With SARS? filing season now in full swing, taxpayers may not be aware of the multiple deadlines looming that could have an impact on their bottom line.
Research and Development tax incentives
By Steve Curr, Tax Director, Grant Thornton Cape
The tax incentive the South African Revenue Service (SARS) is offering to entities investing in research and development (R&D) in South Africa is set to change on 1 October 2012.
Current position
The current R&D income tax incentive provides for:
- 150% tax deduction of R&D? expenditure (excluding capital expenditure).
- An accelerated capital allowance of 50/30/20% for capital expenditure on plant and machinery used in R&D activities.
- R&D activities are specifically defined and all expenses must be incurred for trade in SA, in the production of income.
The distinction between ?non-capital? and ?capital? expenditure is not entirely clear in the case of R&D expenditure, which in its nature, could be regarded largely as capital expenditure.
The new position from 1 October 2012
- The 2011 Taxation Laws Amendment Act introduced changes to the R&D income tax incentive in respect of expenditure incurred on/after 1 October 2012 The revised tax relief regime provides for:
- 100% of R&D expenditures (incl. capital expenditure, with no pre-approval required)
- 50% of R&D expenditures (incl. capital expenditure) if pre-approved by the Department of Science and Technology (DST) and annual progress reporting to DST made.
- The distinction between ?capital? and ?non-capital? expenditure has been removed, however a pre-approval process has been introduced in order for claimants to qualify for the 50% ?uplift? in tax relief.
- R&D activities are specifically defined and all expenses incurred must be for trade in SA and in the production of income.
- The list of activities that qualify as R&D activities is quite broad and we suggest that you contact us to discuss this in more detail, as the less obvious opportunities are often overlooked.
- Specific exclusions from R&D expenses include marketing related, administration/financing/compliance, routine testing, internal business processes unless for sale/licensing, social science research, oil and gas exploration/prospecting, development of financial products, enhancement of trademarks/goodwill, related to pre-existing inventions.
- One of the material changes in the revised list of non-qualifying R&D expenditures is in respect of development of business software for resale or licensing, which previously did not qualify for the 150% R&D deduction.
- The development of the business software for sale or licensing should now constitute qualifying R&D expenditure.
In a nutshell
The removal of the distinction between ?capital? and ?non-capital? R&D expenditure for R&D tax claim purposes should assist claimants; however it is now necessary for taxpayers to obtain the prior approval from the DST in order to qualify for the 50% uplift in the tax relief for R&D expenditure. In the absence of such prior approval, taxpayers may nevertheless qualify for tax relief in respect of 100% of qualifying R&D expenses (capital and non-capital expenditure).
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Residential property -?a window period of opportunity
By Kathy Dixon, Tax Manager, Grant Thornton East London
Natural persons who transfer ownership of immovable property from a company or closed corporation (CC) to the shareholder, member and/or spouse, are temporarily exempt from the additional transfer duty, capital gains tax, secondary tax on companies and dividends tax (which replaced STC) usually incurred when changing ownership. The 2010 Taxation Laws Amendment similarly also extends relief to natural persons who transfer ownership from trust structures to the donor and/or spouse.
Effective date
The relief measure came into operation on 1 October 2010 and applies to the disposal of a residence from a company or trust on or after this date and before 1 January 2013.
Qualifying criteria
The core objective of the relief measure is to assist taxpayers with simple standardised structures where a residence was placed in a company or trust solely to avoid transfer duty. The following criteria must be complied with in order to take advantage of the relief:
- Dispose of an interest in a residence: Vacant land does not qualify. Conversely, shares in a share block company is considered an interest in a residence and accordingly a company or trust holding a share in share block company can make use of the relief.
- Disposed of on or after 1 October 2010 but no later than 31 December 2012: The time of disposal should not be confused with the time of registration in the deed registry, as the relief measure does not lay down any time limit for registration of the property. The time of disposal rules as envisaged for the purpose of capital gains tax govern when a disposal takes place.
- The use-and-occupation: A qualifying residence must have been used mainly for domestic purposes between 11 February 2009 to the date of disposal by the company or trust. In other words, this means more than 50% must be used for domestic purposes based on floor-area measurement.
- The connected person: The natural person who used the residence mainly for domestic purposes must be connected persons in relation to the company or trust at the time of disposal by the company or trust.
- Termination or the company or trust requirement: The company, CC or trust must take the required steps to initiate a process to terminate the existence of the relevant entity.
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Opportunity to benefit from lower capital gains tax rate
By Steve Curr, Tax Director, Grant Thornton Cape
The Minister of Finance announced an increase in the effective capital gains tax (CGT) rates during his budget speech in February this year. It was indicated that the increase would be effective in respect disposal made on or after 1 March 2012. However, the Draft Rates and Monetary Amounts and Amendment of Revenue Laws Bill which was released on 13 March 2012, stipulates that the increase in effective CGT rates is effective from on 1 March 2012 and will apply in respect of years of assessment commencing on or after that date.
This means that for individuals (for whom the tax year generally ends on 28 February each year), the rate increase will be effective for disposals made on or after 1 March 2012.
Opportunities for companies
However, in the case of companies with a year-end other than 28 February, the increased CGT rates will only apply to disposals made on/ after 1 March 2012 in respect of year-ends ending before 28 February 2013 (i.e. for year-ends up to and including 31 January 2013). For example, a company with a 30 June 2012 year-end that disposes of an asset after 1 March 2012 will still enjoy the previous CGT effective rate of 14%, as opposed to the new effective rate of 18.67%.
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SARS proposes relaxing credit / debit notes VAT requirements
By Cliff Watson, Associate Director ? Indirect Tax, Grant Thornton Johannesburg
SARS? allowable reasons to issue debit and credit notes
At present, vendors may only issue debit or credit notes in specific instances when:
- the agreed upon supply has been cancelled,
- the nature of that supply has been fundamentally varied or altered,
- or the previously agreed consideration for that supply has been altered by agreement with the recipient, whether due to the offer of a discount or for any other reason, or the goods or services or part of the goods or services supplied have been returned to the supplier.
Practical changes proposed
However, in instances when a vendor issues a tax invoice for an incorrect amount, or where specific elements that are required to produce a valid tax invoice are omitted, for example the VAT number of the recipient, such vendor is not entitled to issue a credit note to correct the mistake as the reason to issue the credit note falls outside the list of allowable reasons according to section 21 (1) of the VAT Act.
This treatment poses practical difficulties for vendors and therefore SARS is proposing that the allowable reasons for issuing credit or debit notes be extended to allow for the correction of incorrect tax invoices as well as these additional reasons:
- when an error has occurred in stipulating the amount of consideration agreed upon for that supply or
- where an error or omission has occurred in respect of the particulars required to be contained in a tax invoice.
Effective date unclear
There seems to be some confusion as to when this proposed amendment will come into effect. The actual proposed amendment states that it will come into effect on 1 January 2013 and apply to supplies made on or after that date. However, the draft explanatory memorandum indicates that it will apply to all supplies made by a vendor on or after the date of promulgation of this Bill as per general principles.
At this stage, these are only proposed amendments and SARS will consider all comments received prior to promulgation of the Bill. We recommend that vendors refrain from issuing credit or debit notes based on any reasons other than those currently allowable under the VAT Act, until such time that there is clarity from SARS regarding the effective date and the additional allowable reasons.
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Draft regulations published for the administration of the Automotive Production Development Programme (APDP)
By Wian de Bruyn, Associate Director ? Customs and Excise, Grant Thornton Johannesburg
The APDP will replace the current Motor Industry Development Programme (MIDP) on 1 January 2013. The APDP will focus on local production volumes, whereas the MIDP focused on export volumes. In general, the aim of the APDP is to create additional employment in the motor and component industries that will lead to economic growth in South Africa.
The long awaited APDP draft regulations and information documents were published in the Government Gazette on 29 June 2012 for comments by relevant stakeholders.
A new rebate item 317.03 will be created for the APDP in Schedule No 3 of the Customs and Excise Act, No 91 of 1964. The declaration of foreign currency usage, form DA190 of the MIDP will be changed to the form C1 under the APDP. The role of form C1 will be the same as the current form DA190.
Comments on the draft regulations and information document should reach the International Trade Administration Committee of South Africa (ITAC) by 27 July 2012.
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Source: http://www.budget2011.co.za/2012/07/e-taxline-incentives-relief-and-opportunities/
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