section 9B

Elective

Listed shares only

5 years
Proposed change

Expanding to all shares

5 years reduced to 3 years
Depreciation allowances

New rail locomotives, wagons


New quay walls and other port facilities


20 yrs
New commercial buildings and upgrades


From 14 yrs to 5 yrs
20 yrs
Environmental capital expenses


Dams and tanks etc – allowances
Clean-up, restoration, decommissioning – immediate
w/off
BEE transactions



Share cross issue

Ords issued in exchange for redeemable prefs

Gains and losses on dual dispositions to be
disregarded
Share buybacks of listed shares

Purchase from public then trf to BEE partner

Forced section 311 sale and replacement of shares

Gains on forced sale to be ignored to extent replaced
Intra-group transfers

Rollover relief for assets moved within the group

De-grouping charge if company leaves the group

Currently no time limit, proposed 6 years
BEE transactions – cont.


Connected person sale of depreciable assets

Deals where BEE partner acquires close to 50% of
ownership

Transfer of depreciable assets to BEE entity subject to
connected person anti-avoidance levels

Exceptions to be accommodated where avoidance not
the driver
Broad-based share incentive schemes

Sec 8B not successful and so to be reviewed
Public benefit organisations


Level of tax deductible donations

Current level 5% of taxable income

Increase to 10% of taxable income
PBO threshold for trading activities

Greater of 5% of Gross inc or R50 000

Increased to

Greater of 5% of Gross inc or R100 000
Municipal Property Rates
Act

4 year implementation of new valuation roll and rating

Have you received your letter yet?

Valuations are close to market value

Look out for the new rating formula
Wage subsidy & social
security


A wage subsidy by 2010

Reduce direct cost of employment

Help alleviate high rate of unemployment amongst the
youth

Facilitate the social security reform
SARS to administer the social security tax and wage
subsidy

Payroll based tax

PAYE system will be administrative platform
Small business development

Small business tax compliance cost study

Develop a simplified tax regime for very small businesses
– target 2008
Enhanced tax administration


SARS to place greater emphasis

E-filing

Re-engineer forms

Scanning and imaging

Reliance on 3rd party data
3 cross-industry areas of focus

Trusts – co-operation with master’s office

Undervaluation of stock – additional audit activity

Employees’ tax – SARS audit teams to be trained
Small business tax amnesty

11 301 applications by 13 Feb 2007

Pace of applications expected to pick up

Technical issue on certain types of trusts

Legislation may follow to clarify
Miscellaneous income tax
amendments

Residential accommodation fringe benefit

Exemption for South Africans working abroad

Streamlining the medical regime

Deductibility of foreign taxes

Simplifying the averaging formula for individual farmers

Provisional payment system

Reciprocal tax relief for sportspersons

Employee tax relief for sole proprietors
Miscellaneous VAT
amendments

E-commerce downloads

Dried maize

Streamlining business reorganisations

Transfer among rental pool members

Horse-racing industry

Game-viewing clarification

Change of use adjustments to fixed property

Improper use of turnover apportionment method

Clarifying payment dates

Documentary evidence for input tax

Documentary evidence for zero-rated exports

Electronic storage of cheques, bank deposit slips and other
docs
Pension Funds Act, 1956


Forced early withdrawal from retirement fund

Through divorce or maintenance order

Deferred until final retirement date

Tax complications at that stage

Amendment to trigger immediate severance
Living annuity drawdowns

Current rate 5% to 20%

Proposed change 2.5% to 17.5%
Cross-border enforcement

SARS will explore memoranda of
cooperation with neighbouring jurisdictions

Counter avoidance and abuse

Artificial dual residence

Transfer pricing

Non-declaration of foreign income
Indirect tax proposals

Fuel taxes


General fuel levy up 5 cents a litre to

Petrol R1.21 per litre

Diesel R1.05 per litre
Road Accident Fund levy up 5 cents a litre

41.5 cents per litre
Indirect tax proposals –
cont.


Duties on alcoholic beverages

Up between 8% and 10.5%

Traditional beer
Duties on tobacco products

Up between 5.3% and 10.7%

Look out for ‘snus’ smokeless tobacco
Tips for Trevor

2005 & 2006 Lobola


‘Lobola is a social responsibility put upon one’s
shoulder unwillingly so it should be tax-deductible’
2007 Lobola the sequel

‘Impose VAT and tax on lobola trusts, since some
people are making money out of them’
Tax Update
2006
Developments in 2006

Small Business Tax Amnesty and Amendment of Taxation
Laws Act 9 of 2006


Second Small Business Tax Amnesty and Amendment of
Taxation Laws Act 10 of 2006


7 February 2007
Second Revenue Laws Amendment Act 21 of 2006


25 July 2006
Revenue Laws Amendment Act 20 of 2006


25 July 2006
7 February 2007
Interpretation notes and guides
Small Business Tax
Amnesty and Amendment of
Taxation Laws Act 9 of 2006
Second Small Business Tax
Amnesty and Amendment of
Taxation Laws Act 10 of
2006
Small Business Tax Amnesty

Astounding move from government which must
leave all law abiding taxpayers a little irritated.

Purpose and objective

Broaden the tax base

Facilitate normalisation of tax affairs of small business

Increase and improve tax compliance culture

Facilitate participation in the taxi recapitalisation
programme
Small Business Tax Amnesty
– cont.

Separate unit within SARS has been established
to process all applications.

The secrecy provisions of section 4 are
extended to cover tax amnesty
Small Business Tax Amnesty
– cont.

Persons who may apply

A natural person

Deceased or insolvent estate of natural person

A trust (inter vivos or testamentary) where all
beneficiaries (discretionary and vested) throughout
2006 y.o.a were natural persons
Small Business Tax Amnesty
– cont.

Requirements to qualify –

Must have carried on a business

The gross income of the business or businesses for
the 2006 y.o.a was not more than R10 million

Apportion the R10 million if y.o.a is less than 12
months and part of a month is treated as a full month
Small Business Tax Amnesty
– cont.

Method and period of application

Form SBA-001 together with supporting docs

1 August 2006 to 31 May 2007
Small Business Tax Amnesty
– cont.

Information required in the application

2006 taxable income from carrying on of business

‘Carrying on of business’ includes investment income
incidental to the regular carrying on of a business

Capital gains?

What if business ceased in 2006?

Income tax return for 2006 y.o.a

Statement of assets (at cost) and liabilities at end of 2006
y.o.a

SARS liabilities subject to amnesty?
Small Business Tax Amnesty
– cont.

Information required in the application - cont

If actual amounts cannot be ascertained for purposes
of the SBA-001 or statement of assets & liabilities,
reasonable estimates can be provided

Must disclose which amounts are estimates

Beware materially wrong estimates
Small Business Tax Amnesty
– cont.

Evaluation and approval

Commissioner must approve an application

If applicant is a qualifying person

Applies on correct form and within period allowed

Provides all information
Small Business Tax Amnesty
– cont.

Evaluation and approval - cont

Commissioner must not approve an application

If before submission of application



Formally notified of an audit, investigation or other
enforcement action
This disqualification falls away if before the application is
submitted

Notice of audit, investigation or other enforcement action has
been withdrawn

The audit or investigation has been concluded
Commissioner must issue a notice of approval or rejection

Subject to objection and appeal

Tax court has jurisdiction to hear any appeal
Small Business Tax Amnesty
– cont.


Amnesty levy

Based on 2006 y.o.a taxable income but only from
carrying on of business

Sliding scale see page 20 of notes

2005 Assessed loss

2005 Assessed capital loss
What does 2006 y.o.a mean?

Year end during 1 April 2005 to 31 March 2006
Small Business Tax Amnesty
– cont.

Example

2006 y.o.a sources of income


Salary 2006 - R200 000

Printing business net income - R300 000

Profit on sale of printing press - R100 000 = Capital gain

Capital gain on sale of holiday cottage - R50 000

Rental from holiday cottage by a friend - R5 000
2006 other deduction/allowances

RAF contributions - R10 000

Medical expenses – R10 000
Small Business Tax Amnesty
– cont.

Example - cont

2006 y.o.a taxable income from business

Printing business net income = R300 000

Capital gain (100 000 – 10 000) x 25% = R22 500

Taxable income from business = R322 500

Levy table pg 20, levy = 1 300 + 4 500 + 2 900

Total levy payable = R8 700
Small Business Tax Amnesty
– cont.

Payment of amnesty levy

Within 12 months of delivery of notice of approval
Small Business Tax Amnesty
– cont.

Scope of relief





Income Tax - receipts and accruals for all years pre 2006
from carrying on of a business
Employees tax – remuneration paid on or before 28 Feb
2006. NB ‘paid’
VAT - any supply or import on or before 28 Feb 2006
Withholding tax on royalties – amount paid on or before 28
February 2006
STC – div declared or deemed to be declared in y.o.a
preceding 2006 i.e. year ends prior to 1 April 2005

UIF levies – remuneration paid on or before 28 Feb 2006

SDL – remuneration paid on or before 28 Feb 2006
Small Business Tax Amnesty
– cont.


Scope of relief

Not only the tax but also any additional taxes,
penalties and interest

SARS may extend the date to submit all subsequent
returns and waive all penalties and interest on these
No prosecution

Deemed not to have committed any offence

No criminal prosecution
Small Business Tax Amnesty
– cont.

Exclusion from relief

Any amount already paid

Payable as a result of any return submitted to SARS

Payable as a result of assessment

VAT not paid due to false declaration of input tax claim
or false zero-rating of exports
Small Business Tax Amnesty
– cont.

Deductions and losses going forward

Assessed loss and capital losses arising during
qualifying period are lost

STC credits are lost

VAT input tax lost for any supply during the qualifying
period
Small Business Tax Amnesty
– cont.

Circumstances where approval is void

Failure to pay levy in time

Failure to make full disclosure-


On application form

Of taxable income for 2006

Information in 2006 tax return

Statement of assets and liabilities
Any estimate provided is materially incorrect
Waiver of additional tax,
penalty and interest


Draft regulation issued on 24 January 2007 to prescribe
circs that SARS may waive
Additional tax, penalty or interest

Imposed on a failed applicant
Business tax debt
Any additional tax, interest and penalty imposed in
respect of

All taxes covered by the tax amnesty

Payable during the qualifying periods prescribed in
the tax amnesty
Waiver of additional tax,
penalty and interest – cont.


Who qualifies?

Anyone who qualifies for tax amnesty

But is to extent prohibited from applying because
amount owing or becomes owing to SARS due to
information furnished in a return to SARS

amount owing to SARS in terms of an assessment
issued
May apply for waiver of business tax debt

No later than 31 May 2007

On prescribed form
Waiver of additional tax,
penalty and interest – cont.


Information required in application

List categories for waiver

Statement of assets (at cost) & liabilities for 2006

All returns outstanding as on 31 Dec 2006 (except
returns covered by a successful amnesty approval)

If actual amounts not available then reasonable
estimates can be provided
SARS must approve if all requirements are met
Waiver of additional tax,
penalty and interest – cont.

Business tax debt will not be waived

Sheriff has attached assets

Sequestration or liquidation proceedings have started

Notice of audit or investigation delivered by SARS

N/A if SARS withdraws or concludes
Waiver of additional tax,
penalty and interest – cont.

What is being waived?



Business tax debt outstanding on 31 July 2006 after
setting off any refunds or credits due
What will not be waived?

Business tax debt above R1 million

Amounts paid after 31 July 2006
If approved agreement must be signed

Agreeing balance owing to SARS and payment terms

Any other conditions required by SARS
Waiver of additional tax,
penalty and interest – cont.


SARS not bound to waiver if
Failure to make full disclosure

Materially incorrect information supplied to SARS

Failure to comply with conditions of signed agreement
If SARS not bound

full amount of business tax debt can be reinstated
plus interest thereon from 1 August 2006
FICA Exemption

Persons who assist or advise a client in terms of the
Small Business Tax Amnesty

Applies for the duration of the amnesty application
period

Currently 1 Aug 2006 to 31 May 2007
Auditing Profession Act
(APA)

Registered auditor

Assists or advises a client in terms of the Small Business
Tax Amnesty

Exempt from section 45 of the APA from 1 Aug 2006

Condition

Must have signed engagement letter in place
Small Business Corporations

Section 12E turnover limit increased

R6 million up to R14 million
Learnership Allowances

Section 12H was set to expire in Oct 2006

Extended to Oct 2011

Maximum allowance on entering increased


From R17 500 to R20 000 for existing employees

From R25 000 to R30 000 for new employees
Maximum allowance on completion increased


from R25 000 to R30 000
Effective for agreements entered into on or after 1March
2006
Learnership Allowances –
cont.

New section 12H(2A) for disabled learners entering
learnerships on or after 1 July 2006

On commencement



Existing disabled employees – lesser of

150% of the annual remuneration

R40 000
New disabled employees – lesser of

175% of the annual remuneration

R50 000
Completion allowance – lesser of

175% of the annual remuneration

R50 000
VAT – Small scale farmers
and other vendors

Section 27 of the VAT Act

Farmers falling into category D – 6 monthly

Small vendors falling into category F – 4 monthly

Annual turnover threshold increased from R1 mill to R1.2
mill
Revenue Laws Amendment
Act 20 of 2006
Second Revenue Laws
Amendment Act 21 of 2006
Section 1 definitions

Company



Now includes a co-operative
Co-operative

Section 1 of the Co-operatives Act

Autonomous association of persons united voluntarily
to meet their common economic and social needs
through a jointly owned enterprise
Shareholder

Includes a member of a co-operative
Recreational clubs

Clubs received full exemption in terms of section
10(1)(d)(iv)(aa) and para 64 of 8th Schedule

Club amenities used by general public and members

Growing level of trading activities to raise funds

Were treated more leniently than PBOs

System of partial taxation has been implemented


Exemption narrowed to only cost sharing

Income from non-members subject to tax
Now treated consistently with PBOs
Recreational clubs – cont.


Section 10(1)(cO) is added

Applies to clubs approved in terms of sec 30A

Defines the limits of the new system for partial
taxation

Separates exempt income from taxable income
Section 30A is added

covers the conditions for exemption
Recreational clubs – cont.

Section 10(1)(cO) exempts receipts and accruals
from
Membership fees

Any business or trade that
Integral to provision of amenities or facilities
for the members

On cost recovery basis

No unfair competition

Occasional fundraising activities by volunteers

Any other source on condition receipts and accruals fall
below greater of

5% of total annual membership fees and subs

R50 000
Recreational clubs – cont.

Expenditure incurred in producing exempt
income cannot be offset against taxable club
income

Sec 10(1)(cO) is effective for years of
assessment commencing on or after 1 April 2007
Recreational clubs – cont.

Capital gains tax

Rollover provisions apply (same as para 65 and
66)

Assets used mainly for


Providing social and recreational facilities

The proceeds on disposal must be reinvested in
another recreation club directed asset
Elective provision
Recreational clubs – cont.


New section 30A definition of a recreational club

Section 21 company, society or association

Principal purpose to provide social and recreational
amenities or facilities to its members.
Exemption is not automatic

Clubs must apply for approval
Recreational clubs – cont.

Approval must be granted if
Non-profit motive

Surplus funds may not be distributed

On dissolution assets may only be transferred to
another club or PBO

No excessive remuneration or commission based

All members entitled to annual or seasonal
membership

No sale of membership rights

No tax avoidance schemes
Recreational clubs – cont.

Penalties for violating section 30A

Withdrawal of approval

6 months to transfer remaining assets to another
approved club or PBO

If fail to transfer

Market value of those assets less liabilities
deemed to be an amount of taxable income in
year approval withdrawn
Recreational clubs – cont.

Effective dates

Transitional period for sec 30A approval,
applications must be made before the later of

31 March 2009, or

Last day of its 1st y.o.a
Scholarship and bursaries

Section 10(1)(q)

Taxed employees on salary sacrifice schemes

Prohibited deduction sec 23(j)

Skills shortage in SA needs to be addressed

Amendment provides for exemption of all bona fide schemes

However, if granted purely because of employment relationship

To an employee, the employee must agree to reimburse employer
if fails to complete his or her studies

To a relative of an employee, will only be exempt if

Remuneration of employee below R60 000 per annum,
and

Only exempts up to R3 000 per year, anything more is
taxable
Registration of intellectual
property


Sec 11(gB) has been extended and allows
deduction for

The grant, restoration or extension of a patent

Registration or extension of a design

Renewal of the registration of a trade mark
Applies to all expenditure after 2 Nov 2006

Pre 2 Nov 2006 sec 11B(2)(b) applied
Scientific or technological
research & development

Sec 11B allowed

a deduction for R&D expenditure including registering,
extending or renewing intellectual prop rights

Capex 40:20:20:20

Improved R&D tax incentives to stimulate R&D

New sec 11D for expenditure after 2 Nov 2006
Scientific or technological
research & development – cont.



Section 11D provides 2 sets of incentives

Operating expenses deductible up to 150%

Capital allowance 50:30:20
Applies to R&D undertaken in RSA

Discovery of novel, practical and non-obvious information
of a scientific or technological nature

Or creation of any invention, patent, design or computer
copyright or other similar property of scientific or
technological nature
Specific exclusions – prospecting, business
processes, trade mark creation, social science
and humanities and market research, sales or
marketing
Scientific or technological
research & development – cont.


Part R&D

Apportion 150% deduction only for R&D

Capital allowance 50:30:20 applies only to R&D
portion of asset used regularly for R&D (e.g. pg 48)
Recoupments

Recovery of R&D expenditure will result in
recoupment of the previously allowed deduction (e.g.
pg 49)

Cease of use of building on which R&D allowance
claimed subject to recoupment limited to 100% of cost
less 10% for each year used for R&D (e.g. pg 49)
Scientific or technological
research & development – cont.

Government grant funded R&D projects

If grant is taxable



150% allowed only to extent expenditure
exceeds twice the amount of the grant (e.g.
pg 50)
If grant exempt then no deduction
Reporting requirement

Info on R&D project to Minister of Science &
technology
Small business corporations

Small co-operative did not qualify for 12E status

Unfair

Section 12E now available to co-operative
Small business corporations
– cont.


Sec12E disqualification through dual shareholding or
membership other than

Listed share or unit trust

Body corporate

Share block

Collective interest entity
List of exceptions extended

allowed to act as members of non-business co-operatives
e.g. consumer buy-aids, social co-operatives (nursery
school) and funeral societies

can be members of friendly societies.
Small business corporations
– cont.

Section 12E(4)(c) definition of investment
income


Limits rentals to those derived from immovable
property only
Section 12E(4)(d) definition of personal service

Requirement to employ at least 4 full-time non
connected employees

Decreased to 3 or more
Public Benefit Organisations

Tax rates of PBOs

Depended on legal form of PBO

Company 29%

Trust 40%

Unfair for PBO trusts

Tax rate applicable to all PBOs irrespective of
legal form

29%

Effective y.o.a ending in the 12 months to 31 March
2007
Public Benefit Organisations
– cont.


Refining the PBO activity list

Low cost housing PBO - minimum earnings of
beneficiaries to be increased from current R3 500 (chg
to Part I and II)

PBOs that issue guarantees for low income housing
loans (added to Part I)

Conservation, environment and animal welfare (All
activities in part I added to part II)
Foreign established charities

Agencies or branches

Qualify for exemption but not section 18A donations
Public Benefit Organisations
– cont.


Liberalising permissible investments

Sec 30(3)(b)(ii) limitations deleted

Free to invest as desired
CGT on disposal of PBO assets


Clarifies how to deal with assets used for dual trading
and public benefit purposes
Definition of PBO

Sole object test relaxed to principal object
Public Benefit Organisations
– cont.


Dual registration

Director of Non-profit Organisations (NPO)

Precondition for tax exemption status

Removed

PBO exemption now without NPO registration
Provisional tax

PBOs are exempt from the system

Only for 3 years from 1st y.o.a commencing on or after
1 April 2007
Public Benefit Organisations
– cont.

Withdrawal of approval

PBO in violation of section 30 or its founding
statement

Failed to transfer assets to another PBO

Subject to tax on ‘accumulated net revenue’

Change

Amount taxable is market value of assets not
transferred less liabilities
Personal service companies
and trusts

Section 23(k) limits deductions to

Salaries

Legal expenses (sec 11(c))

Bad Debts (sec 11(i))

Benefit fund contributions (sec 11 (l))

Expenses i.r.o premises, finance charges, insurance,
repairs and fuel and maintenance i.r.o assets

Condition that assets are used wholly and
exclusively for trade
Oil and Gas Exploration and
Production

Section 26B and Tenth Schedule inserted

Oil & Gas exploration and production will be
subject to provisions of IT Act but subject to 10th
Schedule override
Mining environmental
rehabilitation funds

New section 37A and 10(1)(cP)

Fund growth is exempt from tax

Contributions by eligible parties will be tax deductible
General anti-avoidance rule

Part IIA inserted in Chapter III

Old section 103 required 4 elements

Transaction, operation or scheme

Avoidance, reduction or postponement of tax

Manner not normally employed for business purposes,
other than tax benefit or abnormal rights and
obligations created

Purposes solely or mainly for avoiding, postponing or
reducing tax
General anti-avoidance rule

Old section 103 – cont.

If requirements satisfied

SARS determined liability for tax as if the transaction
had not been entered into or carried out

103 has been ineffective

Deleted for any arrangement or scheme after 2
Nov 2006 and new sections apply.
General anti-avoidance rule
– cont.

Sections 80A to L of Part IIA inserted in Chapter
III

Requirements for an impermissible avoidance
arrangement

An arrangement

Plus the tax effect

Results in an avoidance arrange

Plus the sole or main purpose is tax avoidance

Plus a tainted element

Results in an impermissible tax avoidance
General anti-avoidance rule
– cont.

Definitions section 80L similar to sec 103

Arrangement


Avoidance arrangement


Transaction, operation, scheme, agreement or
understanding
Any arrangement that results in a tax benefit
Party

Anyone who participates or takes part in an
arrangement
General anti-avoidance rule
– cont.


Section 80A - Impermissible tax avoidance
arrangement if

Sole or main purpose to obtain a tax benefit, and

A tainted element is present

Abnormality (based on sec 103)

Lack of commercial substance (sec 80C expands)

Misuse or abuse of tax provisions (Canada and
Europe)
The 2 new elements provide a far more effective
remedy for SARS
General anti-avoidance rule
– cont.

Section 80B – Tax consequences


Provides SARS with

specific remedies

and general remedy modelled on 103(1)
Specific remedies

Disregard, combine, re-characterise any steps

Disregard any accommodating or tax-indifferent party

Treat any accommodating or tax indifferent party and
the other person as one and same person

Reallocate amounts, re-characterise amounts
General anti-avoidance rule
– cont.

Section 80C – Lack of commercial substance

Contains indicators to determine when an
avoidance arrangement lacks commercial
substance

Substance over form ‘unblinkered approach’

Round trip financing

Accommodating or tax indifferent parties

Offsetting or cancelling elements

No reasonable expectation of pre-tax profit

Pre-tax profit insignificant compared to tax benefit
General anti-avoidance rule
– cont.

Section 80D – Round trip financing

Section 80E – Accommodating or tax indifferent
parties

Section 80F – Treatment of connected person
and accommodating or tax indifferent parties

Section 80G – Presumption of purpose

Rebuttable presumption if tax benefit

Step or part may have different purpose to whole
General anti-avoidance rule
– cont.

Section 80H – Steps in or parts of an
arrangement

Section 80I – Use in the alternative



SARS may apply GAAR as an alternative basis for raising an
assessment
Section 80J – Notice

SARS must give notice of intention to invoke, with reasons

Taxpayer has 60 days to reply (extendable)

SARS has further 180 days to raise queries, withdraw or
invoke
Section 80K – Interest may not be waived if
GAAR invoked
Reportable arrangements

Old section 76A – introduced 1 March 2005


2 classes of arrangement

Interest, fees etc vary depending on actual tax benefits

Hybrid debt and equity instruments
Intended to provide early warning to SARS

Section 76A not effective and replaced with
sections 80M to T

New provisions not yet effective, date to be
announced
Reportable arrangements –
cont.

New provisions trigger reporting when an
arrangement

Interest, finance costs, fees or other charges are
dependant on tax treatment

lack of commercial substance as contained in GAAR

financial liability for GAAP but not for tax

No expectation of pre-tax profit for any of the
participants

Pre-tax profit is less than NPV of tax benefits
Reportable arrangements –
cont.

Responsibility for reporting is placed on the
promoter of the arrangement

In the absence of a promoter all participants
must report

On reporting only a list of agreements to be
reported and not the actual agreements

Penalty for not reporting is R1 million
Small personal service
entities


Para 1 of the 4th Schedule

Obligation to withhold 34%

Denial of tax deductions except for salaries
Three amendment to relax provisions

Client supervision applies only if must be at clients
premises

Regular payments deleted

Escape hatch 4 or more employees now 3 or more
Small personal service
entities – cont.


Relaxation of client withholding

Onus of proof on client relaxed

Rely on affidavit or solemn declaration that not PSE

If in good faith then no liability to withhold
Directives available again

Relief for over withholding

Reduce rate below 34%
CGT valuations – submission
dates



Para 29(5) of 8th Schedule

Value asset by 30 Sept 2004, and

Lodge CGT 2L form, generally y.o.a asset sold
High value assets had to submitted with 1st
return after 30 Sept 2004

Value exceeds R10 million

Intangibles exceed R1 million

Unlisted shares, all share exceed R10 million
If forgot to submit can still use the valuation just
prove it was done pre 30 Sept 2004
Capital gain attributed to
trust beneficiaries


Concern that old wording of para 80(2) did not
permit

Attribution of portion of a capital gain

Attribution of a capital gain in multiple beneficiaries
Amendment confirms
VAT - Excessive
consideration

Section 8(27) 10(26) and 16(3)(m)

Any amount received in excess of amount charged

If not refunded in 4 months

Account for output tax

If amount is refunded later then input tax can be
claimed
VAT – Entertainment
expenses

Section 17(2)(a)

Generally denied

Exception for subsistence i.r.o employees away on
business

Extended to self employed natural persons
(contractors) where meals, refreshments and
accommodation is paid by the vendor
VAT – Deemed output on
cessation of enterprise

Section 22(3) triggered where supplier has not
been paid within 12 months

Creditors outstanding on date of cessation of
enterprise did not trigger output tax

Amended to trigger output tax on all amounts
unpaid on date of cessation of enterprise if input
tax has been claimed
2010 FIFA World Cup

Schedule 1 of VAT Act

Schedules 1 and 2 of Revenue Laws Amendment
Act, 2006

Customs and Excise Act, 1964
2010 FIFA World Cup – cont.

Tax free bubble concept

Income tax and VAT (not other taxes)

Restricted to FIFA designated sights

For specified periods

Receipts and accruals exempt from income tax

VAT on supplies at zero rate

Expenses on tax free income not deductible

Tickets sales VAT at 14%