Page 562 - SAIT Compendium 2016 Volume2

IN 64 (3) Income Tax acT: InTeRPReTaTIon noTes IN 64 (3)
• ‘TEU’ means the Tax Exemption Unit which is a dedicated of ce within SARS that deals with all applications by entities seeking exemption from income tax under section 10(1)(e)(i)(cc) on behalf of the Commissioner;
• ‘the Act’ means the Income Tax Act 58 of 1962; and
• any other word or expression bears the meaning ascribed to it in the Act.
1. Purpose
This Note provides guidance on the application and interpretation of section 10(1)(e).
2. Background
Section 10(1)(e) exempts from income tax the levy income of a body corporate , a share block company and an association of persons. It also provides a basic exemption for these qualifying entities.
3. The law
Section 10(1)(e)
10. Exemptions.—(1) There shall be exempt from normal tax— (e) (i) any levy received by or accrued to—
(aa) any body corporate established in terms of the Sectional Titles Act, 1986 (Act No. 95 of 1986), from its members;
(bb) a share block company as de ned in the Share Blocks Control Act from the holders of shares in that share
block company; or
(cc) any other association of persons (other than a company as de ned in the Companies Act, any co-operative,
close corporation and trust, but including a non-pro t company as de ned in that Act) from its members, where the Commissioner is satis ed that, subject to such conditions as he or she may deem necessary, such association of persons—
(a) has been formed solely for purposes of managing the collective interests common to all its members, which includes expenditure applicable to the common immovable property of such members and the collection of levies for which such members are liable; and
(b) is not permitted to distribute any of its funds to any person other than a similar association of persons:
Provided that such body, company or association is or was not knowingly a party to, or does not knowingly permit or has not knowingly permitted, itself to be used as part of any transaction, operation or scheme of which the sole or main purpose is or was the reduction, postponement or avoidance of liability for any tax, duty or levy which, but for such transaction, operation or scheme, would have been or would become payable by any person under this Act or any other law administered by the Commissioner; and
(ii) any receipts and accruals other than levies derived by a body corporate, share block company or association contemplated in subparagraph (i), to the extent that the aggregate of those receipts and accruals does not exceed R50 000;
4. Application of the law
4.1 Qualifying entities
4.1.1 Bodies corporate
The Sectional Titles Act provides for separate ownership of a unit in a development scheme. Generally, the buildings and land of the development scheme are divided into sections and common property. A unit refers to a particular section and an undivided share in the common property associated with that section.
A body corporate is established to take responsibility for the enforcement of Rules* and for the control, administration and management of the common property for the bene t of all owners.
Membership of the body corporate is compulsory and is linked to ownership in the development scheme. The members are required to contribute levies to meet the costs of the common property. A body corporate is a qualifying entity under section 10(1)(e)(i)(aa) unless it is a party to the type of transaction, operation or scheme discussed in 6.
4.1.2 Share block companies
The Share Blocks Control Act de nes a share block company as follows:
‘ ‘[S]hare block company’ means a company the activities of which comprise or include the operation of a share
block scheme;’
The same Act de nes a share block scheme as follows:
‘ ‘[S]hare block scheme’ means any scheme in terms of which a share, in any manner whatsoever, confers a right to
or an interest in the use of immovable property;’
The main object of a share block company is to operate a share block scheme in respect of immovable property owned
by it. A shareholder that owns a share in a share block company acquires the right of use and occupation of a speci c unit or portion of the immovable property owned by the company. The shareholder does not become the owner of the speci c part of the immovable property.
A share block company must establish a levy fund to which the shareholders contribute. The levy fund is used to defray expenditure relating to the repairs, upkeep, control and management and administration of the company and of
* The rules of a particular development scheme established under the Sectional Titles Act. These rules provide for the control, management, administration, use and enjoyment of the sections in the development scheme and the common property.
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