Harbour & Associates

Almost every day, I get a phone call from someone who wants to buy a VAT registered shelf company. It’s usually because they want to buy a going concern business (most commonly a commercial property) at zero rate from a VAT registered company. As I explained in my February article a shelf company cannot, by definition, be VAT registered, because a shelf company is one that has never traded. Taking any route to buy such a company is therefore very risky. There is, however, a solution: Register a new company. Sign the Offer to Purchase (OTP) in that company’s…

I was re-reading s42 of the Income Tax Act. That’s the one that relates to Asset for Share swaps and noticed that it only refers to a person initially owning the asset. In this instance, however, I was checking to be sure that a new s42 company could swap its shares for the assets of two companies. Each of the two companies would then be 50% shareholders in the new company and would have effectively merged, which is what the meeting was going to be all about. I had previously struggled with the term “person” because the s1 definition in…

Eish! SARS make life so difficult. They have a lovely website on www.sars.gov.org Go there, log in, select Trust Registration. Then get down to business. They want to know: First name Surname Place of birth Country of Residence ID No. Tax no. Cell No. Email Address Physical Address for every beneficial owner. If there are only two of you, well, that won’t work because they insist on at least one Founder, one Trustee and one Beneficiary. OK, so you meticulously fill in all that, then they want similar information about you as the person requesting the registration. You fill that…

We are inundated with calls from people who have received threatening emails from SARS’s attorneys trying to bully their dormant companies into paying the Administrative Penalties of R200 per month per return outstanding that SARS has been hitting them with. These penalties easily run into 10s of thousands of Rands. What does the law say about that? Firstly, all companies are automatically registered as taxpayers by CIPC upon registration as companies. But, do they have to submit tax returns? Every year, the Commissioner for Inland Revenue has to, in terms of s66 of the Income Tax Act, publish a Notice…

I often I get asked whether to “buy” a car on a Lease or buy on Instalment Sale and then whether the firm should own the vehicle or the Director. The answer to the first does depend on the answer to the second, so let’s tackle the second one first. (How confusing is that?!) If the object is to minimise the combined tax bill of the company and the director, then it is worth while doing the numbers. But the chances are that, if the vehicle is in the middle to upper bracket and the director does a fair amount of…

It is a common perception that if you make a capital gain when you sell an asset, you don’t have to pay CGT if you replace it with a similar asset. Is this true? We have to go to para 65 of the Eighth schedule of the Income Tax Act for the answer. It is only true provided: The disposal was by law, theft or destruction and compensation was received and the compensation equals or exceeds the base cost of the asset (i.e. there was a capital gain) and the proceeds were used within 12 months towards buying a replacement…

You may find someone who registered their company for VAT, then later ceased trading and wants to sell it. The danger there is that you don’t know what skeletons may be in the cupboard and you may not find out until years later. If, on the other hand, you approach a reputable company that forms and sells shelf companies, you will be told that in order to register for VAT a company must have averaged at least R4 200 turnover during at least two months prior to registration. So, since a shelf company is one that has never traded, it…

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…

Tax

How do I zero rate a going concern when I don’t have a VAT registered company?

Is a company a person in tax law?

How do I register my trust for tax?

What are the tax obligations of a dormant company?

Should I buy or lease my business car?

If I replace one asset with another, do I pay CGT?

Can I buy a VAT registered shelf company?

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

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