Page 330 - SAIT Compendium 2016 Volume2

IN 18 (3) Income Tax acT: InTeRPReTaTIon noTes IN 18 (3)
Note:
a) Exemption under section 10B(3) amounts to R32 500
Calculation:
R70 000 × 13 / 28 = R32 500
Taxable portion of dividend = R70 000 – R32 500 = R37 500
b) Attributable net income of CFC A
Net income (R100 000) × participation interest (60%) = R60 000
c) Net income (R100 000) × participation interest (15%) = R15 000 d) Net income (R100 000) × participation interest (75%) = R75 000 e) Calculation of the foreign tax rebate available
Total foreign taxes potentially qualifying for a rebate before application of the limitation under section 6quat(1B)(a)]
Dividends – the full amount of withholding tax of R3 500 potentially quali es for a rebate [paragraph (ii) of the proviso to section 6quat(1A)].
Foreign branch – the full amount of R20 000 potentially quali es for a rebate.
CFC A:
Step 1: Foreign taxes attributable to the proportional amount of net income included in taxable income (X)
X = [Foreign taxes × (net income under SA 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: Applicability of the limitation in paragraph (iA)(bb) of the proviso to section 6quat(1B)(a)
Not applicable – CFC A does not have a foreign business establishment in the relevant foreign country.
Therefore, the amount of foreign taxes for CFC A potentially qualifying for a rebate equals R6 000.
CFC B:
Step 1: Foreign taxes attributable to the proportional amount of net income included in taxable income (X)
X = [Foreign taxes × (Net income under SA tax principles / taxable income under foreign tax principles)*] × participation interest
X = [R12 500 × (R100 000 / R125 000)] × 15% X = R1 500
* only applicable if taxable income under foreign tax principles is greater than net income under South African tax principles
Step 2: Applicability of the limitation in paragraph (iA)(bb) of the proviso to section 6quat(1B)(a)
The limitation in paragraph (iA)(bb) of the proviso to section 6quat(1B)(a) is applicable because net income includes an amount falling under section 9D(9A)(a)(iii)(cc). As a result, the foreign tax will be limited to the normal tax attributable to the amount, that is R4 200 [CFC B taxable income (R15 000) / total taxable income (R467 500) × normal tax (R130 900)].
Therefore, the amount of foreign taxes for CFC B potentially qualifying for a rebate = R1 500.
CFC C:
Step 1: Foreign taxes attributable to the proportional amount of net income included in taxable income (X)
X = [Foreign taxes × (Net income under SA tax principles / taxable income under foreign tax principles)*] × participation interest
X = [R8 000 × (R100 000 / R100 000)] × 75% X = R6 000
* only applicable if taxable income under foreign tax principles is greater than net income under South African tax principles
Step 2: Applicability of the limitation in paragraph (iA)(bb) of the proviso to section 6quat(1B)(a).
The limitation is not applicable to the passive income because it is not attributable to CFC C’s foreign business establishment and the limitation in the proviso only applies to speci ed amounts which are attributable to a CFC’s foreign business establishment. That is, the foreign tax not subject to the limitation
= Attributable foreign taxes × (passive foreign taxable income × participation interest) / (total foreign taxable income
× participation interest)
= R6 000 × (R20 000 × 75%) / (R100 000 × 75%)
= R1 200
322 saIT comPendIum oF Tax LegIsLaTIon VoLume 2