‘pravin gordhan: his finest hour’ · his excellency, comrade the rev dr francois ‘papa doc’...

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—An irreverent newsletter designed to keep you up to date—

His Excellency, Comrade the rev Dr Francois ‘Papa Doc’ Duvalier-Leckett, spokesperson in the Office of Costa Divaris:

‘Pravin Gordhan: His Finest Hour’

—A gracious, brave, even noble demotion.

In this issue: Monthly listing Monthly tax notebook Cases Briefing Davey’s Locker Evidence corner Introducing: Shortcut keys in Word by Duncan S McAllister—Part III Accessibility: Send in your tips to make TSH more accessible. Microsoft Word text-only version under consideration.

MONTHLY LISTING Latest Legislation & Legislative Material To Emerge Or To Be Found Since Issue # 73

Unless otherwise indicated, everything listed here is cumulatively included in the Tax Shock, Horror Database, which is available monthly or quarterly on DVD by post for R140 per month inclusive of VAT at 14%.

SCA case 30 September 2008: Picardi Hotels Ltd v Thekweni Properties (Pty) Ltd (680/07)

[2008] ZASCA 128 involved the correct interpretation of a cession in securitatem deb-iti & a proviso thereto. It includes a concise summary of the rules of interpretation of a contract. The outcome was that the landlord was unable to sue its tenant for rents without taking recession of them from the bank. What a beautiful judgment!*

Tax court case 10 December 2008: Case 12463. Since SARS does not appear to agree with my view that the taxpayer in this matter is identifiable from the report, I include it here rather than risking overlooking it indefinitely. Although itself a miner, the taxpayer ar-ranged with another miner to extract its ore, on a shared-cost basis. Its share of the ore was delivered to & left for further mining by it. SARS included the cost of its dumps as ‘trading stock’. The court was in a safe pair of hands, & SARS got a hiding. I’ve recently claimed publicly that at Bsp Seminars® we’re ‘pioneer-students’ of trad-ing stock. This judgment breaks new ground, & will be eagerly assimilated.

Taxation proposals 11 February 2009: According to the daily notification service, this little bit of the Budget has been updated.

High Court case 13 March 2009: Oribel Properties 13 (Pty) Ltd and another v Blue Dot Properties 271 (Pty) Ltd and others 12901/08 WCHC. Get this! The judge had to tell the parties that the matter might be subject to PAJA (Promotion of Administrative Justice Act). So counsel sloped off to reconsider, reconvening with mixed views. Did PAJA apply to the administrative actions of the Registrar of Deeds & the Surveyor General? You bet, said the judge, extending a legislative period allowed for action. What a judge!*

Updated form 16 March 2009: VAT 119i ‘Indemnification in terms of s 44(3)(d) of the VAT Act—bank details’.

Fund tsatske 18 March 2009: One of those cute missives from SARS’s Mark Kingon, this one on the taxation of lump-sum benefits (he never did learn how to use hyphens) from re-tirement funds. You would never guess, but it’s actually a confession that the SARS systems cannot handle recent changes to the law (see 73 TSH 2009), to the great cost & inconvenience of terminating members. If only SARS & the Treasury would lis-ten. Amendments to the law must always go hand in hand with the simultaneous, in-tegrated design of forms & computer programs. Otherwise it’s perpetual cock-ups.*

Draft Guide 26 March 2009: I accidentally took a second look at the draft VAT 411 Guide for En-tertainment, Accommodation & Catering. Although only a draft, it withdraws an en-tirely imaginary previous edition, given as VAT 411, with effect as from this date.

General note 30 March 2009: Addendum C to GN 16 on the commutation of small annuities.

May 2009

0 0 7 4 5 3 2 5 7 1 8 0 Tax Shock, Horror newsletter by Costa Divaris Issue # 74. Database items: 5 325. Subscribers: 7 180.

74 Tax Shock, Horror 2009—May—2


The Thinker April 2009: Boring though this might be, it is pretty well edited, making it ideal for my purpose of searching for potential inclusions in my Bsp Stylebook (available free). But, with all the initial government-sponsored (read ‘taxpayer-sponsored) ads now gone, it is unlikely to last long, especially not with its tedious Q&A format.*§

The Thinker April 2009: Confirmation of the Free State tax boycott from W P Esterhuyse.*§ Updated Guide 02 April 2009: According to the daily notification service, the 2009 PAYE Guide & all

its attachments have been updated (see the monthly note in this issue). These com-prise AS–PAYE–05 & attachments A01 through A08 plus AS–PAYE-05–F1 & F2. I don’t know if what is now on the SARS website is the alleged updated version or the old.

Cape Argus 11 April 2009: After performing well during the property boom, the Cape Town Deeds Office strangely falls asleep. (For more, see the monthly note in this issue.)*

Updated Guide 12 April 2009: Guide on Income Tax & the Individual (2007/08). Updated, that is, according to the daily notification service.

Updated Guide 16 April 2009: AS–IT–PT–01 rev 3 of 22 July 2008 on provisional tax. Again, updated according to the daily notification service.

New act 16 April 2009: Money Bills Amendment Procedures & Related Matters Act 9 of 2009. High Court case 17 April 2009: KNA Insurance and Investment Brokers (Pty) Ltd (in liquidation) v SARS

and CSARS. Here’s an acting judge apologizing for the delay in the delivery of his judgment over what he said ‘appears to be a considerable time’ since the hearing of the matter—on 20 June 2006. I’ll say. But I’ve personally experienced exactly the same thing before the tax board, & am still on speaks with the presiding officer. What a tale of skullduggery with second-hand insurance policies! The taxpayer’s claims for ‘s 89quat’ & mora interest were rejected, but it did secure a small refund. I look forward to studying this judgment in detail when next I deal with interest.

GN 453 GG 32212 29 April 2009: Rate of interest on governmental loans (the ‘standard rate’) set at 12,50% as from 1 May 2009. A correction of GN 392 GG 32135 of 24 April 2009. I haven’t seen one of these notices since the end of 2007.

Updated Guide May 2009: Guide on Income Tax & the Individual (2008/09). Updated Guide May 2009: Guide on the Residence Basis of Taxation for Individuals 2008/09. Updated form May 2009: VAT 123e ‘Application for the cancellation of registration of a person in

respect of all his enterprises’.* (Yes, it’s not on the SARS website!) Updated form May 2009: VAT 102e ‘Application for separate registration of an enter-

prise/branch/division’. PAYE open day 04 May 2009: I am mightily pissed off at receiving, from Rendani Mutheiwana, of the

SARS Randburg office, an invitation to an ‘employer tax season open day’. This idiot has made my e-mail address, together with the addresses of perhaps a couple of hundred (or even thousand) other taxpayers, available to all of his unwitting corre-spondents. No wonder I now receive weird offers to trade in forex & help some Ni-gerians with the recovery of $45 million. In my view, this communication breaches ss 45 & 51 of the Electronic Communications & Transactions Act 25 of 2002.*§

First Trust 04 May 2009: My favourite economist in all the world, Brian S Wesbury, & his col-league, Robert Stein, call the end of the US recession, in the process disagreeing with the National Bureau of Economic Research on its official commencement.*§

Sake24 04 May 2009: Manuel future head of planning commission, Gordhan as MOF? Most of what we read on politics are deliberate leaks to the press, not journalism.*

PAYE open day 04 May 2009: Employer-support at your local SARS branch. A flyer.* SARS release 05 May 2009: Fire (not flyer) at Germiston office. GN R 470 GG 32190 08 May 2009: Amendment of rules (DAR/50). Amends GN R 427 GG 32132 of 17 April

2009 (see 73 TSH 2009). GN R 523 GG 32221 08 May 2009: Amendment of provisional payment (PP/133). Amends GN R 414

GG 32113 of 9 April 2009 (see 73 TSH 2009). SARS release 11 May 2009: Appointment of Oupa Magashula—previously, & fleetingly, a deputy

Commish—as acting Commish & Pravin Gordhan as MOF. ‘On the recommendation of the Minister of Finance, the President & Cabinet will appoint the next SARS Com-missioner in due course.’ We want Mrs Bam, I still say, of the IEC.

BCR 002 12 May 2009: Expenditure incurred on corporate social investment schemes. De-ductible, of course. What a colossal cheek it would be is such compulsory costs of doing business in this benighted country were not deductible.

BCR 003 12 May 2009: Distribution of an actuarial surplus to former & active members of a retirement fund. That to former members not their gross income. That to active members not excluded from para 2C of the Second Schedule to the Income Tax Act.

Sake24 12 May 2009: Oupa Magashula, acting Commish, left his last job, at Telkom, ‘on forced leave, subject to an [internal] investigation that never took place’. Sake24 was somehow moved—What? By accessing its morgue?—to add a rider suggesting



that he was the victim of a palace revolution. Clearly, he is not without friends or in-fluence. Most modern SA journalists have no idea of the existence of a morgue, much less how to use it.*

BPR 029 13 May 2009: Provision of free meals & refreshments to employees, using a charge-card system at the employer’s canteen. Such meals are tax free, but I sup-pose what was worrying was the effective cap placed upon free consumption by the charge-card system, beyond which employees have to top up the card.

Sake24 13 May 2009: Ex-Commish takes 51% salary cut to become MOF. Under ex-President Mbeki, he would have been ambassador to Iraq or Afghanistan, briefly.*

BCR 004 14 May 2009: Distributions made to participatory interest-holders in a collective in-vestment scheme reinvested with the scheme. Distributions by the scheme ex-empted under s 10(1)(iA) are not exempt in investors’ hands (s 10(1)(k)(i)(bb)(A)). For investors, amounts reinvested are treated as base cost or cost of trading stock, depending upon how they hold. I smell possibly unfair discrimination.

BPR 030 14 May 2009: Distributions made by a collective investment scheme reinvested with the scheme. These are treated as dividends declared & exempted (for the scheme) under s 10(1)(iA). Duh.

Draft rules 14 May 2009: Under s 21 of the Customs & Excise Act, amending the rules pub-lished in GN R 1874 OF 8 December 1995 on duty-free shops. Also a presumably draft amended Annexure DA 185.4B4.

The Times 14 May 2009: According to Blade Nzimande, Minister of Higher Education & Train-ing, labour brokers are ‘modern-day slave owners’ &ought to be banned. In my view, the purpose of government, all over the world, & throughout history, is to identify the most dangerous one or two million people in society & put them where you can more or less watch what they are doing. They cost & waste a fortune & cause utter havoc but nothing like what they would do if left free to mix with the amateur, disor-ganized criminals on the street. So what if the inaugural Minister of Agriculture lost 700 000 farming jobs, & his Commie colleague now writes off perhaps 600 000 more, just through loose lips, the kind that sink ships? I wonder how many workers employed by labour brokers voted the Minister into office. Serves ’em bloody right.*

Sake24 14 May 2009: The financial sector’s BEE code is finally toast. This alternative system of taxation is just like the real one—subject to endless, arbitrary change, depending upon the whims & caprices of the lobbyists of the day. At least there’s no chance that Atlas will shrug. The business community, with its head up the ANC’s backside, is still locked into the pretence that this brigandry is somehow good for the econ-omy. After all, without BEE, life-expectancy, infant-mortality & postpartum survival rates would all have collapsed since 1994, & HIV infection-rates would be sky-high.

GN 510 GG 32232 15 May 2009: Imposition of levies on medical schemes under s 2(a) of the Council for Medical Schemes Levies Act 58 of 2000.

The Economist 16 May 2009: Buttonwood on the new global financial order. A macroeconomist after my own heart, he says that: ‘The addition of these two great nations [India & China] to the international financial system was a supply shock that put downward pressure on inflation rates’, leading to cheap money & reckless lending. Economics is the study of ultimate consequences.

Online tools 18 May 2009: Notice # 13 of 2009 urging ‘employers in the country’ to submit PAYE reconciliations. What happened to ## 10 to 12? And employers in urban areas?

SARS release 18 May 2009: Only two weeks left for employers to submit 2009 PAYE reconcilia-tions. I hear complaints about the SARS software & telecoms.

SARS release 20 May 2009: SARS service monitoring office call centre affected by a telephone-line failure in Hatfield, Pretoria. How could they tell?

Business Day 20 May 2009: SA dollar-denominated bond, oversubscribed by five times, raises $1,5 billion. My heartfelt congratulations to SA (& the Treasury) on this great success. But it’s only a drop in the ocean. You still need to speak to the IMF.*

Beeld 21 May 2009: The Sannieshofinwonersenbelastingbetalersunie (SIBU; the hyphens in the original are in my view wrong) & the Tswane municipality off to court over SIBU’s tax boycott. Why, I wonder, is it only the Afrikaans-language press (& The Thinker) that is reporting on seemingly widespread tax boycotts?*

Draft rules 22 May 2009: Under ss 38, 39, 101A & 120 of the Customs & Excise Act (DAR). The Economist 23 May 2009: No local report tells the same tale, so I’m going with this one about

the new Minister of Transport’s brush with a Merc S–class & some cattle. He re-ceived assets, clearly for services rendered, & ought to have been taxed, on their second-hand market value. Having accepted, he flogged the Merc & cattle, & do-nated the proceeds to the Vukuzakhe group he is said to have helped found, & ought to be taxed again, this time for donations tax. But I for one would let him off



the hook if only he would tell us how such groups come spontaneously to fund such events (including R1 million end-of-contract parties, in which the bounteous ANC is no doubt praised for its taxpayer-funded generosity). Some 30 000 people acting spontaneously is interchangeably called a soccer match or a riot.*§

Business Day 25 May 2009: The Minister of Labour, Membathisi Mdladlana, has his go at labour broking, which, he says, ‘is a form of human trafficking’. He accuses labour brokers of blatant violation of the very laws his department is supposed to police. What does that make him & his predecessors? Sir! Sir! May I answer? Please, Sir.

Treasury release 25 May 2009: GDP figures. Press invite.* Treasury release 26 May 2009: GDP figures for Q1 2009.* SARS release 27 May 2009: Extended hours as employers’ filing season approaches. StatsOnline 28 May 2009: To publish a ‘seasonally adjusted’ GDP quarterly (quarter-on-quarter)

decline of 6,4%, when the real decline is 1,3% borders on treason. The Treasury’s report was far more responsible. Is this a Mbeki v Zuma thing?*§

BPR 031 29 May 2009: Whether shares sold by an index-tracking collective investment scheme are capital or revenue. What do you think?

VAT tsatske 29 May 2009: AS–VAT–15 rev 0 ‘Bank detail changes of registered VAT vendors’, with attached updated VAT 126e & VAT 126a (§), forms for updating your banking particu-lars. The SARS website says that the form was updated on 19 March 2009 (?).

Sake24 29 May 2009: The truth about the recession by David van Rooyen. Well done, Sir.* TSH Database 01 June 2009: This month 53 items were added to the Database. Now available

quarterly, at R140 a month, inclusive of VAT at 14%.*

* Not on SARS website. § Not included in Tax Shock, Horror Database.

LOST & FOUND

Tax tables Since 2007 the Commissioner has failed to gazette the annual tax tables. Exempt grants & scrapping payments Since 1 February 2006 the MOF has neglected to issue the Gazette notice required

to make s 10(1)(y) effective. Don’t tell the taxi industry.

MONTHLY TAX NOTEBOOK

SARS—the evil empire

My very worst fears about the SARS website—one of the reasons why, more than five years ago, I started the Tax Shock, Horror Database—have been realized.

Long have I complained about silent additions to the website, no matter the sporadic existence of a SARS ‘notification service’ and the feckless regular-ity of its ‘What’s new’ section. Five years’ worth and more of this newsletter ought to have convinced even the SARS spokesperson that, to judge it on its results, the purpose of the SARS website is deeply to hide information from taxpayers.

But hidden information is a mere inconvenience. What is truly scary is information that is silently and regularly altered, without any indication whatsoever to the outside world. What I have always feared is that, whether to make itself look good or for more sinister reasons (such as to win a current dispute with a taxpayer), SARS might change information on its website while denying the change or, at least, making it impossible for taxpayers to catch it out.

And this, Dear Reader, is precisely what some of these Starship troopers are doing.

Colleagues have been supplying me with the re-cently revived notification service. (The reason why I personally will not re-subscribe will one day, soon, be revealed.) What puzzled me, right from the get-go—when the service re-released a 2002 docu-ment, seemingly unchanged—was the claim to have updated documents, although neither in their

content nor filenames did these indicate any sign of alteration.

Hated (feared?) though I might be by our fiscal authorities, I do have some quiet contacts. Thus I managed to extract a quasi-official explanation from SARS, which reads as follows:

Every time there’s a change to a document, even a minor change like an additional sentence etc, we re-place the existing document on the website. The dates mean it’s been updated for a 3rd time during April 09.

The dates referred to are those appearing in the daily notification, not in filenames. My initial re-sponse to this nutty explanation follows: How will ordinary users of the website know that

a document has been updated, say, three times when the document itself bears its original, un-changed, date and filename?

How will even subscribers to the notification service keep track of the various versions? Re-member that compliance takes place at a par-ticular point in time—it cannot perpetually be accommodating changes in SARS’s attitudes and procedures. In the event of a dispute, everyone needs to know exactly what the law and practice said at a particular moment.

What about bringing taxpayers into your confi-dence? When were you planning to tell us?

To be fair, there is at least one other section of SARS following a more constitutional policy:



[I]f we replace something like an Interpretation Note or Guide we give it a new number such as ‘Issue 2’. We also try to match the publication date as closely as possible with the document date. Sometimes there might be a one- or two-day difference between the date of the document and the date it is published be-cause we have to rely on another section to post the documents to the website.

But now I come to the gravest aspect of this stun-ning development. By its own lights, SARS has meted out the same treatment to so-called quality

documents, pre-eminently, AS–PAYE–05, what is left of the once-excellent PAYE Guide for Employers, or the ‘tax tables’. These documents have ‘revision’ numbers, and all alterations are meant to be indi-cated in red. May we expect the withdrawal and proper re-issue of at least all ‘quality’ documents thusly abused, and the institution of a proper file-naming protocol applicable for all public-access documents destined for the SARS website?

Show, for once, that you can act like rational, co-operating members of society, rather than the aco-lytes of Darth Vader you fancy yourselves to be.

Tax practitioner f ights back

Pearson says: I am one of those ‘vainglorious’ ‘Tax Practitioners’ that

you mentioned in your last newsletter. I am not vainglo-rious, though. I don't take myself that seriously.

Most of your adjectives relating to tax practitioners were very funny and so true.

I have come across a few strange ’uns in my time, ones that call themselves ‘Doctor’ or suchlike. Now

that's vainglorious for you. The point is I read your newsletter religiously, for the

laughs and for the information. Much of the info is not even relevant to me at my level but I get the gist of your (cynical) commentary. Burdensome bureaucracy, the new tyranny. Democracy, my arse.

May God go with you in your battles with the wind-mills.

Car allowances: the waBenzi in for a shock (not)

Something rang a bell when a correspondent asked the following question:

We pay most of our staff a travel allowance taxed at 60% (some of whom are ‘desk bound’). I have had a number of staff approach me and request that we can-cel their travel allowances and pay the amount as ba-sic salary. They say there is a new ruling, which will penalize them for their lack of travel for the company. Is this fact or just paranoia?

Qualification for the allowance is not based on business travel but on the use of a vehicle. SARS can challenge the application of the favourable taxation rule (although not if the President, a politi-cian, high-ranking official or, these days, judge is involved) under this provision:

(aa) the recipient shall, unless the contrary appears, be deemed to have used the vehicle during such year for such business purposes over a distance equal to the difference between the total number of kilometres travelled by him in such vehicle dur-ing such year (but not exceeding 32 000 kilome-tres) and a distance of 18 000 kilometres;

The trick words are 'unless the contrary appears'. But the law ought to lay to rest the fears ex-

pressed. Not so the latest 'Budget Proposals':

Claiming ‘deemed business kilometers’ as a travelling expense is one of the few remaining salary structuring methods used to reduce tax liability. More than 500 000 taxpayers annually claim this deduction. Ex-cessive deductions that do not match actual business expenses distort household purchasing decisions and travelling choices.

It is proposed that the deemed business kilometre procedure be scrapped from 2010/11.

Taxpayers who are required to use their personal vehicles for business purposes will still be able to keep a logbook to claim business travelling expenses. This reform will improve the overall equity and efficiency of the income tax system. The default practice of claiming private kilometers travelled as business travel cannot be justified from an equity perspective.

Really? But what will you do about the ANC high-ups at the car-allowance trough? Issue after issue I have highlighted the corrupt car-allowance prac-tices of the government.

Everyone on this particular take will want an in-crease above even the fortunes they already enjoy, once you start asking people such as Mr Mbeki: ‘I say, old chap, do you actually have a car?’

VAT: a tale of two (not cities but) agents

Estate agents often agree to handle a particular sale jointly. What happens, asks Tania Janse van Rensburg, if one is a VAT vendor (and registered as such) while the other isn’t?

The first point to establish is whether the pair has formed a partnership, which would come in for special treatment under the Value-Added Tax Act. The facts could prove me wrong, but I doubt whether a casual arrangement of this nature would

amount to a partnership in law. Nor am I easily ready to accept that the vendor-agent acted in part as an agent, perhaps for an undisclosed principal, the nonvendor-agent.

What is left? The vendor-agent must have acted as a lone principal under the agreement of sale, agreeing to pay a reward equal to one-half of the total commission (exclusive of VAT, I am sure) to the nonvendor-agent as a reward for services rendered



in securing the sale. The income tax system would have no problem

with such an arrangement—they each effectively end up with a taxable income from this source equal to 50% of the net commission (by conven-tion, exclusive of VAT).

The VAT system would see the vendor-agent as being solely accountable for output tax and utterly unable to claim any relief on account of the input made by the nonvendor-agent, who is debarred from issuing a tax invoice for services rendered. SARS would get the full amount of VAT charged by the vendor-agent.

In the actual case on which this dramatic presen-tation is based, the attorneys concerned (anxious, portentous background music swells) acknowl-edged that the full commission was VAT-inclusive under the agreement but paid only half of it over to SARS. The remainder they returned to the seller.

Huh? This cannot be. They are clearly assuming the existence of an agreement of agency between the two estate agents, in that the disclosed estate agent acted also on behalf of the undisclosed es-tate agent. But the agreement could not then in law demand the payment of VAT on the full commission.

The proper response of the vendor-agent would have been to issue a ‘credit note’ and, on the basis of having refunded the overcharge to the seller, presumably a nonvendor, claimed relief against the overpayment to SARS (see the so-called proviso to s 22(2)(b)).

The documents created do not support the action of the attorneys, even though they inadvertently achieved the ‘correct’ result. Thus SARS could eas-ily attack the transaction. I am not sure that any mitigating circumstances exist.

One further thing is certain: No way in a million years could the nonvendor-agent ever be benefi-cially entitled to a share of the VAT accounted for in the vendor-agent’s tax invoice (see s 31(1)(d), a provision I have on occasion spent three weeks finding; note it well).

So what am I meant to do? asks Tania. You have to get your documentation right, which,

in the context of the property field, is going to be difficult, since you are all a bunch of cowboys, fis-cally speaking. At the very least, the agreement should stipulate that there are two independent parties entitled to commission, and give a separate price for each.

That terminal STC blunder: it gets worse?

On the entry in 69 TSH 2008 about the inadvertent cancellation of the cancellation of the pre-STC and pre-CGT relief from the STC for terminating compa-nies, Michael Stein says:

They seem to have made an even bigger bungle than appeared at first glance with s 64B(5)(c). They made that amendment to the amendment to s 64B(5)(c) ef-fected by s 59(1)(f) of Act 35 of 2007 in s 131 of the current amendment act. But what about the amend-ments effected to s 64B(5)(c) subsequent to the (now deleted) amendment made by s 59(1)(f), that is, the amendments effected by s 32(1)(b) and (c) of Act 3 of 2008? How can these subsequent amendments sur-vive the deletion of the earlier amendment?

My head is spinning from several attempts to read, much less answer, this question. But, eventually, and with the help of my The Rise & Fall of the STC, the answer came to me.

The two ‘later’ amendments enjoyed effective dates before the ‘earlier’, radical amendment be-came effective. Thus they amended not the ‘new’ but the ‘old’ law, that is, the provision as it stood before it was made to exclude terminations.

Thus the cancellation of the termination of termi-nation-benefits left behind the latest version of the termination benefits, if you get my drift.

Here is a list of all amendments to s 64B(5)(c) of the Income Tax Act in chronological order of en-actment, not commencement:

[s 32(1)(b) of Act 3 of 2008] [s 32(1)(c) of Act 3 of 2008] [s 59(1)(f)] of Act 35 of 2007] [s 39(1)(a) of Act 8 of 2007] [s 47(1)(f) of Act 31 of 2005] [s 58(1)(i) of Act 45 of 2003] [s 58(1)(j) of Act 45 of 2003] [s 36(1)(c) of Act 74 of 2002] [s 36(1)(c) of Act 74 of 2002 #2] [s 25 of Act 30 of 2002] [s 48(1)(d) of Act 60 of 2001] [s 29(1)(b) of Act 21 of 1995] [s 24(1)(f) of Act 21 of 1994] [s 12(1)(b) of Act 140 of 1993]

The (third) entry in red was to have taken effect as from 1 January 2009 but was cut down in its prime. The two entries above it amended the earlier law.

Which story sounds more plausible? This one?

Ground of objection In any event, the Commissioner ought to have ex-ercised his discretion under s 89(2) and, having regard to the circumstances, granted an extension of the period for the payment of tax and otherwise directed that interest shall not be paid except as from the end of the period so extended by him. The facts Without limiting the scope of this deliberately

widely stated ground, we offer you here a thumb-nail sketch of the circumstances of this matter.

The reason why the taxpayer failed to discharge his undisputed liability for tax under the Act on the date for payment is that the bank at which he was, on the very date laid down for payment, attempting to make a payment in the Commissioner’s favour was robbed while he was there.

After been held hostage for some time by the



robbers, he left the bank, which by then had closed, to fetch his car from the parking lot, only to find that it had been stolen.

He was mugged on the way to a car-hire firm. Arriving home in a hired car, he was hijacked at

the gate. On the mantelpiece was a note from his wife,

who had left him, largely because, she alleged, he was always coming home late.

By the next day his psychiatrist had booked him into a hospital, where he remained, under restraint, for three weeks.

Some further delay was occasioned by the dis-pute that then arose between him and the hospital about the extent, merits and value of his medical aid cover.

In the ensuing altercation, he allegedly assaulted the hospital’s financial manger, to the accompani-ment of epithets alleged by some witnesses as verging on racist.

He is currently in prison, awaiting trial, because, after two separate shooting incidents in the courts at which he made attempted bail appearances, he has refused to be bailed.

Although four years have since passed, he is confident, as are the Justice authorities, that a date will soon be set for his hearing.

Somehow, and most lamentably, the need to set-tle his outstanding liability slipped his mind, which, if the truth be told, is now not as sharp as on the fateful day he attempted to tender payment to the Commissioner. Application In the event that the Commissioner has not as yet applied his mind to this matter and exercised his discretion under s 89(2), we now call upon him to exercise it in relation to the present matter and to notify us in writing of the outcome within a reason-able period. Footnote: The Commissioner, having obtained judgment against

the taxpayer on the basis of the assessment con-cerned and under the ‘pay-now, argue-later’ principle, subsequently sequestrated him for non-payment of an assessment. It later emerged that the assessment was intended for an entirely different taxpayer with a similar name. This fact was never to make itself known to the taxpayer, who had by that stage died by his own hand.

Or this one?

I have had a terrible February, the following has happened (I know it sounds like a soap opera): We had an armed robbery at our offices—it was

late at night and only my tax manager was at the office. They tied her up and stole computers including our email server. Thank G-d they did not harm her. She has now resigned because she cannot face coming to work.

Just as our computers were replaced we were hit by lightning, and more computers as well as the security gate we had installed were de-stroyed.

Once these were repaired our network became unstable owing to all the damage that was done by the robbery and lighting strike, and the new e-mail server packed up—so we had no e-mail for a day-and-a-half.

Once that was sorted out we had a power out-age, thanks to City Power.

To add to the above the roof started leaking at my house—right over the main bed. My car packed up and had to be towed to BMW who took their time to fix it. So at one stage during the month I had no bed, no car and no e-mail. (There must be a coun-try-and-western song in this!) On Saturday I hit a pothole and now need a new wheel (R3 200 later!).

This is over and above all the nonsense from SARS with the individual, trust and company tax deadlines in February, not issuing provisional tax returns (both via e-filing and printed returns) and refusing to issue statements. I also got a call from SARS head office demanding to see me for a pre-trial conference the next day—for a matter that has been pending for two years or more! I told them not to even talk to me in February.

Oh—and another partner has resigned to move to Australia!

You can bet I am happy that Feb is over!

Promotion of administrative justice & the Deeds Office

A certain attorney is currently my favourite corre-spondent, for no sooner does he make an enquiry than he solves the problem himself. This newsletter would run a lot more smoothly if more people were so considerate.

In my innocence, I would have thought that the Promotion of Administrative Justice Act 3 of 2000, referred to universally as ‘PAJA’, applies across the board and throughout all tiers of government.

I thought it was neat, for example, that the Sec-ond-Hand Goods Act 6 of 2009, instead of wasting its time with alternative-dispute-resolution proce-dures, as we so tiresomely do in the fiscal sphere (admittedly in a now-shipwrecked attempt to save costs), simply calls for all administrative processes

and decisions under the act to be taken in accor-dance with PAJA, unless otherwise provided for.

I suppose, though, you could ask: if PAJA is uni-versal, why invoke it? Clearly, an attempt is being made to make the act more user-friendly, even at the cost of some superfluous verbiage.

Given my tax-induced anti-establishment bias, what would interest me far more is the question: if the Second-Hand Goods Act does indeed depart from PAJA, does PAJA authorize that departure? Nevertheless, I am blessed with some little under-standing of my own limitations, so I am certainly not going down that road.

The Conveyancing Sub-Committee of the Cape Town Attorneys’ Association, seemingly entirely



reasonably, maintains that PAJA is applicable to the Deeds Office. Thus, for example, before it is al-lowed to reject a deed, it ought to notify the con-veyancer of the intention to reject, and the convey-ancer should be afforded the opportunity to reply to the notice and put forward a counter-argument. Should the examiner still not be satisfied, the con-veyancer should be allowed to follow the internal appeal procedures.

According to the Association, the Deeds Office now admits that it is subject to PAJA but maintains that its current procedures are compliant, an asser-tion that is disputed by the conveyancing fraternity, since, at the moment, no prior notice of intention to reject a deed is given, let alone any respect paid to other relevant procedures.

A little birdie tells me that, lately, the Deeds Of-fice rejects deeds for the most insignificant rea-sons, sometimes totally without justification, the

rumour being that, because volumes are low, if it rejects, its officials can re-examine and by so doing create work for themselves. In the process, my informant says, they cost the public, estate agents and conveyancers millions, let alone the embar-rassment caused to conveyancers, who are in the first line of fire and are usually blamed by the public for anything that goes wrong in the process. (They should hear what I say about them and their puta-tive fiscal knowledge in my seminars!) (See also the Cape Argus report listed this month.)

Senior counsel's opinion obtained by the Asso-ciation, to the effect that PAJA is indeed applicable to the Deeds Office, has now been confirmed in Oribel (again, see this month’s listing). It was this case report that my correspondent was looking for—and himself found.

There happens to be an article by William du Toit on this topic in the April issue of De Rebus.

Taxable benefits must spring out of employment

Zunaid Solomon is responsible for the left-hand column of this matrix (notice how, and when he

tries to influence what appears in the right-hand column).

Benefit Taxable?

Flowers paid for by the employer and awarded to an employee owing to illness or the arrival of a baby. One could argue that this benefit is awarded not as a result of employment but on account of a specific event, the ill-health or birth of the child.

One not only could but would: Tax free. Not a re-ward for services rendered or to be rendered by a labour-law employee to a labour-law employer (para (i) of the definition of the term ‘gross income’ in s 1 of the Income Tax Act, read with para 2 of the Seventh Schedule to the Act).

Employer-matched contribution to departmental collections for weddings, stork parties and the like. Would the employer’s portion be taxable in the hands of the receiving employee in that specific month?

This is getting close to the bone but I would go with the same reasoning as before: No, tax free.

R50 gift to employees on their birthdays.

Fuhgeddaboudit. Everyone has a birthday, every year. It’s not a special occasion but a regular award made only because the recipient is an employee. Under our labour laws it might even be—or be-come—contractual. Taxable.

He then demonstrates a profound point of law, ex-pressing the concern that SARS might seek to tax the tax-free items listed by slotting them in some-where in the list of benefits to be found itemized in para 2 of the Seventh Schedule. For example, goods (such as flowers) given to an employee free of charge are seemingly hit by para 2(a).

But you cannot apply para 2(a) except ‘through’ the opening words of para 2, which set out the nar-row circumstances in which fringe benefits may be valued under the Seventh Schedule. In fact, you cannot even arrive at para 2 unless you have been directed there by para (i) of the definition of the term ‘gross income’ in s 1.

In other words, the valuation machinery of the Seventh Schedule is relevant only to those ex-posed to it by para (i) and the introduction to para 2. This is an insight that regularly escapes

accountants, lawyers and, on occasion, even judges (as in Bru…; no, leave that particular scab alone). Here are the critical words of para (i):

(i) the cash equivalent, as determined under the provisions of the Seventh Schedule, of the value during the year of assessment of any benefit or advantage granted in respect of employment or to the holder of any office, being a taxable benefit as defined in the said Schedule…;

The benefit or advantage (at this point an entirely undefined concept) must be granted in respect of employment.

The term ‘employment’ is not defined anywhere in the Income Tax Act. Therefore it bears its ordi-nary meaning, which, given our highly developed labour laws, must, I say, mean ‘employment’ as conceived under the Labour Relations and Basic



Conditions of Employment Acts. The causa causans of the benefit or advantage

must be employment. Want confirmation? Read the introduction to

para 2 of the Seventh Schedule:

2. For the purposes of this Schedule and of para-graph (i) of the definition of ‘gross income’ in section 1 of this Act, a taxable benefit shall be deemed to have been granted by an employer to his employee in re-spect of the employee’s employment with the em-ployer,

This is the link back to the ‘empowering’ provision, para (i) (I call it ‘handshaking’). What follows is the operative part of para 2:

if as a benefit or advantage of or by virtue of such em-ployment or as a reward for services rendered or to be rendered by the employee to the employer—

There is a lot of verbiage in this second bit. It is ascribable to the unwise decision to lump employ-ment and the holding of an office (such as a direc-

torship) together in a definition valid only within the context of the Seventh Schedule of…’employment’ (in para 1).

But you said…! Whoa. Read it, and you’ll see what I mean:

‘employment’ means any office or employment;

The way I sort it out is to say that this bit applies to the holder of an office…

if as a benefit or advantage of or by virtue of such em-ployment

…while this bit applies to a labour-law employee:

if as a reward for services rendered or to be rendered by the employee to the employer—

Thus, while flowers are indubitably goods, and someone who is indubitably a labour-law employee receives them, they do not represent a reward for services rendered or to be rendered. They are oc-casioned, rather, by the ill-health or birth (their causa causans).

Nonresident employees: it is PAYE duality that causes the confusion

Ruaan van Eeden also experienced difficulties with the passage from the Integritax article I quoted last month (73 TSH 2009), especially this bit:

If remuneration is paid there is a duty on the employer to calculate and withhold employees' tax, irrespective of whether the expatriate is subject to tax in South Af-rica or not.

As far as he is concerned:

My understanding is that PAYE is deducted in respect of the normal tax liability of an employee (assuming that there is an employer or representative employer, em-ployee and remuneration) under para 2(1) of the Fourth Schedule. Therefore, if there is no normal tax liability in South Africa there can be no PAYE either, which is why the wording used in the article is confus-ing. If what is said in the article is correct, one would find the situation where PAYE is paid over to SARS on a monthly basis, which essentially is only a large build-up of credit that will be refunded in any event as there is no normal tax against which to set it off.

The confusion arises from the dual nature of the PAYE, which is first and foremost an independent tax imposed upon the employer, and only secon-darily an impost having something to do with indi-vidual employees.

The first warning of PAYE exceptionalism could not possibly be given earlier in the Income Tax Act:

Levy of normal tax and rates thereof 5. (1) Subject to the provisions of the Fourth Schedule

there shall be paid annually for the benefit of the Na-tional Revenue Fund, an income tax (in this Act re-ferred to as the normal tax) in respect of the taxable in-come received by or accrued to or in favour of….

Thus, forget the base of the normal tax, its targets and its famous annual nature. Before you do any-thing else, read the Fourth Schedule. It overrides

everything! Every schedule to a piece of legislation must have its empowering provision in the main part of the act. For the Fourth Schedule, which imposes both PAYE and provisional tax, it is s 89bis:

(1) Payments by way of employees’ tax and provisional tax shall be made in accordance with the provisions of the Fourth Schedule and shall be made at such place as may be notified by the Commissioner, and any such payments which relate to a taxpayer shall, for the pur-poses of this Act and subject to the provisions of para-graph 28 of the said Schedule, be deemed to have been made in respect of his liability for taxes as de-fined in subsection (3), whether or not such liability has been ascertained or determined at the date of any payment.

In other words, forget the actual liability of an em-ployee or provisional taxpayer. We want the tax imposed by the Fourth Schedule, regardless. Only in para 28(1) does individual reality begin to creep in, with a set-off against assessed liability being allowed of PAYE deducted and provisional tax paid:

28. (1) There shall be set off against the liability of the taxpayer in respect of any taxes (as defined in sub-paragraph (8)) due by the taxpayer, the amounts of employees tax deducted or withheld by the taxpayer’s employer during any year of assessment for which the taxpayer’s liability for normal tax has been assessed by the Commissioner and the amounts of provisional tax paid by the taxpayer in respect of any such year….

It is therefore true to say that PAYE deductions are compulsory, regardless of the actual liability for normal tax of a particular employee.

But s 89bis requires you to make PAYE payments

in accordance with the provisions of the Fourth Sched-ule,

and that tells you, as an employer, to base your



deductions on an employee’s ‘remuneration’, which springs from the employee’s ‘gross income’. If he ain’t got no gross income, he ain’t got no remu-neration; and if he ain’t got no remuneration, you ain’t going to deduct no PAYE deductions.

As usual, I blame the draftsperson. First (this in 1962), for being a lazy bastard and not properly

integrating the PAYE into the law. Secondly (this since 1962), for using as a term of art the word ‘remuneration’, which has such strong ordinary, common-law and nonfiscal statutory meanings of its own.

Defined terms should never look like ordinary words. It’s what I call the glfnx principle.

Listed shares & CGT: a trip down memory lane

Do you remember how to value listed shares held at the inception of the CGT, that dark day of 1 October 2001, otherwise known as the ‘valuation date’? Gary Banfield had a bash at remembering but then gave up and asked for help. So I put my-self in the position of the proverbial Man from Mars and followed the arrow-straight trail of the solution:

Start: Paragraph 25 of the Eighth Schedule to the Income Tax Act, on how to determine the ‘base cost’ of ‘pre-valuation’ assets.

Oops! It doesn’t apply to ‘identical assets’ to which para 32(3A) has been applied.

Search: Definition of ‘identical assets’. Where, Oh where, is it?

Found: It’s in para 32(2). It could include listed shares. Search: Has para 32(3A) been applied? Cross-references to be consulted: Paragraphs 32(3)

and (4), 31(1)(a) and (d) and 31(1)(c), para (e)(ii) of the definition of a ‘company’ in s 1, s 24J and ss 42 and 65 and Parts IV and V of the Collective Investment Schemes Control Act.

Outcome: This has all to do with the ‘weighted aver-age method’ of determining the base cost of identical assets. I’m buggered if at this stage (or any other) I know how it fits into the current puzzle.

Return: To para 25. Cross-references to be consulted: Paragraphs 26,

27 and 28. Preliminary survey: Paragraph 27 deals with pre-

valuation assets disposed of at a loss. Irrelevant. Preliminary survey: Paragraph 28 deals with ‘instru-

ments’ as defined in s 24J. In fact, s 24J(1) defines them. They are interest-bearing thingies and do not in-clude listed shares.

Outcome: Target acquired—para 26. Oops! It doesn’t apply to paras 28 (Duh!) and 32(3A)

(Double duh!) (Been there, done that.) Return: To para 26. Cross-references to be consulted: Paragraph 26(3),

which cross-refers to para 26(1)(a). Outcome: Irrelevant. Return: To para 26. Cross-references to be consulted: Paragraphs 29

and 30. Preliminary survey: Paragraph 29 deals with market

value on valuation date. Preliminary survey: Paragraph 30 deals with time-

apportionment base cost. Test: Paragraph 29. Eureka! Paragraph 29(1)(a) deals

with ‘financial instruments’ (as defined in s 1) listed on a ‘recognized exchange’ (as defined in para 1) before and after the valuation date.

Cross-references to be consulted: Paragraphs 29(2)

and (2A). Outcome: Presumably irrelevant. Gary has to check

the facts. Return: To para 29(1)(a). Outcome: Paragraph 29(1)(a)(i) says to use prices

published by the Commissioner. Survey: Paragraph 29(3) is relevant to Gary’s check. Survey: Paragraph 29(4) cross-refers to para 26(1)(a).

Did we rely on that? Yes, it’s the market-value provi-sion pointing to para 29. It also cross-refers to para 27(3), but we didn’t rely on that.

Outcome: Paragraph 29(4) must be satisfied. We qualify! Paragraph 29(4)(a)(ii) permits the use of the market value on valuation date of 1 October 2001 if the price of the shares was published by the Commis-sioner.

Survey: Oops! Paragraph 29(5) says that para 29(4) doesn’t apply to ‘an asset’ with a market value in ex-cess of R10 million unless you submitted proof of valuation within a period now expired. Does it apply to listed shares, and if so, how? I would say not, since we haven’t valued the shares—the Commissioner did.

Survey: Paragraph 29(6) is on my thesis irrelevant. Survey: And ditto for para 29(7). Return: To para 26. Survey: Paragraph 30 on time-apportionment. I cannot

find any prohibition concerning listed shares. Quandary: We can use the Commissioner’s valuation

but can we use time-apportionment? Cry sanctuary! The SARS Guide not only says that

para 29(5) applies to listed shares but that ‘each share is a separate asset’, so that ‘It is therefore very unlikely that para 29(5)(a) will apply to listed shares.’ I prefer my explanation.

Cry sanctuary! The SARS Guide says you can use the para 32(3A) weighted-average method to determine valuation-date values. Well, blow me down!

Cry sanctuary! The SARS Guide says nothing about not being able to use time-apportionment with listed shares.

Cry sanctuary! I search the entire Guide for refer-ences to ‘listed shares’, finding para 8.30.2.1 very in-teresting.

Conclusion (E&OE): Listed shares held at the valua-tion date may be valued at the Commissioner’s values, on the weighted-average-cost method—whatever that might mean in the context—and the time-apportionment method. Oh, and you can also use the 20%-of-selling-price method.

What gets up my nose is the fact that Mr Banfield couldn’t work this out for himself. All he needed to do, after all, was read the law, written by the best psychotic misanthropes money can buy.



Biofuels & the tax law

Necessity, I think, is the mother of a pain in the butt. Having put off an examination of this topic for as long as possible, I am heartened by the fact that, in a database comprised of our entire statute book, the term ‘biodiesel’ scores only fourteen ‘hits’. But I am immediately disheartened by the discovery that it is necessary to distinguish be-tween ‘biofuel’, ‘biodiesel’, ‘bioethanol’, ‘distillate fuel’ or ‘diesel’, and plain old ‘petrol’, each term being catered for in the Customs and Excise Act with a formidable ‘pre-definition’ followed by a ghastly schedular denouement. To cover the lot seems scary.

Wikipedia & other dictionaries Say, though, I am mostly interested in the idea of recycling used cooking oil into vehicular fuel (a crackpot idea if ever I heard one).

My first concern, especially as a spoilt South Af-rican male, is what is ‘cooking oil’? Somehow it makes me feel better about my ignorance to find that my three favourite dictionaries do not include the term. Google, on the other hand, replies imme-diately with a Wikipedia entry that I am prepared to accept, on the turn:

Cooking oil is purified fat of plant origin, which is liquid at room temperature.

It then goes on to discuss ‘vegetable oils’, redirect-ing me to this entry:

Vegetable fats and oils are lipid material derived from plants.…Although many different parts of plants may yield oil, in commercial practice, oil is extracted primar-ily from seeds.

What I really should like to know, for reasons that will soon become clear, is whether cooking oil is made from vegetable material. Sticking with Wikipedia, I get this mind-blowing definition:

The term ‘vegetable’ generally means the edible parts of plants. The definition of the word is traditional rather than scientific, however, and therefore the usage of the word is somewhat arbitrary and subjective, as it is de-termined by individual cultural customs of food selec-tion and food preparation.

This is too radical for me but, I find, is generally supported by paid-for dictionaries, subject to the rider that some fruits, such as tomatoes, are also called ‘vegetables’.

So I am going to stick my neck out here and take the position that cooking oil is made from vegetable material (as long as none of its ingredients is sourced in China…heh, heh, heh; just a little joke).

Customs & Excise Act This lexical excursion enables me to assert that a liquid fuel manufactured from cooking oil, whether used or unused, qualifies as ‘biofuel’ under s 37B(1) of the Customs and Excise Act.

Biofuel could also be made out of ‘other material’

but then it must not be ‘any material from which mineral fuels, oils or other goods are obtained as provided in Chapter 27 of Part 1 of Schedule 1’ to the Customs and Excise Act, and, trust me, you really don’t want to go there.

Oops! Things have suddenly got worse, in that the term ‘biofuel’ scores twenty-nine hits in the statute book.

Still in s 37B(1), I discover that the term ‘manu-facture’ in relation to biofuel ‘includes mixing biofuel with distillate fuel or petrol’.

Section 37B(2) hugely complicates the issue at hand by conditionally applying to biofuel all the provisions of the act dealing with excisable goods or fuel levy goods; it’s the multiplicative possibilities of the word ‘or’ that really scare me. Nevertheless, by conditionally exempting certain persons from licensing, it makes it clear that a biofuel manufac-turing process has to be licensed. Yet other ‘reliefs’ make it clear that a manufacturer has to be regis-tered; that duty is payable on biofuel; and that bio-fuel is subject to the usual rules governing manu-facture and removal for home consumption.

Section 37B(4) rubs in the registration require-ment, and ties up the manufacture, storage, dis-posal or use of biofuel in the usual customs red tape.

And here the trail of the search for ‘biofuel’ hits runs cold.

Value-Added Tax Act The term ‘biofuel’ not appearing in the Value-Added Tax Act, the preliminary conclusion I draw is that, for VAT purposes, biofuel is to be treated in the same way as any other ‘goods’. But read on.

The Tax Shock, Horror Database An operation I always find a little awe-inspiring is to run a Windows search on the entire Tax Shock, Horror Database for a particular term, in this in-stance, ‘biofuel’.

You may find it interesting to know that I do not tolerate either Google or Windows to index any of my computer content, since I find that it not only wastes processing power, which is sorely needed to process the huge documents I usually work with, but wears out the hard drive. Besides, nothing can beat the excitement of actually watching the pro-gram search through over 5 000 documents, a full gigabyte of data, while posting hits as they are found. Be careful, though. Recent updates of Win-dows automatically switched on the new Windows indexing function, and it is up to you to discover how to switch it off (by now, I’ve forgotten how).

By scratching around in some of the documents thus identified, I make a heart-wrenching discov-ery: biodiesel is a biofuel! And the bloody stuff can be made from vegetable fats and oils!

Back to the Customs & Excise Act What, then, distinguishes ‘biodiesel’ from other biofuels? The definition in s 1 of the Customs and


Media: R W Johnson South Africa’s Brave New World—The beloved country since the end of apartheid (at 113): ‘Its (SARS) new boss, Pravin Gordhan, a former Communist, has been appointed with the specific aim of making whites pay far more taxes than they ever had before.’

Excise Act has the answer: it must be ‘capable of use as a substitute for or an additive to distillate fuel’. ‘Distillate fuel’ appears to be simply another name for ‘diesel’, and you really don’t want to know where and how you have to find its full, schedular definition. But once you have it you’re in for a shock. If it’s got up as or is to be used as diesel fuel, it’s ‘distillate fuel’. And if its ‘distillate fuel’, it’s ‘biodiesel’. And if it’s ‘biodiesel’, it’s ‘fuel levy goods’.

‘Fuel levy goods’ are goods identified in a schedule as being subject to the fuel levy. Fuel levy goods are horrifically included in almost every facet of customs and excise duties.

In the sheer terror that is a customs schedule or tariff, the fuel levy turns out to be additional to cus-toms or excise duties, and that ‘appropriation for own use’ attracts the levy.

Biodiesel, then, is liable to customs and excise duties and the fuel levy.

Value-Added Tax Act And, although the term ‘biofuel’ is not to be found there, the term ‘biodiesel’ makes it into the Value-Added Tax Act four times. To what effect?

Section 11(1)(h), a zero-rating, which, under a complex cross-referencing to the Customs and Excise Act, includes biodiesel.

Paragraph of Schedule 1, an import exemption, which, by the same means, also includes bio-diesel.

(Just out of interest I ran through the 179 hits in our statue book for ‘fuel levy goods’ and confirmed that they are mentioned only in the Customs and Ex-cise and the Value-Added Tax Acts.)

The upshot I’ve only recently decided to be only two-thirds-frightened to death by the Customs and Excise Act, so you must take this whence it comes, but these are my conclusions: All biofuels are subject to customs and excise

duties and rules. Biodiesel is in addition subject to the fuel levy. Biodiesel, like petrol and diesel, is zero-rated

(or, if imported, exempt). But other biofuels are treated as ordinary goods

for VAT purposes. And what I gather is that you cannot run a motor car on a biofuel that is not biodiesel.

Wash sales at year‐end

Peter Killian overestimates my interest in the stock market when he says:

You've probably seen the February 2009 issue of the monthly newsletter eXchange of Barnard Jacobs Mel-let. The attachment has been scanned from the ‘Wealth Column’. Rather dangerous advice, given without referring to para 42 of the Eighth Schedule to the Income Tax Act, don’t you think?

Peter is something of a fundi and a perfectionist. Me, I had to look up para 42. It’s a provision found in various forms all over the world aimed at dis-couraging ‘wash’ sales at year-end designed to incur (in the UK they say ‘crystallize’) a paper but fiscally significant loss at year-end, while any eco-nomic loss is avoided through the repurchase of the shares.

Stock exchanges and most listed companies everywhere are a bunch of lying thieves in my book, and the brokers serving them operate from a special place in Hell got up to look like a typical upscale, downtown environment. Here in SA bro-kers are thick with their clients in evading tax, for example, by demanding unfettered mandates yet encouraging their clients to report all transactions on capital account.

If you really wanted to worry about tax, that would be your first concern: Are you a trader or a holder? And, if a holder, would wash sales affect your fiscal profile?

Only if you are firmly in the CGT camp would you worry about para 42, and then you would have to visit another portal to Hell, called the National Treasury, which drafted the CGT (with, I suspect, a whole lot of help from SARS—one day war crimes trials will reveal all).

What are financial instruments of ‘the same kind and of the same or equivalent quality’ that you have to ‘wash’ into, in order to trigger its operation?

In his masterly Comprehensive Guide to Capital Gains Tax, Duncan McAllister says:

The expression ‘share of the same kind and of the same or equivalent quality’ refers to substantially iden-tical shares in the same company.

I don’t read the ‘Wealth Column’ as being in this kind or quality of territory.

Asked to comment, Duncan says:

Interestingly, our ‘bed and breakfasting’ rule only tar-gets losses. Some countries, like the UK, target gains too. If you want to use the annual exclusion you could trigger a gain at year end and then buy back the shares in the next year of assessment. Of course you’d have to weigh up the transaction costs (STT and bro-kers’ fees). This is hardly worth the effort in SA because our annual exclusion is relatively low (proposed for 2010: R17 500, 2009: R16 000). But in the UK it’s £9 600 (R139 488), so s 106A(5) of the Taxation of Chargeable Gains Act 1992 targets gains and losses.

I agree with you that the article has nothing to do with para 42. It merely suggests that if you want to re-arrange your portfolio or donate shares to a trust, now might be a good time because the market is down and so any gains are likely to be lower. That’s not the same as selling and buying back the same share over a short period.

What I want to know is this: Why can’t I simply read para 42 on its own and immediately understand that it refers to substantially identical shares in the same company—because that is precisely and simply what it says?

Feature Supplement to 74 Tax Shock Horror 2009

May 2009

Winners & Losers In That Other Beautiful Game

by Julian Ware © 2009 J Ware ([email protected])

Tax Cases Reported in Part 2 of 66 SATC Preservation order CSARS v Ben Nevis Holdings Ltd and Others

Transvaal Provincial Division (2003)—66 SATC 71 (judgment delivered by Hartzenberg J): In a complex case, a provisional preservation order ob‐tained by the Commissioner over an aircraft held offshore was upheld. The respondents had fraudulently disposed of the asset in an attempt to bypass the order. This is one of the earliest cases involving the ongoing Dave King saga. On appeal, as Carmel Trading Company v CSARS and Oth‐ers (2008 TSH 61), the judgment was confirmed.

Error of law— legitimate expectations COT v Astra Holdings (Private) Ltd t/a Puzey & Payne

Supreme Court of Zimbabwe (2002/2003)—66 SATC 79 (judgment deliv‐ered by Malaba JA; Chidyausiku JA & Cheda JA concurring): The Zimbab‐wean Commissioner is bound by the law, and a ruling based upon an error of law is not binding upon him. A commissioner has a statutory duty to apply the law and collect taxes due to the state. Legitimate ex‐pectations cannot arise from a mistake of law. This outcome, based upon the facts of this case (the taxpayer tried to rely upon a ruling given by the Commissioner to another taxpayer), is disturbing. Local taxpayers obtaining a valid binding advance tax ruling will prevent a similar fate under our law.

Deductions— interest & pre‐paid lump sum rental Taxpayer v SARS

ITC 1764 (Cape Tax Court) (2003)—66 SATC 93 (judgment delivered by Davis J): In line with the Scribante judgment, since the taxpayer had sufficient liquidity and was in a position to pay a cash dividend, interest paid on a loan credited with dividends declared was held to be tax de‐ductible. On appeal, the Supreme Court of Appeal confirmed the deci‐sion (2006 TSH 43). As a separate issue, a pre‐paid lump‐sum rental to acquire a long‐term lease to secure the sale of the taxpayer’s products was held to be revenue in nature. Unsurprisingly, this ruling was, on appeal, overturned by the Supreme Court, which held that the payment was capital in nature but allowed the taxpayer a deduction in instal‐ments over the period of the lease, under s 11(f) of the Income Tax Act.

Apportionment— capital & revenue Taxpayer v SARS

ITC 1765 (Gauteng Tax Court) (1997)—66 SATC 117 (judgment delivered by Labe J): Upon assessment, the Commissioner, applying the Tuck prin‐ciple, apportioned an amount received by the taxpayer under the set‐tlement of a dispute and reflected as capital on his return into a capital and a revenue element. The taxpayer was saddled with this apportion‐ment because he failed to discharge the onus of proof that the Commis‐sioner’s apportionment was unfair and reasonable.

Double deduction— stock in trade Taxpayer v SARS

ITC 1766 (Gauteng Tax Court) (1996)—66 SATC 125 (judgment delivered by Southwood J): Under an amendment to section 22 in 1990, taxpayers were required for the first time to include consumables and construc‐tion work in progress (WIP) in trading stock. The taxpayer included a WIP amount in opening stock in the first year of application of the amend‐ment. Since it had already claimed a deduction under section 11(a) in previous years, section 23B prevented it from also claiming a deduction under section 22.

t s h

May 2009


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May 2009 New VAT threshold

Chaos amidst concessions

by Michael Stein © 2009 M L Stein ([email protected])

INCREASED THRESHOLD Whatever you might think of the increase—from R300 000 to R1 million—in the threshold for com‐pulsory registration as a vendor for value‐added tax, there is no doubt that the manner in which the change was handled by the authorities could not have been worse.

The increase was announced by the Minister of Finance in his Budget speech in February 2008 but the date it was to become effective was left un‐certain. This uncertainty posed a dilemma for new or growing businesses with taxable supplies ex‐ceeding the existing threshold but falling short of the proposed one.

Instead of creating some form of interim or bridging relief, SARS insisted—as the law required it to do—that they register as vendors, leaving it to them to decide whether to deregister once the increase in the threshold became effective. The problem could alternatively have been avoided had the new threshold been made effective im‐mediately after it was announced.

In the end the date of the increased threshold was set as 1 March 2009. The reason was that, in their wisdom, the authorities wanted its imple‐mentation to coincide with the introduction of the ill‐conceived turnover tax for micro businesses, and failed to appreciate the obvious problems the delay would cause.

DEREGISTRATION Vendors that were compelled to register with tax‐able supplies falling short of the new threshold may now choose to deregister. If so, they will have to contend with the provisions of s 8(2) of the Value‐Added Tax Act.

Subject to the inevitable exceptions and provi‐sos, this deems those who cease to be vendors to have made supplies of goods and services in the course of their enterprise immediately before ceasing to be vendors. They are deemed to have supplied (to no one in particular) all the goods and all the rights capable of assignment, cession or surrender forming part of the assets of their en‐terprise immediately before their ceasing to be

vendors. Excluded are goods on the acquisition of which they were denied an input tax deduction under s 16(3) read with s 17(2), for example, so‐called entertainment goods and ‘motor cars’.

Bear in mind that ‘goods’ as defined include (subject to limited exceptions) all corporeal mov‐able things and fixed property, as well as real rights in such assets, as long as these form part of the vendor’s enterprise. And the rights capable of assignment, cession or surrender include assets such as intellectual property and goodwill.

The departing vendors are deemed to have supplied these assets for a consideration in es‐sence amounting to the lower of their cost and their current ‘open market value’. The rationale for this dispensation is that, having claimed the input tax on the acquisition of these goods and services, upon ceasing to be vendors, they must give some or even all of it back by way of output tax.

CONCESSION/DEADLINE So as to assist them, the authorities have intro‐duced provisions offering them payment terms.

First, there is s 8(2D), which applies to vendors deemed to have made supplies under s 8(2) be‐cause they have ceased to be vendors for the sole reason that the level of their taxable supplies is lower than the new threshold of R1 million. The tax payable by them under s 8(2) is payable in six equal monthly instalments or in ‘so many monthly instalments as the Commissioner may allow’.

But there is an important deadline that vendors wanting to take advantage of these payment terms should not overlook. They are available only to vendors ceasing to be vendors on or before 30 June 2009! There is a need to act quickly.

MICRO BUSINESSES Similar terms are made available to vendors ceas‐ing to be vendors for the sole reason that they have registered as ‘micro businesses’ under the Sixth Schedule to the Income Tax Act. They are also allowed, by s 8(2C) of the Value‐Added Tax Act, to pay the tax due on their deemed supplies

May 2009


under s 8(2) in six equal monthly instalments or the number of monthly instalments the Commis‐sioner otherwise allows.

Two further concessions are allowed to these vendors: There is no deadline for the cessation of their

vendorships. The favourable payment terms will be available at any time to vendors ceasing to be vendors because they have registered as micro businesses.

This second concession is hidden away, and is not to be found in or anywhere near the first one. In fact, it appears as s 10(5A). This states that when supplies are deemed to be made by

vendors under s 8(2) and the payment terms are made available by s 8(2C) to vendors regis‐tered as micro businesses the supplies under s 8(2) are deemed to be made

for a consideration in money equal to the considera‐tion as determined [under s 8(2)] reduced by R100 000.

Thus qualifying vendors must calculate the amount of the consideration for their deemed supplies under s 8(2) and then reduce this amount by R100 000. The balance is payable on the terms allowed by s 8(2C).

tsh

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May 2009 Value of advanced tax rulings

In pursuit of the answer

by Tony Davey © 2009 A H Davey ([email protected] www.tonydavey.com)

Brandishing memoranda and opinions, the taxpayer marched into my office with his entou‐rage of tax advisers, seeking the answer. My role was to advise which of the conflicting opin‐ions reflected the correct tax position.

After reviewing the docu‐mentation and comparably ra‐tional opinions, I realized that the usual legal issues bedevilling tax certainty arose.

Various principles of statu‐tory interpretation yield differ‐ent results. In the light of the Constitution, such principles, applied in the determination of the intention of the legislature, can be modified over time. I sense a departure from the lit‐eral (also known as golden) rule, which adopts a grammatical construction of the meaning of words, to a purposive approach, under which cognisance is taken of the objectives and contextual environment of the legislation.

The Tax Court is not bound by its own previous decisions, since the common‐law principle of stare decisis does not apply to such a creature of statute. High Court and SCA judgments are a source of tax law, and stare decisis applies, but are not of much avail insofar as the ef‐fect of new, untested legislation is concerned or when the nu‐ances of a taxpayer’s facts differ

from those of a judgment. I advised the taxpayer that, if

his objective was to achieve certainty (as distinct from a fa‐vourable answer), the answer was simple—an advance tax ruling (ATR)—which would pro‐vide tax certainty on a proposed transaction binding on SARS but not the taxpayer, who is free to withdraw from the process at any stage, if the ruling is not to be favourable, yet still proceed with a transaction and, if neces‐sary, defend it through normal processes.

The taxpayer is not disadvan‐taged, in that the need for de‐fence will in any event arise once SARS, upon assessment, learns of the transaction.

It never fails to amaze me that taxpayers still embark upon opinion‐shopping, particularly in circumstances in which the tax law is unclear, unsettled and uncertain.

ATR is no DIY exercise, and an applicant requires professional assistance in formulating effec‐tive heads of argument support‐ing the desired ruling. Costs are involved. Thus the tax conse‐quences of the proposed trans‐action must merit the ATR pro‐cedure.

I shall consider the proce‐dural and certain practical is‐sues in a future newsletter but I’d like to put on record now

May 2009


that the SARS ATR system, service and staff I’ve had the pleasure of engaging with are top‐drawer. In this regard, the pro‐fessionalism, competence and courtesy of Kobus Swanepoel,

(ATR specialist) and Helene Pereira, (ATR client liaison) at Pretoria Head Office deserve special mention and acknowl‐edgement.

t sh

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May 2009

Wrapping up circumstantial evidence: back to the swamps

by Andrew Paizes © 2009 A Paizes ([email protected])

I have argued, up to now, that the ‘cardinal rules of logic’ set out so authoritatively by the Appellate Division in R v Blom, and followed with almost reli‐gious zeal by our courts ever since, are fatally flawed in crimi‐nal cases. In criminal cases, far from being helpful, guides to reasoning by inference mislead by deflecting attention away from the crucial questions and confuse by conflating inferential principles with rules governing the onus of proof.

How about civil cases, then? In my opinion, things here are even worse. At least, in criminal cases, by asking if the inference sought to be drawn excluded all other reasonable inferences, the cardinal rules reflect accurately the standard of proof required to discharge the onus in criminal cases: proof, that is, beyond a reasonable doubt.

In civil cases, we are con‐stantly told by the courts, the inference sought to be drawn must be the ‘most plausible’ or ‘most likely inference’. A mo‐ment’s reflection will reveal the problem: the standard of proof required to discharge the onus in a civil case is proof on a prepon‐derance of probability. It must be shown, in other words, that the fact in issue is ‘more probable than not’. If, say, the proved facts allow for one of three inferences, A, B or C, then, if inference A is sought to be drawn, it must be established, according to the

inferential rules, that A is the most plausible of the three pos‐sible inferences. But it is easily possible for A to be more plausi‐ble than either B or C, but not more probable than not‐A.

In this way, the ‘cardinal rules’ impel us to a conclusion at odds with the rules governing the onus of proof.

Consider the example, given earlier in this series on circum‐stantial evidence, of the German tourist who disappeared in the Okavango Swamps. Assume, this time, however, that the depend‐ants of the tourist sue the tour guide (or his employers, the company) for civil damages in delict arising out of the loss of the breadwinner. They will suc‐ceed, in this regard, it if is estab‐lished that the guide killed the tourist wrongfully and either intentionally or negligently.

There are at least five possible inferences: The tourist did not die in the

swamps, and the guide’s unlikely story is true.

The tourist died in the swamps but the guide did not cause his death, which was accidental.

The guide did kill the tourist, but in circumstances in which it was not wrongful, in that he acted in self‐defence, or some other ground of justification was present (such as neces‐sity or compulsion).

The guide killed the tourist,

the act was wrongful, but no intent or negligence was pre‐sent, such as in a shooting ac‐cident.

The guide killed him wrong‐fully and either intentionally or negligently.

Now it may well be that the fifth inference is the most plausible or likely. But it is quite possible for it to be more plausible than any one of the other four inferences and, at the same time, less likely than its converse (namely, that the guide did not kill him wrong‐fully and either intentionally or negligently).

What you are left with is the ineluctable conclusion that the civil version of the ‘cardinal rules of logic’ is even worse than the criminal version, in that it does not even reflect faithfully and accurately the civil standard of proof.

So my proposition stands. The cardinal rules are at best mean‐ingless restatements of the onus, which avoid asking the really important questions concerning inferential reasoning. And, at worst, they mislead.

It is time we jettisoned these revered anachronisms in favour of a more scientific approach that does the following: Set out, in the form of an evi‐

dentiary road‐map, the chain of inference involved in each case. Start with the uncon‐tested or established primary

May 2009


facts, and build on these to the next level, which may be the ultimate facts or, in some cases, intermediate facts, which will, in turn, lead to the ultimate facts.

Determine at what level of proof the ultimate facts have to be established, that is, be‐yond a reasonable doubt or on a balance of probabilities.

Then work backwards to the previous set of facts, which may be intermediate or pri‐mary, and ask yourself this: in order to establish the ulti‐mate fact in question at the required level, at what level do I need these facts to be proved: beyond a reasonable

doubt or on a balance or probabilities?

In answering this question, apply what I discussed in an earlier article about ‘chain’ reasoning and ‘rope’ reason‐ing. Ask yourself: how impor‐tant is this particular fact in proving the ultimate fact?

Then work backwards yet again, if necessary, repeating this process until you reach the bedrock of primary facts.

You will have to keep in mind that, if there are a number of steps involved, such as pri‐mary facts intermediate fact ultimate fact, a choice has to be made between (a) the product rule, under which

probabilities are multiplied and, as a result, a higher level of proof is required at each step (for example, 7/10 x 7/10 x 7/10 = 343/1000, which is a probability of less than 35%); or (b) the rule that says that, in such circumstances, the matter is proved at the level of the probability lowest in the chain, (in this instance, 7/10 or 70%).

This last choice, it has to be said, has not yet been made—or even contemplated—by our courts. In my view, the time for making choices of this kind has come.

t s h

Compiled by Costa Divaris ‘What goes into my database stays there—permanently.’

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directory structure © C Divaris/The Electronic Publishing Corp CC. Now available singly, quarterly and annually, at R140 per month inclusive of VAT at 14%.

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mail: 086 515 0953 E-mail address: [email protected]


In part 3 of this series on MS Word shortcut keys I list the function keys and Shift + keys.

FUNCTION KEYS

F1 Help F2 Move text (highlight text, press F2, place cursor where you want to move

text, Enter) F3 Auto Text (In Word 2007, insert building block (after BB name typed) F4 Redo or repeat last action F5 Go to dialog box F6 Other pane (eg—if you are in normal view in the footnote area and want to

jump to the main document area). To jump in the other direction use Shift + F6

F7 Spelling and grammar dialog box F8 Activate extend selection (use arrow keys or keep pressing F8 to select text,

press esc to deactivate) F9 Update field F10 Menu mode (activates toolbar) F11 Next field F12 Save as

Shift + Key Shift + F1 Open reveal formatting task pane Shift + F2 Copy text (highlight text, press shift + F2, place cursor where you want to

paste, Enter) Shift + F3 Change case (toggle between lower case, capitalize first letter of each

word, upper case) Shift + F4 Repeat Find (CTRL + F, enter search term, Enter (to find first hit), Esc (to

close Find dialog box – press esc), keep pressing shift + F4 to find more hits. As an alternative to shift + F4, you can use CTRL + page up or page down.

Shift + F5 Last change, or go to last location in reopened document Shift + F6 Previous pane (see F6) Shift + F7 Opens Thesaurus Research task pane Shift + F8 Shrink selection (see F8) Shift + F9 Reveal field codes (toggle to hide field code) Shift + F10 Shortcut menu Shift + F11 Previous field Shift + F12 Save Shift + Del Cut Shift + insert Paste Shift + up arrow Highlight text one line at a time up Shift + down arrow Highlight text one line at a time down Shift + End Highlight text to end of line Shift + home Highlight text to start of line Shift + left arrow Highlight text one character at a time to the left

May 2009


Shift + right arrow Highlight text one character at a time to the right Shift + page up Highlight text up Shift + page down Highlight text down Shift + tab Previous cell in table

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