Page 321 - SAIT Compendium 2016 Volume2

IN 18 (3) Income Tax acT: InTeRPReTaTIon noTes IN 18 (3)
Similarly, in circumstances where the withholding or the foreign tax liability which resulted in a section 6quin rebate is increased after an original assessment has been issued, a taxpayer will need to request a reduced assessment* within three years after the date of assessment of the original assessment.†
In contrast, if a section 6quin rebate has been deducted from normal tax and the related foreign tax is subsequently refunded or the foreign tax liability is discharged, section 6quin(5) potentially deems the amount refunded or discharged to be normal tax payable in the year of refund or discharge (see 7.8).
7.5 No section 6quin rebate for foreign taxes claimed as a rebate under section 6quat(1) or a deduction under section 6quat(1C) [section 6quin(3)]
7.5.1 Interaction between sections 6quat(1) and 6quin
Section 6quin(3)(i) clari es that an amount of foreign tax cannot qualify for a rebate under both section 6quat(1) and section 6quin(1).
There are, however, circumstances in which section 6quat(1) and section 6quin(1) will apply to different portions of the income arising under the same service contract because the relevant services are rendered in different locations and hence the source of the amounts is different.
Example 55 – Application of both section 6quat(1) and section 6quin to a resident
Facts:
Resident company A performs project management, engineering and construction management services for a mining venture in Country X in its 2015 year of assessment.
Resident company A performs 90% of these services in South Africa and the remaining 10% in Country X. This is company A’s only source of income. The total service income received was R100 000 and related expenses totalled R60 000 (assume expenses were incurred in proportion to the income earned).
Country X levies a withholding tax of 15% on the payments by the mining venture to company A.
South Africa has a tax treaty with Country X. Company A elects the relief available under section 6quin rather than the relief available under section 6quat(1C).
Result:
Tax payable in Country X R100 000 × 15% = R15 000
Allocation of foreign taxes between South African-source income and foreign-source income.
R Part of foreign taxes attributable to South African sourced income 13 500
Calculation:
R15 000 foreign tax × 90% of services rendered in South Africa = R13 500. This portion of the foreign tax quali es for a section 6quin rebate as it relates to South African-source service income.
Part of foreign taxes attributable to foreign-source income 1 500
Calculation:
R15 000 foreign tax × 10% of services rendered in Country X = R1 500. This portion of the foreign tax quali es for a section 6quat(1) rebate as it relates to foreign-source service income.
Tax payable in South Africa
* the split between South African source and Country X source is required for purposes of the calculations in working 1 and 2 below
Service income Less: deductions Total taxable income
Normal tax payable at 28% Section 6quat(1) (working 1) Section 6quin (working 2) Tax payable
90 000 (54 000) 36 000
10 080
10 000 (6 000) 4 000
1 120
100 000 (60 000) 40 000
11 200 (1 120) (10 080) Nil
South African* source Country X* source Total
RRR
* Resulting from an increase in the amount of the section 6quin rebate. † Sections 93 and 99 of the TA Act.
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