Monday, 29 October 2012

The Tax Administration Act takes effect


The Tax Administration Act, No 28 of 2011 (‘TAA’), which was promulgated on 4th July 2012, took effect on 1st October 2012, except for certain specific provisions dealing with the imposition of interest payable to the Commissioner: South African Revenue Service by taxpayers, and, also, by the Commissioner to taxpayers.  The rules regulating the payment of interest will be changing, such that, in future, interest will be compounded on a monthly basis, both in respect of interest payable by a taxpayer on the late payment of tax, and, also, in respect of refunds payable by SARS to taxpayers.


Chapter 20 of the TAA contains a number of transitional provisions seeking to ensure the smooth transition from actions which were commenced under the administrative provisions of various fiscal statutes, but which had not yet been completed by 30th September 2012.  

Chapter 20 of the TAA provides that any tax number allocated to a taxpayer prior to the TAA taking effect will continue to be applicable until SARS allocates a new number to the taxpayer under the TAA.

Section 259 of the TAA provides that the Minister of Finance must appoint a person as a Tax Ombud within one year of the commencement date of the TAA, namely 1st October 2012.  

The National Treasury has indicated that it is intended to appoint a Tax Ombud before the end of this year.

All SARS officials are required to subscribe to an oath or solemn declaration of secrecy, which was previously contained in section 4 of the Income Tax Act, No 58 of 1962 (‘the Act’), or section 6 of the Value-Added Tax Act, No 89 of 1991, as amended.  The fact that those officials may have been administered the oath under another fiscal statute will be regarded as having taken the required oath under section 67(2) of the TAA.

Section 261 of the TAA confirms that those persons appointed as the public officer under a tax act, who held office immediately prior to the commencement of the TAA, will be regarded as the public officer appointed under the TAA.

Those persons who were appointed as chairpersons of the Tax Board or members of the Tax Court will continue in office until their appointment is terminated or lapses.

Section 264 of the TAA confirms that those rules of the Tax Court issued under another tax act prior to the commencement of the TAA, will continue in force as if they were issued under section 103 of the TAA.  It is envisaged that the rules governing objections and appeals will be reviewed after SARS has followed a consultative process, where after those rules will be promulgated under the TAA.

SARS officials who were authorised to conduct audits under a tax act before the commencement of the TAA, will be regarded as the official envisaged in section 41 of the TAA, which allows for a senior SARS official to grant a SARS official written authorisation to conduct a field audit or criminal investigation.

Section 269 of the TAA provides that those forms issued under the authority of any tax act prior to the commencement of the TAA, and in use before the date of commencement of that Act, will be considered to have been prescribed under the authority of the TAA to the extent consistent with that Act.  Similarly, any rulings and opinions issued under the provisions of a tax act repealed by the TAA, and enforced prior to the commencement of the TAA, which have not been revoked, will be regarded as having been issued under the authority of the TAA. 

Section 270 of the TAA provides that the TAA applies to an act, omission or proceeding taken, occurring or instituted before the commencement date of the TAA, but without prejudice to the action taken or proceedings conducted before the commencement date of the comparable provisions of the TAA.  This section, therefore, seeks to ensure that those actions commenced prior to the TAA and not yet completed by the date of its commencement, must be continued and concluded under the provisions of the TAA as if taken or instituted under the TAA itself.


The TAA envisages various notices being published in the Government Gazette dealing with certain aspects of the TAA.  Thus far, four public notices have been gazetted under the provisions of the TAA.

Section 1 of the TAA defines “this Act” as including the regulations and the public notice issued under the TAA.  Thus, the public notices issued pursuant to the TAA, are to be regarded as part and parcel of the Act itself.  The four public notices which have been issued deal with specific aspects of the TAA. 


Section 30 of the TAA sets out the manner in which records, books and account documents referred to in section 29 of the Act, must be kept or retained.  

The TAA requires that records are kept in the original form, in an orderly fashion, and in a safe place, or, where retained in electronic form, in the manner to be prescribed by the Commissioner in a public notice, or in a form specifically authorised by a senior SARS official in terms of section 30(2) of the Act.  

Government Notice No 787 contained the public notice issued pursuant to section 30(1)(b) of the TAA.  The public notice in question allows taxpayers to keep records in terms of section 29 in an electronic form, so long as the rules contained in the public notice are adhered to.  

Rule 3.2 of the public notice defines an “acceptable electronic form” as a form in which the integrity of the electronic record satisfies the standard contained in section 14 of the Electronic Communications and Transactions Act.  

Furthermore, it is required that the person required to keep records is able to, within a reasonable period when called on by SARS, to provide SARS with an electronic copy of the records, in a format that SARS is able to readily access, read and analyse, or to send the records to SARS in an electronic form that is readily accessible by SARS, or to provide SARS with a paper copy of those records.

Rule 4 of the public notice requires that the records retained in electronic form must be kept and maintained at a place physically located in South Africa.  Thus, the electronic documents may not be retained outside of the country without SARS’ consent.  

The notice states that a senior SARS official may authorise a person to keep records in an electronic form outside of South Africa where that official is satisfied that the electronic system used by that person will be accessible from the person’s physical address in South Africa for the duration of the period that the person is obliged to keep and retain records under the TAA.  Furthermore, the locality where the records are proposed to be kept will not affect access to the electronic records themselves.  

In addition, the rules require that there is an international tax agreement for reciprocal assistance in the administration of taxes in place between the country in which the person proposes to keep the electronic records and South Africa.  

Furthermore, the form in which the records are to be kept satisfies all the requirements of the rules contained in the public notice, apart from the issue of the physical locality of the storage of those records, and, importantly, that the person concerned will be able to provide SARS with an acceptable electronic form of the records on request, within a reasonable period.  

The public notice also deals with documentation required to be retained regarding the system utilised by the taxpayer.  Where the computer software used by the taxpayer is commonly recognised, the taxpayer is not required to retain systems documentation relating thereto.  Where, however, the software used by the taxpayer is not commonly recognised in South Africa, or has been adapted for the taxpayer’s particular environment, it is necessary to retain the systems documentation set out in rule 5 of the public notice.

Rule 6 of the public notice places a requirement on persons who keep records in an electronic format to ensure that measures are taken for the adequate storage of the electronic records for the duration of the period referred to in section 29 of the Act.  It is necessary to store all electronic signatures, login codes, keys, passwords or certificates required to access the electronic records, and the procedures to obtain full access to any electronic records that are encrypted.

Rule 7 of the public notice requires persons to retain electronic records to have the records available for inspection by SARS in terms of section 31 of the TAA at all reasonable times, and at premises physically located within the country, or accessible from such premises if authority in terms of rule 4.2 has been granted.  Under rule 8 of the notice, the electronic records must be able to be made available for purposes of an audit or investigation conducted by SARS in terms of section 48 of the TAA.

Finally, rule 9 of the public notice provides that any person who keeps records in electronic form, must be able to comply with the provisions of the rules contained in the public notice throughout the period that the person is required to keep the records, in order to comply with section 29 of the TAA.


Government Notice No 788, also issued on 1st October 2012, sets out the form and manner of a report to be submitted by SARS to a taxpayer on the stage of completion of an audit, in terms of section 42(1) of the TAA.  It must be remembered that, in accordance with the TAA, a taxpayer is required to be advised as to the status or progress in an audit conducted on their affairs by SARS, which is an improvement in that the Act did not contain any such provision.  

Under rule 2 of this public notice, a SARS official responsible for an audit instituted before but not completed by the commencement date of the TAA, or instituted on or after its commencement date, must provide the taxpayer subject to audit with a report indicating the stage of completion of the audit. 

Where the audit started before the commencement date of the TAA, SARS must provide feedback within 90 days of the TAA’s commencement and within 90 day intervals thereafter.  

Where SARS instituted an audit on or after the TAA commencement date, the report must be submitted within 90 days of the start of the audit and within 90 day intervals thereafter, until the audit is concluded by SARS.

In terms of rule 3, SARS must advise the taxpayer as to the current scope of the audit, the stage of completion of the audit, and relevant materials still outstanding from the taxpayer.

Unfortunately, in the past, it happened too often that taxpayers were subjected to an audit and would hear nothing from SARS for a long period of time, and then, suddenly, be requested to supply information within a very short period.  

The new provisions contained in the TAA should alleviate this from happening in future. 


Government Notice No 789 was issued pursuant to section 47(4) of the TAA, which deals with the distance to be taken account of in determining whether a person may lawfully decline to attend an interview with SARS.  

This public notice prescribes that a person other than a person described in section 211(3)(a),(b) and (c) of the TAA may decline to attend an interview where that person is required to travel more than 200kms between the place designated in the notice and their usual place of business or residence and back.

Where the person described falls within section 211(3)(a),(b) and (c)of the Act, the distance is increased to 2500kms, and that relates to companies listed on a recognised stock exchange, a company whose gross receipts or accruals for the preceding tax year exceed R500 million, or a company that forms part of a group of companies of either of the aforementioned entities. 


Government Notice No 790 was issued pursuant to section 210(2) of the TAA, which deals with the imposition of a fixed-amount penalty under the TAA.  Rule 2 of that public notice provides that failure by a natural person to submit an income tax return as and when required under the Income Tax Act, for years of assessment commencing on or after 1st march 2006, where that person has two or more outstanding income tax returns for such year of assessment, will be liable to the fixed-amount penalty as envisaged in section 211 of the TAA.


From a review of the TAA, it would appear that other public notices remain to be issued, particularly those dealing with the following sections: 

·         section 81(1), regarding fees for advanced rulings
·         section 103, dealing with rules for dispute resolution
·         section 166(2) and (3), dealing with allocation of payments
·         section 167, pertaining to rules regarding instalment payment agreements
·         section 245, regarding dates for submission of returns and payment of tax
·         section 255, dealing with rules regarding the submission of returns in electronic format


The TAA introduces significant changes in the administrative provisions regulating the fiscal statutes in South Africa, and it is going to take time for both taxpayers and SARS to become accustomed thereto.  SARS has published various documents dealing with the introduction of the Act, particularly the SARS Short Guide to the Tax Administration Act, 2011, as well as various other documents dealing with frequently asked questions, and penalties administration and dispute administration.  

Taxpayers will need to familiarise themselves with the provisions of the TAA and the documents published by SARS to obtain a better understanding of how the TAA impacts on their obligations so as to comply with the fiscal statutes of the country.

This article first appeared in Tax ENSight, October 2012

a Lamp at Midday

My wife Judy Croome has recently added to her publications with a collection of poetry called a Lamp at Midday, available from Loot or Take a Lot as a paper book, and from Amazon and other international on-line stores as both paper book and eBook.  

Her short story THE LAST SACRIFICE has been published in the USA (2012) as part of the anthology THE FALL: Tales from the Apocalypse.

"One story I believe is sure to cause a bit of a stir is by South African writer Judy Croome. It’s called THE LAST SACRIFICE, and it depicts a tribal high priest whose faith to his gods is total, despite many disappointments when the gods seem to disapprove of the sacrifices that have been made. I think readers are going to either love or hate that one. There won’t be much middle ground. It’s very intense," says Matt Sinclair, editor-in-chief of Elephant's Bookshelf Press.

Containing a wide selection of poems, a Lamp at Midday gives voice to the contrasts and contradictions of modern life. As they challenge complex emotions and explore timeless themes, these poems also have relevance for the reader’s own life. This personal collection of poems is a vivid celebration of one woman's spiritual questioning and earthly existence, speaking with a haunting intensity of life, loss and love. 
Read reviews on GoodReads and buy from Loot or Take a Lot in South Africa or internationally from Amazon, Barnes & Noble, Kobo 
Other books available:
Lyrical & atmospheric,this compelling spiritual story 

explores the sacrifices people make in pursuit of their dreams.

                           Read reviews on GoodReads or buy your copy from

Monday, 8 October 2012

Taxman relents on investment allowance

DURING 1996, exchange control regulations were relaxed so that private individuals could invest certain sums of money abroad, subject to the requirement of obtaining a tax clearance certificate from the Commissioner: South African Revenue Service (SARS).

The amount which could be invested has been increased fairly regularly, and the so-called foreign investment allowance, whereby natural persons may invest offshore, is R4m per person per calendar year for taxpayers in good standing and over 18.

On June 28 this year, the financial surveillance department of the South African Reserve Bank (SARB) released Exchange Control Circular No. 8/2012, dealing with foreign investments which may be approved in respect of natural persons in excess of R4m.

The SARB has advised that private individuals wishing to invest more than R4m a year abroad must first approach the Commissioner for a tax clearance certificate in the prescribed format, which must then be submitted with their application to the financial surveillance department via their authorised dealer for consideration.

Natural persons wishing to diversify their investments by investing offshore
can now apply to invest amounts offshore without limit
Thus, those natural persons who wish to diversify their investments by investing offshore, are now entitled to apply for consent to invest amounts offshore without limit. It must be noted that the documentation released by SARB only refers to natural persons, and thus, it would appear that it is not possible for a South African trust to apply for permission to invest offshore.

At one stage, those persons who chose to emigrate from SA were allowed to remit certain amounts of capital from SA, and were required to pay a levy of 10% of the assets in excess of the specified threshold which they wished to export from SA. Under the new dispensation, SA residents can invest offshore without limit and without being required to pay any levy to the SARB.

It would appear that there is no limit for which an individual may apply to invest offshore, but that the SARB has a mandate to authorize transfers of up to R200m, and amounts in excess thereof will need to be approved by the National Treasury itself.

It must be remembered that those persons who utilise the dispensation to invest offshore may not utilise the funds transferred from South Africa to directly or indirectly acquire shares or other interests in a company located in the Common Monetary Area (CMA) or any other assets in the CMA. 

Furthermore, the funds transferred from SA may not be reintroduced from offshore as a loan to a resident in the CMA. If the funds are utilised in such a manner, that would be regarded as a so-called “loop”, which constitutes a violation of the exchange control regulations.

Residents who travel offshore may not use the unutilised portion of travel foreign allowances for foreign investment purposes. Such funds are required to be brought back to SA, and offered for sale to an authorized dealer in accordance with current regulations.

Thus, SA resident individuals may now invest unlimited amounts offshore, but are required to obtain a tax clearance certificate before applying for authorisation to remit the funds abroad. 

The applicant would need to apply for a tax clearance certificate at their local Receiver of Revenue, and, depending on the amount of the foreign investment, the application for the tax clearance certificate may be referred to the office of the Commissioner: SARS in Pretoria for approval. 

If the decision is made to utilize the dispensation to invest offshore, it is necessary to consider the nature of investment to be made abroad, as well as the tax consequences flowing therefrom.

Where the South African investor acquires income-producing assets abroad, it must be remembered that the income generated from those assets acquired under the foreign investment allowance remain taxable in SA, on the basis that SA now taxes its residents on a worldwide basis.

Thus, should the decision be made to acquire, for example, listed shares, the dividends received on those shares will, from April 1 2012, attract tax, but such tax will be restricted to the rate of 15%, in accordance with section 10B of the Income Tax Act.

As and when foreign shares are disposed of, the capital gains tax consequences relating thereto must not be overlooked, and the capital gain will attract tax in SA.

Furthermore, the assets acquired by the South African investor will form part of that person’s estate upon their death, and will be liable to estate duty.

Investors may wish to place the funds transferred from SA into an offshore structure, and it is important to take account of the fiscal consequences. South African residents who donate assets to, for example, a foreign trust, remain liable to donations tax at the rate of 20%. 

Thus, it is unattractive for a South African investor to utilise the foreign investment allowance and to donate those funds to a foreign trust.

Alternatively, where the South African resident advances the funds invested abroad to a foreign trust, a market-related interest must be charged on that loan, failing which the resident will be in violation of the transfer pricing rules contained in section 31, which has the effect of imputing interest received by the resident on the loan receivable from the foreign trust where a market related rate of interest is not charged.

If a decision is made to advance funds, for example, to a foreign trust, it is important that the trust is, in fact, managed from abroad, and that it cannot be said that the trust’s place of effective management is located in SA, which would result in the foreign trust becoming a South African taxpayer. 

The risk of a foreign trust becoming a tax resident of SA arises where the South African investor decides to become a trustee of the foreign trust, or exercises other powers which could result in the trust’s place of effective management being regarded as being located within SA. Caution therefore needs to be exercised when creating a foreign trust and the manner in which that trust is managed.

SA recently conducted a voluntary disclosure programme from 1 November 2010 31 to October 2011, whereby South African residents could regularise violations of the exchange control regulations with SARB and regularise defaults under the tax system with SARS. The Tax Administration Act contains a provision which, once that statute becomes operational, introduces a permanent voluntary disclosure programme, allowing for South African taxpayers to regularise their tax affairs where necessary.

Unfortunately, that legislation is not yet in place, and it remains to be seen when it will take effect. However, where South African residents have removed funds from SA in contravention of the exchange control regulations, and may have violated the tax laws of South Africa, they will, once the voluntary disclosure programme and the Tax Administration Act take effect, be entitled to approach the authorities to regularise their previous transgressions.

Those residents who chose to utilise the foreign investment allowance must remember that the income from the assets invested offshore remains fully taxable in SA, and must be properly disclosed for tax purposes in their tax return.

The fact that private individuals can now invest unlimited amounts offshore, means that exchange control has, for all practical purposes, largely been removed, insofar as natural persons resident in SA are concerned. It is unfortunate that South African trusts cannot currently also invest in assets located offshore.

Dr Beric Croome is a tax executive at Edward Nathan Sonnenbergs. This article first appeared in Business Day, Business Law and Tax Review (October 2012) Free image from ClipArt