Page 302 - SAIT Compendium 2016 Volume2

IN 18 (3) Income Tax acT: InTeRPReTaTIon noTes IN 18 (3)
is limited to
Proportionate share of tainted income _______________________________ × Normal tax
Total South African taxable income
= [(R150 000 × 75%) / (R500 000 × 75%)] × R75 000 limited to [(R150 000 × 75%) / R1 000 000) × R280 000] = R22 500 limited to R31 500
Therefore, although the limitation is applicable and must be calculated, in this case it has no effect (limitation greater that the applicable amount).
Total foreign taxes which will be subject to the limitation under section 6quat(1B)(a) in step 3
= R52 500 + R22 500
= R75 000
Step 3: Apply the overall normal tax on taxable income limitation [section 6quat(1B)(a)] taking steps 1 and 2 into account
Once the limitations in steps 1 and 2 have been applied, the remaining qualifying foreign taxes incurred by the CFC are added to any other qualifying foreign taxes proved to be payable on the amounts contemplated in section 6quat(1) (a) to (f). The nal step in the limitation process is then performed, namely, the overall limitation under section 6quat(1B)(a). (See 4.5)
Taxable income derived from all foreign sources _______________________________________ × Normal tax payable
Taxable income derived from all sources
= R375 000 / R1 000 000 × R280 000 = R105 000
Therefore, the amount of taxes which potentially qualify for a rebate in year 1 is R75 000 (see Step 1 and Step 2).
Example 34 – Limitations for an amount attributable to a CFC (but not its foreign business establishment) which is not excluded from attribution under section 9D
Facts:
A resident holds 60% of the participation and voting rights in a CFC which does not have a foreign business establishment. The net income of the CFC for year 1 is R100 000 consisting of interest income.
The resident has other foreign source taxable income of R50 000. Foreign taxes on this income amounted to R15 000.
The resident does not earn any South African-source income in year 1.
The resident’s total taxable income is R110 000 ((R100 000 × 60%) + R50 000) and normal tax is R30 800 (R110 000 × 28%).
In its country of residence the CFC’s equivalent taxable income amounted to R120 000 which resulted in a tax liability of R12 000 in that country.
Result:
CFC
Step 1: Foreign taxes attributable to the proportional amount of net income included in taxable income (X)
X = [Foreign taxes × (net income under South African tax principles / taxable income under foreign tax principles)*]
× participation interest
X = [R12 000 × (R100 000 / R120 000)] × 60% X = R6 000
* only applicable if taxable income under foreign tax principles is greater than net income under South African tax principles
Step 2:
Not applicable as the amount is not attributable to a foreign business establishment.
Sum of total foreign taxes potentially qualifying for a rebate
= R6 000 in relation to the CFC (taking steps 1 and 2 into account) + R15 000 relating to the other foreign-source taxable income
= R21 000
Step 3: Calculation of the limitation of the rebate
Taxable income derived from all foreign sources _______________________________________ × Normal tax payable
Taxable income derived from all sources
= R110 000 / R110 000 × R30 800 = R30 800
Therefore, the amount of taxes qualifying for a rebate in year 1 is R21 000.
294 saIT comPendIum oF Tax LegIsLaTIon VoLume 2