Page 207 - SAIT Compendium 2016 Volume2

IN 8 (3) Income Tax acT: InTeRPReTaTIon noTes IN 8 (3)
Paragraph 83 (2) of the Eighth Schedule provides that no person whose estate has been voluntarily or compulsorily sequestrated may carry forward any assessed capital loss incurred before the date of sequestration. In other words it may not be carried forward by the insolvent after the date of sequestration.
However, under section 25C’s ‘one and the same person’ rule in relation to determining any taxable capital gain or assessed capital loss of the insolvent estate, an assessed capital loss in the hands of the insolvent person before sequestration may be carried forward to the insolvent estate. Any assessed capital loss remaining in the insolvent estate at the time it is nally terminated will be forfeited.
The assessments raised on the insolvent person and the insolvent estate must be withdrawn and a new assessment issued as if the sequestration never took place (see 3.6), when an order of sequestration is set aside. In that case any assessed capital loss must be determined de novo.
3.9 Taxes constitute costs of insolvency
Taxes and levies imposed on income accrued or business conducted from the date of sequestration qualify as a cost of administration under section 97 (2) (c) of the Insolvency Act 24 of 1936.* There is no procedure for proving such claims,† which enjoy a higher degree of preference than claims for income tax in respect of the pre-liquidation period under section 101 of that Act. The representative taxpayer must simply lodge the relevant returns of income and settle the taxes owing before distributing any surplus to the preferent and concurrent creditors.
4. Value-added tax
Section 53 of the Value-Added Tax Act 89 of 1991 (the VAT Act) provides that after the sequestration of a vendor’s estate, any enterprise previously carried on by the vendor –
• continues to be carried on by or on behalf of the trustee or administrator of the estate; or
• anything is done in connection with the termination of the enterprise,‡
the insolvent estate, as represented by the trustee of the insolvent estate, will for the purposes of the VAT Act be deemed to be the vendor of the enterprise.
The vendor whose estate is sequestrated and the insolvent estate will, for purposes of the VAT Act, be deemed to be one and the same person. This means the insolvent estate does not have to be registered as a vendor under a new registration number. The representative vendor being the trustee or administrator of the insolvent estate will be liable to perform the duties as imposed by the VAT Act.
5. Employees’ tax, skills development levies and unemployment insurance fund contributions
An insolvent estate that continues to carry on an enterprise previously carried on by the insolvent person and in so doing continues to employ people, will meet the de nition of an employer for purposes of employees’ tax,§ skills development levies¶ and unemployment fund contributions** and will be subject to the duties, responsibilities and liabilities under those respective Acts.
Practically the insolvent estate does not have to register as a new employer and will continue to use the insolvent person’s registration number.
The trustee or administrator of the insolvent estate will be required to withhold employees’ tax and unemployment insurance fund contributions where the detailed requirements of those Acts are met and as such will be a withholding agent under section 156 of the TA Act. Under section 157 of the TA Act the trustee or administrator is personally liable for the tax withheld and not paid to SARS or the tax which should have been but was not withheld.
6. Illustrative example
Facts:
X’s creditors applied for the sequestration of his estate on 15 September 2012. The court granted a provisional order of sequestration on 15 October 2012 and this was made nal on 13 December 2012. X was the owner of a sports bar. The trustee of X’s insolvent estate continued with the operation of the sports bar on behalf of the insolvent estate (and ultimately the bene t of the creditors) until 7 February 2013 when the estate was nally wound up.
During the period 1 March 2012 to 14 October 2012
• An assessed loss of R50 000 was brought forward from the 2012 year of assessment.
• Sports bar income of R301 998 was generated and allowable expenditure (before any allowances have been taken
into account) amounted to R310 776.
• Interest income of R12 000 was received.
• A capital gain of R50 000 was made on the sale of listed shares on 31 July 2012.
• X purchased new furniture on 1 March 2012 for R180 000. The furniture is written off on the straight line method
over 6 years.
* Van Zyl NO v CIR 1997 (1) SA 883 (C), 59 SATC 105 at 113/114.
† E de la Rey Mars: The Law of Insolvency in South Africa 8 ed (1988) Juta & Co Ltd, Wetton in § 21.5 at 400.
‡ See section 8(2) of the VAT Act for further detail.
§ Section 1 of the Fourth Schedule – de nition of the term ‘employer’.
¶ Section 1 of the Skills Development Levies Act No. 9 of 1999 – de nition of the term ‘employer’.
** Section 1 of the Unemployment Insurance Contributions Act No. 4 of 2002 – de nition of the term ‘employer’.
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