Harbour & Associates

Let’s say that a person owns a rental property and also a company. Can the company charge the rental as if it were the owner and be taxed on the net rental income rather than the owner being taxed? The answer lies in one of the anti-avoidance sections in the Income Tax Act. s7(7) is a difficult read because of the clutter, so I have simply deleted the words which are not relevant to this example, but have not changed any of the words. S7(7) If by reason of any donation, settlement or other disposition made by any person (hereinafter referred…

A VAT registered trust owns a commercial property. We want to use s42 to slot a VAT registered company between the trust and the property, so that the trust owns the company and the company owns the property. How is this treated from a VAT perpective? I copied the entire VAT Act and pasted it into Word, then searched for section 42. I found s8(25) had the answer and it contains some surprises. s8(25)(i) If it were the business that was being disposed of as a going concern, there is no VAT. 1st surprise – it is not a zero…

SARS is hitting companies (especially dormant ones) with monthly Administative Penalties of R250 for every outstanding annual tax return. The result is a debt to SARS that quickly grows to tens of thousands of Rands. This catches many people unawares because there’s a common misperception that if the company is dormant it does not have to submit tax returns. What should you do if your company got hit? First off is to ignore the threatening emails you are getting from SARS’ appointed collecting agent. They are threatening the company, not you (although they deliberately mislead you in this regard). Next,…

To answer this question, we have to go to the Tax Administration Act. Here’s a summary of what it says: s155 The representative taxpayer is personally liable if he/she disposes of money that came into their possession after the tax was payable and could have been used to pay the taxes. s180 Any person who controls the management of a company is liable if negligent or fraudulent in respect of the company’s tax debts. s181 The shareholders of a private company are liable if, on the winding up of the company, they received assets that could have been utilised to…

A car is a fixed asset and if you sell it at a profit, would the gain will be subject to Capital Gains Tax? And if you sold it at a loss, would you record that as a capital loss and be able to offset it against capital gains? Eighth Schedule of the Income Tax Act Para 53(1) excludes personal-use assets from capital gains or losses and Para 53(2) defines a personal-use asset as an asset of a natural person or special trust that is used mainly for purposes other than carrying on of a trade. So, what if you…

You’ve built your small business (one with assets valued at no more than R10m) and now you want to sell it, use the proceeds to add to your property portfolio and retire. What are the CGT implications? We have to go to the Eighth Schedule of the Income Tax Act para 57 2(c). Provided you are 55 years or older or that you are selling because of ill-health, infirmity, superannuation (why can’t they say retirement?) or death, the first R1,8m capital gain is ignored. Isn’t that lovely? The company cost you R100 (shares). It’s now worth R10m, so you’ll only…

I could never understand why a company has to have both a Public Officer and a Representative Taxpayer. The Tax Administration Act eventually provided the answer, but I had to read it a few times before I could figure it out. Representative Taxpayer s153 states that the Representative Taxpayer is responsible for ensuring that the company pays its tax liabilities. s155 says that if s(he) diverts money which could have been used to pay those liabilities, out of the company, then s(he) can be personally liable for the taxes. So, as long as you don’t do that, you cannot be…

I had a meeting with a guy who had this great scheme to save tax. He’s an investor in residential property and was going to register various properties in his own name, his wife’s name and his childrens’ names so that each of them was in a business doing less than R1m turnover. Then he was going to register each of the businesses as a micro enterprise and pay turnover tax. Tax on R999 999 turnover = R14 120 Brilliant! It doesn’t work because of the anti-avoidance rule in the 6th Schedule of the Income Tax Act. This says that…

Let’s say that your VAT registered company bought an office block as an income earning going concern from a VAT vendor. The deal complied with s11(1)(e) of the Value Added Tax Act and was zero rated. Your company then converted the offices into residential units. What are the VAT implications of this? My understanding is that when the conversion has been completed and the residential units become available for letting, the original unpaid Input VAT should be added to the Output VAT and paid over to SARS. If only part of the commercial property, say, 60%, being less than 95%,…

Your company has never traded, and you didn’t submit any tax returns. Then, out of the blue, you received this letter from a debt collector appointed by SARS. “Dear Taxpayer, Kindly note your account INCOME_TAX reference no …………. 8151 is in arrears of R35 500,00. Kindly settle the full amounts immediately. Please log on e-Filing to initiate a payment arrangement. Revenue Consulting on behalf of SARS. Contact us on 010 510 6932 or email your proof of payment to charlottem@revco.co.za” followed by all sorts of threatened action. What does this mean to you? I am not an attorney,…

Your company has never traded, and you didn’t submit any tax returns. SARS imposed a penalty of R250 each month for every outstanding return. Here’s the letter that you received: – Dear Taxpayer, Kindly note your account INCOME_TAX reference no 9903828151 is in arrears of R35 500,00. Kindly settle the full amounts immediately. Please log on e-Filing to initiate a payment arrangement. Revenue Consulting on behalf of SARS. Contact us on 010 510 6932 or email your proof of payment to charlottem@revco.co.za For payment kindly utilize the below mentioned SARS is a bank approved beneficiary, on your banking App…

So, your VAT registered company is planning to buy a mixed use (commercial and residential) property from another VAT registered company. This would typically be shops on the ground floor and flats on the first floor. How does the zero rating for a going concern work in this case? I had a lot of trouble answering this one, but eventually found an excellent opinion by the Tax Faculty, of which I am a member. The article was written by Cliffe Dekker Hofmeyr. s11(1)(e)(ii) Value Added Tax Act … where the enterprise or part, as the case may be, disposed of…

In this instance the seller was the sole member of a CC that owned a productive farm. He wanted to know the Transfer Duty and CGT consequences of the sale. Payment to be made annually over a few years. Whilst I would have advised the buyer to buy the business rather than the CC, there was a definite advantage to the seller in selling the membership of the CC. I first disposed of the Transfer Duty with reference to whether the CC was a Residential Property Company as defined in the Transfer Duty Act. s1 Transfer duty Act residential property…

There are two categories of tax relief and it is important to understand the distinction between them: Relief for business premises. Relief for residential premises. This is not the distinction that is defined in the Income Tax Act, but I choose it because some people think that because they’ve installed the system at their residence for the benefit of their business, they can claim the first of the above. Not so, because the s12BA of the income Tax Act states that the premises must be used mainly for business purposes in order for that section to apply. OK so what…

It was during one of my many meetings that I realised that this was a question that did not have a simple answer. A client of a Personal Services Provider has to deduct PAYE when paying the provider’s invoices, so does that mean that the PSP is an employee? If so, does that mean that, even though its turnover exceeds R1m, it is not carrying on an enterprise and therefore does not have to register for VAT? It’s a tricky question, but, fortunately, the South African Institute for Tax Practitioners (SAIT) came to my resuce with an opinion on that…

By “swallow” I’m referring to people who live in the Northern Hemisphere and travel South every year (typically to a coastal town) to enjoy our summers and avoid the worst of their winters. Now, interestingly, I asked myself the title question while talking to a South African who has lived and worked in Abu Dhabi for 17 years and heads South during the height of their summer to cool off in our winter weather! He and his wife are planning to build a “swallow’s nest” in Mossel Bay. It will not be rented out and will be used only by…

Each year, you will be making a donation of R100 000 to your trust owned company. Does it have to be declared anywhere? Yes. All companies must declare all income received or accrued in their annual tax return. Here’s how: Click on Balance Sheet. Under Current assets – Trade and other receivables enter the current balance from the TB. It will include the latest donation and previous ones as well. Under Total Equity, enter the current balance from the TB. Click on Income Statement, then on Income Items. Under Other income type in the donation amount. Then click on…

I’ve talked a lot about double CGT in various articles and in my books. It generally arises when you own a company that owns growth assets. If you sell, or, on death are deemed to have sold, the shares in the company, in the first instance to your trust and in the second to your deceased estate, you will make a capital gain on the increase in value of the shares which resulted from the growth of the asset values, and you will pay CGT. Then, if the company subsequently sells the growth assets (possibly to pay your deceased estate’s…

Wow. How important things flip flop! SARS decided in their (its?) wisdom that a pure capital gain could not pass through the conduit and be taxed in the hands of a beneficiary. They imposed penalties and interest on the ABC Trust which, they deemed should have declared the gain and paid CGT. In ABC Trust v Commissioner of the South African Revenue Services (IT 24918)(18 March 2021), however, the Tax Court overturned SARS’ decision and declared that the CGT was, in fact, payable by the beneficiary. So the answer to the title question is – Yes! For those of you…

The short answer is yes. Allowances are fully taxable. But if you are using your cellphone for company business or the company’s cellphone for your private calls, the tax implications change. There’s a Draft Interpretation Note that explains all this. Here is a summary – 1) Your company provides you with a phone/tablet/contract and allows you to use it for personal matters as well as for business. If the asset is used mainly for business, then there is no tax payable for this benefit. “Mainly” means more than 50% but this is pretty subjective, because it would include incoming as…

Tax

Can my company earn the rental from property that I own?

VAT registered trust and s42

How to deal with SARS Administrative Penalties

Am I personally liable for my company’s tax debts?

Should I record a capital loss when I sell my car?

CGT allowance on sale of small business on retirement

What are the responsibilities of a company’s Representative Taxpayer and its Public Officer?

Why Turnover Tax won’t work for you.

What happens to VAT if you buy a commercial property as a going concern and then convert it into residential units?

Threatening letters from SARS’ debt collectors

Detailed analysis of SARS’ debt collector threats

VAT and Transfer Duty on mixed use going concern properties

CGT on deferred payment for sale of shares

The tax allowances for solar systems

Does a Personal Services Provider have to charge VAT?

Is a swallow’s nest in South Africa a Primary Residence for CGT purposes?

How to declare your R100 000 donation on your company’s tax return

The hidden double CGT effect of an s42 transaction

Can just a Capital Gain pass through the conduit principle and be taxed in the hands of a beneficiary?

Is a cellphone allowance taxed?

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