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IN 8 (3) Income Tax acT: InTeRPReTaTIon noTes IN 9 (5)
7. Conclusion
For income tax purposes, a new taxable entity comes into existence when a person’s estate is sequestrated. In addition, the natural person receives a new taxpayer identity from the date of sequestration. Three separate taxpayers will, therefore, be liable for tax, namely –
• the insolvent person for the period before insolvency (that is, up to the date preceding the date of sequestration);
• the insolvent estate (a new entity from the date of sequestration); and
• the insolvent person for the period on and after the date of sequestration.
A separate tax return must be submitted for each of the periods identi ed above.
The estate of the person before sequestration and the person’s insolvent estate are, however, deemed to be one and the same person for certain purposes, for example, the determination of the deductions and allowances the insolvent estate may be entitled to and the determination of a taxable capital gain or assessed capital loss in the insolvent estate. It also means there is no disposal for capital gains tax purposes when the assets pass from the insolvent to the insolvent estate.
Paragraph 83 (1) and 83 (2) of the Eighth Schedule provide that –
• the disposal of an asset by an insolvent estate is treated in the same manner as if the natural person whose estate has
been sequestrated had disposed of that asset, and
• 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 but it may be carried forward to the insolvent estate.
Similarly, an assessed loss prior to the date of insolvency may be carried forward to the insolvent estate.
The trustee or administrator of the insolvent estate is the representative taxpayer of an insolvent estate and, in that capacity, is subject to the duties, responsibilities and liabilities of the insolvent estate. In this capacity the trustee or administrator may, depending on the speci c facts, elect that the normal tax chargeable on the taxable income from farming of the estate be determined in accordance with the rating formula speci ed in section 5 (10).
The trustee or administrator may be held personally liable for the underlying taxes.
In circumstances where an order of sequestration is set aside SARS must withdraw any assessment issued to the insolvent estate and must also withdraw the assessment which was issued to the insolvent person in the year the sequestration order was granted by the court (that is, from the beginning of that year to the date preceding the date of sequestration). SARS must simultaneously issue assessments to the person who has been released from sequestration as if the sequestration never took place.
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.
For purposes of value-added tax, employees’ tax, skills development levies and unemployment insurance fund contributions, the insolvent estate and the person whose estate is sequestrated are regarded to be one and the same person. The trustee or administrator of the insolvent estate takes over the duties and responsibilities regarding these taxes, levies or contributions.
Legal and Policy Division
SOUTH AFRICAN REVENUE SERVICE
Date of rst issue: 28 March 2002 Date of second issue: 22 March 2006
Income Tax Interpretation Note 9 (Issue 5) Small Business Corporations
DATE: ACT: SECTION: SUBJECT:
Preamble
14 October 2009
INCOME TAX ACT 58 OF 1962 (‘the Act’) Section 12E
Small Business Corporations
In this Note—
• a ‘company’ includes a ‘close corporation’ or a ‘co-operative’;
• a ‘shareholder’ includes a ‘member of a close corporation’ or ‘a shareholder of a co-operative’;
• ‘the Commissioner’ means the Commissioner for SARS;
• ‘SARS’ means the South African Revenue Service; and
• legislative references to ‘sections’ and ‘Schedules’ are to sections of and Schedules to the Act and unless the
context indicates otherwise, any word or expression in this Note bears the meaning ascribed to it in the Act.
1. Purpose
This Note provides guidance as to the application of the provisions of section 12E with reference to the requirements that have to be met in order to qualify as a Small Business Corporation (SBC). Due to various amendments since the introduction of section 12E, it will be necessary to consult previous issues for the rates and requirements applicable to years of assessment before 1 April 2009. Previous issues of this Note can be accessed from the SARS website www. sars.gov.za. This Note takes into account the changes up to and including those of the Taxation Laws Amendment Act 17 of 2009.
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