Page 205 - SAIT Compendium 2016 Volume2

IN 8 (3) Income Tax acT: InTeRPReTaTIon noTes IN 8 (3)
3.3 The representative taxpayer of an insolvent estate
The de nition of the term ‘representative taxpayer’ in section 1 (1) includes –
‘(f) in respect of the income received by or accrued to an insolvent estate, the trustee or administrator of such insolvent estate;’.
Section 153 (1) of the TA Act de nes a ‘representative taxpayer’ as –
‘a person who is responsible for paying the tax liability of another person as an agent, other than as a withholding agent, and includes a person who—
(a) is a representative taxpayer in terms of the Income Tax Act;
(b) is a representative employer in terms of the Fourth Schedule to the Income Tax Act; or
(c) is a representative vendor in terms of section 46 of the Value-Added Tax Act’.
The representative taxpayer of an insolvent estate is accordingly the trustee or administrator of the insolvent estate. Section 154 of the TA Act provides as follows with regard to the liability of a representative taxpayer:
(1) A representative taxpayer is, as regards—
(a) the income to which the representative taxpayer is entitled;
(b) moneys to which the representative taxpayer is entitled or has the management or control;
(c) transactions concluded by the representative taxpayer; and
(d) anything else done by the representative taxpayer,
in such capacity—
(i) subject to the duties, responsibilities and liabilities of the taxpayer represented;
(ii) entitled to any abatement, deduction, exemption, right to set off a loss, and other items that could be
claimed by the person represented; and
(iii) liable for the amount of tax speci ed by a tax Act.
(2) A representative taxpayer may be assessed in respect of any tax under subsection (1), but such assessment is regarded as made upon the representative taxpayer in such capacity only.’
Section 155 of the TA Act, furthermore, provides that the trustee or administrator of an insolvent estate will be personally liable for any tax payable in the representative taxpayer’s representative capacity, if, while it remains unpaid, he or she –
• alienates, charges or disposes of the amounts on which the tax is chargeable; or
• disposes of any funds or money from which the tax could legally have been paid.
3.4 Person before sequestration and insolvent estate – the ‘one and the same person’ rule
For the purposes of the Act (which includes the Eighth Schedule), and subject to any adjustments as may be necessary, section 25C deems the estate of the person before sequestration and that person’s insolvent estate to be one and the same person for purposes of –
• the amount of any allowance, deduction or set-off to which the insolvent estate may be entitled;
• any amount which is recovered or recouped by or otherwise required to be included in the income of the insolvent estate; and
• any taxable capital gain or assessed capital loss of the insolvent estate.
This, amongst other things, means that:
• An assessed loss incurred by the insolvent person can be set off against the insolvent estate’s income.
• Expenditure and allowances claimed by the insolvent person before the date of sequestration can be recouped
in the insolvent estate, for example, depreciation allowances and bad debts previously written off as bad.
• Debts included in the income of the insolvent person before the date of sequestration can be claimed as bad
debts by the insolvent estate.
• The write-off of assets and allowances can continue to be claimed in the insolvent estate.
• Closing stock taken into account in the insolvent person’s last taxable income calculation may be taken into
account as opening stock in the insolvent estate’s rst taxable income calculation.
• Any amount that would otherwise be required to be included in the income of the insolvent person may be included in the income of the insolvent estate, for example, the amount allowed as an allowance for doubtful
debts or the allowance for future expenditure under section 24C.
The reduction or cancellation of debt provisions in section 19 must be kept in mind if the insolvent estate reduces a debt by more than the amount of consideration given for that reduction, for example, in terms of a compromise with a creditor.
A disposal does not take place when the insolvent person’s assets pass from the insolvent person to the insolvent estate on sequestration.
• Capital gains and capital losses arising because of disposals by the insolvent estate to third parties will be
included in the hands of the insolvent estate but will take into account events that occurred in the insolvent’s
hands, for example, previous depreciation allowances.
• An assessed capital loss incurred by the insolvent person before the date of sequestration may be set-off against
capital gains arising in the insolvent estate.
3.5 Submission of returns
Section 25 of the TA Act, read together with section 66 (13) (a) (b), prescribes that where the estate of a person is sequestrated, separate returns must be submitted for the periods commencing –
• on the rst day of that year of assessment and ending on the date preceding the date of sequestration; and
• on the date of sequestration and ending on the last day of that year of assessment.
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