Page 515 - SAIT Compendium 2016 Volume2

IN 55 (2) Income Tax acT: InTeRPReTaTIon noTes IN 58 (2)
(3) The provisions of this Schedule apply in relation to the amount of employees’ tax deducted or withheld under subparagraph (2) as though that amount had been deducted or withheld from the amount of the gain referred to in subparagraph (1).
(4) Before deducting or withholding employees tax under subparagraph (2) in respect of remuneration contemplated in subparagraph (1)(a) or (c), the employer must ascertain from the Commissioner the amount to be so deducted or withheld.
(5) If that employer is, by reason of the fact that the amount to be deducted or withheld by way of employees’ tax exceeds the amount from which the deduction or withholding is to be made, unable to deduct or withhold the full amount of employees’ tax during the year of assessment during which the gain arises, he or she must immediately notify the Commissioner of the fact.
(6) Where an employee has under any transaction to which the employer is not a party made any gain or an employee has disposed of any qualifying equity share as contemplated in subparagraph (1), that employee must immediately inform the employer thereof and of the amount of that gain.
(7) Any employee who without just cause shown by him or her fails to comply with the provisions of subparagraph (6), shall be guilty of an offence and liable on conviction to a ne not exceeding R2 000.
Proviso (iv) of paragraph 2 (a) of the Seventh Schedule to the Act provides that no taxable bene t will arise in terms of paragraph 2 (a) in respect of—
Income Tax Interpretation Note 58 (Issue 2)
The Brummeria case and the right to use loan capital interest free
(iv) any equity instrument as contemplated in section 8C
DATE: ACT: SECTION: SUBJECT:
4 October 2012
INCOME TAX ACT 58 OF 1962 (the Act)
Section 1, de nition of ‘gross income’
The Brummeria case and the right to use loan capital interest free
In this Note unless the context indicates otherwise—
• ‘BGR’ means a binding general ruling issued under section 89 of the Tax Administration Act, 2011;
• ‘SCA’ means the Supreme Court of Appeal of South Africa;
• ‘section’ means a section of the Act;
• ‘Tax Administration Act, 2011’ means the Tax Administration Act 28 of 2011;
• ‘the Brummeria case’ means the judgment handed down by the SCA in Commissioner, SARS v Brummeria
Renaissance (Pty) Ltd 2007 (6) SA 601 (SCA), 69 SATC 205; and
• any word or expression in this Note bears the meaning ascribed to it in the Act.
1. Purpose
This Note has been published as a result of the judgment of the SCA in the Brummeria case. For the purposes of interpreting the de nition of the term ‘gross income’ in section 1 (1), this Note—
• outlines the treatment of receipts or accruals in a form other than money; and
• serves as a BGR issued under section 89 of the Tax Administration Act, 2011 on the meaning of the term ‘amount’ as
used in that de nition (see 7).
2. Background
The Brummeria case concerned a group of companies (the taxpayers) that granted life rights over units in a sectional title scheme operating as a retirement village to the occupiers (life-right holders). As a quid pro quo (in exchange) the life-right holders granted interest-free loans to the taxpayers for as long as they occupied the units.
The SCA had to adjudicate the appeal on the issues as de ned in the statement of the grounds of assessment read with the statement of the grounds of appeal. Issues that were not raised in the statement of grounds of appeal could not be pursued before the court. The court had to consider the taxpayers’ contention that the interest-free loans did not result in any ‘amount’ being ‘received by’ them which could be, and was, wrongly included in their gross income.
The complete facts of the case and the arguments of the Commissioner and the taxpayers may be found in the reported judgment and are therefore not repeated in this Note.
The SCA held that the right to use the loan capital interest free has an ascertainable money value that should be included in the gross income of the taxpayers.
The SCA did not, in the context of the appeal, consider the position of the life-right holders. This Note therefore focuses on the borrowers of the money in the context of trade and not on the position of the life-right holders.
3. The law
Extract from the de nition of the term ‘gross income’ in section 1 (1)
‘gross income’, in relation to any year or period of assessment, means—
(i) in the case of any resident, the total amount, in cash or otherwise, received by or accrued to or in favour of such
resident; or
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