011 463 5566 tonyd@harding.co.za

In this fourth newsletter for 2022 we consider the following:

Distributions to Non-Resident Trusts not permitted;
Game Farming, Cash Heists and Tax;
Interpretation Note 58 (Issue 3): The Brummeria case and the right to use loan capital interest free, revisited and updated;
SARS shortened filing season;
SARS Interpretation Notes (INs), Draft INs, Guides, BCRs, BPRs Noter-Up

Tony Davey – Editor
Duncan McAllister – Co-Editor

SARS has issued the following statement:

“Distribution of funds to non-resident trusts by resident trusts
8 April 2022 – It has been the practice of SARS not to approve the release of funds when resident Trusts make distributions to non-resident Trusts. Following numerous queries in this regard, SARS herewith re-iterates its stance on the matter and herewith confirms that it will not approve the release of funds vested and distributed to non-resident Trusts.

SARS is currently investigating other options related to the distribution of funds/amounts to non-residents and is in discussions in this regard. SARS takes note of the fact that the SARB has relaxed certain exchange control requirements but has decided, based on the risks involved, not to approve the release of funds to non-resident Trusts.

This does, however, not preclude a resident Trust from vesting amounts in non-resident individuals and to apply for the relevant approvals, as per the current approved practice.”
(This is the individual investment allowance of R10 million per calendar year, subject to a SARS tax clearance certificate).


Gross income and livestock sales
SARS Interpretation Note (IN) 69 (Issue 3) 6 August 2021 states the following:
‘A game farmer is generally involved in the activity of breeding and running game on a farm for the purpose of marketing the live animals, hunting the animals for a fee or slaughtering the animals for meat. Game forming part of farming operations clearly falls within the definition of livestock discussed above and is accordingly considered to be livestock for purposes of the First Schedule’.
In R Koster and Son (Pty) Ltd and another v CIR the court cited with approval a passage from Farmer and COT as stated:
‘His (the farmer’s – my insertion) sales during each year of his livestock of whatever category, whether of part or the whole of his herd, form part of his income ……’.
It follows that livestock (including game) sales are to be included in a game farmer’s gross income.

Deduction of losses as a result of theft
SARS IN 80 dated 5 November 2014 ‘The income tax treatment of stolen money’ addresses the tax deductibility of inter alia, losses arising from theft of money. In essence the principles of the general deduction formula (section 11(a)) and the prohibitions (section 23) are considered.
The IN states:
‘Taxpayers may incur expenditure and losses during the course of their business activities as a result of embezzlement or theft of money by, for example, employees directors, shareholders, partners, burglars or armed robbers. As a consequence, these taxpayers may also incur expenditure pertaining to legal and forensic services to investigate such losses’……..
‘……….. the theft of money from a current or similar transactional account with a bank, petty cash, safe or payroll in a non-banking business is also likely to represent a loss of floating capital and if such will give rise to a loss of a revenue nature’.
It follows that a tax deduction for losses, including from theft, may be claimed by, inter alia, a game farmer. The onus will be on the taxpayer to prove that an amount is deductible under section 102(1)(b) of the Tax Administration Act 28 of 2011 (TAA).

Timing of income and deductions
It is trite tax law that income received or accrued and losses actually incurred must be accounted for in the relevant year of assessment in which they were incurred. This is not expressly stated in section 11(a) of the Income Tax Act, but this requirement is implicit in the Act itself. Expenditure actually incurred, therefore, in any one year of assessment, even though it relates to income produced in a subsequent year, cannot be deducted other than in the year in which it is incurred, save where the Act otherwise provides.
It follows that the matching principle of income to expenses does not apply in the tax context. Thus, income from the sale of livestock in tax year 1 must be included in gross income in that year and if the loss occurs only in year 2 then it must be claimed in year 2, or forever forfeited.

Voluntary Disclosure Program (VDP) Eligibility
In our next bi-monthly newsletter we shall consider whether a taxpayer who has committed a ‘default’, as defined, such as non-disclosure of taxable income, can apply for VDP in circumstances, inter alia, in which information is already in the public domain.


This SARS IN (Issue 3) dated 12 May 2022, (first issue 30 June 2010 and second issue 4 October 2012) outlines the updated treatment of receipts or accruals in a form other than money for purposes of the definition of ‘gross income’ in section 1(1) as a result of the SCA judgment in the ‘Brummeria case’.
In essence, the SCA held that the right to use loan capital interest free, has an ascertainable money value that should be included in the gross income of the taxpayer.
Receipts and accruals in a form other than money in exchange for goods supplied, services rendered or any other benefit given
SARS concludes ‘that it is evident from the facts of the Brummeria case, that the rights to use the interest free loans were intended by the lenders (the life-right holders) to be in exchange for the life rights granted by the borrower’, (the property developers).
‘As a result the principles from the judgment may be applied in all cases in which benefits in a form other than money (such as the right to use an interest-free loan) are granted in exchange for goods supplied, services rendered (my underlining) or any other benefit given’.

The right to retain and use an interest-free loan in the context of a group of companies and between shareholders and their companies

SARS states at point 6.2:
‘The right to use an interest-free loan given by a shareholder to a company or by a company to another company in the same group of companies may be made with the intention of providing long-term working capital to the company or to meet capital expenditure requirements within the group of companies.
The shareholder or group company that grants the right to use an interest-free loan may not necessarily intend the right to be in exchange for goods sold, services rendered or some other benefit granted by the borrowing company. Interest-free loans between shareholders and their companies and between companies within the same group of companies would therefore not necessarily be affected by the Brummeria case since these interest-free loans may be granted in a capital context’ (my underlining).
In summary, each right to the use of an interest-free loan granted in this context must therefore be considered and evaluated against the background of its own facts and circumstances and intention of the parties to the interest-free loan to determine whether the amount is of a capital nature or not and whether its value must be included in the borrower’s gross income. If there is no exchange of goods and/or services for the use of an interest-free loan, then such has no tax consequence and is in order.

Filing season kicked off on 1 July 2022. SARS has brought forward the dates for filing of returns as follows:

Taxpayers who receive an SMS notifying them that they have been auto assessed and who do not agree with the assessment must access their return via efiling and submit it within 40 business days or it will become final.
For more on tax season see https://www.sars.gov.za/types-of-tax/personal-income-tax/tax-season/

When must you register for income tax?

It’s a question that is frequently asked by tax practitioners. The requirement to register as a taxpayer is contained in section 67 of the Income Tax Act:
67. Registration as taxpayer.—(1) Every person who at any time becomes liable for any normal tax or who becomes liable to submit any return contemplated in section 66 must apply to the Commissioner to be registered as a taxpayer in accordance with Chapter 3 of the Tax Administration Act.
Section 66(1) states:
66. Notice by Commissioner requiring returns for assessment of normal tax under this Act.—(1) The Commissioner must annually give public notice of the persons who are required by the Commissioner to furnish returns for the assessment of normal tax within the period prescribed in that notice.
The notice for the 2022 year of assessment can be found on the SARS website under Legal Counsel / Secondary legislation / Public Notices. It is in GN 2130 GG 46471 of 3 June 2022.
Thus, consult the notice to see whether it is necessary to register.
On 27 May 2022 SARS issued a media release ‘SARS reminds representative taxpayers of trusts of their duty to register trusts for income tax purposes’. SARS points out that trusts are obliged to submit annual tax returns even if they are dormant.
Bear in mind that not all trusts are provisional taxpayers. The definition of ‘provisional taxpayer’ in paragraph 1 of the Fourth Schedule includes a person other than a company that derives income in the form of remuneration from an unregistered employer under paragraph 15 or any amount which does not constitute remuneration or an allowance or advance contemplated in section 8 (1). Thus, a trust that has no income because its sole asset is a house in which the beneficiary lives rent free or derives only exempt income in the form of local dividends would not be required to register.


Draft Interpretation Notes