Taxation 300 Notes FROM JAN TO DECEMBER PDF

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TAXATION 300Notes by Wynand OberholzerTable of Contents Framework for individuals Value added tax............................................................................................................................... Income & Residency Deductions & Assessed losses Capital allowances ...

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TAXATION 300 Notes by Wynand Oberholzer

Table of Contents Framework for individuals .............................................................................................................. 2 Value added tax............................................................................................................................... 3 Income & Residency ..................................................................................................................... 14 Deductions & Assessed losses ...................................................................................................... 20 Capital allowances ........................................................................................................................ 28 Capital gains tax............................................................................................................................ 32 Trading stock ................................................................................................................................ 39 Interest........................................................................................................................................... 41 Forex ............................................................................................................................................. 42 Individuals..................................................................................................................................... 45 Fringe benefits & Allowances ...................................................................................................... 50 Employees’ tax.............................................................................................................................. 56 Retirement benefits ....................................................................................................................... 60 Provisional tax .............................................................................................................................. 64 Dividends tax ................................................................................................................................ 68 Types of entities ............................................................................................................................ 70 Trusts............................................................................................................................................. 71 Objection and appeals ................................................................................................................... 76

1

Framework for individuals Gross Income Less Exempt Income = Income

RLB & SB (1) XXX

RLWB (2) XXX

Other (3) XXX (XXX) Income

Less Deductions Less Assessed Losses c/f Add Other Amounts in TI = Subtotal 1

(XXX) (XXX) XXX Sub 1

Add Taxable Capital Gain = Subtotal 2

XXX Sub 2

Less s11F Contribution = Subtotal 3

(XXX) Sub 3

Less s18A Donations = Taxable Income Tax on Taxable Income Less Annual Rebates =Subtotal

(XXX) Taxable Income ZZZ ZZZ ZZZ

ZZZ ZZZ ZZZ

Subtotal of all columns Less s6A & s6B Medical Credits = Net Normal Tax Liability

ZZZ (ZZZ) ZZZ

Less PAYE & Provisional Payments = Normal Tax due by/refundable to TP

(ZZZ) ZZZ

ZZZ (ZZZ) ZZZ

2

Value added tax Indirect tax charged on usage → Vendor deducts tax incurred (input) from tax collected (output) Output – Input = Vat payable to/refundable by SARS 2 Types of supplies: 1. Taxable → Standard rate – 15% (incl deemed supplies) → Zero rate – 0% 2. Exempt supplies SARS collection = vendor submits VAT 201 at end of each tax period

Registration •

Voluntary → Taxable supplies > R50 000; ≤ R1 000 000 ▪ During 12-month period; or ▪ Reasonably expected within 12 months of registration

•

Compulsory → Taxable supplies > R1 000 000 ▪ At end of month during which total of taxable supplies exceeded R1m in preceding 12 months ▪ At beginning of month where anticipated next 12 months > R1m ▪ Electronic service providers (from 1 April 2019)

Value of taxable supplies excludes VAT Onus is on person to register within 21 days on VAT 101 form •

Separate businesses → If joint taxable supplies exceed R1m* → But, if each business conducted in separate legal person – each company only required to register if own separate taxable supplies > R1m

* May register separately if → Separately identified i.r.o location or activities; and → Independent accounting records.

3

Separate persons = deemed to be single VAT person if: → Carrying same enterprise → SARS satisfied that main reason for split = avoiding registration

Tax periods Category A

Jan, Mar, May

B

Feb, April, June

C

One-month period

D E

Six-month (Feb/Aug) 12-month period

Taxable supplies 12 months ≤ R30m (Farm > R1.5m) Taxable supplies 12 months ≤ R30m (Farm > R1.5m) Taxable supplies 12 months > R30m (writing or default) Farm 12m ≤ R1.5m; Micro business (writing) Co/Trust

Claiming input Input VAT: → Only be claimed if valid tax invoice (and paid VAT) → Acquisition of 2nd-hand goods from non-vendor Valid tax invoice •

Supply ≤ R50 (incl VAT) → Tax invoice optional → Within 21 days if purchaser requires

•

Supply > R50 and ≤ R5 000 (incl VAT) → Name, address, VAT reg no of supplier → Date → “Invoice” on invoice → Description of goods/services (indicate if 2nd-hand) → Value of supply + amt of VAT + consideration → Serialised no

•

Supply > R5 000 (incl VAT) → All info from above → Name, address, VAT reg no of recipient → Quantity and volume of goods 4

Invoice vs Payment basis Invoice → Time of supply = earlier of: → Invoice issued → Payment received Payment basis → Natural person and taxable supplies: → ≤ R2.5m (excl VAT) → Voluntary & taxable supplies < R50 000 Any supply of R100 000 or more (incl VAT) = invoice basis

Admin VAT 201 + pmt to SARS on/before → 25th of month (manual); end of month (e-filing) Late payment = 10% of tax due + interest

VAT levied •

Supply of goods or services (output tax) → By a vendor → In the course or furtherance of an enterprise

•

Importation of goods (VAT will be raised whether vendor or not) → Time of supply: ▪ Non-customs union = home consumption ▪ Customs union = entry into republic → Value of supply ▪ Non-customs union = (Customs duty value + 10% of customs duty value + customs duty) x 15% ▪ Customs union = (Customs duty value) x 15%

Customs union = Botswana, Lesotho, Namibia, Swaziland (BLNS) VAT = collected, can be claimed input tax if importer is a vendor •

Importation of services (VAT raised) 5

→ Supply of services ▪ By supplier who is non-res/business outside SA ▪ To recipient res of SA ▪ To extent that services are used in SA for making non-taxable supplies → VAT = payable by recipient ▪ Services imported by non-vendor; or ▪ Vendor, other than making taxable supplies → Value of supply: ▪ Greater of → Consideration and Open MV of supply

Zero-rated supplies Supplier → May claim input on goods/services acquired to make zero-rated supplies Recipient → No input tax claim 1 - Export of goods Direct exports:

VAT levied = notional input previously claimed

→ Moveable goods, delivered in export country → 2nd hand goods where notional input was claimed (Not zero-rated) Indirect exports:

→ Delivery in SA to a “qualifying purchaser”, standard rate, VAT refunded to recipient. → Only difference between output VAT levied and input VAT claimed (by SA vendor) claimed as refund by recipient 2 – Export of services → → → →

Transportation as a standalone service (passengers or goods) Transport and ancillary transport services to exported goods Services (other than transport) rendered outside SA Services (other than transport) rendered in RSA to non-residents

3 – Sale of a going concern Sale of enterprise or part of enterprise as a going concern – requirements: •

•

Agree in writing that: → Income earning activity at time of transfer → All assets necessary for carrying on the enterprise are disposed of → At time of contract agree that consideration is inclusive of VAT at a zero-rate → Both parties are registered vendors for VAT purposes 100% taxable use (≥ 95%) 6

4 – Other Certain basic foodstuffs Petrol and diesel

Exempt supplies Supplier → Makes non-taxable supplies; May not claim input tax on goods/acquired to make exempt supplies Recipient → No input tax claim 1 – Financial services Financial services = exempt Does not include cryptocurrency 2 – Residential accommodation Supply of a dwelling* under an agreement for the letting thereof * Dwelling = place used predominantly as residence – but excludes commercial accommodation Exemption also applies to employers who supply accommodation to employees Commercial Accommodation: → For an unbroken period > 28 days = attract VAT on 60% of value of supply → Value x 60% x 15% 3 – Other • •

Transport of fare-paying passengers Educational services

Deemed supplies 1 – Certain fringe benefits All 7th schedule fringe benefits → → → →

Assets give < MV Services made available for personal purposes Right to use an asset Release of debt owed to employer

7

VAT on the right to use a motor vehicle Consideration of supply of a fringe benefit that is not related to use of a motor vehicle = A x B A = Cash equivalent; B = Tax fraction Steps for a motor vehicle

Requirements, common to ask passenger vehicles, which are motor cars

1. Value of motor vehicle (excluding VAT) 2. Value in step 1, multiplied by a. 0.3% - IF input tax was denied (motor cars) b. 0.6% - IF input tax was not denied 3. Deductions: a. Input was claimed = all amounts paid by employee to employer (excl finance and fuel) b. Input was denied = all amounts paid by employee to employer (excl finance, fuel and portion of amount relating to fixed costs of the motor vehicle) 4. Multiply by 15/115 5. Multiply by % used for taxable supplies.

2 – Indemnity payments Under contract of insurance (short term)

Long term = exempt financial service

N/A → Not related to taxable supplies; Insurer replaces item

3 – Ceases being a vendor Any goods (not input denied) or right = deemed supply immediately before ceasing to be a vendor: → Unless enterprise = carried by executor/trustee of insolvent/deceased estate Value of deemed supply (goods and rights) = lessor of 1. Cost; or 2. Open MV Acquired from connected person = open MV of acquisition date Balance owing to creditor → Output tax = levied on unpaid balance (not older than 12 months): → Only to extent output tax not yet raised

If deregister (taxable supplies < R1m or < R50 000 = VAT paid within 6 months 8

4 – Supplies to a branch/main business outside SA Vendor = deemed to make supply Requirements: → → → →

Branch/main business = permanently outside SA Is separately identified And has independent accounting system The supply will be zero-rated

5- Payments exceeding consideration

If excess refunded later → claim as input tax

Payment received > Consideration •

Must levy output tax on excess amount (unless repaid within 4 months)

Apportionment Output tax = No apportionment → 2 exceptions: 1. Fringe benefits 2. Indemnity payment

Apportioned to extent of taxable supplies

→ Making taxable supplies and partly making exempt = Claim input to extent taxable supplies are made Input tax = Apportion to extent goods/services are used to make taxable supplies

Input tax Determining input tax Determine purpose for which goods/services will be used: 100% taxable supplies

≥ 95% taxable supply

< 95% taxable supplies

Claim 100% input (unless input = denied)

Claim 100% input (de minimis rule applies)

Apportion input tax

Denial of input tax Entertainment

Food, beverages, accommodation, entertainment, etc. of any kind, by a vendor to anyone in connection to enterprise carried on by him Exceptions (1st set = business of supply entertainment): 9

→ Charged to cover direct and indirect costs of supply; or → Entertainment = for bona fide promotion to current clients; or → Excess food = given to employees or welfare

Club subscriptions

Motor car

→ Supply entertainment at charge to cover all costs → Employees = obliged to be away from usual place of res for at least 1 night Sporting, social or recreation clubs Fees of professional bodies ≠ club subscriptions (input NOT denied) Motor car, station wagon, minibus, double cab light delivery vehicle → and any other motor vehicle → normally used on public roads → which has three or more wheels → constructed or converted wholly or mainly for the carriage of passengers Exceptions: → Carry only 1 person; > 16 persons → Unladen mass ≥ 3 500kg → Constructed special purpose (not carrying passengers) → Game viewing vehicles (constructed/converted, 7 or more passengers) → Hearse (exclusively transport of deceased)

Motor car (cont.)

Denial does not apply to: • Car dealer • Car hire business • Betting transaction • Regularly supplies motor cars as prizes to customers

Notional input on 2nd hand goods Acquire from non-vendor or vendor making non-taxable supplies (res of SA) → Goods situated in SA → Goods used for making of taxable supplies Input tax = 15/115 x lessor of: → Cost → Open MV Only claim input to extent payment has been made (∴ apportion for % of payment made at time) 10

Special rules and misc. Irrecoverable debts Vendor accounted for output tax → entitled to additional input deduction → Debt is partly/wholly recovered = output on portion recovered relating to taxable supply Vendor can’t pay creditor, and deducted input VAT → 15/115 x unpaid consideration = output raised

Time and value of supply •

General rule → Time of supply (ToS) = earlier of: ▪ Invoice issue ▪ Payment → Value of supply (VoS): ▪ In form of money = money ▪ Not in form of money = open market value (less the VAT)

Connected persons

• •

ToS = General rule VoS = Open MV if – no consideration (less than MV) AND recipient not entitled to full input deduction

Rental agreements

• •

ToS = Earlier of: Date pmt due, and date pmt received VoS = General rule

Progressive supplies

ToS = Earlier of: Date pmt due, date pmt received, date invoice issued • VoS = General rule

Undetermined consideration

ToS = Earlier of: Date pmt due, date pmt received, date invoice issued • VoS = General rule

Entertainment

•

VoS = Input denied; Value is Rnil (general rule if entertainment business)

Dual supplies

• •

ToS = General rule VoS = Apportion consideration to each component

•

•

11

Supply for no consideration Vouchers

•

Installment credit agreement

• •

• •

VoS = Deemed Rnil (unless to connected person) ToS = General rule VoS → For monetary value – No VAT on purchase, subsequent surrender = VAT → For goods/services – Purchase = VAT, subsequent surrender = No VAT → Issue + redeem by same supplier = VAT on redemption → Issue + redeem different suppliers = account for VAT on full amount ToS = Earlier of: Date goods delivered and time of pmt VoS = Consideration = cash value; No VAT on finance charges

Fixed Property To extent pmt received

Seller = registered vendor → account for output tax (If VAT levied = exempt from transfer duties) Never transfer duty AND VAT Seller = non-vendor → transfer duty levied ToS = earlier of: → Date of registration; and → Date pmt made. Vos = → General rule (either VAT or transfer duty levied) → Amount due in installment = claim input to extent payment is made Buyer will either claim ACTUAL* input or NOTIONAL# input Buyer may claim actual input: • Registered = input claimed to extent pmt is made Buyer may claim notional input (second hand) • Registered invoice basis = Only claim once property is registered in name of buyer AND to extent that pmt has been made •

Registered payments basis = Same as above, but only if full transfer duty has been paid

* Purchased from a vendor (hence actual input) → Seller account for output # Purchased from non-vendor → Seller does not account for VAT 12

13

Income & Residency Income = Gross Income (Incl Specific Inclusions) – Exempt Income

Specific Inclusions → Included in Gross Income • • • • • • • • • • • • • • •

Annuities Alimony/Maintenance Services Restraint of Trade Compensation for Loss of Office Fund Benefits Commutation of Amounts Due (Commutation = Substitution) Lease Premiums Leasehold Improvements Compensation for Imparting Knowledge Fringe Benefits Disposal of Certain Assets Dividends Key-man Insurance Policies Recoupments

Exempt Income

Interest Exemption

Local Interest: → Taxpayer ≥ 65 = R34 500 Exempt → Taxpayer < 65 = R23 800 Exempt

Tax Free Investments

Investment in tax free instruments: → proceeds = always exempt Contribution limit: • R33 000 annually • R500 000 over lifetime If limit = exceeded, 40% of excess contributions is deemed normal tax payable

14

Dividends

Dividends declared by SA resident company = exempt: → Natural Persons → Corporate Entity → SA and Non-Residents Not exempt if declared in form of annuity.

Foreign Dividends

JSE Listed Shares (i.e. Declaring company = listed on JSE) = Fully Exempt Participation Exemption: → Person receiving holds at least 10% total equity shares and voting rights; or → Recipient = company, then included in the 10% is interest held by any other company in the same group; and → Dividend must be i.r.o. equity share = Fully Exempt Ratio Exemption: → If no other exemption applies, exempt amount equals: • Foreign Dividends * 25/45 (Natural Persons/Estate/Trusts) • Foreign Dividends * 8/28 (Company)

Foreign Pensions

Any foreign pension = included in Gross Income The exemption = limited to amounts received from foreign funds Amount received from source within SA = 𝑃𝑒𝑟𝑖𝑜𝑑 𝑆𝑒𝑟𝑣𝑖𝑐𝑒𝑠 𝑅𝑒𝑛𝑑𝑒𝑟𝑒𝑑 𝑖𝑛 𝑆𝐴 𝑇𝑜𝑡𝑎𝑙 𝑃𝑒𝑟𝑖𝑜𝑑 ∴ Total amount – Amount Received from source with SA = Exempt

UIF Benefits

Any benefit payable = Exempt from normal tax

Uniforms and Uniform Allowances

Cash Equivalent = Included in Gross Income Exempt IF: → Clearly Distinguishable → Required to wear on duty 15

Relocation/Transfer Costs

Employer must have borne these expenses: → Himself → Reimbursed his employee

Services Rendered Outside the Republic

Exemption = Salary, leave pay, over time, etc, AND Fringe Benefits. Only applies: → Outside SA > 183 days during any 12 months; → Includes continuous period > 60 days; → Services rendered during period outside SA; → Services rendered for employer (may be situated anywhere) From 1 March 2020 → exemption only applies if remuneration for services outside SA does not exceed R1m in YOA

Bursaries & Scholarships

→ Must be bona fide → To enable/assist a person to study → At reco...