Tax Flash - October 2009

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Tax Flash is BDO Spencer Steward's monthly update on tax issues.

In our previous two issues we focused upon the proposed changes under the draft amendment bills. Following numerous refinements, the drafts were formally tabled as bills before the National Assembly on 1 September 2009. Although the revisions to the drafts reflect a measure of compromise, there are some instances where further adaptation would have better catered for day-to-day practicalities.

In this issue we focus more upon other important developments in the tax world, although we do touch upon some of the key changes to the draft bill.

In this issue...

• VAT Crackdown
• Residential Property Window Widend
• Value Extraction Tax
• Research and Development Expenditure
• Wear and Tear
• Debtors Allowance
• Binding Private Rulings

VAT Crackdown

In a letter to tax practitioners dated 11 September 2009, SARS has advised that they will be issuing letters of suspension or deregistration to all vendors who have failed to submit returns for prolonged periods or who have submitted returns which reflect no liability over 12 months. The consequences will be that these companies will be required to undergo an onerous revalidation process, not dissimilar to the beefed up registration provisions introduced last year. In other words, one will be required to re-submit certified proof of identification of the company representations and the physical address of the business, a business plan, a justification to remain registered, proof of invoices and probably an in loco inspection from SARS.
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Residential Property Window Widend

The proposed relief, whereby residential property may be transferred out of a company or close corporation to the owners in their individual capacity, has been met with considerable enthusiasm. Taxpayers will enjoy a rollover of the capital gains consequences and such reorganizations may take place on a basis which is free of transfer duty and STC. Also, once the property is in an individual's name, not only would the effective tax rate be lower, but also there is relief or partial CGT relief upon disposal of a primary residence held by an individual. Many taxpayers have however been disappointed to discover that their personal circumstances do not fall within the parameters of the relief.
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Value Extraction Tax

In anticipation of the new dividend tax, the rules for deemed dividend events have been further refined under a new category of tax referred to as Value Extraction Tax ("VET"). Unlike the new dividends tax, VET will fall upon the company undertaking the transaction rather than the party benefiting from the extraction at the same rate of 10 %.
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Research and Development Expenditure

On 28 August 2009, SARS issued a comprehensive interpretation note relating to the research and development allowance contained in section 11D of the Income Tax Act. These allowances are most generous and can give rise to both accelerated write-offs and an allowance up to 150% of the qualifying research and development cost.
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Wear and Tear

Interpretation note 47, issued on 28 July 2009 supersedes, consolidates and further expands upon all previous practice notes relating to wear and tear.
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Debtors Allowance

Interpretation Note 48, which was also issued on 28 July 2009, deals with the debtors allowance available against installment credit agreements.
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Binding Private Rulings

The following Binding Private Rulings were recently issued. Whilst it is acknowledged that some of the topics covered are fairly parochial in nature and the rulings do not constitute general rulings, they all address principles which serve important building blocks for broader, generic issues.
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