Page 272 - SAIT Compendium 2016 Volume2

IN 18 (3) Income Tax acT: InTeRPReTaTIon noTes IN 18 (3) Note:
No tax treaties are in place for scenarios (A), (B) and (C).
Result:
The South African resident is entitled to the following rebates or deductions in the year of assessment, namely, for the –
(a) foreign taxes contemplated in (A), a foreign tax rebate under section 6quat(1),
(b) foreign taxes contemplated in (B), a foreign tax rebate under section 6quin or alternatively a deduction under
section 6quat(1C),
(c) foreign taxes contemplated in (C), a deduction under section 6quat(1C), and
(d) foreign taxes contemplated in (D), a foreign tax rebate for dividends tax purposes under section 64N.
Exemption for certain foreign-source amounts
The aforementioned foreign tax rebate methods and the deduction method are supported by a broad range of exemptions for certain types of foreign-source income and capital gains received by or accrued to a resident, for example:
• Exemption for foreign dividends when a resident (whether alone or together with any other company forming part
of the same group of companies as that person) holds at least 10% of the total equity shares and voting rights in the
foreign company declaring the foreign dividend [section 10B(2)(a)].
• Exemption for foreign dividends that relate to amounts previously included in the income of a resident under South
Africa’s CFC rules [section 10B(2)(c)].
• Partial exemption for foreign dividends received or accrued which are not otherwise exempt under section 10B(2); the
exempt portion is calculated according to the formula included in section 10B(3). For example, in the case of a natural
person the exempt portion equals the amount of the foreign dividend multiplied by 25 / 40.
• Exemption for remuneration income received or accrued by a resident employee for services that were rendered outside South Africa during a period exceeding 183 full days in aggregate during a 12-month period and for a continuous
period exceeding 60 full days during that period [section 10(1)(o)(ii)].
• Exemption for pensions derived by a resident from a source outside South Africa for past services rendered outside
South Africa [section 10(1)(gC)(ii)].
• Exemption from capital gains tax arising from the disposal of equity shares in foreign companies by a resident if
certain requirements are met [paragraph 64B of the Eighth Schedule].
Order of deducting foreign tax rebates from the amount of normal tax payable
SARS calculates a resident’s nal tax liability by deducting the rebates from normal tax according to the sequence of the sections in the Act, namely:
Natural person
Normal tax payable
Less: Primary, secondary and tertiary rebates under section 6 Less: Medical scheme fees tax credit under section 6A
Less: Additional medical expenses tax credit under section 6B Less: Foreign tax rebate under section 6quat(1)
Less: Foreign tax rebate under section 6quin
Result: Final tax payable
Any person other than a natural person
Normal tax payable
Less: Foreign tax rebate under section 6quat(1) Less: Foreign tax rebate under section 6quin Result: Final tax payable
R
XXX (XXX) (XXX) (XXX) (XXX) (XXX) XXX
XXX (XXX) (XXX) XXX
The sum of the rebates available under sections 6, 6A, 6B, 6quat(1) and 6quin could potentially exceed the amount of normal tax payable.* To the extent that the sum of those rebates exceeds the normal tax payable, any excess is forfeited and is not refundable – see examples 1, 5 and 6 in Annexure B. In addition, the excess may not be carried forward to the next year of assessment for purposes of determining the nal tax payable in that year. This is different to the situation in which the amount of the qualifying foreign taxes exceeds the amount of the section 6quat(1) rebate. In this situation
* The possibility arises as a result of, for example, the sections 6, 6A and 6B rebates which are potentially available to natural persons.
264 saIT comPendIum oF Tax LegIsLaTIon VoLume 2