Page 593 - SAIT Compendium 2016 Volume2

IN 67 (2) Income Tax acT: InTeRPReTaTIon noTes IN 67 (2)
Example 25 – Connected person in relation to a company
Facts:
XYZ (Pty) Ltd and MNO (Pty) Ltd both have ve directors on their respective boards of directors. K is the only director who is common to both boards. K has a very dominant personality and practically ‘runs the show’ at both companies. K owns 5% of the shares in XYZ (Pty) Ltd and 15% of the shares in MNO (Pty) Ltd. Is MNO (Pty) Ltd a connected person in relation to XYZ (Pty) Ltd?
Result:
K is not a connected person in relation to either XYZ (Pty) Ltd or MNO (Pty) Ltd. Thus, in spite of XYZ (Pty) Ltd and MNO (Pty) Ltd being controlled by the same person, they are not connected persons under paragraph (d)(vA)(aa).
Example 26 – Connected person in relation to a company
Facts:
XYZ (Pty) Ltd is controlled by X who holds all its shares. ABC (Pty) Ltd is controlled by B who holds all its shares. B is X’s spouse. Are XYZ (Pty) Ltd and ABC (Pty) Ltd connected persons in relation to each other?
Result:
X and B are connected persons in relation to each other under paragraph (a)(i) (see 3.1.2). X and B are respectively connected persons in relation to XYZ (Pty) Ltd and ABC (Pty) Ltd under paragraph (d)(iv)(aa) (see 3.5.3). XYZ (Pty) Ltd and ABC (Pty) Ltd are connected persons in relation to each other under paragraph (d)(vA)(bb) since they are controlled by X and B respectively, who are connected persons in relation to each other.
3.5.6 Connected person in relation to a company that is a close corporation [paragraph (d)(vi)] The following persons are connected persons in relation to a close corporation:
• A member of the close corporation [(d)(vi)(aa)]
• A relative of a member of the close corporation [(d)(vi)(bb)]
• A trust (other than a portfolio of a collective investment scheme in securities or a portfolio of a collective investment
scheme in property) which is a connected person in relation to a member of the close corporation [(d)(vi)(bb)] • A close corporation or company which is a connected person in relation to – [(d)(vi)(cc)]
• a member of the close corporation, [(d)(vi)(cc)(i)] or
– –
any relative of a member of the close corporation, [(d)(vi)(cc)(ii)] or
any trust which is a connected person in relation to a member of the close corporation [(d)(vi)(cc)(ii)].
Example 27 – Connected person in relation to a close corporation
Facts:
X holds a 100% member’s interest in XYZ CC. B, who is X’s spouse, is a bene ciary of AB Trust. Is AB Trust a connected person in relation to XYZ CC?
Result:
AB Trust is a connected person in relation to X under paragraph (a)(ii) (see 3.1.3) and therefore a connected person in relation to XYZ CC under paragraph (d)(vi)(bb).
Example 28 – Connected person in relation to a close corporation
Facts:
X holds a 100% member’s interest in ABC CC and a 20% members’ interest in DEF CC. Is DEF CC a connected person in relation to ABC CC?
Result:
X is a connected person in relation to ABC CC and DEF CC under paragraph (d)(vi)(aa). ABC CC and DEF CC are connected persons in relation to X under paragraph (e). DEF CC is therefore a connected person in relation to ABC CC under paragraph (d)(vi)(cc)(i).
Example 29 – Connected person in relation to a close corporation
Facts:
X holds a 100% member’s interest in ABC CC. B, who is X’s daughter, holds all the shares in DEF (Pty) Ltd. Is DEF (Pty) Ltd a connected person in relation to ABC CC?
Result:
X is connected to ABC CC under paragraph (d)(vi)(aa). B is related to X in the rst degree of consanguinity, that is, B is X’s relative and is a connected person in relation to X under paragraph (a)(i) (see 3.1.2). DEF (Pty) Ltd is a connected person in relation to B under paragraph (d)(iv)(aa) (she holds 100% of the shares in DEF (Pty) Ltd and paragraph (e) establishes the reverse relationship between her and DEF (Pty) Ltd. ABC CC is therefore a connected person in relation to DEF (Pty) Ltd under paragraph (d)(vi)(cc)(ii) and DEF (Pty) Ltd is a connected person in relation to ABC CC under paragraph (e) (see 3.6).
3.6
3.6.1 Paragraph (e)
The reverse ‘connected person’ relationship
Connected person means –
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