A critical analysis of the income tax implication of income from illegal activities in South Africa
- Authors: Nxumalo,Delani
- Date: 2016
- Subjects: Tax evasion -- South Africa Money laundering -- South Africa , Income tax -- Law and legislation -- South Africa
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: http://hdl.handle.net/10948/12780 , vital:27120
- Description: Moneymaking schemes such as prostitution, drug dealing, fraud, corruption, pyramid schemes and the sale of counterfeit goods have been around for years. The taxing of these transactions/schemes has become a contentious issue. It has recently been reported in the press that SARS has lodged a claim for R183 million in income taxes against the estate of the slain mining magnate, Brett Kebble, in respect of the R2 billion allegedly stolen by him from the mining companies of which he was a director.4 It is further reported that the Master of the High Court has rejected the claim on the grounds that the amounts on which SARS sought to levy tax constituted money stolen by Kebble, and that stolen money is not subject to income tax. It has been reported that SARS is to take the Master’s decision in this regard on review.5 The Kebble case raises an interesting and unresolved tax issue and, in view of the large sum at stake, it may be a case that will go all the way to the Supreme Court of Appeal and bring long-overdue certainty to the law. The Income Tax Act No. 58 of 1962 (the Act) is of no assistance in determining the issue. Section 23(o) states that payments that are illegal in terms of Chapter 2 of the Prevention and Combating of Corrupt Activities Act No. 12 of 2004 or that constitute a fine or penalty for any “unlawful activity carried out in the Republic or in any other country if that activity.
- Full Text:
- Date Issued: 2016
- Authors: Nxumalo,Delani
- Date: 2016
- Subjects: Tax evasion -- South Africa Money laundering -- South Africa , Income tax -- Law and legislation -- South Africa
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: http://hdl.handle.net/10948/12780 , vital:27120
- Description: Moneymaking schemes such as prostitution, drug dealing, fraud, corruption, pyramid schemes and the sale of counterfeit goods have been around for years. The taxing of these transactions/schemes has become a contentious issue. It has recently been reported in the press that SARS has lodged a claim for R183 million in income taxes against the estate of the slain mining magnate, Brett Kebble, in respect of the R2 billion allegedly stolen by him from the mining companies of which he was a director.4 It is further reported that the Master of the High Court has rejected the claim on the grounds that the amounts on which SARS sought to levy tax constituted money stolen by Kebble, and that stolen money is not subject to income tax. It has been reported that SARS is to take the Master’s decision in this regard on review.5 The Kebble case raises an interesting and unresolved tax issue and, in view of the large sum at stake, it may be a case that will go all the way to the Supreme Court of Appeal and bring long-overdue certainty to the law. The Income Tax Act No. 58 of 1962 (the Act) is of no assistance in determining the issue. Section 23(o) states that payments that are illegal in terms of Chapter 2 of the Prevention and Combating of Corrupt Activities Act No. 12 of 2004 or that constitute a fine or penalty for any “unlawful activity carried out in the Republic or in any other country if that activity.
- Full Text:
- Date Issued: 2016
An analysis of interest deductions and other financial payments in terms of South African income tax legislation
- Authors: Kula, Xoliswa Beverley
- Date: 2015
- Subjects: Tax planning -- South Africa , Income tax -- Law and legislation -- South Africa
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: http://hdl.handle.net/10948/8188 , vital:25945
- Description: Tax avoidance through interest deductions has been highlighted internationally as a concern with the effect of eroding tax revenues of countries, including South Africa (SA). The evident cause of this concern is what is termed base erosion and profit shifting (BEPS) mainly orchestrated by multinational companies using aggressive tax planning schemes. Although the concern continues to exist, comprehensive measures are in place in SA such as the anti-avoidance rules and exchange control regulations to mitigate the concern. The study was undertaken to analyse the legislation on interest deductions in terms of the Income Tax Act No 58 of 1962 (‘the Act’) with particular focus on anti-avoidance. A number of issues pertaining to the operation of the provisions in the Act; administrative challenges as well the possible exploitation of loopholes within the provisions were identified. Furthermore, a comparative analysis conducted against Australia and the United Kingdom indicated that the measures adopted in SA are relatively similar, if not ahead. The effect the anti-avoidance measures have on the economic growth was considered. The results were positive in that the measures do not counteract the pursuit of economic growth. Lastly, the study assessed the position of SA against the internationally recommended best practice on the subject matter and it became evident that opportunities exist to improve the current measures applied in SA to mitigate the BEPS risks through interest deductions.
- Full Text:
- Date Issued: 2015
- Authors: Kula, Xoliswa Beverley
- Date: 2015
- Subjects: Tax planning -- South Africa , Income tax -- Law and legislation -- South Africa
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: http://hdl.handle.net/10948/8188 , vital:25945
- Description: Tax avoidance through interest deductions has been highlighted internationally as a concern with the effect of eroding tax revenues of countries, including South Africa (SA). The evident cause of this concern is what is termed base erosion and profit shifting (BEPS) mainly orchestrated by multinational companies using aggressive tax planning schemes. Although the concern continues to exist, comprehensive measures are in place in SA such as the anti-avoidance rules and exchange control regulations to mitigate the concern. The study was undertaken to analyse the legislation on interest deductions in terms of the Income Tax Act No 58 of 1962 (‘the Act’) with particular focus on anti-avoidance. A number of issues pertaining to the operation of the provisions in the Act; administrative challenges as well the possible exploitation of loopholes within the provisions were identified. Furthermore, a comparative analysis conducted against Australia and the United Kingdom indicated that the measures adopted in SA are relatively similar, if not ahead. The effect the anti-avoidance measures have on the economic growth was considered. The results were positive in that the measures do not counteract the pursuit of economic growth. Lastly, the study assessed the position of SA against the internationally recommended best practice on the subject matter and it became evident that opportunities exist to improve the current measures applied in SA to mitigate the BEPS risks through interest deductions.
- Full Text:
- Date Issued: 2015
The income tax implications resulting from the introduction of section 12N of the Income Tax Act
- Authors: Grebe, Alta-Mari
- Date: 2014
- Subjects: Income tax -- Law and legislation -- South Africa , Land tenure -- South Africa , Capital gains tax -- South Africa
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:8966 , http://hdl.handle.net/10948/d1020787
- Description: Section 12N, introduction into the Income Tax Act by way of Taxation Laws Amendment Act and which became effective on 2 November 2010, provides for allowances on the leasehold improvements on government-owned land and land leased from certain tax exempt entities as stipulated in section 10 (1) (cA) and (t). As section 12N deems the lessee to be the owner of the leasehold improvement, the lessee now qualifies for capital allowances which were previously disallowed.
- Full Text:
- Date Issued: 2014
- Authors: Grebe, Alta-Mari
- Date: 2014
- Subjects: Income tax -- Law and legislation -- South Africa , Land tenure -- South Africa , Capital gains tax -- South Africa
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:8966 , http://hdl.handle.net/10948/d1020787
- Description: Section 12N, introduction into the Income Tax Act by way of Taxation Laws Amendment Act and which became effective on 2 November 2010, provides for allowances on the leasehold improvements on government-owned land and land leased from certain tax exempt entities as stipulated in section 10 (1) (cA) and (t). As section 12N deems the lessee to be the owner of the leasehold improvement, the lessee now qualifies for capital allowances which were previously disallowed.
- Full Text:
- Date Issued: 2014
Assessed losses: the trade and income from trade requirements as set out in section 20 of the Income Tax Act of 1962
- Authors: Pillay, Neermala Neelavathy
- Date: 2012
- Subjects: South Africa. Income Tax Act, 1962 , Income tax deductions for losses -- South Africa , Income tax deductions for losses -- Australia , Income tax -- Law and legislation -- South Africa
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:8949 , http://hdl.handle.net/10948/1670 , South Africa. Income Tax Act, 1962 , Income tax deductions for losses -- South Africa , Income tax deductions for losses -- Australia , Income tax -- Law and legislation -- South Africa
- Description: Section 20 of the Income Tax Act, No 58 of 1962 allows a taxpayer that incurs an assessed loss to carry forward the balance of assessed loss incurred, to be set off against taxable income earned in or added to losses incurred in future years. The issues regarding the carry forward of assessed losses in terms of section 20 is complex and in terms of the said section, a company is only entitled to set off its assessed loss from the previous year against its taxable income in the current year, if the taxpayer has carried on a trade during the current year and has derived income from that trade. Under the provisions of section 20(2A), a taxpayer other than a company can utilise an assessed loss even if no trading has been conducted. Assessed losses of natural persons, may however be ring-fenced. The aim of this treatise was twofold. Firstly it was to gain clarity on the „trade‟ and „income from trade‟ issues and secondly to compare South African legislation with that of Australia, with a view to recommending a change in our rules regarding the treatment of assessed losses in the context of companies. The critical lessons to be learned from the cases presented, is that liquidators, creditors and others must ensure that the company continues trading in order to x keep the assessed losses valid. Realisation of assets (including stock), and the collection of outstanding debts during liquidation does not constitute the carrying on of a trade in terms of s 20(1). The continuity of trade is an important element in regard to the carry forward of assessed losses to be utilised in the current and future years. Therefore it is important that a company carries on some activity that falls within the definition of trade. In the landmark case of SA Bazaars, it was held that a company did not have to trade continuously throughout the year to qualify for the set-off of the assessed loss or carry forward of the assessed loss, that is, to trade for say part of the year. The court however left open the issue of whether it was necessary to derive income from that trade. In order to clarify the issues regarding assessed losses, SARS issued Interpretation Note 33 granting taxpayers a concession in certain cases where a company has traded, but not derived income from that trade. But in ITC 1830, the court ruled that a company must trade and must derive income from that trade in order to carry forward its assessed loss, which effectively means that SARS cannot apply Interpretation Note 33. SARS does not have the authority to make concession which is contrary to the wording of the Act. xi In Australia, operating losses can be carried forward indefinitely to be set-off against future income, provided a company meets the more than 50% continuity of ownership test. Where the continuity test fails, losses can be deducted if the same business is carried on in the income year (the same business test). From the research conducted and in order to solve the issues surrounding the carry forward of assessed losses it was suggested that one of the following be adopted :- The method used in Australia for the carry forward of assessed losses., or A decision of the Supreme Court of Appeal is needed for a departure from the literal meaning of the words pertaining to the requirements regarding the carry forward of assessed losses. Furthermore, to clarify the definition of „income‟, as used in the context of s20, is it gross income less exempt income or taxable income?. If section 20 relates to taxable income, then an assessed loss will never be increased, which it is submitted, is not what the legislature intended. Section 20 ought to be revisited to eliminate any uncertainty about the income requirement and in the context in which the word „income‟ is used in that section.
- Full Text:
- Date Issued: 2012
- Authors: Pillay, Neermala Neelavathy
- Date: 2012
- Subjects: South Africa. Income Tax Act, 1962 , Income tax deductions for losses -- South Africa , Income tax deductions for losses -- Australia , Income tax -- Law and legislation -- South Africa
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:8949 , http://hdl.handle.net/10948/1670 , South Africa. Income Tax Act, 1962 , Income tax deductions for losses -- South Africa , Income tax deductions for losses -- Australia , Income tax -- Law and legislation -- South Africa
- Description: Section 20 of the Income Tax Act, No 58 of 1962 allows a taxpayer that incurs an assessed loss to carry forward the balance of assessed loss incurred, to be set off against taxable income earned in or added to losses incurred in future years. The issues regarding the carry forward of assessed losses in terms of section 20 is complex and in terms of the said section, a company is only entitled to set off its assessed loss from the previous year against its taxable income in the current year, if the taxpayer has carried on a trade during the current year and has derived income from that trade. Under the provisions of section 20(2A), a taxpayer other than a company can utilise an assessed loss even if no trading has been conducted. Assessed losses of natural persons, may however be ring-fenced. The aim of this treatise was twofold. Firstly it was to gain clarity on the „trade‟ and „income from trade‟ issues and secondly to compare South African legislation with that of Australia, with a view to recommending a change in our rules regarding the treatment of assessed losses in the context of companies. The critical lessons to be learned from the cases presented, is that liquidators, creditors and others must ensure that the company continues trading in order to x keep the assessed losses valid. Realisation of assets (including stock), and the collection of outstanding debts during liquidation does not constitute the carrying on of a trade in terms of s 20(1). The continuity of trade is an important element in regard to the carry forward of assessed losses to be utilised in the current and future years. Therefore it is important that a company carries on some activity that falls within the definition of trade. In the landmark case of SA Bazaars, it was held that a company did not have to trade continuously throughout the year to qualify for the set-off of the assessed loss or carry forward of the assessed loss, that is, to trade for say part of the year. The court however left open the issue of whether it was necessary to derive income from that trade. In order to clarify the issues regarding assessed losses, SARS issued Interpretation Note 33 granting taxpayers a concession in certain cases where a company has traded, but not derived income from that trade. But in ITC 1830, the court ruled that a company must trade and must derive income from that trade in order to carry forward its assessed loss, which effectively means that SARS cannot apply Interpretation Note 33. SARS does not have the authority to make concession which is contrary to the wording of the Act. xi In Australia, operating losses can be carried forward indefinitely to be set-off against future income, provided a company meets the more than 50% continuity of ownership test. Where the continuity test fails, losses can be deducted if the same business is carried on in the income year (the same business test). From the research conducted and in order to solve the issues surrounding the carry forward of assessed losses it was suggested that one of the following be adopted :- The method used in Australia for the carry forward of assessed losses., or A decision of the Supreme Court of Appeal is needed for a departure from the literal meaning of the words pertaining to the requirements regarding the carry forward of assessed losses. Furthermore, to clarify the definition of „income‟, as used in the context of s20, is it gross income less exempt income or taxable income?. If section 20 relates to taxable income, then an assessed loss will never be increased, which it is submitted, is not what the legislature intended. Section 20 ought to be revisited to eliminate any uncertainty about the income requirement and in the context in which the word „income‟ is used in that section.
- Full Text:
- Date Issued: 2012
A critical analysis of the distintion between mining and manufacturing for South African income tax purposes
- Authors: Cloete, Loriaan
- Date: 2010
- Subjects: Mining corporations -- South Africa , Income tax -- South Africa , Income tax -- Law and legislation -- South Africa , Mining law -- South Africa
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:8948 , http://hdl.handle.net/10948/1344 , Mining corporations -- South Africa , Income tax -- South Africa , Income tax -- Law and legislation -- South Africa , Mining law -- South Africa
- Description: "Mining operations" and "mining" are defined in s 1 of the Income Tax Act (ITA). A concept that is of great significance to this definition is the matter of when a mineral is won and the related question of when does the mining process end and the process of manufacture commences. Case law has not established a definitive point that can be used by the mining taxpayer to determine where the mining process ends for income tax purposes. The Supreme Court of Appeal was presented with the perfect opportunity in the Foskor1 case to clearly define the boundaries between these processes. Unfortunately, the court did not seize this opportunity to provide legal certainty. The significance of the distinction lies in the fact that a mining taxpayer is allowed to claim accelerated capital allowances. The objective of these allowances is to provide tax relief to the mining taxpayer taking the immense risk of investing billions of rands in capital expenditure. The capital expenditure incurred will also result in direct foreign investment. This in turn will result in economic growth and job creation. Currently, there is no legal certainty as to which processes will qualify as mining operations for income tax purposes. This may result in mining taxpayers being hesitant to incur capital expenditure as the risk relating to a project would have increased. The accelerated capital allowances may therefore not serve their intended purpose. The gross domestic product (GDP) contribution from gold mining has been decreasing in the last number of years, but this decrease has to a large extent been offset by an increase in the downstream or beneficiated minerals industry. This industry has also been identified by Government as a growth sector. The downstream or beneficiated mineral industry may not be catered for in the current definition of "mining operations" and "mining" and may therefore not qualify for beneficial tax allowances. It is therefore proposed that the term "won" as used in the definition of "mining operations" and "mining" should be defined in s 1 of the ITA as follows: A mineral is "won" when all the requisite and necessary processes, including, amongst other things, refinement, beneficiation, smelting, separation, have been undertaken to the mineral to render it saleable in an open and general market. This extension will provide legal certainty to a mining taxpayer and will ensure that South Africa obtains direct foreign investment and maximum value for its minerals. This will contribute to economic growth for South Africa's developing economy and result in job creation.
- Full Text:
- Date Issued: 2010
- Authors: Cloete, Loriaan
- Date: 2010
- Subjects: Mining corporations -- South Africa , Income tax -- South Africa , Income tax -- Law and legislation -- South Africa , Mining law -- South Africa
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:8948 , http://hdl.handle.net/10948/1344 , Mining corporations -- South Africa , Income tax -- South Africa , Income tax -- Law and legislation -- South Africa , Mining law -- South Africa
- Description: "Mining operations" and "mining" are defined in s 1 of the Income Tax Act (ITA). A concept that is of great significance to this definition is the matter of when a mineral is won and the related question of when does the mining process end and the process of manufacture commences. Case law has not established a definitive point that can be used by the mining taxpayer to determine where the mining process ends for income tax purposes. The Supreme Court of Appeal was presented with the perfect opportunity in the Foskor1 case to clearly define the boundaries between these processes. Unfortunately, the court did not seize this opportunity to provide legal certainty. The significance of the distinction lies in the fact that a mining taxpayer is allowed to claim accelerated capital allowances. The objective of these allowances is to provide tax relief to the mining taxpayer taking the immense risk of investing billions of rands in capital expenditure. The capital expenditure incurred will also result in direct foreign investment. This in turn will result in economic growth and job creation. Currently, there is no legal certainty as to which processes will qualify as mining operations for income tax purposes. This may result in mining taxpayers being hesitant to incur capital expenditure as the risk relating to a project would have increased. The accelerated capital allowances may therefore not serve their intended purpose. The gross domestic product (GDP) contribution from gold mining has been decreasing in the last number of years, but this decrease has to a large extent been offset by an increase in the downstream or beneficiated minerals industry. This industry has also been identified by Government as a growth sector. The downstream or beneficiated mineral industry may not be catered for in the current definition of "mining operations" and "mining" and may therefore not qualify for beneficial tax allowances. It is therefore proposed that the term "won" as used in the definition of "mining operations" and "mining" should be defined in s 1 of the ITA as follows: A mineral is "won" when all the requisite and necessary processes, including, amongst other things, refinement, beneficiation, smelting, separation, have been undertaken to the mineral to render it saleable in an open and general market. This extension will provide legal certainty to a mining taxpayer and will ensure that South Africa obtains direct foreign investment and maximum value for its minerals. This will contribute to economic growth for South Africa's developing economy and result in job creation.
- Full Text:
- Date Issued: 2010
A critical analysis of South Africa's general anti avoidance provisions in income tax legislation
- Authors: Haffejee, Yaasir
- Date: 2009
- Subjects: Tax evasion -- South Africa , Tax planning -- South Africa , Income tax -- Law and legislation -- South Africa , Rule of law -- South Africa
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:8956 , http://hdl.handle.net/10948/1243 , Tax evasion -- South Africa , Tax planning -- South Africa , Income tax -- Law and legislation -- South Africa , Rule of law -- South Africa
- Description: This treatise was undertaken to critically analyse the new general anti avoidance rules (new GAAR) as set out in sections 80A to 80L of the Income Tax Act1. A discussion on the difference between tax evasion and tax avoidance was performed in the first chapter. The goals of this treatise were then set out. An analysis of the requirements for the application of the new GAAR was performed in the second chapter. The courts have historically reviewed the circumstances surrounding an arrangement when determining whether tax avoidance has occurred. The new GAAR requires the individual steps of an arrangement to be reviewed in isolation. Secondly, the courts have historically held that the purpose test, when determining the taxpayer‘s purpose, was subjective. The wording of the new GAAR indicates that this test is now objective. Thirdly, the courts have historically viewed the abnormality of an arrangement based of the surrounding circumstances. The wording of the new GAAR requires an objective view of the arrangement. An analysis of the secondary provisions contained in sections 80I, 80B and 80J of the new GAAR was performed in the third chapter. With regards to section 80B, it was submitted that the Commissioner should issue an Interpretation Note detailing all the methods ―he deems appropriate.
- Full Text:
- Date Issued: 2009
- Authors: Haffejee, Yaasir
- Date: 2009
- Subjects: Tax evasion -- South Africa , Tax planning -- South Africa , Income tax -- Law and legislation -- South Africa , Rule of law -- South Africa
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:8956 , http://hdl.handle.net/10948/1243 , Tax evasion -- South Africa , Tax planning -- South Africa , Income tax -- Law and legislation -- South Africa , Rule of law -- South Africa
- Description: This treatise was undertaken to critically analyse the new general anti avoidance rules (new GAAR) as set out in sections 80A to 80L of the Income Tax Act1. A discussion on the difference between tax evasion and tax avoidance was performed in the first chapter. The goals of this treatise were then set out. An analysis of the requirements for the application of the new GAAR was performed in the second chapter. The courts have historically reviewed the circumstances surrounding an arrangement when determining whether tax avoidance has occurred. The new GAAR requires the individual steps of an arrangement to be reviewed in isolation. Secondly, the courts have historically held that the purpose test, when determining the taxpayer‘s purpose, was subjective. The wording of the new GAAR indicates that this test is now objective. Thirdly, the courts have historically viewed the abnormality of an arrangement based of the surrounding circumstances. The wording of the new GAAR requires an objective view of the arrangement. An analysis of the secondary provisions contained in sections 80I, 80B and 80J of the new GAAR was performed in the third chapter. With regards to section 80B, it was submitted that the Commissioner should issue an Interpretation Note detailing all the methods ―he deems appropriate.
- Full Text:
- Date Issued: 2009
An analysis of the use of limited real rights in tax planning
- Authors: Green, Christopher Terrence
- Date: 2008
- Subjects: Tax planning , Income tax -- Law and legislation -- South Africa , Limited liability
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:8958 , http://hdl.handle.net/10948/809 , Tax planning , Income tax -- Law and legislation -- South Africa , Limited liability
- Description: The aim of this treatise is to provide an analysis of the tax implications of making use of limited real rights in tax planning. In order to understand the tax implications of making use of limited real rights it is necessary to understand the nature and legal form of these rights. The importance of this understanding lies in the determination of the tax legislation applicable to the right in question, and the subsequent tax implications. The next step in working through an analysis of the tax implications of making use of limited real rights is therefore to define the scope of applicable legislation. This required an analysis of the scoping provisions of our tax legislation. Once the scope of applicable legislation had been defined, it was then possible to move onto an analysis of the application of the legislation identified to the various “stages” of limited real rights. The conclusion from this analysis is that the tax implications of making use of limited real rights are spread fairly broadly across several different pieces of legislation, and need to be carefully and fully considered when making a decision to make use of limited real rights in a tax planning strategy. The conclusion on the analysis of certain selected tax planning strategies that make use of limited real rights is that it is possible to make fairly substantial cash flow savings when deciding to implement a particular strategy which makes use of limited real rights. But, that use of these strategies is not without risk. For example, SARS may examine a particular strategy in terms of the “new” GAAR. The financial implications of the successful application of the GAAR may be disastrous to the taxpayer, and the tax planner will need to have considered and advised on the possibility of such a challenge from SARS. In addition, in some of the strategies, there are risks associated with the anticipated life expectancy of parties to the tax plan being shorter than anticipated. The conclusion is that the use of limited real rights in tax planning can be effective and provide savings, but that the use of such a strategy requires, inter alia, a very careful consideration of the interaction and application of our tax legislation to the strategy.
- Full Text:
- Date Issued: 2008
- Authors: Green, Christopher Terrence
- Date: 2008
- Subjects: Tax planning , Income tax -- Law and legislation -- South Africa , Limited liability
- Language: English
- Type: Thesis , Masters , MCom
- Identifier: vital:8958 , http://hdl.handle.net/10948/809 , Tax planning , Income tax -- Law and legislation -- South Africa , Limited liability
- Description: The aim of this treatise is to provide an analysis of the tax implications of making use of limited real rights in tax planning. In order to understand the tax implications of making use of limited real rights it is necessary to understand the nature and legal form of these rights. The importance of this understanding lies in the determination of the tax legislation applicable to the right in question, and the subsequent tax implications. The next step in working through an analysis of the tax implications of making use of limited real rights is therefore to define the scope of applicable legislation. This required an analysis of the scoping provisions of our tax legislation. Once the scope of applicable legislation had been defined, it was then possible to move onto an analysis of the application of the legislation identified to the various “stages” of limited real rights. The conclusion from this analysis is that the tax implications of making use of limited real rights are spread fairly broadly across several different pieces of legislation, and need to be carefully and fully considered when making a decision to make use of limited real rights in a tax planning strategy. The conclusion on the analysis of certain selected tax planning strategies that make use of limited real rights is that it is possible to make fairly substantial cash flow savings when deciding to implement a particular strategy which makes use of limited real rights. But, that use of these strategies is not without risk. For example, SARS may examine a particular strategy in terms of the “new” GAAR. The financial implications of the successful application of the GAAR may be disastrous to the taxpayer, and the tax planner will need to have considered and advised on the possibility of such a challenge from SARS. In addition, in some of the strategies, there are risks associated with the anticipated life expectancy of parties to the tax plan being shorter than anticipated. The conclusion is that the use of limited real rights in tax planning can be effective and provide savings, but that the use of such a strategy requires, inter alia, a very careful consideration of the interaction and application of our tax legislation to the strategy.
- Full Text:
- Date Issued: 2008
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