Page 286 - SAIT Compendium 2016 Volume2

IN 18 (3) Income Tax acT: InTeRPReTaTIon noTes
IN 18 (3)
Tax position in South Africa
(1) Taxable income from a foreign source Taxable income for year 2 Less: Assessed loss brought forward from year 1
(2) Trade income from a South African source
Taxable income (all sources)
Normal tax payable at 28%
Section 6quat(1B)(a) rebate limitation:
Taxable income derived from all foreign sources _______________________________________ × Normal tax payable
Taxable income derived from all sources
= R100 000 / R200 000 × R56 000 = R28 000
400 000 (300 000)
100 000 100 000 200 000 56 000
Therefore the full amount of foreign tax of R5 000 will qualify for the foreign tax rebate in year 2.
Example 20 – Set off of foreign trading losses against foreign trading pro ts
Facts:
A resident company conducts operations in Country S which gives rise to income of R20 000 000, deductible expenses of R10 000 000 and foreign tax of R4 000 000. The corporate tax rate in Country S is 40%.
The resident company also conducts operations in Country T which gives rise to income of R10 000 000 and deductible expenses of R14 000 000. The tax loss of R4 000 000 means there is no foreign tax payable in Country T. The resident company’s operations in South Africa give rise to income of R15 000 000 and deductible expenses of
R10 000 000. The corporate tax rate is 28%.
Result:
South African taxable income/assessed loss
Foreign operations
Taxable income in Country S
(R20 million less R10 million)
Assessed loss in Country T
(R10 million less R14 million)
South African operations
Total taxable income for current year of assessment Normal taz payable at 28%
RR
6 000 000 10 000 000
(4 000 000)
5 000 000 11 000 000 3 080 000
Section 6quat(1B)(a) rebate limitation:
Taxable income derived from all foreign sources
_______________________________________ × Normal tax payable Taxable income derived from all sources
= R6 000 000 / R11 000 000 × R3 080 000 = R1 680 000
Therefore the section 6quat(1) rebate is limited to R1 680 000, however paragraph (ii) of the proviso to section 6quat(1B)(a) provides that the excess of R2 320 000 may be carried forward to the following year of assessment to rank for a foreign tax rebate in that year.
The effective combined foreign tax rate equals 66,7%.
Calculation:
Total foreign taxes / Total foreign taxable income × 100% = R4 000 000 / R6 000 000 × 100%
= 66,67%
The effective combined foreign tax rate is signi cantly higher than the tax rate of Country S of 40%. This arises because paragraph (b) of the proviso to section 20(1) does not prohibit the set-off of foreign trading losses against foreign trading pro ts
278 saIT comPendIum oF Tax LegIsLaTIon VoLume 2