Page 585 - SAIT Compendium 2016 Volume2

IN 67 (2) Income Tax acT: InTeRPReTaTIon noTes IN 67 (2)
3.4 Connected person in relation to a member of any partnership 3.4.1 Paragraph (c)
Connected person means –
3.4.2 Any other member of the partnership [paragraph (c)(i)]
All members of a partnership or foreign partnership are connected persons in relation to each other. Partners include ordinary pro t-sharing partners and partners in extraordinary partnerships [in other words, silent partners† and partners en commandite (or commanditarian partners)].‡ The existence and identity of silent and en commandite partners is typically not disclosed to the public however the existence and identity of all partners must, when required, be disclosed to SARS. In Bester v Van Niekerk§ Holmes AJA con rmed that a joint venture, even one involving a single transaction, will be a partnership if it meets the following essentials:
• Each of the partners brings something into the partnership, or binds himself to bring something into it, whether it be
money, or his labour or skill.
• The business must be carried on for the joint bene t of both parties.
• The object must be to make pro t.
• In addition, the true intention of the parties must be to form a partnership. A ‘foreign partnership’ is de ned in section 1(1) as follows:
(c) in relation to a member of any partnership or foreign partnership—§
(i) any other member; and
(ii) any connected person in relation to any member of such partnership or foreign partnership;
‘[F]oreign partnership’, in respect of any year of assessment, means any partnership, association, body of persons or entity formed or established under the laws of any country other than the Republic if—
(a) for the purposes of the laws relating to tax on income of the country in which that partnership, association, body
of persons or entity is formed or established—
(i) each member of the partnership, association, body of persons or entity is required to take into account the
member’s interest in any amount received by or accrued to that partnership, association, body of persons or
entity when that amount is received by or accrued to the partnership, association, body of persons or entity; and (ii) the partnership, association, body of persons or entity is not liable for or subject to any tax on income in that
country; or
(b) where the country in which that partnership, association, body of persons or entity is formed or established does
not have any applicable laws relating to tax on income—
(i) any amount—
(aa) that is received by or accrued to; or
(bb) of expenditure that is incurred by,
the partnership, association, body of persons or entity is allocated concurrently with the receipt, accrual or incurral to the members of that partnership, association, body of persons or entity in terms of an agreement between those members; and
(ii) no amount distributed to a member of a partnership, association, body of persons or entity may exceed the allocation contemplated in subparagraph (i) after taking into account any prior distributions made by the partnership, association, body of persons or entity;
3.4.3 A connected person in relation to any member of the partnership or foreign partnership [paragraph (c)(ii)]
A person, who is a connected person in relation to a member of a partnership or foreign partnership, is also a connected person in relation to the other members of the partnership or foreign partnership.
Example 11 – Connected person in relation to a member of a partnership or foreign partnership
Facts:
A and B are members of the AB Partnership. C, the spouse of B, is a bene ciary of ABC Trust. Is ABC Trust a connected person in relation to A?
Result:
Under paragraph (c)(ii) ABC Trust will be a connected person in relation to A if it is a connected person in relation to any member of the AB Partnership (that is, in relation to A or B). ABC Trust is a connected person in relation to B (and hence in relation to A) because –
• C is a relative of B, being B’s spouse [de nition of a ‘relative’ in section 1(1)]. C, being a relative of B, is therefore
a connected person in relation to B under paragraph (a)(i);
• C is a connected person in relation to ABC Trust, being a bene ciary of that trust [paragraph (b)(i)];
* The de nition of a ‘connected person’ was amended by section 4(1)(g) of the Taxation Laws Amendment Act No. 31 of 2013 to include a ‘foreign partnership’ in paragraph (c). Since no effective date was speci ed the amendment takes effect on the date of promulgation of the amendment Act, namely, 12 December 2013
† Anonymous, sleeping or dormant partners.
‡ On extraordinary partnerships, see J J Henning (assisted by E Snyman-Van Deventer) under ‘Partnership – Kinds of Partnership – Extraordinary Partnerships’ in The Law of South Africa 19 (second edition) volume [electronic version] (30 August 2010) LexisNexis Butterworths in paragraph 258.
§ 1960 (2) SA 779 (a) at 783
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