Clause/Par

Ref

Commentator

Comment

Type

A/R/O

Remarks

C

2

23

PWC

The word "as such" should be inserted after the word "recognised" in (a) of clause 2. This will make (b) unnecessary.

T

R

Not considered necessary

C

3

(1)

11

T van Dijk

Paid transfer duty by registering property in own name rather than acquiring the shares in the company in August 2000. In the light of the relief C3 offers the suggestion is made that it should be extended to 23 February 2000

C

R

The commentator was aware that the position was in a state of flux and a dangerous precedent will be set if the change is effected

C

3

(1)

20

G Shev

The provisions of these sub-clauses only extend to a natural person and his or her spouse. They do not extend to the membership of companies and close corporations where children or parents who live in the residence as a family are also shareholders or members of the company or close corporation. This could be harsh on families who have jointly contributed to the acquisition of a family home occupied by all such persons.

C

R

Already a major concession

C

3

(1)

20

G Shev

The introduction of this sub-section must be commended. However the provisions are extremely restrictive as the only person to whom transfer may be effected free of transfer duty is the settlor of that trust and the residence was disposed of to that trust by that settlor. Accordingly this excludes residences acquired by a trust from third parties for occupation by the settlor or his or her family. Consideration should be given to extending this sub-section to permit the transfer of the residence to beneficiaries of the trust who have been residing in the residence. There are many instances where the settlor facilitated the establishment of a trust for the benefit of their children who have subsequently provided financial or other facilities to the trust to enable the trust to acquire a residence for such children.

C

O

Partially accepted

C

3

19

LISPA

Suggests that S17(b) be amended by deleting the words "and that residence was disposed of to that trust by that settlor". If not, taxpayers who bought immovable property in trusts are treated differently from those who bought such property in companies and close corporations. Both should be granted an equal opportunity to get their affairs in order.

C

O

Partially accepted, extended to cover the case where funds were advanced by the settlor to acquire the property

C

3

22

E Mazansky (GTKF)

The new S9(16)(b), instead of referring to the natural person and his or her spouse I think you should state "that natural person alone or together with his or her spouse". The way it is currently drafted it is required that there be a joint holding.

C

A

Amended

C

3

23

PWC

The window period is not, it is submitted, opened wide enough

C

R

Major concession already made

C

3

23

PWC

In the case of a residence held by a company or close corporation, it should also apply where the natural person shareholding/member’s interest is held indirectly through a trust/s and/or other company/ies; the shareholders/members/trust beneficiaries should encompass a natural person and his or her "relatives" as defined in section 1; the clause does not adequately deal with a residence in a testamentary trust where the word "settlor" is inappropriate; with inter vivos trusts the settlor is more often than not merely nominal or token. In fact, it is possible to have a trust without a "settlor". What should be looked at are the beneficiaries and their status as natural persons.

C

R

Existing provisions in the Transfer Duty cater for this. Additional complexity to the Bill

C

3

23

PWC

S9(16) - the cross reference to P46 should be P46(a) and (b)

T

A

Amended

C

3

23

PWC

This requires the equity in the company to be directly held by the natural person, and does not cater for the situation where there may be an indirect holding, or a company underlying a trust. This should be addressed. Section 9(17). The draft legislation provides that exemption will only apply where the primary residence was disposed of to the trust by the settlor. In practice, this is seldom the case, rather the trust purchases the property from a third party as this avoids the double charge to transfer duty that would have arisen where the property was first acquired by the settlor, and then sold to the trust. This amendment may therefore have little practical application.

C

O

First half - no; second half accepted and amended

C

5

23

PWC

Would not "quasi-marital" be better and slightly more elegant than "marital-like?

T

R

No

C

7

23

PWC

As has been said before, the reduction of the estate duty rate is ad hoc and cynical, and neither addresses the fundamental issues nor accords with (the much espoused) holistic tax reform. The same may be said for the donations tax rate reduction (clause 21).

C

R

Reason - the reduction has been calculated using an econometric model to estimate the additional tax imposed in the case of the average estate, a reduction of 4% in estate duty was arrived at but was increased to 5% for reasons of simplicity.

C

8

(e)

22

E Mazansky (GTKF)

The amendments to the definition of "gross income" are not understood. If it is the intention to exclude the VAT, I think that after the word "and" and before the words "that portion of a receipt" you should include the word "excluding" so as to make this clear. But if you are making this change, I am not sure why it is necessary. But if it is necessary, you have left yourself open because when that output tax is payable to the SARS, could the taxpayer not claim a deduction under section 11(a) for it, and therefore should you not exclude that payment as a deduction from that section (the deduction of input tax would automatically be taken into account by virtue of section 23C).

C

A

Deleted

C

8

(e)

23

PWC

We have some difficulty with the proposed clause 8(e) exclusion of VAT received or accrued, but for which there is a liability to SARS, from "gross income":

C

A

Deleted

C

8

(f)

1

SAICA

Problems associated with taxing the proceeds from foreign insurers - S1(f)(eC)

C

A

As a result of the representations, these provisions have been deleted and re-enacted in the Eighth Schedule. The inclusion rate will therefore be lower and there are detailed provisions to cater for the problems identified

C

8

(f)

16

Fullinput Tax Services CC

S1(eC) - problems relating to the taxation of foreign insurance policies

C

A

As a result of the representations, these provisions have been deleted and re-enacted in the Eighth Schedule. The inclusion rate will therefore be lower and there are detailed provisions to cater for the problems identified

C

8

(f)

19

LISPA

Perturbed by this proposed amendment

C

A

As a result of the representations, these provisions have been deleted and re-enacted in the Eighth Schedule. The inclusion rate will therefore be lower and there are detailed provisions to cater for the problems identified

C

8

(f)

23

PWC

Problems associated with gross income definition - S1(f)(eC)

C

A

As a result of the representations, these provisions have been deleted and re-enacted in the Eighth Schedule. The inclusion rate will therefore be lower and there are detailed provisions to cater for the problems identified

C

8

(h)

23

PWC

The perpetuation and use of the definition "married woman" in this era of gender equality is unacceptable: it implies male domination. Why not use "spouse" throughout the Act and, if needs be, extend the definition of "spouse" to exclude, in relation to a person, his or her partner where they are permanently living apart.

C

R

These definitions are outside the scope of this Bill but will be considered at a later stage

C

8

(j)

19

LISPA

The proposed paragraph (g) to the definition of a "representative taxpayer" may include a Lisp. Is this intended?

C

R

Def of representative taxpayer will be amended to provide that the word income as used in that def will be construed as including a capital gain

C

8

(k)

1

SAICA

Def. of special trust proviso to match P78 (earlier of 1yr or disposal of assets)

T

R

In terms of the current provision, the income tax rate of a special trust changes from that of an individual to that of a trust in the year that the beneficiary of the trust dies. As a concession P78 was introduced to permit the trust to enjoy the benefit of the lower inclusion rate and exclusions for a primary residence and personal-use asset until the estate is wound up

C

8

(k)

4

HRK Gibson

Requests that the proviso regarding earning insufficient income or unable to manage own financial affairs is deleted

C

R

In terms of the current provision, the income tax rate of a special trust changes from that of an individual to that of a trust in the year that the beneficiary of the trust dies. As a concession P78 was introduced to permit the trust to enjoy the benefit of the lower inclusion rate and exclusions for a primary residence and personal-use asset until the estate is wound up

C

8

(k)

19

LISPA

It is not clear why the trust should cease to be a special trust for the whole of the year of assessment in which the person dies

C

R

In terms of the current provision, the income tax rate of a special trust changes from that of an individual to that of a trust in the year that the beneficiary of the trust dies. As a concession P78 was introduced to permit the trust to enjoy the benefit of the lower inclusion rate and exclusions for a primary residence and personal-use asset until the estate is wound up

C

8

(k)

20

G Shev

It is suggested that the proviso be amended so as to treat the special trust as such for the period up to the death of such incapacitated persons. Failure to do so may result in transactions which were transacted during such persons lifetime not being afforded the benefits they would otherwise enjoy as such transaction may have been transacted shortly prior to the persons death but the transaction would fall into a year of assessment ending after such person’s date of death. See Eighth Schedule, Paragraph 78

C

R

In terms of the current provision, the income tax rate of a special trust changes from that of an individual to that of a trust in the year that the beneficiary of the trust dies. As a concession P78 was introduced to permit the trust to enjoy the benefit of the lower inclusion rate and exclusions for a primary residence and personal-use asset until the estate is wound up

C

8

(k)

23

PWC

Should not the word "ending" in the last line of the definition of "special trust" (clause 8(k)) read "commencing"? As the provision now reads if the trust beneficiary dies on the last day of the tax year the trust will not be a special trust for that year. This provision is inconsistent with para 78.

C

R

In terms of the current provision, the income tax rate of a special trust changes from that of an individual to that of a trust in the year that the beneficiary of the trust dies. As a concession P78 was introduced to permit the trust to enjoy the benefit of the lower inclusion rate and exclusions for a primary residence and personal-use asset until the estate is wound up

C

8

(l)

23

PWC

The words "unless otherwise proved by the two persons concerned" should be inserted at the end of clause 8(l). Why should those in the relationship not be able to agree to an in community of property regime? This may also remove potential discrimination and constitutional issues.

C

R

Not necessary

C

8

(l)

23

PWC

The phrase "and married", "husband" and (not "or") shall be construed accordingly," in clause 8(l) are missing from clauses 2 and 5.

T

R

Clauses 1, 2 & 5 refer to different Acts where this is not deemed necessary

C

8

(n)(b)

23

PWC

The words "any person" in clause 8(n)(b) should read "that person".

T

A

Amended

C

8

14

Old Mutual

Problems associated with taxing the proceeds from foreign insurers - S1(f)(eC)

C

A

Removed from the Principal Act and now taxable under the CGT regime, P55

C

9

22

E Mazansky (GTKF)

In S9, where section 3(4) of the Act is amended, you include only paragraph 29(6) of the Eighth Schedule. What about paragraphs 31(2), 64(1)(d) and 65(1)(d)?

T

A

Amended

C

10

1

SAICA

Extend to be effective from 1/10/2001 not 1/3/2002

C

A

Amended

C

11

19

LISPA

The proposed amendment to S6quat restricts the taxes on income which may be taken into account to those "payable to the government of any country other than the Republic". It is not quite clear that this provision will cover state or provincial income taxes in other countries, for example, will a tax payable to a specific state of the US be viewed as a tax payable to the government of the USA?

C

A

Amendment unnecessary as SARS follows the OECD model in this regard and includes all levels of Government

C

12

1

SAICA

Problems associated with S7(8) - deemed donation

C

A

Deleted

C

12

9

Adv D Meyerowitz

S7(8) - various concerns

C

A

Deleted

C

12

14

Old Mutual

Section already exists and then problems associated thereto

C

A

Deleted

C

12

19

LISPA

S7(8) - This proposal is fairly novel, and may have an unintended consequence. The interest rate proposed may be very high and it may very often be higher than the prime lending rate. It therefore follows that the envisaged lending rate may be uncommercially high and thus punitive.

C

A

Deleted

C

12

20

G Shev

S7(8) - The provisions of this new sub-section will affect many taxpayers that have made interest free or low interest loans to companies, close corporations, trusts and liability for Donations Tax will arise. Whereas Donations Tax may be levied at a rate of 20% as against the maximum marginal tax rate of 42% applicable to individuals, the effect of this sub-section will greatly affect the general commercial structuring and manner of business in South Africa, to the extent that it will most likely result in many taxpayers no longer making funds available for business purposes. Furthermore many borrowers may not be in a position to pay interest at the required rates to avoid the provisions of this sub-section.

C

A

Deleted

C

12

21

SACOB

S7(8) - Noted that it should be (11) and not (8). This amendment does not cater for loans secured in a foreign currency where int rates differ. Does not take into a/c the fact that commercially it is possible for a taxpayer to obtain loans from institutions at rates lower than the official rate and then to on-loan this at a rate higher than the taxpayer is paying, but at a rate lower than the official int rate. Although there is no commercial donation, the IT Act deems it to be a donation. Clause either needs some discretionary power provision or a range of rates within which there will be deemed to be no donation. Alternatively, it could be a donation to the extent that the taxpayer making the loan is paying int to someone at a higher rate.

C

A

Deleted

C

12

22

E Mazansky (GTKF)

There already is a section 7(8) – and a (9) and (10). These were "transferred" from section 9D in last year’s Revenue Laws Amendment Act.

T

A

Deleted

C

12

22

E Mazansky (GTKF)

I have difficulty in understanding why this subsection is being introduced.

C

A

Deleted

C

12

23

PWC

Section 7 (8). This Paragraph number is already used. Should be Section 7(11)?

T

A

Deleted

C

12

23

PWC

S7(8) - The requirement for 2% above the official rate of interest is not an arm's length rate and so is contrary to accepted OECD principles of international taxation. Such loans should be based on arms' length guidelines and not prescribed domestic rates that may not satisfy this accepted international standard. What is the position of loans made in foreign currencies? The donation is deemed to be the portion of the interest foregone, as opposed to the amount of the loan reflected by the interest. Is this the correct interpretation? The application of this section to corporate groups would create a complex administrative nightmare. We understand that this is not intended. There are ample provisions to avoid loss to the fiscus (e.g. sections 3land 103). Is it the intention to try and deem the amount of income that is taxable in the hands of the donor? This is not achieved by the current draft, and if it did, will often create inequitable results (e.g. farmer with 2% return on his property).

C

A

Deleted

C

13

(b)

21

SACOB

S9D(2A)(e) - Legislation only allows for TAB. Submits that a MV method to CFEs should be allowed

C

A

Deleted

C

13

(b)

22

E Mazansky (GTKF)

In the new section 9D(2A)(f), change the word "an" to "a".

T

A

Amended

C

13

14

Old Mutual

S9D(2A)(d) - effectively introduces a new concept of functional currency. Def of foreign currency in S24I does not refer to this type of functional currency - could lead to unusual forex differences being attributed to a CFE's shareholders. Two sections should be aligned

C

O

Amendment to S24I to be considered

C

13

23

PWC

Section 9D2A(e) - In terms of the proposed draft, it is not appropriate use the time apportionment only. We see no difference between valuing assets owned directly by residents and by CFEs. In many cases, exactly the same valuation criteria will apply.

C

A

Amended

C

13

23

PWC

Section 9D2A(e) - The distinction between CFEs (gain calculated in function currency, and therefore excludes forex gains/losses) and residents owning assets directly (gain calculated in rands and includes forex gains and losses) may result in an increase in the establishment of CFEs to hold foreign currency assets, especially assets acquired post valuation date denominated in currencies that historically appreciate against the rand.

C

O

Difference in treatment between 24I and CGT is still being considered

C

13

23

PWC

Section 9D(9)(iii)(aa) It is not acceptable to apply the same criteria to once-off capital gains as dividends and interest etc. The 5% restriction is not appropriate in the circumstances.

C

R

The 5% restriction is a de minimus rule to exclude small portions of investment profits and gains on investments

C

13

23

PWC

9D(9)(f) - extended to capital gains made by a CFE disposing of another CFE

C

O

This issue will be considered when we consider the technical amendments in respect of group relief and the switch to residence

C

16

1

SAICA

Problems associated with premiums paid to foreign insurers - S10(B)

C

A

See C8(f) above

C

16

14

Old Mutual

S10B - no relief for cost of acquiring a 2nd hand foreign policy

C

A

Deleted

C

16

20

G Shev

S10B - Sub-section (2) provides that in respect of foreign policies contributions are to be converted into South African currency at the exchange rates ruling on the day the contribution is actually paid. There could be difficulty in obtaining the exchange rates in respect of transactions, which date back long periods. The provisions of this section are different to the provisions of the new Section 9D(2A)(d). Surely common rules should apply.

C

A

Deleted

C

16

22

E Mazansky (GTKF)

In the new section 10B I think it is too restricting to exclude only contributions made. You should also allow as exclusions any acquisition cost, eg. in purchasing an existing policy, such as is allowed under section 3(3)(a) of the Estate Duty Act.

C

A

Clause deleted

C

16

23

PWC

Problems associated with S10B

C

A

Removed from the Principal Act and now taxable under the CGT regime, P55

C

16

23

PWC

Section l0B - What is the position where the policy is a second hand foreign policy, or was, for example, ceded to a resident at the maturity date by a non-resident (who made all the contributions), or was held by a non-resident that became resident. Some provision needs to be introduced to provide relief in these circumstances.

C

A

Deleted

C

17

22

E Mazansky (GTKF)

This is the only time that I can see that income tax is payable in respect of an unrealised profit and where there is no cash to pay the tax. The other transactions contemplated in section 22(8) all contemplate a change in ownership or are of an anti-avoidance nature. In the amendment there is no change of ownership, no cash received and no anti-avoidance. There is therefore no warrant conceptually to levy tax.

C

R

S22(8) already covers situations where there is no change of ownership, e.g. 22(8)(b)(iv).

C

17

22

E Mazansky (GTKF)

You also need to consider the interaction of this section with section 9B. Where an asset is disposed of and an election under section 9B is made, does this trigger section 22(8)(b)(v)? I would see a difficulty in saying that it does automatically. An election may be made under section 9B even though the asset was always capital, or it may be made in circumstances where the asset may never be capital, and if it is to apply at what point does it apply?

C

R

Already addressed in S9B(8)

C

17

22

E Mazansky (GTKF)

In the SARS’/Treasury’s responses to the Portfolio Committee, it was indicated that there was a possibility that we would move to objective rules for determining capital or revenue. Assume that a fixed cut-off date of, say, two years is set, so that sales before are automatically revenue and sales thereafter automatically capital. Section 22(8)(b)(v) cannot then work, because you cannot say that if an asset is held for more than two years, at the expiry of two years the unrealised gain must be taxable.

C

O

This issue will be dealt with at a later stage

C

17

22

E Mazansky (GTKF)

I would therefore suggest that this concept be removed now. If you include item (v), you need to delete the word "or" where it appears in item (iii) and add that word after item (iv). Also, in paragraph (B) I think that the added words "or ceases to be held as trading stock" need to be inserted after the words "disposed of or distributed" and not where they have been inserted.

C

O

See comment above

C

17

23

PWC

S22(3)(a)(ii) - The cross-reference to para 12(2)(c) should be a reference to paras 12(1) and 12(2)(c).

T

R

Not necessary

C

19

(1)(a)

1

SAICA

S29A(8) - 4th line "purchase or sale" misleading suggest "acquisition or disposal"

T

A

Amended

C

19

1

SAICA

CGT liability leads to reduction of transfer surplus, formula to determine gain required which could have a circular ref. (Pg4-8.3)

C

R

This will be dealt with in the actuarial calculation

C

19

1

SAICA

S29A(7) transfer gives rise to an IT liability in Corp. Fund - double taxation

C

R

Tax is imposed in separate entities and this is therefore not regarded as double taxation. Relief is also provided for in terms of the revised formula.

C

19

14

Old Mutual

S29A(11)(a) - argue that the proposed changes do not adequately compensate for the inclusion of capital gains in taxable income

C

R

Formula further adjusted in consultation with the LOA

C

19

14

Old Mutual

Transfer of surplus assets from policyholder funds to corporate fund represents a fee charged by the shareholders to the policyholders. This profit transfer should therefore get the same tax deduction treatment as other policyholder funds' expenses. In other words the profit transfer deduction should be = to 100% x by the S 29A(11)(a) expense relief formula

C

R

Already dealt with in 1999

C

19

2a

LOA

Dissatisfied with the expense formulae

C

R

Formula further adjusted in consultation with the LOA

C

21

23

PWC

Section 64. The rate reduction in donations tax and estate duty, is not sufficient to avoid double taxation of an amount at death. This may be the case where the death occurs shortly after the introduction of CGT (as the gains will be small), but not once the legislation has been in force for a period such that the gains reach material levels. This will especially be the case in the absence of indexation. SARS are urged to reconsider the charge to CGT on death.

C

R

Reason - the reduction has been calculated using an econometric model to estimate the additional tax imposed in the case of the average estate, a reduction of 4% in estate duty was arrived at but was increased to 5% for reasons of simplicity.

C

22

(1)

20

G Shev

S64B(5)(k)(cc) - It is not clear whether a person who is not ordinarily resident in the South Africa can have a primary residence in South Africa. There are many persons who have a South African residence but are non-residents. Clarity is required as to whether such persons are able to enjoy the benefits of these provisions. See Section 44 of the Eighth Schedule. Will the provisions apply to non-residents having a sole South African residence?

C

R

A non-resident cannot be ordinarily resident in the Republic and accordingly cannot be ordinarily resident for purposes of the primary residence provisions

C

22

(1)

22

E Mazansky (GTKF)

In the new section 64B(5)(k) – in item (aa) delete the words "after that date"; once again, the shares should be held by the person alone or together with his or her spouse, and in item (dd) after the words "that person’s" add "or his or her spouse’s".

T

A

Amended

C

22

1

SAICA

S64B(5)(k)(aa) - suggest that "after that date" at the end be deleted - makes no sense

T

A

Amended

C

22

1

SAICA

S64B(5)(k)(cc) -not clear whether non-residents who have a primary residence in SA qualify

C

R

A non-resident cannot be ordinarily resident in the Republic and accordingly cannot be ordinarily resident for purposes of the primary residence provisions

C

22

23

PWC

Section 64 B - Same comments as for section 64, regarding indirect holding.

C

R

Same response as for S64 - C3

C

24

1

SAICA

At S68(1)(b), the word "any" is unnecessary

T

A

Amended

C

24

23

PWC

The reference in S68(3)(a)(i) to "his minor children" should read "his or her minor children". See, also, the references to "him" and "his" in clauses 28, 29, 35.

T

R

Principal Act retains original wording whereas the new 8th Schedule uses the his/her formulation

C

25

1

SAICA

Assume cost referred to in S70A(1)(c) must be MV at 1/10 or cost to unitholder if acquired thereafter. As a taxpayer can use M/V or W-average in lieu of TAB, does the UT portfolio have to supply historical W-average cost and cost at V-day?

C

O

Partially accepted, but the unit portfolio need not supply historical weighted-average cost

C

25

5

AUT

S70A(1)(c) - delete the word "basis" & replace with "of the purchase price actually paid by the investor"

T

A

Amended

C

25

10

DE Black

S70A(1)(c) - considers this to be inequitably prescriptive for the unitholder

C

R

This provision merely prescribes to the unit trust fund what information it must supply, it does not prevent the unitholder from utilising the methods described in P32

C

25

12

Investec

S70B(1)(c) and (d) - would not be able to furnish the required info in certain circumstances, eg. Where shares were acquired prior to the establishment of the database, where shares had been previously acquired by a new client or following Investec's acquisition of a portfolio admininistration business that does not have a fully compliant CGT system

C

R

All information required relates to 1/10/2001 and should be available to unit trust funds

C

25

12

Investec

S70B(1)(e) - Do not have this information for all clients and it will be extremely difficult to obtain, suggest that the obligation is placed on the client

C

R

Information should already be on hand - required in terms of S70

C

25

19

LISPA

LISPA welcomes the reduced obligations imposed on Lisps by the revised section 70B. A remaining problem in this section is that it does not enable the Lisp to report a different initial value, which would apply in the event of that Lisp having taken over the client's investment from, for instance, another Lisp where the original cost price is not known - only the transfer value is. Lisps should be able to comply with the provisions of this section by reporting as envisaged by section 70B on the basis of that transfer value and not the actual historical cost. Unless this section enables Lisps to do so, they will submit reports that will either prejudice individual investors or prejudice the interest of SARS. Please clarify if it is: (1) necessary to report on "deemed disposals" as well in terms of this clause; and (2) whether the instruments disposed of have to be identified.

C

R

All information required relates to 1/10/2001 and should be available to unit trust funds and administrators. Lisps will be required to report on deemed disposals only when such disposals becomes known to them

C

25

19

LISPA

In addition, the clause imposes an obligation on asset managers to report certain information to SARS. This reporting requirement seems to be wider than only for purposes of CGT and Schedule 8. The reason being that the obligation to report in this section does not refer to events (e.g. disposals) or values (e.g. base cost and gain) as defined in Schedule 8. This means that complying with Section 70B may take place using different values unless the section is changed to make it clear that it refers to Schedule 8 concepts as defined. Leaving it with the present wording will cause confusion and uncertainty.

T

R

This matter will be resolved by way of a form prescribed by the Commissioner

C

25

19

LISPA

S70B(2)(b) does not read or interpret well. We suggest that you insert the following words after "section 29A" - "in respect of financial assets administered on its behalf for another person in his or her capacity as policyholder."

T

O

Partially accepted

C

25

22

E Mazansky (GTKF)

In the new section 70A(1)(a) the word "Eighth" has been misspelt.

T

A

Amended

C

26

1

SAICA

S73A - introduce a CGT asset register like the ATO

O

O

The Australian's have not yet implemented the asset register. We will monitor this.

C

26

1

SAICA

S73B(4) should apply to all items of income & expenditure not only to gains & losses

C

R

An equivalent section applies - S73A(3)

C

26

8

IRF

S73B(1) - concerned over the requirement to keep records for 4 years where it is a retirement fund

C

O

To be discussed with the IRF on 20 March 2001

C

26

8

IRF

S73B(2) read with P63 seem to be contrary - if a gain or a loss is disregarded then there is no need to retain the appropriate records. IRF suggests an express exemption from the provisions of S73A and S73B as in S70B(2)

C

O

Both points to be discussed with the IRF on 20 March 2001

C

26

22

E Mazansky (GTKF)

In section 73B(2) reference is made to the disposal of "that asset" which exceeds R10 000. Surely in line with the Eighth Schedule the R10 000 should apply to all the assets disposed of during the year.

C

A

Amended

C

27

1

SAICA

S75(1)(f) should also include S73B

T

A

Amended

C

33

1

SAICA

S89quat(3), terms "disregarded or exclusion" are not defined. Either define or improve grammar.

T

R

These are the terms used in the Eighth Schedule

C

35

1

SAICA

S91 reference to S7(8) is incorrect - not an inclusion of income section, merely deems a donation to have taken place

C

A

S7(8) introduced in 2000 should be introduced into this section. This must not be confused with the incorrect S7(8) proposed in this Bill which has been deleted

C

35

23

PWC

It seems that section will need to have a cross-reference to the new section 91(4A).

T

O

Section cannot refer to itself

C

37

1

SAICA

S103(1)(b)(bb) - should "taxable capital gain" not rather be "net capital gain" & it is not clear why the assessed c loss should be affected by the "untainted c loss or assessed c loss b/f"

C

A

Clarification will be provided

P

1

1

SAICA

Def. of "distribution" results in bonus issues & splitting of shares being distributions. No reverse provision for consolidation of shares - P74(2)

C

A

Def "distribution" has been moved to Part IX. S74(2) is to address the consolidation of shares and any technical amendments required will be effected

P

1

7

D Mitchell

Suggested changes to "financial instrument" def - (b) insert the word "any" at the start and add "or" before "swap contract" (e) delete the comma after "money" and add "or", delete the comma after "flow" and add "or the"

T

A

Amended

P

1

20

G Shev

Def of "distribution" - this definition will result in the issue of bonus shares by companies, or the splitting of shares, being distributions by companies. There does not appear to be a similar reverse provision for the consolidation of shares. See P74(2)

C

A

Def "distribution" has been moved to Part IX. S74(2) is to address the consolidation of shares and any technical amendments required will be effected

P

1

22

E Mazansky (GTKF)

In the definition of "natural person" a deceased estate is included. Sometimes deceased estates are administered until the heirs reach a certain age and the estate so administered is sometimes constituted by virtue of a trust established under the will, ie. a testamentary trust. Do you intend to apply the definition such that a testamentary trust will be treated as a natural person? I would very much support this because I feel it is unfair that heirs who are natural persons, and who would be entitled to the concessions granted to natural persons (the lower inclusion rate, exemption of personal-use assets, and so on) should be prejudiced merely because their inheritances are temporarily held in trust pending their reaching a certain age.

C

O

It has been decided to delete the definition of "natural person" but the concept of treating deceased and insolvent estates in the same manner as the deceased or insolvent is embodied in paragraphs 39(1) and 79(1). These provisions only apply until the estate has been finalised and when the assets are distributed to the trust, the normal rules for trusts apply. If the assets vest in minor children, however, or they are vested by the trustee in the children, the inclusion rates and tax rates of natural persons will apply.

P

1

23

PWC

The words "section 1" in the introductory part should be deleted – not all definitions are contained in section 1 of the Act.

T

R

Where a definition is set out in S1 of the IT Act it is intended for use in the entire Act, while definitions in other areas of the Act may only be valid for that particular part of the Act

P

1

23

PWC

"active business asset" - Surely para (b) should also exclude an asset held mainly to derive interest. There is some confusion in the wording of this definition: it refers to an asset held "wholly and exclusively" and elsewhere to an asset held "mainly".

C

O

Some technical corrections will be made in this regard

P

1

23

PWC

asset - The reference should be to any coin made "predominantly" from gold or platinum: see also paras 17(2)(a), 19(2)(a) and 53(2)(a).

C

R

Use of "mainly" is the common usage applied in this Bill

P

1

23

PWC

Should there not be a definition of immovable property, perhaps by way of a cross-reference to the Transfer Duty Act? This will be important for para 2(1)(b)(i).

C

R

Self evident, found elsewhere in other Acts without definition such as the Estate Duty Act

P

1

23

PWC

"pre-valuation date asset" - problem where an option held but not yet exercised (Para 32, pg 5)

C

R

The granting of an option does not result in the disposal of the underlying asset

P

1

23

PWC

The pretentious word "issuance" should read "issue". This is the word used in the Companies Act, the Stamp Duties Act and in paras 11(2)(b0, inter alia. Insert after "shareholder" the word "in his, her or its capacity as such,". A "distribution" includes the issue of a share by a company but, in terms of para 11(2)(b), the issue of the share is not a disposal. We are not sure that this jells with paras 71 to 74.

C

A

Amended - Def moved to Part IX

P

1

23

PWC

"value shifting arrangement" - The correct spelling should be "value-shifting". This definition is too broad. It should only apply where the arrangement is not on arm’s length terms and the sole or main purpose is to avoid or defer CGT. The definition, as presently worded, will hit bona fide transactions that do not necessarily entail a disposal at market value and intent to avoid or postpone CGT. It is also difficult to reconcile with section 103.

C

O

Spelling corrected. Will take out the existing connected person rule but will not introduce a connected person rule between the disposer and the acquirer of the interest as it will limit the application of the rule

P

2

(1)(b)

1

SAICA

No measures for SARS to ensure tax is collected from a non-resident

O

R

The IT Act has existing provisions, such as Parts IV and V, which give the Commissioner powers of collection

P

2

(1)(b)

23

PWC

Paragraph 2(l)(b). Some relief needs to he provided when a non-resident disposes of immovable property situated in the Republic where such asset was previously a primary residence. Is this adequately covered by paragraph 49 and 50?

C

O

Some technical clarification will follow

P

2

(1)(b)(i)

23

PWC

One would think that an interest or right in immovable property, referred to in para 2(1)(b)(i), would exclude a purely personal right in the property (for example, a three-month lease) as opposed to a real right in property (cf the definition of "goods" in the Value-Added Tax Act). This para is also not in harmony with para 44 "an interest".

C

R

Such rights are unlikely to be sold. There is no connection between the two paragraphs

P

2

(2)

19

LISPA

This paragraph seems to facilitate schemes for the avoidance of capital gains tax by foreign investors. All that is necessary is to form a company with at least 6 foreign investors at a time that can then invest in domestic property with impunity. It is also not clear why this provision will only apply on property that exceeds R1m. The anomaly is that a foreign investor who holds it in his own name would be subject to tax, but if he does it via a wholly–owned company he can obtain a R1m exemption.

C

O

Partial amendment

P

2

(2)

22

E Mazansky (GTKF)

Paragraph 2(2), fourth line, the expression "the net value of the assets" should read "the value of the net assets". Also, in the last few words "which exceeds R1 million" to what does the word "which" apply – the immovable property, the interest of 20%, the 80%?

T

A

Amended

P

2

(2)

23

PWC

It is not clear what the words "which exceed R1 million" at the end of para 2(2) qualify – the net value or the immovable property? It may be debatable that an "entity" includes a trust.

C

A

Amended

P

2

(2)

23

PWC

It is not clear what is envisaged by Paragraph 2(2). We assume that it applies only where the immovable property situated in the Republic (which comprises 80% or more of the value of the shares) has a gross value in excess of R 1 million? Why the distinction between immovable property held directly (no de minimis) and indirectly held property (R I million).

C

A

Amended

P

3

(b)

23

PWC

The references in paras 3(b) and 4(b) to a previous year of assessment should be confined to a previous year of assessment ending on or after the valuation date.

C

R

Dealt with in P2

P

4

(b)(i)(aa)

22

E Mazansky (GTKF)

In paragraph 4(b)(i)(aa) the words "another event" should read "any other event".

T

A

Amended

P

5

(1)

20

G Shev

The amount of R10 000 as an annual exclusion for natural persons and special trusts remains inadequate and will result in many unnecessary capital gains tax t returns having to be rendered with the attendant administrative load. Consideration should be given to raising this amount to the level of donations tax free donations i.e. R25 000.

C

R

Dealt with by National Treasury

P

5

(2)

21

SACOB

Proposed exclusion of R50 000 must be considered in the context of the likelihood of double taxation being incurred. Even though Estate Duty has been reduced by 5% the reduction is unlikely to effect adequate compensation

C

R

Dealt with by National Treasury

P

5

(2)

23

PWC

The last part of the sentence should read: "for the period of assessment ending on the date of that person’s death is R50 000".

T

R

Not necessary

P

5

(2)

23

PWC

Paragraph 5(2). The R50,000 annual exclusion on the current basis is worth tax of R5,250. Can this, in reality, be said to address the extremely adverse cash flow implications of a deemed CGT on death. It is important that SARS recognise the extreme economic hardship that may occur. Successful businesses may need to be sold in order to pay the CGT when passed between generations resulting in the loss of employment and a positive disincentive to entrepreneurism. Many countries do not have a capital gains tax on death (UK for example) and where they do, many have relief from CGT and estate taxes to prevent the adverse implications referred to above. There should be no CGT on business assets on death, or the relief provided (paragraph 56) increased significantly.

C

R

Dealt with by National Treasury

P

5

1

SAICA

Annual exclusion should be R25 000

C

R

Already addressed by National Treasury

P

9

22

E Mazansky (GTKF)

In paragraph 9(a) and (c) it is unnecessary to add the words "(if any)". If we are determining an assessed capital loss and the person has an aggregate capital gain for the year, that person must have had an assessed loss brought forward exceeding the capital gain, otherwise there would not be an assessed capital loss. So it is not a case of "if any" – it must be there. The same logic would apply in (c).

T

A

Amended

P

10

(b)(ii)

8

IRF

Concerned that the untaxed policyholder fund is not exempt but taxed at 0% in respect of record keeping

C

O

Clarification will be provided

P

10

23

PWC

Should the reference be to "aggregate capital gain" rather than to "net capital gain"?

C

R

Tax is levied after the annual exclusion

P

10

23

PWC

Paragraph 10. The low inclusion is being motivated as a reason why indexation should not be introduced. However, there is much concern that the inclusion rate will be increased at the first available opportunity, and that the current rate is a softener to allow CGT to be introduced. To allay these fears, the inclusion rates should be fixed for a period of 5 to 10 years.

C

R

This is a policy issue which is the prerogative of the Minister of Finance

P

11

(1)

19

LISPA

LISPA is still mystified as to how the creation of an asset can automatically be viewed as a disposal

C

R

An example would be the creation of a restraint of trade

P

11

(1)

23

PWC

At the end of para 11(1) words to the effect "whichever occurs soonest" should be inserted.

T

R

Time of disposal rules resolve this problem

P

11

(1)(e)

22

E Mazansky (GTKF)

In subparagraph (1)(e) reference is made to "the distribution of an asset". The definition of "distribution" in paragraph 1 refers to "any transfer of cash or an asset" so that in effect the words now read, substituting the defined words for the word "distribution", "the transfer of cash or an asset of an asset by a company to a shareholder" – clearly nonsensical. I would rephrase (e) to read "the distribution, but otherwise than of cash, by a company to a shareholder".

C

O

Problem resolved by moving definition of distribution to Part IX

P

11

(1)(e)

23

PWC

It would appear that a normal cash dividend falls with the definition of disposal Paragraph 11(1)(e). This should be excluded.

C

O

Problem resolved by moving definition of distribution to Part IX

P

11

(1)(f)

19

LISPA

To hold that the granting of any option as a disposal can be anomalous, unless it is seen as a disposal of option rights,

C

O

This is a disposal of the option rights

P

11

(2)(e)

22

E Mazansky (GTKF)

In subparagraph (2)(e) you again use the word "distribution" but it is clear from the definition in paragraph 1 that this word applies only to a company. I think you should therefore use the word "transfer" as you do in paragraph 76.

C

O

Problem resolved by moving definition of distribution to Part IX

P

11

(2)(f)

22

E Mazansky (GTKF)

In subparagraph (2)(f), after the words "trust deed" add the words "or will".

T

A

Amended

P

11

(2)(f)

23

PWC

Para 11(2)(f) should cover the termination or change in any office, eg executor, curator bonis, liquidator, insolvency trustee, judicial manager, receiver.

C

A

Amendments to be made where necessary

P

12

(1)

23

PWC

The reference in para 12(1), and paras 12(4), 22(1)(b) and 24(2), to "cost" should refer to "base cost".

T

A

Amended to the term "expenditure"

P

12

(2)(a)

1

SAICA

Non-resident becomes resident and then back to being a non-resident. Gains may all be attributable to depreciation of the Rand where in real terms there has been no change in value of assets retained outside the Republic

C

A

This is still under consideration

P

12

(2)(a)

16

Fullinput Tax Services CC

Cashflow problems upon emigration where the asset is not immovable property

C

O

We will deal with this administratively

P

12

(2)(a)

21

SACOB

Cessation of residency triggers a CGT obligation, which may result in an adverse cashflow penalty. A suitable compromise should be considered such as a financial guarantee provision allowing such persons to meet their CGT obligations in a manner that is acceptable to both SARS and the taxpayer

C

O

We will deal with this administratively

P

12

(2)(a)

23

PWC

Paragraph 12(2)(a). There must be concessions for temporary residents.What happens if a person remains ordinarily resident, but is not resident by virtue of a DTA. Will this trigger a deemed disposal ?

C

O

Temporary residence is catered for by the 3 year rule in respect of residence. Where a DTA overrides the person is never a resident and there cannot be a deemed disposal

P

12

(2)(c)

23

PWC

The opening words of para 12(2)(c) should read; "assets that are held by a person, but not as ". Also, para 12(2)((d) and (e).

T

R

No, does not change meaning

P

12

(2)(f)

14

Old Mutual

Requires assets disposed of by a transferor fund to have been disposed of and reacquired by it. The result is that the asset so transferred is treated as having been realised & reacquired by the transferor whereas S29A treats the asset as having moved from one fund to another. Suggests clarifying that the transferor transfers at MV and the transferee acquires at MV

C

A

Amended

P

12

(2)(f)

16

Fullinput Tax Services CC

As currently drafted, it means that the transfer in constitutes taxable income on the part of the transferee & that the transfer out constitutes a disposal for the transferor - multiple tax events all happening to the same person

C

R

The funds are not the same person for tax purposes

P

12

(3)

23

PWC

The opening lines of para 12(3) should read: "Where assets that are held by a person as trading stock continue to held by that person, but not as trading stock, that person will be ....".

T

R

No, does not change meaning

P

12

(4)

16

Fullinput Tax Services CC

P12(4) recognises the fact that the timing of the deemed disposal of a non-resident's assets should be the day before he becomes a resident, however, P13(1)(b) states that the disposal of assets contemplated in P12 will be the day before the event occurs, this duplicates what is referred to in P12(4) and it effectively means that an incumbent resident's deemed disposal & acquisition will take place a further day prior to him becoming a resident.

C

O

P12(4) will be amended

P

12

(4)

22

E Mazansky (GTKF)

In paragraph 12(4) why is it subject to paragraph 25? Surely subparagraph (4) would apply only to an immigrant who arrives on or after 1 October 2001 in which case paragraph 25 is irrelevant. Possibly the reference should be to paragraph 24.

T

A

Amended

P

12

(4)

23

PWC

The cross-reference to para 25 should be to para 24.

T

A

Amended

P

13

(1)

23

PWC

Words to the effect "whichever occurs soonest" should be inserted at the end of para 13(1).

T

R

Change unnecessary (Pg 37 - 4th insert)

P

13

(1)(a)(ii)

23

PWC

Paragraph 13(1)(a)(ii). In many cases, some of the proceeds may be deferred, and may actually not be determined at the time of the sale, i.e. based on future profits. How will the deferred consideration be valued? Is it appropriate to subject to tax now the proceeds that will not be received until a future date, as this will violate the "ability to pay principle". How will this be dealt with in practice?

C

R

The standard accrual rules will apply

P

13

(1)(d)

22

E Mazansky (GTKF)

In paragraph 13(1)(d) the words "a interest" should read "an interest". In subparagraph (2), I think you should keep the tenses consistent and change the word "was" to "is".

T

A

First issue - deleted, second issue, amended

P

13

(2)

23

PWC

The words ", whether before, on or after the valuation date," should be inserted after "disposed of" in para 13(2).

T

R

Not necessary

P

15

21

SACOB

Where personal-use assets such as boats & aircraft are subject to CGT on gains, the losses made on disposals should also be allowed

C

R

If this were to be done it would be necessary to annually reduce the base cost by the amount by which the asset's value has been reduced as a result of personal consumption. This would result in CGT being calculated on the difference between the proceeds & the written down value as opposed to the present more beneficial method of the difference between the proceeds & original cost. It would also add more complexity to the system. The exclusion of losses made on such assets is far more beneficial to taxpayer's where gains are realised.

P

15

22

E Mazansky (GTKF)

In paragraph 15 and elsewhere (see paragraph 17(1)(a)) I have difficulty in your referring to assets held for business purposes. The term "business" is wider than "trade". The courts have held, for example, that someone who holds a single property with a single tenant is carrying on a trade, but is not carrying on a business. By using the word "business" you are excluding the situation where there might be, for example, a single aircraft lease or lease over one immovable property held, as opposed to a whole business comprised of them.

C

A

Commentator is incorrect "trade" is wider than "business". Amended to trade

P

16

(1)(c)

16

Fullinput Tax Services CC

Wording of this subparagraph is extremely awkward to read - which person is being referred to?

T

R

The final "that person" refers to the person determining the aggregate capital gain or loss

P

16

(1)(c)

19

LISPA

The words "intangible business" should probably read "intangible assets".

T

A

Amended

P

16

(1)(c)

22

E Mazansky (GTKF)

In paragraph 16(1)(c) after the word "intangible" the word should be "asset" not "business".

T

A

Amended

P

16

(2)(b)

6

Spoor & Fisher

Suggest that (b) and (c) are combined and read as follows: "(b) any intellectual property: (i) which enjoys protection or is protectable in terms of the Patents Act, Copyright Act, Designs Act, Trade Marks Act, Plant Breeders' Rights Act; or (ii) in respect of which a proprietary interest may be established in terms of the Common Law of the Republic of South Africa; or"

C

R

Not accepted in order to maintain consistency with the current S11(g)(A)

P

16

(2)(d)

14

Old Mutual

Financial instruments should be excluded from being "designated intangible assets because they are dealt with elsewhere in the 8th Schedule

C

A

Amended

P

17

(1)(a)

23

PWC

The words "money or cash" should be inserted before the word "deposit" in para 17(1)(a). Presumably, if an asset, as defined, is forfeited, the asset is lost and there should be a claimable capital loss: see para 22(1).

T

R

Losses not permitted because cash and other assets should be treated consistently

P

18

1

SAICA

Do not support loss limitation in respect of the exercising of an option - equity needs to be preserved and losses allowed

C

R

The reason the losses made on termination of an option as a result of the exercising of the option are not allowed is that the cost of that option is added to base cost. Adding the expenditure to base cost and allowing the loss would amount to a double count

P

18

14

Old Mutual

Could be construed as excluding losses that may arise on cash-settled options. Where an option is in the money, it is still possible for the option transaction to result in an overall loss. This would be the case where the gain arising iro the option itself (i.e diff between underlying value & the strike price) is less than the premium incurred to obtain the option. In such cases the option holder would exercise the option in order to limit the overall loss. Such losses should be allowed. It is only the loss in excess of the option premium that should be disallowed

C

R

A cash settlement is a disposal other than by way of exercising the option - P19 caters for this problem

P

18

21

SACOB

The disallowance of capital losses on the exercising of an option is unfair in certain circumstances, for example in the case of a corporate take-over where a participant in a share option scheme is forced to take up full transfer of a counter for disposal to the new shareholder

C

R

The reason why the loss on the exercising of an option is disregarded is because the cost of acquiring the option is allowed as part of the base cost of the asset over which the option is held. There appears to be some misunderstanding regarding options and the mechanics will be clearly spelt out in the Explanatory Memorandum

P

20

7

D Mitchell

As currently drafted, the concession is only available if the closing leg of the securities lending transaction has already occurred. If not, the para does not come into play. Is this intended?

C

A

Amended

P

20

7

D Mitchell

Silent as to whether the second leg must have occurred prior to the end of the year of assessment or prior to the date the tax return is rendered. No reason from the wording why the date of the tax return cannot be relied upon

C

A

See the above

P

20

14

Old Mutual

Wording suggests it is only possible to establish whether the provisions of the para are applicable after the asset has been returned to the lender. should be altered to make it clear that a loan qualifies ito P20 if the borrower is obliged to return it within 12 months

C

A

Amended

P

21

(1)

22

E Mazansky (GTKF)

In paragraph 21(1), at the end of the sentence, add the words "within those 90 days". But for this it refers to dividends received any time.

T

R

Clear from context

P

21

(1)

23

PWC

Paragraph 21(1). Such dividends are not tax-free as STC would usually be payable. STC at 12.5% is higher than the maximum CGT for individuals (10.5%). To add these dividends back and restrict as loss is effectively double taxation.

C

R

This prevents the STC charge from being reversed by the creation of an artificial loss

P

21

(2)

22

E Mazansky (GTKF)

Likewise, in subparagraph (2) at the end of the paragraph add the words "during the period commencing 90 days after the date of acquisition and ending within two years after that acquisition".

T

R

Clear from context

P

21

(3)

16

Fullinput Tax Services CC

In terms of P21(3) it is possible for a holding co to receive dividends which effectively reduce the share price of its subsidiary and make an allowable capital loss on the sale of the shares as this arrangement falls outside the scope of (1) & (2) of this paragraph

C

R

The rule does not apply because the holding co and the subsidiary are part of the same economic unit, therefore, no benefit results to the group from having an STC charge on pre-acquisition dividends along with a loss

P

21

(4)(b)

22

E Mazansky (GTKF)

In subparagraph (4)(b) add the words "share capital" after the word "equity".

T

A

Amended appropriately

P

21

(4)(c)

22

E Mazansky (GTKF)

In subparagraph (4)(c) delete the word "taxable", because dividends are included in income not in taxable income.

T

A

Amended

P

21

(4)(d)

23

PWC

Paragraph 21(4)(d). If the company has maintained a normal dividend policy (irrespective as to the amount of the ultimate proceeds) and in compliance of regulation 6 of the exchange control regulations (for foreign subsidiaries), these dividends should not be extraordinary. What is the justification for the 15% test? Why are exempt foreign dividends not exempted from the definition of dividend for the purpose of this paragraph, yet taxable foreign dividends carrying full tax credit would be. The proposed treatment introduces inconsistency into CGT.

C

O

Under consideration

P

21

14

Old Mutual

Distributions by entities that are regarded as companies by virtue of paragraph (e) of the definition of "company" may be taxable yet result in a reduction in the base cost of the asset in question. For example, a gilt or money market fund (a unit trust investing in interest bearing instruments) is likely to distribute more than 15% of its asset value within any two-year cycle, unless interest rates drop significantly. The unitholders will be subjected to income tax on those distributions and so should not be required to reduce their base cost.

C

A

Amended

P

21

14

Old Mutual

The concept of "extraordinary dividends" should recognise that included therein may be ordinary distributions. It is suggest that only the excess over 5% should be regarded as extraordinary if total distributions exceed 15% in the two year period.

C

R

Commentator misunderstands the current rule. The term "extraordinary dividends" only includes amountsthat exceed the 15% threshold

P

21

23

PWC

This para should apply for "distributions", not only dividends, to the extent the distributions are not subject to income tax.

C

R

Non dividend distributions are fully taken into account in Part IX

P

23

(1)(a)

14

Old Mutual

P23(1)(a) allows "expenditure actually incurred in respect of the acquisition … of that asset" to be added to base cost. Where an asset is transferred from one fund to another fund as contemplated within section 29A of the principal Act, it could be argued that the acquiring fund has not "actually incurred" expenditure equal to the market value of the asset. Specific provision should be made for assets deemed to have been disposed of.

C

A

Amended

P

23

(1)(c)(iii)

22

E Mazansky (GTKF)

In subparagraph (1)(c)(iii), the duties referred to therein are not defined – normally these are defined, eg. in section 39 of the Taxation Laws Amendment Act, 1944 relating to group rationalisations. Of course, if you do define them by reference to the relevant Acts, you need to refer to an equivalent duty or impost levied by a foreign state.

C

R

Not necessary

P

23

(1)(c)(v)

14

Old Mutual

P23(1)(c)(v) caters for VAT but makes no references to adjustments required in terms of S18 (Adjustments) of the VAT Act.

C

A

Deleted

P

23

(1)(c)(v)

23

PWC

Para 23(1)(c)(v) should also exclude VAT deductible or allowable for income tax under section 11 or 23C.

C

A

Deleted

P

23

(1)(c)(viii)

22

E Mazansky (GTKF)

Delete the word "and" at the end of subparagraph (1)(c)(viii) and insert it after (ix).

T

A

Amended

P

23

(1)(c)(x)

1

SAICA

Why is the full donations tax, if paid by the donee, not part of the base cost of the donee? Can it be argued that the disallowed bal could still qualify ito (a) - expenditure actually incurred?

C

O

In order to maintain parity with estate duty. No, appropriate amendment to be effected

P

23

(1)(d)

23

PWC

Paragraph 23(1)(d). How will this be applied when a person buys an asset in a poor state of repair, and improves the asset in his ownership, but actually only returns it to its former glory? This expenditure must be allowed as base cost for that person, and this should be be specifically included. C.f Paragraph 23(3)(b).

C

R

To maintain parity between seller repairing the asset and purchaser repairing the asset

P

23

(1)(e)

14

Old Mutual

P23(1)(e) provides that where an option is settled by physical delivery, the cost of acquiring the option (or value thereof if acquired before 1 October 2001) is to be added to the base cost of the asset acquired under the option. There is however no specific provision to the effect that the exercise of an option does not in itself give rise to a disposal.

C

R

Under the revised draft both gains and losses are disregarded

P

23

(1)(f)

1

SAICA

If reasonable to allow non-deductible expenditure of holding business assets to form part of base cost why limited to equity shares and unit trusts and not available to financial instruments or other property?

C

R

The reason the recurring costs such as interest, repairs and rates in respect of asset used wholly and exclusively for business purposes is allowed and not for personal-use assets is that these types of expenses are incurred for the personal-use of the owner. If CGT were to be imposed on these assets the values would have to be reduced by an amount representing the value of the personal-use. The reason that certain expenditure is allowed in respect of shares and unit trusts is while most other financial instruments produce income against which the expenditure can be claimed, shares and units produce exempt income and capital gains. The expenditure cannot be claimed against the exempt income and therefore a portion is allowed for CGT purposes

P

23

(1)(f)

1

SAICA

What if a non-business purpose property is held through a company & the taxpayer holds the equity share capital in the co.?

C

A

Limited to listed equities and unit trusts

P

23

(1)(f)

1

SAICA

What is the basis for the 1/3 principle?

C

O

To reflect the dominant intention of the taxpayer

P

23

(1)(f)

1

SAICA

Where a taxpayer has not incurred interest but as a result derived a taxable fringe benefit, will the fringe benefit (deemed interest) qualify as interest forming part of base cost (23(1)(f) read in conjunction with 23(1)(g)(ii))

C

R

P23(1)(g)(ii) will be amended in order that it cannot be included in base cost

P

23

(1)(f)

14

Old Mutual

P23(1)(f) caters for holding costs but is restricted to assets used "wholly and exclusively" for business purposes. It would be more consistent with the principal Act to allow recognition of such costs "to the extent that" the asset is used for business purposes.

T

R

Anti-abuse provision, e.g. partly let holiday homes

P

23

(1)(f)

14

Old Mutual

Why should only 1/3 of such costs be recognised where the asset is a share or a unit trust?

C

R

To reflect the dominant intention of the taxpayer

P

23

(1)(f)

21

SACOB

Legislation employs an argument that distinguishes between personal assets used for enjoyment and personal assets used for income generation. In drawing this distinction an argument is advanced for disallowing certain acquisition cost from inclusion in the base cost of the asset. This argument is challenged by SACOB.

C

R

The majority of personal-use assets are not subject to CGT. Of the personal-use assets that are subject to CGT, two distinct groups can be identified. One group such as private aircraft and boats are used for personal enjoyment and the recurring expenditure such as maintenance, repairs and insurance is expended for personal enjoyment. The other group is financial instruments. In most cases these assets produce ordinary income and expenditure incurred to produce the income is deductible from this income. Assets such as shares and unit trusts, however, differ from other instruments as they produce exempt income. If shares, for argument sake, are held on capital a/c, the main purpose in acquiring the shares must be to earn exempt dividend income. In recognition of the fact that the subsidiary purpose may be to earn capital gains, one third of any interest borrowed to directly finance the acquisition of such assets is allowed as an addition to base cost.

P

23

(1)(f)

22

E Mazansky (GTKF)

In subparagraph (1)(f), again, there is the problem with "business". Also, the expression "to directly finance" should read "to finance directly". More importantly, however, I have a difficulty with the requirement that the finance must be direct, because it is unfair and out of kilter with the income tax treatment. I think that the test should simply be so much of the interest as has not been allowed for tax purposes. I also think that allowing only one-third of the interest is insufficient because one tends to find, especially in the case of listed shares, that a much larger return is in the form of capital gain than in the form of dividends, and even taking into account the inclusion rate benefit, the proportion of one-third is too low. I would think that 40% to 45% is more appropriate.

C

R

See above

P

23

(1)(g)(i)

23

PWC

There appears to be double counting of section 8A income tax gains. The gain is included in base cost under para 23(1)(g)(i) and is excluded from proceeds under para 34(4)(a).

C

R

Not excluded from proceeds

P

23

(4)

14

Old Mutual

P23(4)(b) prevents the recognition of expenditure that has not been paid and is not due and payable in the year of assessment. This is clearly inconsistent with the approach to the recognition of expenditure in the principal Act and will severely impact ordinary business transactions. For example, if shares are purchased on the JSE within the last five business days of the year, the purchase price will be due and payable in the following year. The result will be to remove base cost from a very ordinary transaction. The problem is compounded by the failure to allow the base cost to be increased when the amount in question is paid or becomes due and payable in a later year of assessment. It is fundamentally wrong to provide for proceeds to accrue when the seller becomes unconditionally entitled to the proceeds but to deny base cost to the buyer because the unconditional obligation to pay will only fall due in a subsequent year. It is suggested that this subparagraph be scrapped.

C

R

There is no disposal in the example provided

P

26

(2)(b)

19

LISPA

In LISPA's view the word "less" as used in paragraph 26(2)(b) should read "plus". If this is not amended, the result would be that an investor who had no further expenditure after the valuation date would, not be liable for any capital gains tax. On the other hand, an investor who had such expenditure would be liable for capital gains tax on an amount equal to the expenditure.

C

R

Total expenditure must be reduced by post valuation date expenditure in order to prevent automatic losses. This suggestion would double those losses

P

26

1

SAICA

Seems to be an anomaly where expenditure unknown regarding 26(1)(c) and 26(2)(a)

C

R

Where the expenditure is unknown re 26(1)(c) then TAB cannot be used. Reference is also made to cases where the taxpayer would have the information. Regarding 26(2)(a), where the expense is unknown then it will equal nil and (b) will apply.

P

26

1

SAICA

Query regarding allowance of loss where proceeds are less than expense and MV

C

R

P26 cannot be applied where a loss is anticipated. This paragraph only deals with cases where gains are anticipated. P27(1)(b) would be applicable and the lower of MV or TAB would be the appropriate value to be utilised. A similar position applies in respect of gains. "Phantom" gains & losses are both disregarded by way of a "kink" test

P

26

12

Investec

High volume of transactions will add significantly to the complexity of administration systems for CGT purposes - suggest simplification

C

R

Reporting requirements for unit trusts already simplified

P

26

19

LISPA

The interrelationship between paragraphs 26 and 27 on the one hand and paragraph 32 on the other hand, is not quite clear. It is not quite clear whether the investor can choose whether or not to reset the weighted average pricing mechanism to the prevailing market value in terms of paragraph 26(1)(a). Apparently, the investor does not have the choice to retain the weighted average pricing as allowed, without resetting it to the market value. It is LISPA's view that a specific reference to par 32 is required to enable the investor to use the weighted average pricing mechanism (compare paragraph 27) to calculate the bast cost.

C

A

Amended

P

27

(1)(a)

22

E Mazansky (GTKF)

In subparagraphs 1(a) and (b) I think that the reference to paragraph 29(4) should be to paragraph 29(3).

T

O

Refer to P29

P

27

(1)(b)

5

AUT

Suggests adding "(iii) the actual book cost of units in a unit portfolio as recorded by the unit trust management company unit holder accounting system"

C

R

Not the intention to unnecessarily limit the taxpayers options

P

27

(3)

22

E Mazansky (GTKF)

In subparagraph (3), it states that a person may not adopt the time-based apportionment base-cost for the purpose of subparagraph (1)(b) – but that subparagraph applies where the market value is adopted, not the time-based apportionment cost. Is it trying to state that the taxpayer cannot use the time-based apportionment system for the purposes of subparagraph (1)(b)(ii), and therefore is locked into the market value? If so, it should be made clearer.

C

O

Deleted, appropriate amendment made to P32

P

27

12

Investec

High volume of transactions will add significantly to the complexity of administration systems for CGt purposes - suggest simplification

C

R

Reporting requirements for unit trusts already simplified

P

27

19

LISPA

This paragraph appears to give the investor a choice between using the pure weighted average method and resetting it to the market value on the valuation date.

C

O

Amendment to be made

P

28

(b)

22

E Mazansky (GTKF)

I fail to see why in paragraph 28(b) one has to use willing buyer – willing seller valuations if the instrument is listed, eg. a listed debenture, Eskom stock, and the like.

C

A

Appropriate amendment made

P

28

23

PWC

This para postulates two values but does not indicate whether the higher or lower value applies.

C

O

Taxpayer's choice

P

29

(1)(a)

1

SAICA

Needs to be amended to refer to list published by SARS iro the JSE

T

O

To be dealt with administratively

P

29

(1)(a)

22

E Mazansky (GTKF)

In paragraph 29(1)(a) it is usually unrealistic to value a controlling interest in a listed company by reference to the listed price, because the latter fails to take account of the control premium. I think that where there is a controlling interest the taxpayer should be allowed to use paragraph 31(1)(g).

C

R

A premium over the listed price is used and not the listed price

P

29

(1)(b)

19

LISPA

LISPA does not quite understand the need to specify two market values for units in paragraph 29(1)(b) and questions whether it is appropriate.

C

R

The distinction between local and foreign unit trusts is maintained to keep parity with the treatment of local and foreign listed shares

P

29

(1)(b)(i)

14

Old Mutual

P29(1)(b)(i) refers to establishing the valuation date value of units in property unit trusts. Many such units are traded on the JSE without the intervention of a management company. The reference to a management company is therefore inappropriate. Similarly, not all foreign collective investment schemes provide for a management company to intermediate buyers and sellers.

T

A

Appropriate amendment made

P

29

(1)(b)(ii)

19

LISPA

The price prescribed in paragraph 29(1)(b)(ii) should not be the buying price as described, but the repurchase price at which the unit trust management company will repurchase the unit.

T

A

Amended

P

29

(2)

14

Old Mutual

P29(2) allows a holder of a controlling interest in a listed company to calculate a control premium which is added to base cost when the controlling interest is disposed of. It is a concern that the mechanism used and restrictions relating thereto will render the provision unusable for three reasons. First, it seems that part (a) results in the control premium being recognised only where the entire controlling interest is disposed of. There will be cases where control is disposed of but the seller keeps a minority stake. It is unreasonable to not allow relief for the control premium in those circumstances. Also, if control were gradually disposed of to one purchaser, the full control premium would not be recognised. Second, the control premium may be recognised only where the controlling stake is disposed of to a connected person. It would be expected that group restructure legislation would deal with this by requiring roll-over of the base cost. Why restrict control-premium recognition to connected person tr

C

O

1. If gradually disposed of the listed price would probably be the fair price. 2. Partially accepted by rewording the connected person requirement. 3. Disposal of a controlling interest from one party to another will not normally have a significant affect on the market price

P

29

(3)

1

SAICA

There are two subparagraph 3s

T

A

Amended

P

29

(3)

1

SAICA

Second subparagraph - wording implies that the taxpayer must value the asset as opposed to being able to utilise a specialist

T

R

Taxpayer remains responsible for valuation even if a specialist is used

P

29

(3)

20

G Shev

The wording of this sub-section is "….if that person has valued that asset within two years after valuation date." This wording suggests that the taxpayer and only the taxpayer must value the asset. The wording should be amended to provide for valuations by the taxpayer or others at the request of the taxpayer.

C

R

Taxpayer remains responsible for valuation even if a specialist is used

P

29

(3)(a)

19

LISPA

It is not quite clear to LISPA why the normal closing price cannot be used instead of the average of the buying and selling prices in par 29(3)(a). There is no room to manipulate these prices.

C

R

In a thinly traded market this is not always true

P

29

(3)(b)

1

SAICA

Reduce "controlling interest" from 50% to 30% and control of the board

C

R

Administrative purposes

P

29

(3)(b)

20

G Shev

Consideration should be given to lowering the interest requirement of more than 50 per cent to 30 per cent and control of the board of the company. This would then fall in line with reality where such holdings do command premiums.

C

R

Administrative purposes

P

29

(4)

14

Old Mutual

P29(4) deals with the furnishing of proof of market value in respect of an asset having a value exceeding R10 million or, in the case of an intangible asset, more than R1 million. Financial instruments are intangible – is it intended to require proof of value for each shareholding valued at more than R1 million? Is it intended that the limit (either the R1 million or the R10 million limit) should be applied to each share within a shareholding or to the entire shareholding in the company in question? The existing proposed wording would require proof of valuation where an individual share is valued at more than R1 million.

C

Financial instruments will be excluded from intangible assets

P

29

(5)(b)

1

SAICA

duplicated words "which has been"

T

A

Amended

P

29

(5)(b)

19

LISPA

The words "which has been" in par 29(5)(b) are duplicated

T

A

Amended

P

29

(5)(b)

20

G Shev

Delete the duplicated words "which has been".

T

A

Amended

P

29

(5)(b)

23

PWC

The words "which has been" are repeated in para 29(5)(b).

T

A

Amended

P

29

(6)(b)

1

SAICA

Subparagraph should be subject to objection & appeal

C

A

Amended

P

29

(6)(b)

20

G Shev

This sub-section must be made subject to objection and appeal.

C

A

Amended

P

29

20

G Shev

There are two sub-sections (3). The second sub-section and sub-sections (4) to (7) must be renumbered.