A strange question that I was asked in a recent meeting. But, there’s no such thing as a stupid question, only stupid people who don’t ask questions. The answer is categorically No. In fact, the main reason for building wealth in a trust is to avoid taxes on death. It’s called Estate Planning.
Tax
s17 of the VAT Act is clear on this. Just as expenses are only deductible for Income Tax if they are in the production of income, so Input VAT is only claimable to the extent the it is incurred for VATable sales, so, if there’s no direct connection (i.e goods in, goods out) then there’s an apportionment that needs to be applied. This means, to take an example like bank charges. If you’re paying R575, of which R75 is VAT and your VATable sales are say, 2/3rd of your total sales, then you can claim 2/3 x R75 = R50…
I am deeply endebted to Theo Burrows of the Tax Faculty Team for finally settling this issue. He has confirmed the tentative view that I expressed in this article. That is, that if the business of letting Air BnB accommodation does more than R1m turnover, then it must register as a vendor and charge VAT. The bottom line is that AirBnB is commercial accommodation (subject to VAT) and is not the letting of a dwelling (not subject to VAT). His references from the VAT Act are: s1 Definition of Commercial accommodation s12(c) Commercial accommodation is subject to VAT. Residential dwelling…
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 name.…
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…
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…
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.
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, and this…