Sundry _amp; Court Cases _500Kb PPT_ - SAICA by yurtgc548

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									                Workshop content
08:30 – 09:10   The taxation of withdrawal benefits
09:10 – 10:00   Employees tax and related issues
10:00 – 10:30           Capital allowances
10:30 – 11:00                  Tea
11:00 – 11:45             Dividends tax
11:45 – 12:30           Micro businesses
12:30 – 13:00        Court cases and sundry
Sundry matters

• Taxable benefits
   •   Employee use of cellular phones and computers
• Repayment of receipts
• Medical
• Donations to public benefit organisations
   •   Employee tax considerations
Taxable benefits
                 Employee uses a cellular phone         How must
 History          and laptop computer also for        private use be
                        private purposes               determined?

An employee has been granted         the employee       The cash equivalent
   the right to use an asset          uses it (the      of the private use of
                                     asset) mainly
               AN                  for the purposes      the asset will have
               D                         of the               no value
 the asset consists telephone or       employer’s
      computer equipment                business

 A service has at the expense of    the service is
 the employer been rendered to       used by the
          the employee                employee          the service will have
                                    mainly for the            no value
               AN
                                   purposes of the
                D
                                     employer’s
      the service is any              business
    communication service
 Example
             A restraint of trade agreement in terms of which an employee
             received R500,000 was concluded on the first day of year 1.
Facts:
             The restraint was for a period of 5 years, but was cancelled at
                  the end of year 3. The employee repaid R200,000.

                  Gross income                  Payment of           Can this be
Employee                                                             deducted?
                  of R500,000                    R200,000

  Year of
                  1               2              3               4             5
assessment

                      Allowed to be deducted or set off under the provisions
Employer
                      of section 11(cA) at R100,000 per year of assessment


                                                     Recoupment of R200,000
   Refund after receipt – deduction allowed in three
   instances

 any amount received or accrued:
                                                                  The amount refunded
                                                                 qualifies to be deducted
in respect of services rendered or to be
 rendered (includes a voluntary award)
                                                                         AND
    in respect of or by virtue of any               is
employment or the holding of any office         refunded
 as was included in the taxable income           by that           is not prohibited by
             of that person                      person               section 23(m)

 as compensation for any restraint of
    trade imposed on such person                        sections 11(nA) and (nB)

                                           Not for purposes of
                                             employees tax
General

•   Section 18 allows a deduction in respect of expenses that would otherwise
    have been prohibited (in terms of section 23 – maintenance of the taxpayer
    or his family). Not available if recoverable
•   The deduction is made from income, but, in part it derives its value from
    taxable income
•   What qualifies to be deducted?
     •   Contributions made by the taxpayer to a medical scheme in respect of
           •   The taxpayer or any dependent (includes a spouse)
     •   Amounts paid to duly registered
           •   Medical practitioners for professional services rendered or medicines supplied
           •   Nursing home or hospital in respect of illness or confinement
           •   Pharmacists for medicines supplied on prescription
           •   Any expenditure necessarily incurred in respect of any physical disability suffered by the taxpayer,
               spouse, child or dependent
 “physical impairment or disability” expenditure

The requirements of the section 18(1)(d) expenditure:

prescribed by the Commissioner

necessarily incurred and paid by       not recoverable by the taxpayer or
          the taxpayer                         his or her spouse

 in consequence of any physical
                                        the taxpayer, his or her spouse or child,
impairment or disability suffered
                                           or any dependant of the taxpayer
              by
                                          the dependant must, at the time such
                                          amounts were paid, be admitted as a
                                        dependant of the taxpayer in terms of the
                                         medical scheme or fund of the taxpayer
‘‘disability’’ – defined in section 18(3)

 a moderate to severe limitation of a                          perform daily
                                          function     or
         person’s ability to                                     activities


 as a result of a physical, sensory, communication, intellectual or mental
                                impairment

                                 IF

       the limitation has                is diagnosed by a duly registered
        lasted or has a        AND       medical practitioner in accordance
      prognosis of lasting                 with criteria prescribed by the
       more than a year                             Commissioner
     The taxpayer has made contributions to a medical scheme and
             (or) paid amounts to medical practitioners etc?

                       Contributions by employer           Deduction for 2009

Was the taxpayer 65 years of age or
older on the last day of the year or                      Claim contributions
           assessment?                                   and medical expenses
                                          Yes
                                                                 in full
Is the taxpayer, his or her spouse or
   child is a handicapped person?

   No
                    Contributions made             up to a capped amount

    The             The aggregate of the
                   contributions (above the          to the extent that it exceeds
deduction
                     limit) and the other              7,5% of taxable income
is allowed
   in two                  expenses
    parts
Balance of remuneration – “payroll giving”
        Item              Compulsory – employer       At the option of
                              must deduct              the employer

any contribution to
                          when employer deduct
any pension fund           from remuneration


                          when employer deduct      when paid by the
retirement annuity fund                                employee
                           from remuneration


any contribution by the       if the employer     if the employer does
employee to a medical       effects payment of      not effect payment
       scheme                the contribution       of the contribution
Balance of remuneration – “payroll giving”
        Item                   Compulsory – employer     At the option of
                                   must deduct            the employer


 any premium in terms of an                              paid by the
   insurance policy (cover                                employee
 against the loss of income)


        any donation           made by the employer on
                                behalf of the employee

  Employees tax is
  calculated on this           balance of remuneration
       amount
Tax cases

• Fourie Beleggings v CSARS (168/08) [2009] ZASCA 37 (31 March
  2009)
   •   Confirmed the decision in WJ Fourie Beleggings CC v C:SARS
• Tax case 11410 to contrast with Tax case 12399
• Bester Trust v C: SARS (282/2007) [2008] ZASCA 55
WJ Fourie Beleggings CC v C:SARS
The facts
 Owner of the                           The value of the contract
  Elgro hotel                           was R8 791 913,70


                                  WJ Fourie
                             Beleggings agreed
                             to accommodate a
                             number of students                     Naschem
   Lessee                    and officers and to
 (WJ Fourie                    supply them with
 Beleggings)                  meals from 1 April
                              2001 for 791 days
                                                            The students were to
A few days after the attack on, inter alia, the twin       be trained by Naschem
towers in New York (United States of America)                   in South Africa
on 11 September 2001 the students left the
Elgro Hotel without any rhyme or reason.
                                                           students from the United
The hotel was also damaged by the students                      Arab Emirates
WJ Fourie Beleggings CC v C:SARS
The facts - continued
    WJ Fourie          WJ Fourie Beleggings CC viewed
    Beleggings         the conduct of the students as a            Naschem
        CC                breach of the agreement.

                 There was still R4,7 million outstanding on the
                                    contract
                  WJ Fourie Beleggings CC lost a lot of clients

      After WJ Fourie Beleggings CC threatened to sue Naschem the
              parties agreed to settle the matter out of court.

WJ Fourie Beleggings received an amount of R1,292,760 from Naschem. This
amount was not computed with reference to any damages suffered by the CC

                  WJ Fourie Beleggings CC waived its right to
                     institute any claim against Naschem.
                 WJ Fourie Beleggings CC v C:SARS
                       The test applied by the court

When considering the nature of a compensation receipt the court should seek to
                     answer two fundamental questions.


Is the compensation a            If the
 receipt of the trade?          answer               Is it a capital or a
                                is YES               revenue receipt?
      If the
                                                   WJ Fourie Beleggings CC
    answer
                                                   alleged that the amount is a
     is NO
                                                   receipt of trade and that it is
                              There must           capital.
   then it cannot be said
    that the money was        therefore be a
  received as part of the     close connection
  profit-making structure     between the trade
 of the business. Neither     being carried on
                              and the cause of      In this matter it is clear that
  can it be said to be the                             the compensation was
 fruit of the profit-making   the payment of the
                              compensation.        indeed a receipt of the trade.
          structure.
The capital nature of the receipt

• The above ‘tests’ are not always helpful when one is dealing with
  compensation for cancellation of trading contracts.
• An amount paid by way of damages or compensation takes on the
  character of the loss in compensation for which it has been paid. If
  the payment is made in respect of a loss of income, the receipt will
  be of a revenue nature. A receipt arising on the cancellation or
  variation of a trade agreement is normally of a revenue nature.
• Where, however, a contract is so crucial that its loss would cripple or
  destroy the business it may transcend the status of an ordinary
  commercial contract.
• “…Income received for the termination of such a contract may –
  depending on the facts and circumstances of the particular case –
  be capital…”.
The method does not determine the nature

• If it is shown that the cancellation of a commercial contract affected
  the profit-making structure of the business or that it affected the
  whole manner in which the business is conducted and that
  compensation has been paid therefore then that compensation
  would be of a capital nature.
• If the amount to be paid is computed with reference to future loss of
  profits the receipt will remain of a capital nature. The method used to
  compute the sum therefore does not necessarily determine the
  nature of the sum.
Decision

• The sum of money received by the appellant was not in a material
  sense received as compensation for not being allowed to make
  profit by not hiring out rooms at the hotel, i.e.
• it was not received in respect of the termination or sterilisation of any
  part of the appellant’s business.
• it was also not received in respect of a capital asset. The capital
  asset (the hotel) could forthwith be harnessed to produce profit by
  hiring out rooms.
• Expenditure to restore or maintain an asset to its normal function is
  not capital. It is revenue and is deductible as a revenue expense. An
  accrual or compensation to effect the necessary repairs would
  therefore also be of a revenue nature.
Decision continued

• It is clear to me that the appellant was compensated for the loss of
  profit that it would have made had the students not moved out. It
  was paid to help with its cash flow problems.
• In my view, the appellant has not succeeded in proving on a balance
  of probabilities that the compensation was of a capital nature.
       Tax case 11410


The facts
                   sold shares to the value of          The ABC
                         R2,628,340 to                 Familie trust
   Mrs. A
                   on a loan account, interest
                   was charged and the loan
                   was repayable on demand


   Mrs. A died     the loan account was left as a bequest to the trust

                    has a debt owed by a person to a creditor been
      The issue
                        reduced or discharged by that creditor
  Tax case 11410

The decision

The creditor, the testatrix, disposed of an asset by discharging the
                  trust’s debt for no consideration.

  This created the situation where the claim against the trust was
  extinguished by operation of law, by way of set-off between the
                estate and the beneficiary, the trust.

It is not the occurrence (or “act”) of set-off which renders the result
     thereof in the hands of the debtor taxable, but the act which
amounted to a discharge of the debt: The drawing up of the last will
 and testament and its coming into operation at the date of death.
   Tax case 11410

 The decision

   Paragraph 11(1) of the Eighth Schedule expressly includes any
     operation of law which results in the extinction of an asset.


 The estate’s asset was extinguished by the operation of law, namely
the set-off, which in turn was created by a disposition by the testatrix.


This transaction consequently falls squarely within the provisions of
   paragraphs 12(5) and 40(2) of the Eighth Schedule to the Act
                          Tax case 12399

The facts

the testatrix and    certain personal items          The surviving
  her husband          are bequeathed to               spouse
executed a joint
   will in terms    the residue of the estate
  whereof they      subject to the usufruct in
                     favour of the surviving        The XXX Trust
disposed of their                                   (the sole heir)
estate as follows    spouse and the son to

                                                  the testatrix died

                       the debt owed by the trust to the testatrix had
  The issue
                     been discharged for no consideration and that the
                     trust had acquired that claim for no consideration
                         (paragraph 12(5) of the Eighth Schedule)
                   Tax case 12399 - continued

      Established from the facts

What is therefore clear from the wording of the will, is that it was the intention
of the testatrix that her claim against the trust (her loan account) was to form
part of the residue in the estate. This claim was not separately bequeathed to
                               the trust as a legacy

The decision

    Besides the unambiguous wording of the will, there are probabilities
  indicative thereof that it was not the intention of the testatrix to specially
  bequeath the debt represented by her loan account to the appellant as a
                                    legatee.
 I therefore conclude that the claim of the testatrix under her loan account
formed part of the residue of the estate, and that it was not her intention to
    dispose of this claim in favour of the appellant for no consideration as
     contemplated in paragraph 12(5) of the Eighth Schedule to the Act.
      Tax case 12399                        Comments in the decision


  Could the manner in which the executor administered the
  estate be decisive for the question whether a capital gain
                  arises on such an award?
The answer is to be found in the wording of paragraph 12(5) of the Eighth
                                Schedule

    What is required in terms of this paragraph is an act by a creditor
    whereby he/she consciously intended to discharge a debt for no
                             consideration.

  The determining factor is the intention of the creditor whereby he/she
disposed of a debt or an asset, and not the subsequent manner in which
               that creditor’s estate may be administered.
Bester Trust v C: SARS (282/2007) [2008] ZASCA 55

• The second question concerns the taxpayer’s entitlement to an
  opening stock deduction.
• There is no suggestion that sand was, after separation, allowed to
  lie or accumulate on the farm. From these facts and inferences two
  conclusions are inevitable.
   •   First, that in the overwhelming majority of cases (the only possible exception
       being separation at the end of a year of assessment and removal a day or two
       later) separation and disposal took place within the same year and therefore s 22
       was of no application to the separated stock.
   •   Second, because separation and transfer of ownership were, to all intents and
       purposes, if not simultaneous, then at least part of one continuous process, the
       taxpayer never intended to create or hold trading stock in the separated sand for
       the short time preceding removal from the farm. For this reason too, s 22 would
       not have become a relevant factor in the financial history of the sand.
Bester Trust v C: SARS (282/2007) [2008] ZASCA 55

• Counsel was unable to refer us to any statutory provision which
  bound us to enforce or empowered us to adopt or sanction this
  practice (of which no evidence was in any event adduced). Nor is
  the formulation capable of enforcement, since what is ‘normal’ within
  the understanding of SARS is beyond the scope of judicial notice. In
  any event, as I have already found, no ascertainable part of the
  sand deposit could fairly be described as trading stock held by the
  taxpayer.

								
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