Tax Practitioner Connect Issue 6 (December 2016)

Welcome to the latest edition of Tax Practitioner Connect, the electronic newsletter for tax practitioners that keeps you up to date with the tax matters that affect you.

To read our newsletter below, click on each heading to expand the corresponding article.

AUTOMATIC EXCHANGE OF INFORMATION (AEOI), FOREIGN ACCOUNT TAX COMPLIANCE ACT (FATCA) and COMMON REPORTING STANDARDS (CRS)

From September 2017 over 54 jurisdictions will be taking part in the annual automatic exchange of financial information. This includes both the initiative stemming from South Africa signing an Inter-Governmental Agreement (IGA) with the US Internal Revenue Service (IRS) on their Foreign Account Tax Compliance Act (FATCA) as well as the Organisation for Economic Cooperation and Development (OECD) Common Reporting Standard (CRS).

What does this mean for tax professionals and their clients?

The AEOI is relevant to all taxpayers and financial institution clients with cross-border tax affairs. The data that revenue authorities will be getting, provides a prompt for tax intermediaries to work with both existing and new customers to ensure their tax affairs are up to date and compliant. If your client’s tax affairs are up to date and compliant they need not to worry, however, if they are not certain about liabilities and levels of compliance, they need to seek advice on the steps to take to ensure their compliance.

When is the financial information going to be collected and reported to tax authorities?

South Africa will be exchanging the financial data collected with the relevant tax authorities in September 2017. The first data collected will span the financial year from 1 March 2016 to 28 February 2017.

What information is reported?

The financial information includes interest, dividends, account balances, income from certain insurance products, sales proceeds from financial assets and other income generated with respect to assets held in the account or payments made with respect to the account. The information the tax authorities will receive will include name and address, a reference to the financial account and details about the financial institution.

Who is involved in reporting this information?

A broad range of financial institutions are covered by the CRS including custodial institutions, depository institutions, investment entities, specified insurance companies such as banks, insurers, wealth and asset managers, family trusts and fund managers.

Will people be contacted by financial institutions about their data?

Financial institutions may contact their clients to seek details to confirm their tax residency but it remains the responsibility of the client/taxpayer to contact their relevant financial institution, tax practitioner etc. to ensure that their tax affairs are in order.

Are you still not sure about what to do?

SARS will offer assistance to individuals and companies for queries relating to the implementation of CRS, send us an email on: 3rd Party Data Support [email protected].

FURTHER ENHANCEMENTS OF INCOME TAX RETURN FOR COMPANIES (ITR14)

We have introduced further enhancements to the Income Tax Return for Companies (ITR14) on 9 December 2016 as part of the continued process to improve SARS efficiency and enhance taxpayer compliance. Going forward only the new return will be accepted. Please note the following enhancements:

Legal enhancements:

For the year of assessment (YOA) commencing on or after 1 January 2016, foreign tax credits cannot be claimed as a rebate in terms of section 6quin due to the fact that this section has been repealed. However, taxpayers can now claim this type of foreign tax credit as a deduction in terms of section 6quat (1C).
As from 1 March 2016, all qualifying companies operating within a Special Economic Zone (SEZ) will be taxed at a rate of 15% which is lower than the current corporate tax rate of 28%.

Return enhancements:

Dormant companies: The “Dormant Company Details” container now makes provision for dormant companies carrying on the activities of a nominee to declare taxable passive income received or accrued. Please note that it is a legal requirement to submit a tax return even if the company is dormant.
The ITR14 return now has an option to indicate if the financial year end of the company changed during the relevant year of assessment.
The containers for Local and Foreign Capital Gains and Losses now make provision for a new line item with a new source code for the “claw back” provisions in terms of section 45(5).
A new field has been added to the “Non-Residency” container to indicate the date on which the company ceased to be a resident if applicable.

Verification of details

Before completing the ITR14 make sure that that the contact, address, banking and public officer details of the company are correct by verifying and updating it (if required) on the Registration, Amendment and Verification Form (RAV01) on eFiling.

Submission on time

The ITR14 return must be completed and submitted to SARS within 12 months after the financial year end of your company.

ESTATE REFORM

In line with key legislative requirements, we have introduced system changes pertaining to Estates on 9 December 2016. These changes aim to optimise the processing of deceased estates and will also lighten the administrative burden on executors of deceased estates.

Deceased Estates – section 25(1) of the Income Tax Act no. 58 of 1962

A new dispensation for income received by or accrued to the executor of a deceased estate, as well as certain acquisitions or disposals of assets by the executor of the deceased estate will be introduced and come into effect in respect of persons who have died on or after 1 March 2016. A new income tax record for the deceased estate, which will do away with anomalies which currently exist pertaining to the income received or accrued and the acquisition/disposal of assets after date of death, will be created. The deceased estate will, therefore, be subject to a second income tax registration (new income tax entity).

Currently, for deaths prior to 1 March 2016, income other than Capital Gains Tax (CGT) accrued after date of death, is taxed in the hands of the beneficiaries. CGT however, is taxed by way of a Special Trust Type A. With the implementation of the legislative changes, all income including CGT will be taxed in the hands of the deceased estate. The deceased estates for deaths on or after 1 March 2016 will no longer be required to register for Special Trusts Type A.

Second Income Tax Registration

Only deceased estates of taxpayers who passed away on or after 1 March 2016 and where the executor of the estate had received post date of death income, or there was certain acquisitions/disposals of assets by the executor after date of death will be subject to the second income tax registration. Please note that the second registration will not be automatically registered when the taxpayer record is marked as a “Deceased Estate”.

The executor (registered representative) requesting the second income tax reference number must be the same as the executor on record at SARS in respect of the taxpayer’s income tax reference number to date of death. The application for the second income tax reference number can be processed via eFiling or at a SARS branch. If the executor was replaced after the taxpayer records were marked as a “Deceased Estate”, a letter of appointment must be provided in order to change the representative details.

The banking details for the “to date of death” and “post date of death” registrations must be the banking details of the deceased estate provided by the executor and must not be the banking details of the deceased taxpayer. Where the banking details used in the first registration differs from those in the second registration, the representative must provide and meet all FICA requirements to change the banking details of the deceased estate.

A list of supporting documents required for the second registration can be accessed on

Tax and Deceased Estates.