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Utilisation of trusts as a planning tool remains under the microscope
27 February 2020 Tax & Exchange Control

Utilisation of trusts as a planning tool remains under the microscope

Historically many individuals made use of estate planning schemes through trusts, whereby taxpayers would transfer assets to a trust and the purchase price owed by the trust to the taxpayer in respect of the assets would be left outstanding as a loan, advance or credit in favour of that taxpayer on which no interest or very low interest would be charged. Alternatively, taxpayers would advance a low interest or interest-free cash loan, advance or credit to a trust in order for the trust to use the money to acquire assets.

Proposal to prevent tax avoidance through the use of loop structures
27 February 2020 Tax & Exchange Control

Proposal to prevent tax avoidance through the use of loop structures

According to the Budget, the current exchange control provisions restrict the use of loop structures, in part to protect the tax base. The current policy is that a South African resident may not collectively hold more than a 40% interest in an offshore entity, which in turn, holds interests in a South African entity or made loans to a South African company. Where an interest is held in this manner, it is known as a loop structure.

Export of dual listed securities  - Proposed income tax amendments
27 February 2020 Tax & Exchange Control

Export of dual listed securities - Proposed income tax amendments

Under South Africa’s current exchange control (Excon) rules, South African residents are required to seek approval from the South African Reserve Bank (SARB) should they wish to export a South African listed security outside of the Common Monetary Area. As a result of the proposed modernisation of South Africa’s Excon regime, discussed in the Exchange Control section of our Budget Alert, under which the SARB’s permission will no longer be required, it is proposed that such an export results in income tax consequences. Specifically, the Budget proposes that such a transfer now constitute a deemed disposal of that security for income tax purposes, with further consequences once the share is traded on the relevant foreign exchange.

Refining the taxation of real estate investment trusts (REITS)
27 February 2020 Tax & Exchange Control

Refining the taxation of real estate investment trusts (REITS)

Prior to the commencement of specific legislation regarding real estate investment trusts (REITs) on 1 April 2013, two forms of listed property investment entities existed in South Africa, namely, property loan stock companies (PLS) and property unit trusts (PUT), i.e. collective investment schemes in property. These entities were subject to different regulatory controls and tax treatment.

Contract mining and capital expenditure: Proposed amendments following the benhaus mining judgment
27 February 2020 Tax & Exchange Control

Contract mining and capital expenditure: Proposed amendments following the benhaus mining judgment

Mining by its nature requires large initial capital outlays and in recognition of this the Act provides for an accelerated deduction of such capital expenditure by miners. In Benhaus Mining (Pty) Ltd v Commissioner for the South African Revenue Service (165/2018) [2019] ZASCA 1, it was held that this special regime extended to contract miners who engage in mining operations, under a contract with the holder of a mining right, and who earn a determinable fee under such agreement. For a discussion of this case see our Alert of 12 April 2019.

Clarifying rollover relief for unbundling transactions involving non-resident shareholders
27 February 2020 Tax & Exchange Control

Clarifying rollover relief for unbundling transactions involving non-resident shareholders

Generally, as a matter of tax parity within South Africa’s corporate tax system, the distribution of an asset (including shares) by a company to its shareholders should have the same tax impact as a company sale of the asset followed by a distribution of after-tax cash proceeds. However, section 46 of the Act makes provision for rollover relief where shares of a resident company (referred to as an unbundled company) that are held by another resident company (referred to as an unbundling company) are distributed to the shareholders of that unbundling company in accordance with the effective interest of those shareholders.

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Fundraising by public benefit organisations – SARS issues binding private ruling
21 February 2020 Tax & Exchange Control

Fundraising by public benefit organisations – SARS issues binding private ruling

In the current economic climate, entities in the non-profit sector are looking for new and innovative ways to fund their operations. To the extent that an entity in the non-profit sector is an approved public benefit organisation (PBO) in terms of section 30 of the Income Tax Act 58 of 1962 (Act), such an entity must at all times comply with the provisions of section 30 to retain its PBO status.

Increased wages: a step forward
18 February 2020 Employment

Increased wages: a step forward

The National Minimum Wage Act, No. 9 of 2018 (NMWA) which came into force on 1 January 2019 was enacted within the context of advancing economic development and social justice by reducing wage inequality and protecting the lowest paid workers from exploitation by employers who pay unconscionably low wages, amongst other things. It is within this context that the amendments made in terms of the NMWA and the Basic Conditions of Employment Amendment Act, No. 75 of 1997 (BCEA) have helped contribute to the progression of the employment law legislative framework in South Africa.

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New labour legislation passed by Parliament
17 September 2018 Employment

New labour legislation passed by Parliament

Shane Johnson, Professional Support Lawyer in our from Employment practice, joined Michael Avery on Classic FM to discuss the new labour legislation that has been passed by Parliament.