Treasury Provides Responses to Tax Bills Hearings

National Treasury

National treasury has provided responses to comments received on the Draft Taxation Laws Amendment Bills to the standing committee on finance in Parliament.

Treasury, together with the South African Revenue Service (SARS), highlighted key areas of the bills to committee members.

The bills were released at the beginning of June. They consist of a money bill and an ordinary bill covering administration.

The bills give effect to most of the 2011 budget review tax proposals as well as other urgent measures.

Treasury pointed out that submissions were received from over 60 organisations.

Highlighted issues include:

• Conversion of medical scheme contribution deductions to tax credits- the possibility of converting deductions relating to out-of-pocket expenses into a credit for those aged 65 years and older and for those with disabilities to be explored next year. Taxpayers aged 65 and older will continue to receive the unlimited deduction in respect of medical expenses for the next two years. Supplementary credit dropped.
• Conversion of living annuities to a retirement include drawdown account- proposal viewed as premature. A separate set of bills to be issued in due course that fully address the regulatory and tax aspects of allowing equal access to the prospective providers of living annuity products.
• Trust assets- treasury agreed that the requirement that a trust contain no assets other than equity shares is impractical. This rule to be relaxed. Assets arising from incidental amounts associated with the shares will be permitted.
• New dispensation for foreign dividends- dual tax on dual listed foreign company dividends to be removed. Foreign dividend definition to be modified.
• Anti-avoidance: perpetual debt- special regulatory or legislative framework to be enacted in 2012 or 2013. Until then, perpetual debt proposal to be deferred.
• Research and development revisions- research and development definition to be revised to better reflect the aim of the incentive (income tax-domestic incentives).
• Film incentive- proposed that the net loss associated with acquiring and developing exploitation rights in a qualifying film be allowed two years after completion date of the film.
• Value-added tax- in terms of temporary relief for developers, the legislation will only cater for prospective relief. SARS to deal with each issue administratively on a developer by developer basis.

Proposed relief to not cover speculators and financiers of fixed property.

Feedback was also provided on section 45 proposals.

SARS is to apply a narrowed discretion in terms of section 45 of the Income Tax Act. SARS must consider each case on its merits when contemplating whether transactions should be tax-free.

According to treasury, the pre-approval requirement will be in place for two years.

Factors taken into account when exercising the discretion include:

• Potential tax leakage associated with the debt issued to facilitate the reorganisation
• Level of debt to the total equity of the debtor company
• Estimated interest expenses in relation to the estimated income after the reorganisation
• Debt versus equity features of the debt instrument
• Ownership relationship between debtor versus the creditor

Revised regulations governing transactions will be published towards the end of this month.

Treasury also indicated that the bills would be tabled in Parliament in October.

Sabinet Cape Town Office