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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.

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Presentation on theme: "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."— Presentation transcript:

1 Budget & Tax Update 2007

2 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

3 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

4 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

5 Personal income tax  Reduction in personal tax  Tax thresholds  Rebates  Interest exemption  Couple over 65 earning only interest  R tax free  Monetary caps on medical aid contributions  CGT

6 Corporate tax rates  No change to basic rates  SBCs revised tables  STC

7 Other taxes, rates  Estate duty  Rate remains unchanged  Primary abatement increases NB: revisit wills  Donations tax  Rate remains unchanged  Tax free threshold increases

8 Transfer Duty  No change

9 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

10 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

11 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

12 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 anti- avoidance  Tax rate reduced from 12.5% to 10%  Targeted exemption for amalgamation transactions

13 Taxation on dividends cont.  Second phase – 2008  Legal liability for dividend tax moved from company to shareholder  Company must withhold the 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

14 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

15 Depreciation allowances  New rail locomotives, wagons  From 14 yrs to 5 yrs  New quay walls and other port facilities  20 yrs  New commercial buildings and upgrades  20 yrs  Environmental capital expenses  Dams and tanks etc – allowances  Clean-up, restoration, decommissioning – immediate w/off

16 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

17 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

18 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 R  Increased to  Greater of 5% of Gross inc or R

19 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

20 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

21 Small business development  Small business tax compliance cost study  Develop a simplified tax regime for very small businesses – target 2008

22 Enhanced tax administration  SARS to place greater emphasis  E-filing  Re-engineer forms  Scanning and imaging  Reliance on 3 rd 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

23 Small business tax amnesty  applications by 13 Feb 2007  Pace of applications expected to pick up  Technical issue on certain types of trusts  Legislation may follow to clarify

24 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

25 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

26 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%

27 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

28 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

29 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

30 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’

31 Tax Update 2006

32 Developments in 2006  Small Business Tax Amnesty and Amendment of Taxation Laws Act 9 of 2006  25 July 2006  Second Small Business Tax Amnesty and Amendment of Taxation Laws Act 10 of 2006  25 July 2006  Revenue Laws Amendment Act 20 of 2006  7 February 2007  Second Revenue Laws Amendment Act 21 of 2006  7 February 2007  Interpretation notes and guides

33 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

34 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

35 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

36 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

37 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

38 Small Business Tax Amnesty – cont.  Method and period of application  Form SBA-001 together with supporting docs  1 August 2006 to 31 May 2007

39 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?

40 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

41 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

42 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

43 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

44 Small Business Tax Amnesty – cont.  Example  2006 y.o.a sources of income  Salary R  Printing business net income - R  Profit on sale of printing press - R = Capital gain  Capital gain on sale of holiday cottage - R  Rental from holiday cottage by a friend - R5 000  2006 other deduction/allowances  RAF contributions - R  Medical expenses – R10 000

45 Small Business Tax Amnesty – cont.  Example - cont  2006 y.o.a taxable income from business  Printing business net income = R  Capital gain ( – ) x 25% = R  Taxable income from business = R  Levy table pg 20, levy =  Total levy payable = R8 700

46 Small Business Tax Amnesty – cont.  Payment of amnesty levy  Within 12 months of delivery of notice of approval

47 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 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

48 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

49 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

50 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

51 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

52 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

53 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

54 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

55 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

56 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

57 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

58 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

59 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

60 Small Business Corporations  Section 12E turnover limit increased  R6 million up to R14 million

61 Learnership Allowances  Section 12H was set to expire in Oct 2006  Extended to Oct 2011  Maximum allowance on entering increased  From R to R for existing employees  From R to R for new employees  Maximum allowance on completion increased  from R to R  Effective for agreements entered into on or after 1March 2006

62 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  R  New disabled employees – lesser of  175% of the annual remuneration  R  Completion allowance – lesser of  175% of the annual remuneration  R50 000

63 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

64 Revenue Laws Amendment Act 20 of 2006 Second Revenue Laws Amendment Act 21 of 2006

65 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

66 Recreational clubs  Clubs received full exemption in terms of section 10(1)(d)(iv)(aa) and para 64 of 8 th 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

67 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

68 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

69 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

70 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

71 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

72 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

73 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

74 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 1 st y.o.a

75 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 R per annum, and  Only exempts up to R3 000 per year, anything more is taxable

76 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

77 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

78 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

79 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)

80 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

81 Small business corporations  Small co-operative did not qualify for 12E status  Unfair  Section 12E now available to co-operative

82 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.

83 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

84 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

85 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

86 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

87 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 1 st y.o.a commencing on or after 1 April 2007

88 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

89 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

90 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 10 th Schedule override

91 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

92 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

93 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.

94 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

95 General anti-avoidance rule – cont.  Definitions section 80L similar to sec 103  Arrangement  Transaction, operation, scheme, agreement or understanding  Avoidance arrangement  Any arrangement that results in a tax benefit  Party  Anyone who participates or takes part in an arrangement

96 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

97 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

98 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

99 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

100 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

101 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

102 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

103 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

104 Small personal service entities  Para 1 of the 4 th 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

105 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%

106 CGT valuations – submission dates  Para 29(5) of 8 th 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 1 st 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

107 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

108 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

109 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

110 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

111 2010 FIFA World Cup  Schedule 1 of VAT Act  Schedules 1 and 2 of Revenue Laws Amendment Act, 2006  Customs and Excise Act, 1964

112 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%


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