OpenUCT :: Browsing by Author "Johnson, Tracy"

Browsing by Author "Johnson, Tracy"

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Open Access
A critical analysis as to whether a company is entitled to carry forward assessed losses if such company has traded but has derived no income therefrom
(2021) Coetzee, Izak Jacobus; Johnson, Tracy
The Income Tax Act No 58 of 1962 provides for tax to be levied on an annual basis (i.e. income and expenditure are generally calculated and determined in respect of a single year of assessment). Section 20(1) makes provision for the possibility that the allowable deductions may exceed a taxpayer's income by allowing for the carrying forward of any balance of assessed loss to subsequent years of assessment. It therefore provides for taxpayers to utilise assessed losses determined in previous tax periods against the income derived in future tax periods. Our courts have decided that a company which does not trade during a specific year of assessment forfeits its right to carry forward its balance of assessed loss from the preceding year of assessment. What has been left undecided in our superior courts however (although has been considered in our Tax Courts), is whether a company would also forfeit its right to carry forward its balance of assessed loss in the event where such a company carried on a trade during the current year of assessment, but derived no income therefrom. The primary research question in this study is whether a company would be allowed to carry forward its balance of assessed loss determined at the end of its previous year of assessment to its current year of assessment, in circumstances where it derived no ‘income' from its trading activities during the current year of assessment. This study also considers, as a secondary research question, whether the recent proposals made by Treasury in terms of the Budget Speech held on 26 February 2020, would have an impact on the primary research question. In order to address the primary and secondary research questions, this study considers the wording of section 20 in the light of the guidance on interpreting fiscal statutes as provided by our courts. The study also considers the views expressed in our courts in relation to section 20(1) as well as the relevant commentary on these views. Furthermore, the study considers SARS' view on section 20 as well as whether the recent proposals made by Treasury have an impact on the carrying forward of a company's balance of assessed loss. It is concluded that in terms of the recent proposal made by Treasury, a company whose trading activities result in a loss should be unaffected by the proposed amendments, although this can only be confirmed once the proposed legislation in this regard has been made available. It is further concluded that a superior court has not yet interpreted section 20(1) in terms of the current approach to the interpretation of statutes, and it is submitted that a superior court may come to the conclusion that a company would be allowed to carry forward its balance of assessed loss determined at the end of its previous year of assessment to its current year of assessment, even though it had derived no income from its trading activities during its current year of assessment.
Open Access
A critical analysis of the legality of retroactive fiscal legislation and the remedies available to taxpayers
(2021) De Villiers, Christoff De Wet; Johnson, Tracy
‘Uncertain law also penalizes those anxious to obey it and eventually creates contempt for the law. Uncertain law will thus erode the confidence of taxpayers in the system and their willingness to support and comply with the system.' Retroactive fiscal legislation leaves taxpayers with little to no tax certainty, with only about two months of transactional certainty each tax year not subject to any potential retroactive draft fiscal legislation - from when the amendment act from the prior legislative amendment cycle is promulgated until the Budget Speech which sets in motion the new legislative amendment cycle. Arguably, economic activity and tax morality could increase should more certainty exist as to what types of retroactive fiscal legislation are permissible, in which circumstances it is permitted and the remedies available to taxpayers in cases where such legislation adversely affects their vested rights. This research aims to consider the legality of retroactive fiscal legislation to provide much-needed tax certainty. This will be done by analysing the rules under the common law, statute law (being the Interpretation Act) and the Constitution. The conclusion reached under the common law is that regarding fully completed transactions, the presumption against retroactivity will provide an effective remedy to taxpayers should the retroactive legislation not explicitly provide that it will apply to completed transactions. Under statute law, the treatment of statues which are subject to commencement provision are dealt with similarly under the Interpretation Act and the proposed Interpretation of Legislation Bill, in that neither contains an outright prohibition on retroactive legislation. Under the Constitution, a challenge based on either the rule of law or the doctrine of separation of powers will most likely not be successful. A challenge in terms of section 25 of the Constitution would be the constitutional remedy most likely to succeed. A challenge under section 25 of the Constitution requires a two-stage test: Firstly, it needs to be determined if the deprivation of property was arbitrary for purposes of section 25 of the Constitution. Secondly, it needs to be determined if section 25 of the Constitution's limitation is justifiable under section 36 of the Constitution. The deprivation of property will be arbitrary if sufficient reasons are not provided. If found to be arbitrary, then the judiciary must declare such legislation unconstitutional without the need to consider section 36 of the Constitution. Should an assessment under section 36 of the Constitution be required, the competing values need to be measured against each other and an assessment made based on proportionality. Section 36(1)(e) of the Constitution suggests that prospective legislation is preferred to retroactive legislation, and that means less restrictive than retroactive fiscal legislation should be relied on if they exist. Based on the analysis in this paper, it is respectfully submitted that the taxpayers in Pienaar Brothers should have had an effective remedy in terms of section 25 of the Constitution, read with section 36(1)(e) of the Constitution, as less restrictive means were available to the Commissioner in the form of the general anti-avoidance rules. The retroactive amendments were also not of general application and the taxpayers did not receive adequate warning. Irrespective of a successful constitutional challenge, the taxpayers in Pienaar Brothers also had a remedy available to them under the common law presumption against retroactivity (as applied to the completed transaction). The retroactive amendments negatively impacted their vested rights without specifically stating that it would apply to completed transactions. It is unfortunate that the matter was not taken on appeal, as judicial precedent is much needed on the topic of retroactive fiscal legislation and completed transactions.
Open Access
Alternatives to the proposed taxation of retirement fund interests on emigration from South Africa
(2025) Adams, Taryn; Johnson, Tracy; Parsons Shaun
The 2021 Budget Speech, as well as the 2021 draft Taxation Laws Amendment Bill, included a proposal from National Treasury to implement an “exit tax” on retirement fund interests for resident individuals who emigrate from South Africa (i.e., become non-resident for tax purposes). The proposal, however, raised numerous concerns amongst experts in the industry, which ultimately led to its withdrawal in November 2021. While National Treasury indicated an intention to re-design the proposal, there has been no update since that time. This study addressed two research objectives. Firstly, it investigated the policy objectives and shortcomings of the initial proposal which ultimately led to its withdrawal. Secondly, it addressed how the approach might be re-designed by considering alternatives that would achieve the objectives of the original proposal without its shortcomings. This is a relatively new area of research with no previous published work performed on the topic (to the author's knowledge), emphasizing the relevance and significance of this study. This study was performed using a combination of doctrinal and non-doctrinal legal interpretative research methods. Doctrinal legal research was used to obtain an understanding of the prevailing legislative framework and the initial proposal from National Treasury. Non-doctrinal legal research was used to consider alternative approaches in the re-design process. The criteria for an alternative approach included the potentially competing needs for 1) equity within, 2) economic efficiency of, 3) administrability of, and 4) coherence of the tax system. The study explored four possible alternative approaches, each of which have some merits and some shortcomings. It concluded that one feasible alternative could be to migrate the retirement funding tax system to one in which contributions are afforded no tax incentives and retirement benefits are received free of taxation. However, this would be a radical departure from the existing approach, introduce more complexity into a system that is already dealing with the transitional provisions of several significant upheavals in the last few years, and would be complicated to manage on an ongoing basis. The other three alternatives considered would be less radical but would not be as effective in satisfying the evaluation criteria. National Treasury would need to weigh up whether the policy objectives and protection of the South African tax base are worth dealing with these challenges.
Open Access
An analysis of the digital services tax solutions presented in Africa and early-adopting developed countries to inform South Africa on the design features for taxing the digital economy
(2025) Cupido, Sandy Deliah; Johnson, Tracy
South Africa has announced plans to adopt the Organisation for Economic Co-operation and Development's (“OECD”) Two-Pillar Approach and is currently preparing for Pillar Two's implementation, as the design and consensus for the implementation of Pillar One is progressing at a slower pace. While both pillars originated from the need to address Base Erosion and Profit Shifting (“BEPS”) issues, it is Pillar One that is primarily focused on taxing digital economy, whereas Pillar Two is focused on implementing a global minimum corporate tax rate. Thus, Pillar Two's implementation may not satisfy South Africa's need to tax the digital economy and generate revenue from the supply of digital services, in the manner that Pillar One is intended to. During this time, while the future of Pillar One unfolds, South Africa may find it useful to pause and consider alternative approaches to taxing the digital economy. Digital services tax (“DST”) has emerged as the most prevalent unilateral approach to taxing the digital economy, especially among African countries. In light of the issues regarding the global consensus required to implement Pillar One and the time it will take to get the United Nations (“UN”) Framework Convention on International Tax Cooperation underway, an opportunity exists for South Africa to consider implementing a DST to tax the digital economy and benefit from the additional tax revenue to be generated in the interim. Given the existing complexities in the South African tax system, a DST presents a simpler and more manageable approach to introduce to the South African tax landscape for the purpose of taxing the digital economy. Since a DST would be introduced unilaterally by South Africa, its design features could be tailored to meet the country's specific needs for taxing digital services. Accordingly, the primary research objective of this dissertation is to identify and analyse the DST design features that South Africa could consider if a DST was to be implemented as an alternative approach to taxing the digital economy. The primary research objective is addressed by sub objectives that comprise of: discussing potential benefits and challenges of implementing DSTs, analysing the DSTs of early-adopting developed countries that were among the first to implement DSTs, by identifying key commonalities in the design features; analysing the DST legislation of the African countries that have implemented DSTs, by identifying and examining similarities and variations in the design features; and analysing the design features of the African Tax Administration Forum's (“ATAF”) Suggested Approach to Drafting Digital Services Tax Legislation (“ATAF's Suggested Approach”) with those of the African DSTs, to identify areas of alignment or deviation. ABSTRACT 4 The dissertation provides a comprehensive list of potential benefits and challenges of DSTs to assist South Africa in weighing up the positives and negatives of implementing a DST to tax the digital economy. From the further analyses performed, it is concluded among other findings, that similarities exist between the design features of the DST solutions as it pertains to the tax base, scope of digital services and minimum DST thresholds, while variations are identified in the design features regarding source rules and determining user participation. These shared trends are further interpreted to provide insights into how the DST design features could be considered by South Africa.
Open Access
An analysis of the requirements for the imposition of securities transfer tax with specific focus on the securities transfer tax consequences of a repurchase of uncertificated shares
(2018) Roelofse, Lean; Johnson, Tracy
STT is imposed on every (i) occurrence of any ‘transfer’ event (ii) of a ‘security’ (iii) that results in a change in ‘beneficial ownership’ in that ‘security’, unless that ‘transfer’ event constitutes the issue of a security or the cancellation or redemption of a security of a company that is being wound up, liquidated, deregistered or finally terminated. However, the concept of ‘beneficial ownership’ is not defined in the STT Act and the intended scope and meaning of the concepts of a ‘security’ and a ‘transfer’ event are not necessarily clear from their definitions in the STT Act. This may result in practical difficulties. This minor dissertation primarily seeks to investigate and clarify the practical scope and meaning of the requirements for the imposition of STT. In this regard, the key finding arising from the research presented in this minor dissertation is that no STT will be imposed on a transaction involving an uncertificated share in the absence of registration of that share in the transferee’s name in accordance with the requirements of the Companies Act, 2008, even if that transaction results in a ‘change in beneficial ownership’ in that share. This is due to the fact that the imposition of STT requires the transfer of a share, which will only occur upon compliance with certain procedural requirements contained in the Companies Act, 2008. This minor dissertation also seeks to apply the requirements for the imposition of STT in the context of a share repurchase and determine whether the differing views regarding the mechanics of a share repurchase result in different STT outcomes. There is currently no uniform tax treatment of a share repurchase and legal commentators and SARS have divergent views on the mechanics of a share repurchase. In particular, there is no certainty whether a repurchased share is cancelled in the shareholder’s hands due to its repurchase, or whether it is re-acquired and cancelled by the repurchasing company. In the context of the STT Act, it is therefore unclear whether a repurchase consists of a single ‘transfer’ event or two ‘transfer’ events (that can potentially result in double STT). In this regard, a further key finding is that, notwithstanding the inconsistency in views between legal commentators and SARS regarding the mechanics of a share repurchase, the requirements for the imposition of STT can be interpreted in such a way that both views result in a single STT charge on a share repurchase. However, as both interpretations result in practical anomalies, it is recommended that the mechanics and treatment of a share repurchase be clarified through definitive guidance or legislative amendments in order to provide certainty, and eliminate the perceived inconsistency, in the tax treatment of a share repurchase.
Open Access
Analysis of cryptocurrency verification challenges faced by the South African Revenue Service and tax authorities in other BRICS countries and whether SARS’ powers to gather information relating to cryptocurrency transactions are on par with those of other BRICS countries
(2019) Scheepers, Jill; Johnson, Tracy
The main objective of this study was to identify the potential difficulties that the verification of cryptocurrencies presents to SARS and determining whether these problems will also be encountered by tax authorities in Brazil, Russia, India and China (members of the BRICS group of countries). The study examined how the BRICS’ countries were addressing cryptocurrency data challenges and determining whether South Africa could learn from the solutions implemented by these countries. The information gathering powers of SARS were also examined in order to determine whether those powers are on par with those of the BRICS’ countries. The findings suggest that it is vital that tax authorities link the taxpayer’s real identity to the taxpayer’s digital identity in order to trace the taxpayer’s tax profile and verify compliance with tax legislation. The findings also suggest that certain BRICS countries did not experience significant verification difficulties. China has, however, banned the use of cryptocurrencies. Russia is in the process of passing tax legislation pertaining to cryptocurrencies and therefore, the Russian tax authorities have not yet undertaken to verify cryptocurrency transactions. India has addressed the verification challenges presented by cryptocurrencies by introducing legislation that compels clients of cryptocurrency exchanges to register with the exchange before transacting. Brazil is in the process of passing legislation which will require cryptocurrency exchanges to supply the Brazilian tax authorities with taxpayers’ identities, transaction amounts and transaction history on a monthly basis. Private altcoins, face-to-face transactions, cryptocurrency mixers and online peer-to-peer markets (which require no registration) present the largest verification challenges due to the difficulty in tracking these transactions. It was also found that the information gathering powers of SARS are on par with those of the BRICS’ countries and therefore, SARS is also able to request information from cryptocurrency exchanges as a means of collecting data for verification purposes. The study concluded with recommendations for SARS to consider in addressing the verification challenges posed by cryptocurrency transactions.
Open Access
Anti-avoidance, amendments and anomalies: The impact of select anti-avoidance provisions and their subsequent amendments on employee share incentive schemes operating through trusts
(2018) Kleynhans, Marike; Johnson, Tracy
Employee share incentive schemes have become a common phenomenon in companies world-wide and are an established method of allowing the employee to hold equity in the company which in turn allows the employee to personally benefit from the growth and profitability of the company. In light of the fact that employees receive remuneration by virtue of their employment and through their participation in these employee share schemes, the tax treatment of this remuneration should be considered in terms of the South African taxation laws. The Income Tax Act 58 of 1962 has been amended over time so as to introduce various anti-avoidance rules aimed at preventing employee participants in these schemes from classifying income received by virtue of employment as either dividends or capital gains. These anti-avoidance provisions, contained in sections 8C and 10(1)(k)(i) and the Eighth Schedule to the ITA, have evolved since their introduction, so as to: 1. address any anomalies and to close perceived loopholes identified in terms of these provisions; and 2. to clarify the circumstances in which these provisions will find application. This study highlights the evolution of these anti-avoidance provisions and discusses (a) whether the amendments succeeded in addressing the anomalies and closing loopholes as intended; and (b) whether the amendments inadvertently created any additional anomalies. An analysis of the current wording of the anti-avoidance provisions is conducted and the impact these provisions on the most prevalent employee share schemes operating through trusts is explored, whereafter suggestions for further amendments to the ITA are proposed.
Open Access
Disposals of fixed property: timing of accrual and practical issues arising for provisional taxpayers
(2019) Barberton, Paul; Johnson, Tracy
When fixed property is disposed of the proceeds are generally received anywhere from three months to a year after the transaction is required to be recognised for income tax purposes. A provisional taxpayer could therefore be required to declare and pay tax prior to the receipt of these proceeds and therefore fund such tax from sources other than the transaction in question. The practical problem resulting from the time of accrual, and the due date of the tax payable in respect of such accrual, occurring prior to the receipt of the proceeds does not appear to have been addressed in the legislation. It is submitted that accrual date could be more closely linked to the date of transfer and receipt of the proceeds to mitigate this issue. The timing of such accruals is examined in the light of the conveyancing process, the relevant sections of the Income Tax Act, other taxes relevant in respect of disposals of fixed property, appropriate case law and accounting and SARS practices, in order to ascertain whether amendments to the Income Tax Act are justifiable. Particular attention is given to s 24(1) (“Credit agreements and debtors allowance”) following the ITC 14005 judgement which deemed the accrual to be the date of the agreement whether or not a credit agreement is extant. It is submitted that by making a few changes to the legislation, the risk of inequitable cash flow positions (and potential penalties) could be greatly reduced. While a closer alignment of tax accrual with cash receipt may have a material positive effect on taxpayers’ cash flows, the effect for SARS is arguably minimal.
Open Access
Interest limitation and thin capitalisation rules: an analysis of global practices and learnings for South Africa
(2024) Southgate, Ebrahim; Johnson, Tracy
South Africa loses approximately R7 billion a year due to profit shifting by multinational corporations amounting to about 4% of the total corporate income tax receipts. It is estimated that 98% of this tax loss can be directly attributed to the profit shifting schemes of the largest 10% of multinational enterprises. The term ‘profit shifting' refers to the transferring or shifting of profits within a multinational group of companies from a firm in a higher‐tax‐rate country to an associated company in a lower‐tax‐rate country. It can be legitimate to some degree, however this practice by multinationals is increasingly becoming a challenge for tax authorities and governments worldwide. These challenges are particularly difficult for developing countries such as South Africa as the country is more reliant on corporate tax revenues compared to more economically developed countries. The risk of South Africa's tax base eroding due to profit shifting is thus vitally important to address. It is becoming increasingly important for the South African government to protect its tax base from aggressive tax planning along with attempting to alleviate the burden on taxpayers from the administrative costs of complying with the OECD arm's length approach. Therefore, this dissertation undertook a review of South Africa's current and historic fiscal policies to address base erosion and profit shifting through excessive interest deductions. The research conducted aims to consider how various countries across the world have implemented measuresto address excessive interest deductionsso that South Africa may benefit from their lessons learnt. The review has revealed the various methods that countries have applied to address the risk of excessive interest deductions. Many countries implement interest limitation rules that largely align to the OECD BEPS Action 4 recommendations on excessive interest payments. Some countries implement thin capitalisation rules based on fixed financial statement ratios to curb excessive interest. Other countries have followed a combined approach using the OECD BEPS 4 method and thin capitalisation rules. Certain countries also use other tax safe harbours such as circulating an approved arm's length interest rate for cross‐border finance arrangements to encourage compliance and manage excessive interest payments. It was noted that where countries implemented rules in line with BEPS Action 4, the rules were tailored to suit their unique economic and fiscal needs. These distinctive deviations are highlighted within this dissertation. It was also evident that thin capitalisation safe harbour rules continued to be a key element of interest limitation rules as a means to reduce the compliance burden for low‐risk entities. The research reflectsthat a re‐introduction of thin capitalisation safe harbour rules, to address ever‐increasing complexity in the relevant areas of our income tax legislation, would not be contrary to common practice in a number of countries. Drawing on the findings from the research and analysis conducted, it is recommended that the interest limitation rules in South African should be developed further and improved upon. As an example, these developments might include the reintroduction of thin capitalisation safe harbourrules,stronger alignment ofsection 23M of the Act to the best practice guidelines within BEPS Action Plan 4 or the circulation of government approved arm's length interest rates for cross‐border debt financing transactions between connected persons or associated enterprises.
Open Access
The long arm provisions of capital gain tax: An analysis of the capital gains tax consequences on the indirect disposal of immovable property by non-residents in selected African Countries
(2016) Brooks, Miki; Roeleveld, Jennifer; Johnson, Tracy
A non-resident who disposes of a direct interest in immovable property or an indirect interest in immovable property through the disposal of shares may be subject to capital gains tax in the country in which the immovable property is situated. Certain African countries were selected and the capital gains tax consequences on disposal of such property were determined by analysing the domestic tax legislation of the country in which the property is situated. In addition, the effect of any applicable double tax agreement ('DTA') to such disposals was considered. In certain countries - such as Angola and Nigeria - in terms of their domestic tax legislation, a non-resident will not be subject to capital gains tax in the respective country where the property is situated regardless of the value of the shares that is attributable to immovable property. In certain countries - such as Mozambique, Namibia, Tanzania and Zimbabwe - in terms of their domestic tax legislation, a non-resident may be subject to capital gains tax upon the disposal of an interest in immovable property in the respective country in which the immovable property is held regardless of the value of the shares that is attributable to immovable property, unless a DTA provides otherwise. In certain other countries - such as Botswana, Ghana, Lesotho and South Africa - in terms of their domestic tax legislation, a non-resident may be subject to capital gains tax upon the disposal of an interest in immovable property in the respective country in which the immovable property is held, however this will depend in general on the percentage of the value of shares that is attributable to immovable property, unless a DTA provides otherwise. Certain countries domestic tax legislation have specific provisions regulating how this percentage is determined. A DTA may provide relief to taxpayers who are subject to capital gains tax in both their resident country and the source country, on the disposal of an interest in immovable property held in the source country. In terms of domestic tax legislation, where the non-resident is liable to pay capital gains tax in the source country, the non-resident will in general have to comply with the withholding tax and filing obligations of that country where applicable.
Open Access
When is a debt bad or doubtful in terms of the Income Tax Act?
(2018) Hartley, Ryan; Johnson, Tracy
Bad debt deductions and doubtful debt allowances provide relief to taxpayers who would be subject to income tax on amounts accrued to them which may never be received. No definition of a bad or doubtful debt is provided in the Income Tax Act. This dissertation considered current legislation, historical court cases, academic writing and the views expressed by SARS through explanatory memoranda and directives in order to establish when a debt becomes bad or doubtful and the extent of the relief granted. This dissertation also considered the future of the doubtful debt allowance in light of the change of accounting standards from IAS 39 to IFRS 9. There are no specific requirements for a debt to become bad or doubtful. Whether a debt is bad is a factual question taking into account all relevant facts. Whether a debt is doubtful and the extent of the allowance granted is determined by the Commissioner, but that determination must be reasonable. The Commissioner relies on IAS 39 rules of impairment as the starting point for determination of a doubtful debt allowance. IFRS 9 determines impairment in a significantly different manner to IAS 39, abandoning the requirement that a “loss event” must have occurred. Adoption of IFRS 9 will result in a change to the determination of doubtful debt allowances, for example, by reducing the generally accepted rate of 25% of identified doubtful debts or by requiring the taxpayer to compile a list of debts which would have qualified as doubtful under IAS 39.

Browsing by Author "Johnson, Tracy"

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