Admin penalties for outstanding corporate income tax returns

Tax , ,

In general, all registered companies must submit corporate income tax (“CIT”) returns within 12 months of the end of the company’s financial year-end. This is applicable to all companies that are resident in South Africa, that receive source income in South Africa, or that maintain a permanent establishment or a branch in South Africa.

 

On 29 November 2018, the South African Revenue Service (“SARS”) issued a media release confirming that SARS will soon start imposing administrative non-compliance penalties as provided for in Chapter 15 of the Tax Administration Act[1] for outstanding CIT returns. To date, these penalties were only imposed on individuals with outstanding income tax returns.

 

This announcement follows a media release earlier in November 2018 which stated that SARS is once again embarking on a nationwide awareness campaign to reinforce taxpayers’ obligations to submit outstanding tax returns, specifically targeting companies.

 

In this regard, the fixed amount penalties in terms of section 211 of the Tax Administration Act range from R250 (where the company is in an assessed loss position) to R16,000 (in instances where the company’s taxable income exceeds R50 million) for each outstanding return. Once the penalty has been imposed, the penalty will increase by the same amount for every month that the non-compliance continues.

 

In order to determine the amount of the penalty to be imposed, SARS will consider the year of assessment immediately prior to the year of assessment during which the penalty is assessed.

 

The penalties will furthermore be imposed by way of a penalty assessment. Any unpaid penalties will be recovered by means of the debt recovery steps.

 

According to the media release, the administrative non-compliance penalties will be imposed for outstanding CIT returns for years of assessment ending during the 2009 and subsequent calendar years. Please note that this will also apply to dormant companies with no receipts or assets.

 

SARS will, however, issue the relevant company with a final demand which will grant the company 21 business days from the date of the final demand to submit the outstanding returns before the penalties will be imposed.

 

Companies may request remittance of the penalties imposed from SARS and have the right to lodge an objection via eFiling should the request for remittance be unsuccessful.

 

The takeaway is that all companies with outstanding CIT returns (whether these companies have assessed losses for those outstanding years or not) should complete and submit these returns as soon as possible in order to avoid the administrative non-compliance penalties being imposed.

 

[1] No. 28 of 2011

 

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Simulation

Tax , ,

In addition to specific anti-avoidance provisions and the general anti-avoidance provisions (GAAR) in the Income Tax Act,[1] the South African Revenue Service can apply another established principle to attack the validity of transactions and arrangements, namely the common law doctrine of simulation, or the plus valet doctrine. This is a fundamental principle of the South African common law that concerns itself with the true legal nature rather than the outward form of a transaction, essentially considering the substance of a transaction, rather than its form.

 

Application of the doctrine was recently under the spotlight again in the Supreme Court of Appeal in the matter of Sasol Oil v CSARS (923/2017) [2018] ZASCA 153 (9 November 2018). Sasol successfully appealed a judgment by the Gauteng Tax Court, which found that certain back-to-back transactions by entities in the Sasol Group were simulated and not genuine. Instead of Sasol in South Africa purchasing oil directly from a Sasol company incorporated in the Isle of Man, a UK company was interposed between the local entity and the Ilse of Man entity, the effect of which was that certain controlled foreign company rules in South Africa did not apply.

 

The court analysed statements from witnesses in the Sasol Group to determine what the reasons and commercial rationale were for the interposed UK entity. These witness accounts appear to have been crucial (if not the deciding factor) in the decision of the court that the transactions were not simulated or dishonest. In writing for the majority, Lewis JA found that:

 

“The transactions had a legitimate purpose. There was nothing impermissible about following…advice, and so reducing Sasol Oil’s tax liability. The transactions were not false constructs created solely to avoid…taxation.”

 

What is arguably more interesting, is the basis on which the minority found that the transactions were indeed simulated. Mothle JA, considering the same evidence, found that the transactions lacked commercial rationale, and this appears to be one of the main reasons for his dissent, demonstrated by the quotes below:

 

“At the risk of repetition, the…structure perpetuated duplication, with the identified inherent risk of absence of a commercial justification.”

 

“I would find that Sasol Oil failed to demonstrate to the Tax Court the commercial justification for interposing SISL (UK company) in the supply chain.”

 

“The failure to provide commercial justification for SISL revealed the absence of bona fides behind the transactions and as such, the additional assessments were justified.”

 

In the present case, Sasol was successful in proving the commercial rationale for their arrangement to the court. The important takeaway for taxpayers from the judgement is that the facts and circumstances of arrangements should be carefully documented when entering into transactions. Supporting documents, such as minutes of meetings, business plans and even internal notes could all prove to be vital in the assessment if a transaction is genuine, and not simulated.

 

[1] No. 58 of 1962

 

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Ring-fencing of assessed losses of certain trades – part 1

Tax , ,

Persons are generally allowed to set off any losses incurred in respect of one trade against the income derived from another trade, thereby reducing their overall tax liability.

 

However, section 20A of the Income Tax Act[1]ring-fences losses incurred by natural persons from certain trades under specific circumstances. If applicable, the natural person will not be able to set off the loss incurred from that trade against the income from any other trade, but may only set off the loss against future income derived from the trade to which the loss relates.

 

The rationale for this provision was to disallow natural persons to conduct hobbies disguised as trades in order to set off expenses from that hobby against other income such as salary income or professional income.

 

The first requirement for section 20A to apply, is that the natural person must fall within the highest income tax bracket during the relevant year of assessment.[2] For the 2019 year of assessment, the person’s taxable income and any assessed loss or balance of assessed loss of the taxpayer must be equal to or exceed R1.5 million.

 

The second requirement relates to the nature of the trade carried on by the natural person.[3] In this regard, he or she (or any relative of that person) must be engaged in one of the following trades. These include the practising of any sporting activity, any dealing in collectables, any animal showing by that person, any form of performing or creative arts or any form of gambling or betting performed.

 

Also included are the rental of residential accommodation or vehicles, aircraft or boats (unless at least 80% of the accommodation, vehicle, aircraft or boat is used by persons who are not relatives of the natural person for at least half of the year). Farming or animal breeding will also fall within section 20A unless such activities are engaged in on a full-time basis.

 

Furthermore, he or she must have incurred an assessed loss in at least three of the preceding five years of assessment, ending on the last day of the relevant year of assessment.[4]

 

Both these requirements must be met in order for the loss in respect of the specific trade to be ring-fenced.

 

The take away is that taxpayers with additional income sources should carefully consider the provisions of section 20A to the extent that the current ITR12 income tax return for individuals require taxpayers to indicate whether or not the losses are ring-fenced. Taxpayers may also be requested by the South African Revenue Service to confirm why section 20A should not apply in instances where that question was answered ‘no’.

 

[1] No. 58 of 1962

[2] Section 20A(2)

[3] Section 20A(2)(b)

[4] Section 20A(2)(a)

 

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

SARS releases new ruling on documentary requirements for VAT purposes

Tax , ,

In February 2015 the South Atlantic Jazz Festival (Pty) Ltd successfully appealed a judgment of the Tax Court to the Full Bench of the Western Cape High Court (reported as ABC (Pty) Ltd v CSARS [2015] ZAWCHC 8). That judgment dealt with documentary proof required by the Commissioner for SARS to substantiate input tax claims submitted by taxpayers for VAT purposes, and specifically the scope of the provisions of section 16(2)(f) of the Value-Added Tax Act, 89 of 1991.

 

Since the judgment documentary proof linked to VAT input claims have been a focus of Government, with both the subsequent amendment of section 16(2)(f) as well as the introduction of section 16(2)(g). Especially the latter provision is important here and deals primarily with what documentary evidence will suffice as substantiating proof for VAT input claims submitted by a VAT vendor in the absence of for example an invoice received from the supplier, a bill of entry or credit note. The question in ABC above for example was whether a signed agreement could under these circumstances suffice as substantiating proof for an input tax claim submitted.

 

Section 16(2)(g) now reads that “… in the case where the vendor, under such circumstances prescribed by the Commissioner, is unable to obtain any document required in terms of [section 16(2)] (a), (b), (c), (d), (e) or (f), the vendor is in possession of documentary proof, containing such information as is acceptable to the Commissioner, substantiating the vendor’s entitlement to the deduction at the time a return in respect of the deduction is furnished…”

 

SARS has now released a binding general ruling (BGR36) on 24 October 2016 dealing with those circumstances under which the Commissioner will allow a VAT vendor to use alternative documentary proof to substantiate the vendor’s entitlement to an input tax deduction as contemplated in section 16(2)(g). In order to obtain the Commissioner’s approval to use alternative documentary proof in substantiating a deduction under section 16(2)(g), a VAT vendor must apply for a VAT ruling or VAT class ruling.

 

In terms of the ruling, a VAT vendor may only apply for approval under section 16(2)(g) to rely on documentary proof, other than the documents prescribed under section 16(2)(a) to (f), if the vendor

 

  • has sufficient proof that it made reasonable attempts to obtain the documentary proof required by the Commissioner under section 16(2)(a) to (f);
  • was unable to obtain and maintain the documentation prescribed under section 16(2)(a) to (f) due to circumstances beyond the vendor’s control (see below); and
  • no other provision of the VAT Act allows for a deduction based on the particular document in the vendor’s possession.

 

BGR36 continues to list those circumstances when it would be considered to have been beyond the VAT vendor’s control to provide the otherwise required documentation:

 

  • When the supplier has failed to issue a tax invoice, debit note or credit note to the VAT vendor;
  • Where the supplier was contacted but failed to respond to the vendor’s request to be furnished with a complete tax invoice or correct document;
  • The supplier or vendor’s place of business has suffered damage as a result of for example a natural disaster, causing damage to its accounting records, with no possibility of the said records being retrieved or re-issued; or

 

(d) The supplier has been deregistered as a vendor.

 

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

#ZuydamZest Episode 1

Cooking , ,

Zuydam Konsult kook met voedselkonsultant, Heleen Meyer, in ’n reeks kort kook-episodes. In die eerste episode berei Henk van Zuydam, eienaar van Zuydam Konsult, en Heleen ’n lekker pesto voor terwyl hulle gesels oor doeltreffende kombuisgereedskap, besigheidsfinansiering en passie! Net so belangrik soos die regte kombuisgereedskap is vir die beste resultate, maak suksesvolle rekeningkunde ook staat op die regte gereedskap.

 

Zuydam Konsult is ’n Xero Accounting Silver Partner. Zuydam is passievol oor gereedskap wat hulle kliënte se rekeningkundige prosesse stroomlyn en outomatiseer. Xero is ’n “cloud”-gebaseerde rekeningkundige stelsel vir klein tot mediumgrootte besighede.

 

Klik hieronder om meer te leer oor Xero as ’n rekeningkundige oplossing:
https://www.rustgold.co.za/xero-accounting/


Kontak Zuydam Konsult:
 www.zuydam.co.za
Tel: 021 913 9745
E-pos: info@zuydam.co.za

Vir die resep, besoek: (Basiliekruidpesto)

 

Met dank aan Heleen Meyer en haar passievolle span. Besoek haar webwerf vir meer inligting: http://heleenmeyer.co.za

Musiek deur Francois Joubert

Video deur Johan Kok, Iseecreative

 

Hierdie artikel is ʼn algemene inligtingsblad en moet nie as professionele advies beskou word nie. Geen verantwoordelikheid word aanvaar vir enige foute, verlies of skade wat ondervind word as gevolg  van die gebruik van enige inligting vervat in hierdie artikel nie. Kontak altyd ʼn finansiële raadgewer vir spesifieke en gedetailleerde advies. (E&OE)

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