Harbour & Associates

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…

When SARS changed the 2022 annual tax return IT14 for companies, they got really clever. Not only do they want the details of the shareholders and when they acquired the shares. They also want the tax registration numbers of the shareholders. Now, since any well designed trust structure requires that the trust owns a company that owns the assets, when preparing the company tax return, the trust’s tax number is required. If you can’t fill that in, you can’t submit the company’s return. And, of course, once you’ve registered your trust as a taxpayer, you have to submit (hopefully Nil)…

A couple who booked a meeting with me were not sleeping at night because they had been doing more than R1m a year turnover from their two multi-unit AirBnB premises and they weren’t VAT registered. What does the law say about this? As soon as you exceed R1m a year VATable turnover, you must register as a VAT vendor. If you don’t, SARS may deem you to have done so and demand the VAT portion of all your invoices, even if you didn’t add VAT. This is what they were panicking about. The legislation is open to various interpretations and…

This question is only relevant when the liability date could fall either into the previous tax year or the new tax year of the seller. Let’s say that the seller’s tax year ends on 28 February. The Offer to Purchase was signed by both parties on 15 January 2023. The supensive clauses were satisfied on 5 February 2023. The transfer was registered at the Deeds Office on 25 March 2023. From a CGT point of view, when were the proceeds of the sale received by or accrued to the seller? (see 3(a) Eighth Schedule, Income Tax Act) My view, as…

Evidently about mid 2022 SARS posted a letter onto it’s website advising anybody that was lucky enough to stumble on it that it had set up a new platform for import and export licenses. It advised traders that they must migrate to the new platform (they called it “onboarding”) Of course, nobody saw the letter. Now we just got bombarded by SARS with SMSs advising us that our (clients’) licenses are about to be suspended, because they did not onboard to RLA. Thank you SARS. Brilliant communication. It took us the usual forever to navigate our way through the process,…

Well done SARS! They finally woke up. I’ve written on several occasions about taxes that SARS can’t hope to collect. Amongst them are – Transfer Duty on the sale of shares in a Residential Property Company. Securities Transfer Tax on the sale of shares in a company. CGT on the sale of shares in a company. Why was this? Because the only place where the shareholding of a company was recorded was on the share register on somebody’s computer. Now, however, there’s an addition to the Company Tax Return form IT14 which requires that the share register be disclosed. This…

Tax

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?

Now there’s no way around it. Your trust must register as a taxpayer.

If I earn over R1m a year from AirBnB, must I register for VAT?

On what date does the seller become liable for CGT on the sale of fixed property.

All Import Export licenses suspended

A profound change to Company Tax returns

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