Simulation
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 […]
Different interest rates in tax
The Income Tax Act[1] contains definitions for various interest rates. These interest rates serve as the basis for interest calculations in income tax in different circumstances and can broadly be categorised into three main areas. Knowing the difference between these different types of interest rates could have a material impact on the amount of interest […]
Tax on retirement lump sums
Determining the tax consequences in respect of any lump sum benefits from retirement funds can be complex and various legislative changes have been incorporated over the last few years, to regulate and align the tax treatment of these benefits. Lump sum benefits are included in “gross income” in terms of paragraph (e) of the definition […]
Rating formula for farming income
The Income Tax Act[1] provides for a natural person who derives income from farming operations to elect (within three months after a year of assessment) to be subject to tax according to a rating formula, instead of the normal income tax tables. The reason for this option is the (sometimes) abnormal and unpredictable way in […]
Debt reduction rules: New taxpayer friendly amendments expected
The South African Income Tax Act contains a number of rules which give rise to onerous tax consequences where a taxpayer’s debts owing is forgiven. These rules were in recent years the subject of comprehensive legislative amendments. During the 2018 budget process, National Treasury indicated that it was aware of unintended tax consequences that arise […]
Deductibility of interest for non-trading individuals
SARS Practice Note 31.2 (PN31.2) provides for a person to be able to deduct interest paid, even where that person is not a moneylender or doesn’t carry on any other trade, where that interest expense is incurred in the production of other interest earned to the extent that it does not exceed the interest income. […]
Research and development
The research and development (R&D) tax incentive contained in section 11D of the Income Tax Act[1] was introduced to encourage private sector investment in scientific or technological R&D undertaken in South Africa. It includes a 150% income tax deduction for qualifying operating expenditure and a 50/30/20 depreciation allowance on qualifying plant and machinery or any […]
Income tax recoupments
In the ordinary course of business, assets used by taxpayers to conduct their trade are often written down over a number of years in the form of accounting depreciation. The Income Tax Act[1] provides similarly for assets to be written down for tax purposes over a period of time, and which wear and tear related […]
Welcoming tax news for franchise owners
The Tax Court has upheld a decision that a tax deduction allowed by section 24C of the Income Tax Act may be applied to franchisee costs. Section 24C permits the deduction of certain expenses in the current tax year of assessment, where those expenses are not yet incurred, on the basis that these expenses will […]
Interest received by non-residents on SA bank accounts
Persons that are not tax resident in South Africa (“SA”) are only taxed in SA on income received by or which accrued to such non-resident from an SA source. This will include interest received on an SA bank account.[1] Non-residents may, however, be exempt from SA income tax on interest earned in terms of section […]