2013 Budget & Tax Update. March 2013 Workbook. The views expressed in this workbook are not necessarily reflective of the official views of Fasset.

Transcription

1 2013 Budget & Tax Update March 2013 Workbook The views expressed in this workbook are not necessarily reflective of the official views of Fasset.

2 Table of Contents Part 1: 2013 Budget Proposals... 5 Budget 2013: Individuals... 5 Tax Tables:... 5 Rebates... 6 Tax Registration Thresholds:... 6 Medical Aid Credits:... 6 Interest Exemption:... 7 Capital Gains Tax Exclusions:... 7 Travel Allowance-Deemed Expenditure Table with Effect from 1 March 2013:... 7 Company Car Fringe Benefits... 8 Subsistence Allowance: Deemed Expenditure Daily Limits... 9 Retirement fund lump sum withdrawal benefits... 9 Retirement fund lump sum benefits or severance benefits Corporate Tax Rates Normal tax Tax rates for qualifying small business corporations Turnover Tax for Micro Businesses Trusts Dividends Tax Transfer Duty Estate Duty Donations Tax Securities Transfer Tax Part 2 Tax Update: Legislation Covered In This Update Developments: Documents of interest issued by SARS/national treasury in 2012/2013: Binding private rulings issued or revised during Binding class rulings issued or revised during Binding General rulings issued or revised during Court Cases: Tax Court Judgments: High Court: Supreme Court of Appeal:... 24

3 Individuals: Budget Proposals Retirement Reforms: Medical Tax Credits: Variable Pay Fringe Benefit Valuation In Respect Of Rented Employer Provided Vehicles Employer owned insurance policies Cession of Employer-Owned Insurance Policies (With Investment Values) To Retirement Funds Compulsory annuities and non-deductible retirement Contributions Dividing Retirement Interest in Divorce Provisional Tax Amendments Corporate: Budget Proposals: New Definitions: Debt Terminology Consistency Dividends Tax Amendments: Dividends Tax Amendments in the Tax Administration Laws Amendment Bill, Passive Holding Companies Amendments to Key Allowances: Repeal of Anti-Avoidance for Connected Person Transfers of Depreciable Assets Depreciation of Supporting Structures for Energy Projects Revision of the Industrial Policy Project Incentive Amendments to the Treatment of Government Grants and Updates on Key Incentives: Revised Version of the Hybrid Equity and Third-Party Backed Share Proposals: Qualifying Interest in Asset-for-Share Reorganisations Amendments to Debt Reduction Rules: Debt Financed Acquisitions of Controlling Share Interests: Share-for-Share Recapitalisations Value Mismatches Involving Share Issues Creation of a Unified System for Taxing Real Estate Investment Vehicles The IT14SD: Micro Business: Value-Added Tax: Budget Proposals Instalment Credit Agreement Credit and Debit Notes Potential Vat Double Charge for Goods Removed From Customs Controlled Areas Imported Goods Sold By Foreign Persons Prior To Entry for Home Consumption Relief for Bargaining Councils Relief for Political Parties Abridged Tax Invoices Micro-Business E-filing International Tax Budget Proposals Narrowing of the Participation Exemption in Respect of Foreign Equity Share Disposals Revised Rollover Relief for Cross-Border Reorganisations

4 4. Rollover Relief for Controlled Foreign Company (CFC) Intragroup Transactions Exit Charge upon Ceasing To Be a Resident in South Africa Relief from the Effective Management Test in the Case of High-Taxed Controlled Foreign Companies (CFCS) Foreign Rebates South African Fund Managers of Foreign Investment Funds Amendments to Forex Rules in 24I Removal of Misplaced Non-Monetary and Monetary Foreign Currency Calculations Transfer Pricing Update Withholding Taxes Rationalisation: Removal of the Controlled Foreign Company (CFC) Exemption from Interest and Royalty Withholding. 150 Tax Administration Budget Proposals Introduction Transitional Provisions Key Definitions Interpretation The Tax Ombud Registration Returns and Records Information Gathering Advance Rulings Assessments Dispute Resolution Tax Liability and Payment Interest Administrative Non-Compliance Penalties Understatement Penalty Refunds Registration of Tax Practitioners Tax Clearance Certificates Disclaimer Every precaution has been taken to ensure the accuracy of the information contained in these notes; however, the authors cannot accept responsibility for any loss or damage suffered by a person as a result of the reliance upon the information contained therein 4

5 Part 1: 2013 Budget Proposals 1 Budget 2013: Individuals Tax Tables: Tax Rates: Individuals and Special Trusts 2013/2014 Taxable Income R Rates of Tax % of taxable income % of taxable income above % of taxable income above % of taxable income above % of taxable income above and above % of taxable income above Tax Rates: Individuals and Special Trusts 2012/2013 Taxable Income R Rates of Tax % of taxable income R % of the amount over R R % of the amount over R R % of the amount over R R % of the amount over R R % of amount over R The notes that follow draw extensively from the SARS budget tax proposals 2013/14, chapter 4 and Annexure C of the 2013 budget review published by national treasury. 5

6 Rebates 2013/ /2013 Deduction from tax payable R R Primary - persons under Secondary - Persons 65 and under Tertiary - persons 75 and over Not available to normal or special trusts. Tax Registration Thresholds: 2013/ /2013 R R Persons under Persons 65 and under Persons 75 and over Medical Aid Credits: 2013/ /2013 Monthly deductions from tax payable R R Persons under Persons under 65 with one dependant Persons under 65 with two dependants Per additional dependant Over 65 years of age: Unlimited i.e. all qualifying medical expenses. Under 65 years of age: Monthly credit amounts set at R242 each for the taxpayer and his/her spouse (or first dependant), and a further R162 for every additional dependant. Balance of contributions exceeding four times monthly tax credit plus all qualifying out-of-pocket medical expenses exceeding 7.5% of taxable income (before medical deduction and excluding retirement lump sum benefits) as a deduction. Under 65 years of age and with a disability (taxpayer, spouse or child): So much of their medical aid contributions as exceeds four times the amount of the tax credit and all qualifying medical aid out-of-pocket expenses. Note: From 1 March 2014, additional medical deductions will be converted into tax credits 6

7 Interest Exemption: 2013/ /2013 R R Persons under Persons 65 and over Capital Gains Tax Exclusions: 2013/ /2013 R R Annual exclusion for gains/losses Annual exclusion for gains/losses in year of death Primary residence gain/loss exclusion Disposal of a small business when for persons older than Maximum MV of assets to qualify for small business disposal exemption The inclusion rate for individuals, special trusts and individual policy holder funds is 33.3%. The inclusion rate for other taxpayers is 66.6%. These inclusion rates came into effect in respect of the disposal of assets from 1 March Travel Allowance-Deemed Expenditure Table with Effect from 1 March 2013: Value of the Vehicle Fixed Cost Fuel Cost Maintenance Cost R c/km c/km Does not exceed R R R R R R R R R R R R R R R Exceeds R

8 Alternative-If less than business km s travelled, no tax payable up to 324 cents per km. (This option is not available if other allowances/reimbursements are received from the employer in respect of the vehicle.) Note: 80% of the travelling allowance must be included in the employee s remuneration for the purposes of calculating PAYE. The percentage is reduced to 20% if the employer is satisfied that at least 80% of the use of the motor vehicle for the tax year will be for business purposes. No fuel cost may be claimed if the employee has not borne the full cost of fuel used in the vehicle and no maintenance cost may be claimed if the employee has not borne the full cost of maintaining the vehicle (e.g. if the vehicle is the subject of a maintenance plan). The fixed cost must be reduced on a pro-rata basis if the vehicle is used for business purposes for less than a full year. The logbook method to claim business travelling expenses is compulsory. If actual costs are used, wear-and-tear must be calculated over a seven year period, cost is limited tor and interest on borrowings to acquire the car is limited to borrowings of the same amount. Company Car Fringe Benefits Employer-owned vehicles The taxable value is 3, 5% of the determined value (the cash cost including VAT) per month of each vehicle. Where the vehicle is the subject of a maintenance plan when the employer acquired the vehicle the taxable value is 3, 25% of the determined value. 80% of the fringe benefit must be included in the employee s remuneration for the purposes of calculating PAYE. The percentage is reduced to 20% if the employer is satisfied that at least 80% of the use of the motor vehicle for the tax year will be for business purposes. On assessment the fringe benefit for the tax year is reduced by the ratio of the distance travelled for business purposes substantiated by a log book divided by the actual distance travelled during the tax year. On assessment further relief is available for the cost of licence, insurance, maintenance and fuel for private travel if the full cost thereof has been borne by the employee and if the distance travelled for private purposes is substantiated by a log book Employer-leased vehicles Where the vehicle is acquired by the employer under an operating lease the taxable value is the cost incurred by the employer under the operating lease plus the cost of fuel. This value can then be reduced for proven business use by using business kilometres travelled as a percentage of the total distance travelled. The cost of fuel in respect of the vehicle pertains to direct spend on fuel for the vehicle in cash or through a fuel card linked specifically to that vehicle. 8

9 The operating lease arrangement must include the following: The employer must rent the vehicle from a lessor in the ordinary course of the lessor s business (other than a bank, financial services business or insurer); The vehicle may be leased by the general public for a period of less than a month; The costs of maintaining the property must be borne by the lessor (including any repairs to the vehicle necessary due to normal wear and tear); and The risk of loss or destruction of the property must not be assumed by the lessee. Subsistence Allowance: Deemed Expenditure Daily Limits Subsistence allowances are tax-free if they are granted to an employee who is obliged to spend at least one night away from his usual place of residence whilst on business and if they do not exceed the following amounts: Where the accommodation, to which that allowance or advance relates, is in the Republic and that allowance or advance is paid or granted to defray / /2013 Incidental costs only within the Republic R98 per day R93 per day The cost of meals and incidental costs within the Republic R319 per day R303 per day Varying amounts per day for meals and incidental costs for travel outside the Republic are granted depending on the country (or countries) visited. These amounts are published on the SARS website. Retirement fund lump sum withdrawal benefits Taxable income R Rate of Tax R % of taxable income % of taxable income above % of taxable income above and above % of taxable income above Retirement fund lump sum withdrawal benefits consist of lump sums from a pension, pension preservation, provident, provident preservation or retirement annuity fund on withdrawal (including assignment in terms of a divorce order). Tax on a specific retirement fund lump sum withdrawal benefit (X) is equal to tax determined by applying the tax table to the aggregate of that lump sum X plus all other retirement fund lump sum withdrawal benefits accruing from March 2009, all retirement fund lump sum benefits accruing from October 2007 and all severance benefits accruing from March 2011; less 9

10 tax determined by applying the tax table to the aggregate of all retirement fund lump sum withdrawal benefits accruing before lump sum X from March 2009, all retirement fund lump sum benefits accruing from October 2007 and all severance benefits accruing from March Retirement fund lump sum benefits or severance benefits Taxable income R Rate of Tax R % of taxable income % of taxable income above % of taxable income above and above % of taxable income above Retirement fund lump sum benefits consist of lump sums from a pension, pension preservation, provident, provident preservation or retirement annuity fund on death, retirement or termination of employment due to redundancy or termination of employer s trade. Severance benefits consist of lump sums from or by arrangement with an employer due to relinquishment, termination, loss, repudiation, cancellation or variation of a person s office or employment. Tax on a specific retirement fund lump sum benefit or a severance benefit (Y) is equal to tax determined by applying the tax table to the aggregate of that lump sum or severance benefit Y plus all other retirement fund lump sum benefits accruing from October 2007 and all retirement fund lump sum withdrawal benefits accruing from March 2009 and all other severance benefits accruing from March 2011; less tax determined by applying the tax table to the aggregate of: all retirement fund lump sum benefits accruing before lump sum Y from October 2007, all retirement fund lump sum withdrawal benefits accruing before lump sum Y from March 2009 and all severance benefits accruing before lump sum Y from March

11 Corporate Tax Rates Normal tax Applicable to years of assessment ending during the period of 12 months ending on 31 March / /2013 Non-mining companies 28% 28% Close corporations 28% 28% Employment companies 28% 28% Taxable income of a non-resident company (SA branch) 28% 28% Tax rates for qualifying small business corporations Years of assessment ending between 1 April 2013 and 31 March 2014 Taxable Income R Rate of Tax % % of taxable income over R % of taxable income above % of the amount above Note: The Budget proposal is that the R14 million turnover threshold for small business corporations will be increased to R20 million. Years of assessment ending between 1 April 2012 and 31 March 2013 Taxable Income R Rate of Tax % R % of the amount over R % of the amount over R

12 Turnover Tax for Micro Businesses Financial years ending on any date between 1 April 2013 and 31 March 2014 Taxable Turnover R Rate of Tax % of taxable turnover % of taxable turnover above R % of taxable turnover above R % of taxable turnover above R % of taxable turnover above Trusts The tax rate on trusts (other than special trusts) remains unchanged at 40%. Dividends Tax Dividends tax is imposed at 15% from 1 April 2012 on dividends declared and paid by resident companies and by non-resident companies in respect of shares listed on the JSE. Dividends are tax exempt if the beneficial owner of the dividend is a South African company, retirement fund or other exempt person. The tax is to be withheld by companies paying the taxable dividends or by regulated intermediaries in the case of dividends on listed shares. Transfer Duty Transfer duty is payable at the following rates on acquisition of immovable property where the transaction is not subject to VAT - Acquisition of property by all persons: Value of Property R Rate % % of the value above R R % of the value above R and above R % of the value exceeding R

13 Estate Duty Estate duty is levied at a flat rate of 20% on property of residents and South African property of nonresidents. A basic deduction of R3.5 million is allowed in the determination of an estate s liability for estate duty as well as deductions for liabilities, bequests to public benefit organisations and property accruing to surviving spouses. Donations Tax Donations tax is levied at a flat rate of 20% on the value of property donated. The first R of property donated in each year by a natural person is exempt from donations tax. In the case of a taxpayer who is not a natural person, the exempt donations are limited to casual gifts not exceeding R per annum in total. Donations between spouses and donations to certain public benefit organisations are exempt from donations tax. Donations between SA resident group companies are exempt Securities Transfer Tax The tax is imposed at a rate of 0.25% on the transfer of listed or unlisted securities. Securities consist of shares. Miscellaneous Budget Amendments Employment Tax Incentive A youth employment tax incentive will be tabled in parliament within the course of this year. This incentive will be aimed at providing the youth with the opportunity to enter the labour market, gain valuable experience and access career opportunities. It will be a graduate tax incentive at the entrylevel wage, falling to zero when earnings reach the personal income tax threshold. Carbon Tax and Energy As mentioned elsewhere, the announcement of a carbon tax in this year s budget speech makes it less clear on how government aims to promote industrial development and the overall competitiveness of the South African economy. The effect of the introduction of carbon tax will, in our opinion, be severe and, although only to be introduced from 2015, companies will have to start considering carbon tax seriously in their budgeting processes. Carbon Tax The Minister of Finance has announced the introduction of a carbon tax, effective from 1 January It was expected that the introduction of this tax would be delayed significantly given the proposed Eskom price increases and the current economic climate. The design of the carbon tax has not changed from what was announced in the 2012 Budget. A carbon tax of R120 per ton of carbon dioxide equivalent (CO2e) is proposed with an initial tax-free threshold of 60%. This means that companies will only pay for 40% of their emissions initially. The relief is expected to reduce over time. Some trade-exposed and energy-intensive sectors may receive a higher tax-free threshold. 13

14 What does a carbon tax mean for the economy? We expect that National Treasury will be able to collect between R16 billion and R20 billion, depending on how the tax-free thresholds are applied to different industry sectors and how the carbon tax is levied. A policy paper on carbon tax will be released in March 2013 which will provide greater clarity on how a carbon tax will be levied. Companies will have to determine their carbon liability. This means that all companies will need to calculate their carbon footprint and understand the impact of a carbon tax on their bottom line. National Treasury are also considering phasing out the electricity levy that forms part of the electricity price whilst phasing in the carbon tax. Some of the revenue collected from the carbon tax will be used to fund an energy efficiency savings tax incentive. We expect that this energy efficiency incentive is section 12L of the Income Tax Act, which has been in the Income Tax Act for over three years and is not yet operational. Certified emissions reductions tax incentive Due to the adoption of the second commitment period of the Kyoto Protocol, government has proposed to extend the incentive for income generated from primary certified emissions to 31 December Other Increase in the levy on plastic shopping bags from 4c/bag since 2009 to 6c/bag from 1 April 2013 Environmental levy on incandescent light bulbs increases from R3 to R4 per bulb from 1 April 2013 General fuel levy increase by 22.5c/l or net increase of 15c/l with effect from 3 April 2013 Road Accident Fund levy increase by 8c/l with effect from 3 April 2013 Biofuels production incentive: a fiscal incentive is required to overcome the initial capital cost hurdles. The initial cost will be 3.5c/l to 4c/l of petrol or diesel 14

15 Part 2 Tax Update: 2 Legislation Covered In This Update Taxation Laws Amendment Act No 22 of 2012 promulgated 1 February 2013 and the Tax Administration Laws Amendment Act No 21 of 2012 promulgated 20 December The above amended the: 1.1. Customs and Excise Act, 1964; 1.2. Estate Duty Act, 1955; 1.3. Income Tax Act,1962; 1.4. Mineral and Petroleum Resources Royalty (Administration) Act, 2008; 1.5. Mineral and Petroleum Resources Royalty Act, 2008; 1.6. Revenue Laws Amendment Act, 2008, so as to effect technical corrections; 1.7. Securities Transfer Tax Act, 2007; 1.8. Tax Administration Act, 2011, so as to effect technical corrections, to regulate tax practitioners; 1.9. Tax Administration Act, 2011, to certain matters relating to customs and excise; Taxation Laws Second Amendment Act, 2009, so as to repeal a provision; Taxation Laws Amendment Act, 2009, so as to effect technical corrections; Taxation Laws Amendment Act, 2010, so as to repeal a provision; and to effect technical corrections; Taxation Laws Amendment Act, 2011, so as repeal a provision; and to effect technical corrections; Taxation Laws Second Amendment Act, 2011, so as to postpone an effective date; Transfer Duty Act, 1949; Unemployment Insurance Contributions Act, Value-Added Tax Act, Notes are compiled extensively from SARS explanatory memorandum and national treasury discussion papers as well as the other documents listed under Documents of interest issued by SARS/National Treasury In 2012/13: 15

16 Developments: Documents of interest issued by SARS/National Treasury in 2012/2013: Issue Date No date No date No date No date No date No date No date January 2012 January 2012 January 2012 January 2012 Subject How to complete the IT14 return How to complete the return of income: trust (IT12TR) How to complete the return of income: exempt organisations (IT12EI return) SARS e-filing mobisite quick guide SARS e-filing app quick guide How to download the e-filing application from the istore How to download the SARS e-filing app from the Google play store (for android devices) External Frequently asked questions South African Revenue Service Payment Rules Guide for Tax Rates/duties/levies Guide on Income tax and the individual Tax brochure for Non-residents January 2012 Tax guide For Small businesses 2011/12 January 2012 January 2012 February 2012 February 2012 February 2012 March 2012 March 2012 March 2012 March 2012 March 2012 March 2012 March 2012 April 2012 Guide on the taxation of foreigners working in South Africa The phasing out of Standard Income Tax On Employees (SITE) A guide to understanding the medical scheme fees tax credit External policy - withholding amounts from Payments to non-resident sellers of immovable Property in SA External frequently asked questions medical scheme fees tax credit Tax guide for share owners Vat 404 guide for vendors List of qualifying physical impairment or disability expenditure Reference guide tax directive: Emigration VAT 412 Draft Value-Added Tax Guide for Share Block Schemes Vat 421 Value-Added Tax Guide for Short-Term Insurance Draft Transfer Duty Guide How to complete the supplementary declaration (IT14SD) form for companies and close corporations 16

17 Issue Date May 2012 May 2012 May 2012 May 2012 June 2012 June 2012 June 2012 July 2012 Subject The ABC of capital gains tax for individuals Strengthening retirement savings An overview of proposals announced in the 2012 budget Changing your banking details External Frequently asked questions Mineral and petroleum resource royalties A guide to taxpayer centricity client approach functionality on e-filing (allows taxpayer to control tax practitioner access) External frequently asked questions Request, completion and submission of income tax returns - efiling Business requirement specification: IT3 S data specification Interim solution for the completion of the IRP6 and the inclusion of the medical scheme fees tax credit August 2012 Short guide to the Tax Administration Act, 2011 August 2012 Legislative Overview Tax Administration Act, 2011 August 2012 September 2012 September 2012 October 2012 October 2012 October 2012 October 2012 October 2012 October 2012 October 2012 External frequently asked questions SARS help-you-efile ITR12 comprehensive guide Enabling a better income in retirement Incentivising non-retirement savings Improving tax incentives for retirement savings Reference guide Provisional tax 2013 Reference guide Completion of vat registration Application forms Customs External policy Payments External policy Provisional tax External Frequently asked questions SARS e-filing app and mobisite 17

18 Issue Date October 2012 November 2012 December 2012 January 2013 February 2013 Subject External guide Voluntary disclosure programme Guide to the disposal of a residence from a company or trust Government gazette reportable arrangements for purposes of s35 (2) of the tax administration act External Guide South African Revenue Service Payment Rules Rules promulgated under section 103 of the tax administration act, 2011 (act no. 28 of 2011), prescribing the procedures to be followed in lodging an objection and appeal against an assessment or a decision subject to objection and appeal referred to in section 104(2) of that act, procedures for alternative dispute resolution, the conduct and hearing of appeals, application on notice before a tax court and transitional rules. Interpretation Notes Issued or Revised in 2012 & 2013 Issue Date No. Subject 6 Nov Section : section 10(1)(e) Subject : income tax exemption: bodies corporate established under the sectional titles act no. 95 of 1986, share block companies established under the share blocks control act no. 59 of 1980 and associations of persons managing the collective interests common to all members 24 February Section : section 22(8) Subject : trading stock inclusion in income when applied, distributed or disposed of otherwise than in the ordinary course of trade 1 March Section : section 10(1)(q) and the seventh schedule to the act Subject : scholarships or bursaries 1 Nov Section : Section 1(1), Definition Of A Connected Person Subject : Connected Persons 16 Nov 2012 Version 2 February Section : chapter 12 and schedule 1 Subject : provisions of the tax administration act that did not commence on 1 October 2012 under proclamation no. 51 in government gazette February Game Farming 18

19 Draft Interpretation Notes Issued or Revised in 2012 & 2013 Comment Due Date Subject 31 May 2012 Section : sections 8(1)(a); 8(1)(b) and 8(1)(c) and paragraph 1 of the fourth schedule Subject : allowances, advances and reimbursements 17 May 2012 Section : section 1, definition of the term input tax read with sections 16(2) and 16(3) Subject : documentary proof required in terms of section 16(2) to substantiate a vendor s entitlement to input tax or a deduction as contemplated in section 16(3) 8 June 2012 Section : paragraphs 2(b), 2(e), 2(h), 6, 10 and 13(1) of the seventh schedule Subject : taxable benefit use of employer-provided cellular phones or computer equipment and employer-funded telecommunications services 31 May 2012 Sections : sections 9(1), 9(3), 10(2) and 10(4) Subject : leasehold improvements 17 Dec 2012 Section : section 24C 25 March 2013 Section: section 11(d) Subject : Allowance For Future Expenditure On Contracts Subject: Deduction of expenditure incurred on repairs Binding private rulings issued or revised during 2012 Note: Binding Private Rulings (BPR) are published in terms of section 76O of the Income Tax Act. A BPR does not have any binding effect upon the Commissioner unless that ruling applies to a person in accordance with section 76J. In addition a BPR may not be cited in any proceedings before the Commissioner or the courts other than a proceeding involving the applicant or co-applicant for that ruling. Thus, you cannot rely upon a binding private ruling that has been issued to someone else, even if the facts of your own transaction are similar to those described in the published ruling. These rulings are therefore published for general guidance only. BPR No. Subject 108 Section : section 1, definition of dividend Subject : issue of redeemable preference shares from reserves available for distribution 109 Section : sections 1, definition of gross income, 22 and 24j and paragraphs 18, 20(1)(a), 20(c)(ix), 35, 43 and 58 of the eighth schedule to the act Subject : loan granted with embedded option 110 Section : section 9d(9)(b)(ii)(bb) Subject : toll manufacturing agreement and the attribution of the global sales of South African manufactured products to a foreign business establishment 111 Section : sections 11(a) and 35 Subject : research and development expenditure paid to a fellow group company which is not a resident of South Africa 112 Section : sections 10(1)(k)(ii)(dd), 24b and paragraph 64B of the eighth schedule to the act Subject : interposing a co-operative between a South African holding company and its foreign subsidiaries 19

20 BPR No. Subject 113 Section : sections 11(a), 23(g) and 23h Subject : expenditure associated with broad based black economic empowerment 114 Section : section 24i, paragraph 43(1) and part xiii of the eighth schedule to the act Subject : loan facilities raised by a foreign permanent establishment from which deposits and advances are made 115 Section : paragraph 1 definition of remuneration, employer and employee read with paragraph 2(1)(a) of the fourth schedule to the act Subject : incentive rewards paid to independent sales persons 116 Section : sections 10(1)(k)(ii)(dd), 25b and 56(1)(g)(ii) Subject : distribution to be received by a resident beneficiary from a trust that is not a resident and the subsequent donation thereof by the beneficiary to another trust that is also not a 117 Section : section 8c and paragraph 11a of the fourth schedule to the act Subject : obligation to deduct or withhold employee s tax in respect of a share option scheme 118 Section : sections 1, definition of dividend, 64d, 64e, 64f, 64g, 64h and 64k Subject : withholding of dividends tax 119 Section : sections 1, definition of gross income, 9(1)(g), 10(1)(gc), 11(k) and (n), and paragraphs 2(1)(a) and 5 of the second schedule to the act Subject : transfer of amounts contributed to a foreign pension fund to a South African retirement annuity fund 120 Section : sections 45 and 24j Subject : the interaction between sections 45 and 24j in the transfer of interest-bearing receivables under the corporate rules 121 Section : sections 64b(1), definition of declared and 64e(1) Read with section 64d Subject : secondary tax on companies or dividends tax 122 Section : sections 11(a), 23(g), 45, 47 and 64fa(1)(b), paragraph 38 of the eighth schedule to the act and section 2 of the STT act Subject : transfer of a business of a company as a going concern to its holding company as a result of an amalgamation or merger transaction 123 Section : section 12d, definition of affected asset Subject : fibre optic cable to be used for electronic communications 124 Section : sections 1(1), definition of contributed tax capital and 20(1)(a)(ii), and paragraphs 12(5) and 20(1)(a) of the eighth schedule to the act Subject : repayment of shareholders loans from proceeds of a new issue of redeemable preference shares 125 Sections : sections 10(1)(t)(vii), 64d, definition of beneficial owner, 64f(g) and 64g(2)(a) and paragraphs 63 and 80(1) of the eighth schedule to the act Subject : vesting by discretionary trust of dividend rights to the beneficiary of the trust 126 Sections : Sections 42 and 46 of the act Section 8(25) of the vat act Section 8(1)(a) of the STT act Subject : disposal of a business and investment shares, as a result of restructuring, and the distribution of certain shares to shareholders 127 Section : sections 1(1), definition of gross income, 5, 10, 24j and 108 and paragraph 5 of article 20

21 BPR No. Subject xii of the convention between the government of the union of South Africa and the government of the federation of Rhodesia and Nyasaland (which is now of application to Zambia) for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income (South Africa/Zambia DTA) Subject : relief from double taxation of foreign income 128 Section : sections 1(1), definition of financial instrument and 41(1), definition of associated group companies and foreign financial instrument holding company Subject : disposal of equity shares in a foreign company 129 Section : sections 64d, definition of beneficial owner and 64f(a) Subject : beneficial owner of dividends 130 Section : section 1(1), definition of gross income, and paragraphs 1, 3, 4, 11, 20, 33, 35 and 38 of the eighth schedule to the act Subject : sale of mining rights and the respective base cost of each mining right Binding class rulings issued or revised during 2012 Note: Binding Class Rulings (BCR) are published in terms of section 76O of the Income Tax Act. A BCR does not have any binding effect upon the Commissioner unless that ruling applies to a person in accordance with section 76J of the Act. A binding class ruling may not be cited in any proceeding before the Commissioner or the courts other than a proceeding involving the applicant or co-applicant for that ruling. Thus, you cannot rely upon a binding class ruling that has been issued to someone else, even if the facts of your own transaction are similar to those described in the published ruling. These rulings are therefore published for general guidance only. BCR No. Subject 32 Sections : section 46 of the act Section 8 of the STT act Subject : distribution of certain shares to certain foreign shareholders as a result of restructuring holders as a result of restructuring 33 Section : paragraphs 1, 11, 31 and 33 of the eighth schedule to the act Subject : conversion of a public company to a private company 34 Section : sections 1 the definition of "gross income" and "trading stock", 8(4)(a), 11(a), 22, 23(g), 23b, 23h, 24c, 24j, 24l and 24m Subject : taxation of exchange traded notes 35 Section : section 1(1) of the act, definition of gross income and paragraph 11 of the eighth schedule to the act Section 1 of the STT act, definition of transfer Subject : tax implications arising from the conversion of par value shares to no par value shares 36 Section : sections 10(1)(ib), 10(1)(k)(i)(ee) and 25ba Subject : reserves of a collective investment scheme in securities and the distribution thereof to unit holders 21

22 Binding General rulings issued or revised during 2012 Note: Binding General Rulings (BCR) are published in terms of section 76P of the Income Tax Act regarding interpretation of the Act in respect of a particular set of facts and circumstances or transactions as defined in section 76B of the Act. A binding general ruling is also now included in the term official publication as defined in section 1 of the Tax Administration Act No. 28 of 2011 ( The TAA ). In turn, the TAA now defines a practice generally prevailing as a practice set out in an official publication regarding the application or interpretation of a Tax Act. BGR No. Subject 6 Section : sections 1, 20 and 21 Subject : discounts, rebates and incentives in the fast moving consumable goods industry 7 Section : section 11(e) Subject : wear-and-tear or depreciation allowance 8 Section : section 1(1), definition of gross income Subject : application of the principles enunciated by the Brummeria case 9 Subject : taxes on income and substantially similar taxes for purposes of South Africa s tax treaties 10 Section : section 1 definition of input tax and section 17(1) Subject : apportionment methodology to be applied by category b municipalities 11 Sections : sections 9, 10, and 20 Subject : use of an exchange rate 22

23 Court Cases: Tax Court Judgments: 2012/2013 Judgments Date of Delivery Case Numbers Applicable Registration 16 November Income Tax Act, 1962 Section 103; implications for company buying its own shares from subsidiary company 10 September 2012 VAT 789 Value-Added Tax Act, 1991 Exercising of Commissioner's powers in terms of section 20(5) not subject to objection and appeal; any review of this application should be launched in the High Court 5 July Income Tax Act, 1962 Capital gains tax; disposal of mineral rights; fair value adjustment; section 11(a) deduction of management fees and travel expenses; donations tax; penalties 22 June Income Tax Act, 1962 Section 12E(4)(a); whether taxpayer a small business corporation or personal service company; meaning of 'consulting' 7 June 2012 VAT 889 Value-Added Tax Act, 1991 Section 31; imposition of VAT and 200% penalties; fraudulent invoices; credibility of witness in question 13 February Income Tax Act, 1962 Disallowance of capital loss; 'clogged loss'; redemption of loss; preference shares; meaning of 'recovery'; paragraphs (20(3) and 39(1) of the Eight Schedule High Court: 2012/2013 Judgments Date of Delivery Parties Involved Applicable Registration 31 January 2013 MTN International (Mauritius) Limited Promotion of Administrative Justice Act, 2000 Review application brought in terms of s.6 of PAJA in an attempt to set aside an additional income tax assessment on procedural and administrative grounds 20 November 2012 Bosch and McClelland (Davis J) Bosch and McClelland (Wagley J) Income Tax Act, 1962 Additional assessments raised against participants in share option schemes; deferred delivery schemes; sections, 8, 11(a) and October 2012 Beginsel, MB and Others 20 July 2012 HMRC and Another v Ben Nevis (Holdings) Ltd and Another [2012] EWHC 1807 (Ch) 20 July 2012 Metlika Trading Ltd and Ben Nevis Companies Act, 2008 Business rescue proceedings as opposed to the re-introduction of the liquidation process Income Tax Act, 1962 Double Taxation Agreement; liability for tax, penalties and interest; Income Tax Act, 1962 Application for interim interdict; prevention of executing against 23

24 2012/2013 Judgments Date of Delivery Parties Involved Applicable Registration Holdings Ltd certain assets pending resolution by trial and arbitration of disputes 29 May 2012 Zikhulise Cleaning Maintenance and Transport CC 18 May 2012 Aranda Textiles Mills (Pty) Ltd 9 May 2012 Smith Mining Equipment (Pty) Ltd Promotion of Administrative Justice Act, 2000 Withdrawal of tax clearance certificate without hearing afforded to taxpayer Customs and Excise Act, 1964 Legal status of anti-dumping duties in Schedule No. 2; sunset reviews; calculation of periods Customs and Excise Act, 1964 Appeal against a tariff determination; "general purpose" of utility vehicle 7 May 2012 MJ Oosthuizen Promotion of Access to Information Act, 2000 read with sections 6 and 8 of PAJA (Act 3/2000) 16 March 2012 Apollo Tobacco CC Customs and Excise Act, 1964 Sections 76B and 103 Value-Added Tax Act, 1991 Sections 44 and 45 Importation of cigarettes; claims for refunds on customs duty and VAT Supreme Court of Appeal: 2012/2013 Judgments Date of Delivery Parties Involved Applicable Registration 29 November 2012 HR Computek (Pty) Ltd Value-Added Tax Act, 1991 Assessment of, objection to, appeal against disallowance of objection; taxpayer limited to the grounds stated in notice of objection 1 October 2012 Armgold / Harmony Freegold Joint Venture (Proprietary) Limited Deductions of mining capital expenditure under subsections 36(7F) and 36(7E); method of calculation to be adopted where a mine of a taxpayer operates at a loss 1 June 2012 Mohammed Cassimjee Customs and Excise Act, 1964 Inordinate delay in prosecuting claim; inherent power of court to prevent abuse of its process; whether discretion properly exercised to dismiss action for want of prosecution 1 June 2012 De Beers Consolidated Mines Limited Value-Added Tax Act, 1991 Meaning of 'enterprise'; meaning of 'imported services'; whether foreign advisory services utilized or consumed in the Republic for the 'purposes of making taxable supplies'; whether tax on local advisory services qualifies for deduction as 'input tax' 31 May 2012 Distell Limited Customs and Excise Act, 1964 Tariff determination on spirituous beverages 25 May 2012 Stellenbosch Farmers' Winery Limited Whether receipt by taxpayer of a sum of money of a capital or revenue nature; whether interest on alleged underpayment of provisional tax in respect of the receipt should have been levied in terms of s.89quat(3) Value-Added Tax Act,

25 2012/2013 Judgments Date of Delivery Parties Involved Applicable Registration Whether receipt attracted VAT in terms of s.7 or zero rate applicable in terms of s.11(2)(l)(ii) 8 May 2012 Tradehold Ltd Par. 12(1) of Eighth Schedule; deemed disposal of assets; Double Taxation Agreement between RSA and Luxembourg; meaning a defect; Article 13(4); includes within its ambit capital gains derived from the alienation of all property including a deemed disposal of assets 29 March 2012 Eveready (Pty) Ltd Section 22(4) - trading stock; whether acquired for 'no consideration' 25

26 Individuals: 1. Budget Proposals Tax Preferred Savings and Investment Vehicles: I. Background South Africa s national household savings is a policy concern for government due to its steady decline over the last few years. Tax preferred savings and investment vehicles have been under discussion to encourage additional saving. The Budget announced that these vehicles are to be introduced by South Africa currently has tax-free interest income thresholds to incentivise non-retirement savings. However, the thresholds are not visible enough, and restrict investment options to those that are interest-bearing. In recognition of the fact that retirement savings are currently used for short and medium-term savings goals, some consideration is being given to alternative products to raise the after-tax rate of return on these non-retirement savings so that retirement savings are left as long term investments. II. Reasons for change Higher levels of personal savings help to reduce the financial vulnerability of households, especially those households with low-to-moderate incomes. Higher savings strengthen the resilience of households to income and expenditure shocks and reduce reliance on excessive consumer debt. An increase in aggregate domestic savings will reduce reliance on volatile foreign capital inflows, and help to fund higher rates of investment, an important pre-requisite for higher economic growth and the creation of new jobs. Whilst the current tax-free interest income thresholds are likely to achieve the objective of not taxing inflation-based returns on interest bearing investments for the majority of households (particularly lower and middle incomes), it is unlikely they have significantly influenced savings rates. The tax-free interest income threshold also has important limitations: It is not a very visible incentive for encouraging saving. The exemption forms part of the tax return and receives little publicity beyond the annual announcement of the thresholds in the Budget. It does not lend itself to active marketing in the way that specific tax-incentivised savings products do. It is not well-integrated with tax exemptions on other forms of capital income. It is targeted at interest income, raising the question of consistency of treatment with the new withholding tax on dividend income and the capital gains tax system. 26

27 III. Proposal The proposal is that South Africa expands its current tax-free interest threshold incentive by replacing it with a broader tax-incentivised savings vehicle. This vehicle should comprise two types of accounts: Interest bearing accounts which may invest in bank deposits, retail saving bonds or interestbearing Collective Investment Schemes (CISs), such as money-market funds Equity accounts, which may invest in CISs that hold JSE listed equities. CISs which directly own property may also be permitted. Earnings and capital growth within these tax-preferred savings vehicles will be exempt from income tax. Contributions will be made from after-tax income, and will be capped. The proposed combined (for both components) annual limit will be R and a lifetime limit of R per individual. These limits will be adjusted over time to take account of inflation. Consideration may also be given to appropriate transition mechanisms, including allowing taxpayers aged 45 to 49 to invest up to one quarter of their lifetime limit, 50 to 59 years to invest up to half of their lifetime limit and for those aged 60 years and older to invest the maximum of their lifetime limit during the transition period. The savings vehicles will have to be registered with the South African Revenue Service. Tax Preferred Savings and Investment Vehicles: Interest bearing and equity accounts Earnings and capital growth will be exempt Annual limit:r Lifetime limit: R

28 Example 1 Examples of how the proposals will affect current taxpayers yrs yrs yrs 65+ yrs Current Position Bank account balance R R R R Interest income R R R R Tax-free interest income threshold R R R R Taxable interest income R 0 R R R Tax payable (25%) R 0 R 675 R R New position (assuming maximum transfer to new tax-free savings vehicle) Tax-free savings vehicle balance R R R R Tax-free interest income R R R R Bank account balance R R R R 0 Interest income R R R R 0 Tax-free interest income threshold R R R R Taxable interest income R 0 R 0 R 0 R 0 Tax payable (25%) R 0 R 0 R 0 R 0 Net position R 0 R 675 R R IV. Effective Date The Budget indicates that new savings vehicles will be introduced by April

29 2. Retirement Reforms: I. Background Previous proposals relating to retirement fund reforms, as adjusted, are likely to come into effect on or after There are currently three separate tax dispensations for the treatment of contributions to and benefits from retirement funds. These are for pension funds, provident funds, and retirement annuity funds. Employer taxpayers are permitted to deduct contributions to pension or provident funds of between 10 per cent and 20 per cent of the approved remuneration of employees as a business expense against tax. In the case of tax-exempt entities, there is effectively no limit on the size of the deduction. These contributions do not form part of the taxable income of employees. Employee taxpayers may not claim a deduction on their own contributions to provident funds, but may claim a deduction on contributions up to a maximum of 7.5 per cent of retirement-funding employment income on contributions to a pension fund. Further, a deduction of up to 15 per cent of non-retirement-funding employment income may be claimed against contributions made to a retirement annuity fund. The main function of any retirement system is to facilitate and encourage individuals to save enough towards their retirement. However, research shows that few individuals can retire with sufficient savings to carry them through their later years. A low retirement savings rate is why many countries, including South Africa, make use of tax incentives to subsidise retirement savings and encourage people to contribute towards a retirement fund. In general, the South African retirement tax regime provides for tax deductible fund contributions, a tax deferral on growth in the fund, and a preferential tax treatment when exiting the fund. The tax incentive discussed here is the tax deduction for fund contributions. II. Reasons for change The tax regime summarised above is very complex, and requires administrators to monitor the original dispensation under which contributions were made and restrict movement between different fund types. Further, the tax exemption has no nominal monetary cap in the case of higher-income employees, allowing them to make tax-exempt contributions way in excess of the amount required to maintain a reasonable standard of living in retirement. Tax-exempt employers are also able to assist employees in postponing tax by making large contributions to pension or provident funds rather than by paying cash income. Harmonising the tax treatment of contributions to and benefits from pension and provident funds (and retirement annuity funds) will substantially reduce the complexity of our current retirement system and achieve greater equity in the tax system by rationing tax exemptions. III. Proposal In response to concerns raised in respect of the 2011 proposal, Government undertook to review and modify the proposal. Adjusted proposals were then included in the 2012 Budget Review and have subsequently been adjusted in the 2013 Budget as follows: Contributions by employees and employers to pension, provident and retirement funds will be tax deductible by individual employees. 29