Page 732 - SAIT Compendium 2016 Volume2

BGR 8 INCOME Tax aCT: BINdINg gENERaL RuLINgS BGR 9
e weighted-average prime overdra rate for banks during the relevant year of assessment is 13,44%.
e nancial year of the owner of the retirement village commences on 1 March 2011 and ends on 19 February 2012.
Result:
e monetary value of the right to the use of the interest-free loan is calculated as follows: A = (B x C x D) – E x (B x C x D)
= (R400 000 x 4,59354 x 13,44%) – 93,1% x (R400 000 x 4,59354 x 13,44%) = R246 948,71 – R229 909,24
= R17 039,47
An owner that is obligated to refund only a portion of the loan on death or cancellation of the agreement must include the amount not refundable in gross income in the year of assessment in which the loan is granted and paid by the person acquiring the life right.
Example 2 – Full loan amount not refundable
Facts:
e agreement between the owner and the life-right holder provides that only 80% of the interest-free loan of R900 000 is refundable on death.
Result:
e owner must include R180 000 (20% x R900 000) in gross income in the year of assessment in which the loan is granted and paid by the life-right holder.
In addition, an amount equal to the monetary value, calculated in respect of the right to use the interest-free loan, must be included in the owner’s gross income in the year of assessment in which the loan is granted and paid.
Note: For purposes of calculating the monetary value, symbol “B” in the formula is 80% x R900 000 = R720 000.
In the case of an interest-free loan, the bene t to retain and use the interest-free loan will accrue to the owner on the date the loan has been granted and paid by the person acquiring the life right.
Example 3 – Date of accrual of an interest-free loan
Facts:
B retired on 30 March 2012 and entered into an agreement with a retirement village owner. Under the agreement, B will be entitled to occupy a particular unit in exchange for the grant of the use of an interest-free loan of R400 000. e agreement is concluded on 15 February 2012. B undertook to pay the R400 000 on receipt of his lump sum bene t from his pension fund. He paid over the R400 000 to the retirement village owner on 12 June 2012. e year of assessment of the owner ends on 31 December 2012.
Result:
e date of accrual for purposes of calculating the monetary value of the right to use the interest-free loan is 12 June 2012.
BINDING GENERAL RULING (INCOME TAX): NO. 9 (Issue 2)
DATE: 19 February 2013
SUBJECT: TAXES ON INCOME AND SUBSTANTIALLY SIMILAR TAXES FOR PURPOSES OF SOUTH AFRICA’S TAX TREATIES
Preamble
For the purposes of this ruling —
• ‘BGR’ means a binding general ruling issued under section 89 of the Tax Administration Act 28 of 2011; • ‘OECD’ means Organisation for Economic Co-operation and Development;
• ‘section’ means a section of the Act;
• ‘STC’ means secondary tax on companies;
• ‘tax treaty’ means an agreement for the avoidance of double taxation;
• ‘the Act’ means the Income Tax Act 58 of 1962; and
• ‘treaty relief’ means relief from double taxation.
1. Purpose
This BGR –
• identi es the taxes administered by SARS, which in its opinion constitute taxes on income or substantially similar
taxes for purposes of South Africa’s tax treaties;
724 SAIT CompendIum oF TAx LegISLATIon VoLume 2