CIT Changes February 2018

Transcription

1 CIT Changes February 2018

2 Introduction The items below were listed as the items that will be included in the 2017 filing season scope: Legal filing season 2017 requirements (income tax) Previously promulgated legislation not catered for in the return Non - legal changes Operational items to be done for 2017 filing season 1

3 In scope Legal filing season 2017 requirements (income tax) Section 8E & 8EA: Refinement of third-party backed shares Section 8F and Section 8FA: Cross-border hybrid debt instruments Section 11D: Research & Development Tax Incentive (Prescription rules) Paragraph (lc) of the definition of gross income in section 1: clarifying the tax treatment of government grants Section 12B: Deductions in respect of certain machinery, plant, implements, utensil and articles used in farming or production of renewable energy Section 12H: Learnership agreements Section 12U: Additional deduction in respect of roads and fences in respect of production of renewable energy Section 12I: Addressing possible administrative and technical changes in respect of Industry Policy Section 36: Providing tax relief for mining companies spending on infrastructure for the benefit of mining communities Country-by-Country (CbC) Reporting and Company Group structure 2

4 In scope Legal filing season 2017 requirements (income tax) Section 12N: Deductions in respect of improvements not owned by taxpayer Section 17A: Expenditure incurred by a lessor of land let for farming purposes, in respect of soil erosion works Section 23G Sales and leaseback arrangements Section 23I: Prohibition of deductions in respect of certain (tainted) intellectual property. Section 24I Gains or losses on foreign exchange transactions Section 24K: Adjustments in respect of Interest Rate Agreements Section 24L: Incurral and accrual of amounts in respect of option contracts Section 24M: Incurral and accrual of amounts in respect of assets acquired or disposed of for unquantified amount Section 24N: Incurral and accrual of amounts in respect of disposal or acquisition of equity shares 3

5 In scope Legal filing season 2017 requirements (income tax) Section 24P: Allowance in respect of future repairs to certain ships Section 25D: Determination of taxable income in foreign currency Section 26B: Taxation of oil and gas companies Section 40C: Distribution of shares and issue of shares or options for no consideration Section 40CA: Acquisition of assets in exchange for shares or debt issued Submission of IT10 CGT Source Codes for Long Term Insurers Tax computation changes: Additional line items. Section 13quat. 4

6 In scope Legal filing season 2017 requirements (income tax) Section 25B: REITs Dividends. Company group structure. Group of companies that prepares consolidated financial statements Wording of questions to be amended. Question on the return the company, on or after 1990, transfer, alienate or dispose of any South African developed (or previously South African registered) Intellectual Property to any non-resident connected person or any foreign branch of a South African resident? Substitutive share-for-share transactions as defined in section 43 Section 9D: Exemption of collective investment schemes in participation bonds and in securities from controlled foreign companies rules Section 9D (2A): Adjusting calculation for the high tax exemption in respect of Controlled Foreign Company (CFC s) 5

7 In scope Operational Requirements IRP5 Pre-pop and lock Pre-pop Company structure container Update to the audit plan Risk 6

8 Out of scope The digitisation of mining schedules Long Term Insurers The digitisation of IT14L IT14 SD enhancements IT48 & IT48V Schedules for farmers on the ITR14 form Schedule C for mining companies ITA34C SEZ codes table s6quat enhancement Custom code Pre-pop company group structure container Pre-pop of allowances SSM Refresh button 7

9 Simple name changes: No rules apply The following field names were changed. The changes only affect the name of the fields, and not the underlying rules. The changes also apply to all years of assessment. 8

10 Names changes: Rules apply The following name change needs to be implemented as follows: 9

11 Wizard Group of Companies It is imperative that SARS obtain a view of company group structures. It is proposed that a number of questions are included in the ITR14 which will allow SARS to obtain this view, e.g. Is the company a subsidiary of a group of companies as defined in s1, Income Tax Reference number of the ultimate holding company, the number of subsidiaries in the group and the income tax reference number of each subsidiary in the group etc. A separate container will be required for companies that are part of a group. Previously the question will only have displayed for Medium to Large companies, but it was moved to also display for Small companies. It will, from the 2017 tax period and onwards, display for Small and Medium to Large. Please note that the functionality of the question remains exactly the same, and it should still open the Company Structure container. 10

12 Company structure This sub container which forms part of the Company Structure container becomes visible If the answer is Yes to the wizard question Is the company part of a group of companies that prepares consolidated financial statements? and also if YOA is 2017 and onward. 11

13 Wizard Multinational Enterprise (MNE) Corporates and connected persons such as groups of companies, trusts, partnerships or natural persons and Multi-National Entities (MNEs) present some complex compliance risks. To close the gaps and address the mismatches between the tax systems of multiple countries the Base Erosion and Profit Shifting (BEPS) Action Plan was adopted by the OECD and G20 countries, including South Africa, in The OECD / G20 BEPS project provided the ambit for the development of Country-by-Country (CbC) reporting. CbC reporting requires MNE Groups to report on their operations in every country that they operate in. These reports will enable revenue authorities to assess transfer pricing risks and other BEPS related risks with respect to the MNE Groups operating in their countries. On 23 December 2016 regulations specifying the changes to the CbC Reporting Standard for MNE Groups specifically required for South Africa s circumstances, were published under the Tax Administration Act, The South African CbC Regulations were closely modelled on the legislation related to CbC reporting published in the BEPS Action 13 (2015) Final Report. In addition a public notice under section 25 of the Tax Administration Act requires the filing of the CbC Reports, master files and/or local files. SARS will be able to receive and exchange information provided in the CbC Reports, master files and/or local files with other jurisdictions. 12

14 Company information (Small, Medium to Large) Multinational Enterprise (MNE) From the 2017 YOA if the answer is Yes display the new container multinational Entity(MNE) details Drop down Box Effective date: 2017 YOA 13

15 Controlled Foreign Company If YOA is 2017 and onward display question Does the company directly or indirectly hold more than 10% of the total participation rights or voting rights in a Controlled Foreign Company (s9d)? Else if YOA is 2016 or prior, the question becomes Does the company directly or indirectly hold more than 10% of the total participation rights or voting rights in a Controlled Foreign Company (s9d)? If Yes, complete the applicable schedule (IT10) (refer to guide) If YOA is 2017 and onward and the answer is Yes to the question Does the company directly or indirectly hold more than 10% of the total participation rights or voting rights in a Controlled Foreign Company (s9d)? the following two sub questions become visible: Please confirm that the applicable schedule (IT10) has been completed and will be attached as a supporting document to this return (refer to guide). Specify the number of Controlled Foreign Companies Else if YOA is 2016 or prior and the answer is Yes to the question Does the company directly or indirectly hold more than 10% of the total participation rights or voting rights in a Controlled Foreign Company (s9d)? If Yes, complete the applicable schedule (IT10) (refer to guide) do not display the two sub-question mentioned above 14

16 Additional Assessment information Oil and Gas Company If YOA 2017 and onwards, this field should be displayed and becomes mandatory. Else if YOA is prior 2017, this field should be hidden If the answer is Yes to the question Is the company an Oil and Gas Company as defined in the 10th Schedule? then display sub-question Does a different tax rate apply to the Oil and Gas company and/or any right(s) held by that company? If the answer is Yes to the question Does a different tax rate apply to the Oil and Gas company and/or any right(s) held by that company? then route the assessment to Manual Assessment. There are 2 rates of Dividends Tax, 0% and 20% for oil and gas company. The zero applies where the dividend is paid out of amounts attributable to oil and gas income if all the company's oil and gas rights are solely derived by virtue of an OP26 right previously held by the company. 15

17 Section 8E & 8EA: Refinement of third-party backed shares Section 8E as well as Section 8EA have been extended to include any right or interest where the value of that right or interest is directly or indirectly determined with reference to a share or an amount derived from a share. The effect of the amendment is that dividends received by or accrued to persons i.r.o. those equity instruments are deemed to be income. Form Change(s): ITR14 add a line item in the Income Statement of all companies: Dividends (local and foreign) deemed to be income (s8e and S8EA) Effective date: 1 January 2017 year of assessment ending on or after that date (2017 YOA Onwards). 16

18 Section 8F and Section 8FA: Cross-border hybrid debt instruments The anti-avoidance rules contained in sections 8F and 8FA which currently apply to both residents and non-residents, effectively reclassify debt instruments issued by a company as equity if the terms of the instrument or the basis for the calculation of the yield contain certain equity-like features. If these rules apply, the interest is reclassified as a dividend in specie and the issuer is denied the interest deduction. The issuer also becomes liable for withholding tax at 20% in respect of the dividend in specie. Currently, in the case of a non-resident issuer, if these hybrid debt rules apply and the interest is reclassified as a dividend, the non-resident issuer will not be denied the interest deduction and the resident holder will be deemed to have received a dividend which is exempt from tax. The nonresident issuer will in this case only be subject to dividends withholding tax at 20%. Treasury is of the view that transactions involving non-residents are intentionally made to include equity features in their debts instruments as a mechanism of taking advantage of the reclassification feature of these anti-avoidance rules. Sections 8F and 8FA should only apply to any form of interest-bearing arrangement or debt that is issued by: A company that is a resident A company that is not a resident if the interest incurred in respect of that instrument is attributable to a permanent Establishment of that company in South Africa, or A company that is a controlled foreign company if the interest incurred in respect of that instrument must be taken into account in determining the net income of that controlled foreign company as contemplated in section 9D. 17

19 Section 8F and Section 8FA: Cross-border hybrid debt instruments Form Change(s): ITR14 - add 3 line items applicable to Small and Medium to Large companies. Income Statement: Income Items: Amounts deemed to be dividends in specie (s8f or s8fa) Tax Computation: Non-Taxable Amounts Credited to the Income Statement: Amounts deemed to be dividends in specie in terms of s8f and s8fa. Tax Computation: Non- Deductible Amounts Debited to the Income Statement: Amounts deemed to be dividends in specie in terms of s8f and s8fa. Validation to be added to ITR14 that if the company has indicated that it is a SBC, the 2 line items listed above must not display in the tax computation. Effective date: 2017 YOA onwards 18

20 Paragraph (1C) of the definition of gross income in section 1: clarifying the tax treatment of government grants Government grants will now be included under the definition of gross income and taxed accordingly. If any grant is excluded from tax it must be in terms of the special exemption under Section 12P read together with the 7th Schedule of the Act. Form Change(s): Add Line item under income statement Government grants (National, Provincial and Local). All companies from 2017 YOA Additional line item in the Tax Computation: Adjustments: Allowable for Micro companies to allow an exemption in terms of section 12P to display as from 2017 YOA. Exempt income received or accrued in respect of government grants (s12p) Form Validation Can t claim s12p if no gross income is declared. 19

21 Section 12B: Deductions in respect of certain machinery, plant, implements, utensil and articles used in farming or production of renewable energy This incentive provides for a capital allowance for movable assets used in the production of renewable energy. It allows for a deduction at the rate of 50, 30, and 20 per cent over three years in respect of any machinery, plant, implement, utensil or article owned by the taxpayer. Form Change(s): ITR14 To measure the success or failure of this provision it is proposed that the allowance in respect of s12b currently captured on field Machinery, plant, implements, utensils and articles deduction (s12b) be split into 4 line items: Machinery, plant, implements, utensils and articles deduction (s12b) excluding solar energy Machinery, plant, implements, utensils and articles deduction (s12b) - Photovoltaic solar energy of more than 1 megawatt Machinery, plant, implements, utensils and articles deduction (s12b) - Photovoltaic solar energy not exceeding 1 megawatt Machinery, plant, implements, utensils and articles deduction (s12b) - Concentrated solar energy The new fields listed above must only display on the ITR14 from 2017 YOA onwards. The field Machinery, plant, implements, utensils and articles deduction (s12b) must display for YOA 2016 and prior. 20

22 Section 12H: Learnership agreements This incentive was supposed to come to an end on the 01 October 2016 however it has now been extended until 31 March Higher value incentive for learners without basic to intermediate qualifications has been introduced. National Treasury wants more information from SARS on this incentive and the process is under way. It also proposes higher value incentive for learners without basic to intermediate qualifications. The proposed learnership tax incentive also introduced the following deduction amounts per registered learnership contract based on the level descriptors as specified in the National Qualifications Framework Act, 2008: Persons without disability: NQF 1-6 = R NQF 7 10 = R Persons with disability: NQF 1-6 = R NQF 7-10 = R The intention is to also make reporting compulsory for claimants of this incentive. National Treasury and SARS are currently in discussions to identify the most appropriate mechanism to collect more information on claims and learners. 21

23 Section 12H: Learnership agreements In the Tax computation for Small and Medium to Large companies Learnership allowance must be changed as follows The current 4 fields on the return must be retained for all YOA, but the wording must be changed to include i.r.o. agreements entered into before 1 October New Field: Learnership Allowance: Agreements in effect / completed in current year (agreements entered into on or after 1 October 2016): s12h Learnership Allowance schedule required. Only 1 schedule per return must be created. Applicable from 2016 year of assessment onwards. If the field name Learnership Allowance: Agreements in effect / completed in current year (agreements entered into on or after 1 October 2016): s12h is completed, a new schedule Calculation of the qualifying s12h learnership allowance for this year of assessment in respect of agreements entered into on or after 1 October 2016 must be completed. The schedule is mandatory and must provide for the following 3 columns: Learnership agreements registered / in effect No. of learners Allowance(s) calculated 22

24 Section 12H: Learnership agreements The learnership agreements container (s12h) must only display if a value greater than R0 is entered in the new field Learnership Allowance: Agreements in effect / completed in current year (agreements entered into on or after 1 October 2016): s12h in the Tax Computation for Small and Medium to Large Companies. At least one row in the schedule must be completed. If one field in one row is completed, then all fields for the specific row are mandatory. The total of the schedule must be equal to the Learnership Allowance: Agreements in effect / completed in current year (agreements entered into on or after 1 October 2016): s12h in the return. An error message must be displayed to the taxpayer if the total of the schedule is not equal to the field Learnership Allowance: Agreements in effect / completed in current year (agreements entered into on or after 1 October 2016): s12h in the Tax Computation for Small and Medium to Large Business. 23

25 Section 12H: Learnership agreements Form Validations: The learnership agreements container (s12h) must only display if a value greater than R0 is entered in the new field Learnership Allowance: Agreements in effect / completed in current year (agreements entered into on or after 1 October 2016): s12h in the Tax Computation for Small and Medium to Large Companies. At least one row in the schedule must be completed. If one field in one row is completed, then all fields for the specific row are mandatory. The total of the schedule must be equal to the Learnership Allowance: Agreements in effect / completed in current year (agreements entered into on or after 1 October 2016): s12h in the return. An error message must be displayed to the taxpayer if the total of the schedule is not equal to the field Learnership Allowance: Agreements in effect / completed in current year (agreements entered into on or after 1 October 2016): s12h in the Tax Computation for Small and Medium to Large Business. Error Message: The amount completed does not seem to be correct. Hint: The amount does not correspond to the allowance claimed 24

26 Section 12H: Learnership agreements 25

27 Section 12U: Additional deduction in respect of roads and fences in respect of production of renewable energy There must be allowed to be deducted by a person any amount actually incurred in respect of the supporting capital infrastructure in the form of capital expenditure actually incurred on roads and security fences for large scale renewable energy projects. Renewable energy projects qualifying for deductions: Only those large scale renewable energy projects that generate electricity exceeding 5MW will qualify. Should the renewable energy production supporting capital infrastructure expense be incurred pre-commencement of trade, they will be allowed to claim section 11A pre-trade expenditure as a deduction. Any supporting infrastructure capital expenditure that exceeds the income in any year of assessment to be ring fenced to the specific trade of the production of renewable energy. If the allowable supporting infrastructure capital expenditure that exceeds the taxable income to the specific trade of the production of renewable energy in any year of assessment be rolled-over as an allowable capital expenditure during the next succeeding year of assessment against income specific to the trade of the production of renewable energy. 26

28 Section 12U: Additional deduction in respect of roads and fences in respect of production of renewable energy Add new line item in the Tax Computation section for Small, Medium to Large companies, Debit adjustments - Special Allowances Not Claimed in the Income Statement: Deduction in respect of roads and fences in respect of production of renewable energy (s12u) Effective date: 2017 YOA 27

29 Section 12I: Addressing possible administrative and technical changes in respect of Industry Policy This incentive allows taxpayers an additional investment and training allowance in respect of industrial policy projects provided that the projects meet certain criteria prescribed by way of regulation. The current provisions of section 12I (12) only envisages the withdrawal of project approval when the company fails to comply with any requirements as set on approval. It however, does not account for the situation where the project was initially approved on preferred status, but the project status subsequently changes and becomes a qualifying status project by the end of the compliance period. Section 12I has been amended to enable SARS to recoup the difference in allowance claimed in respect of a project which was approved as a preferred status but changes to a qualifying status by the end of the compliance period. 28

30 Section 12I: Addressing possible administrative and technical changes in respect of Industry Policy Form Change(s) Tax Allowances/Limitations section of the ITR14: Add a question: Was an allowance claimed in respect of an industrial policy project in any previous year of assessment? If Yes, the following sub-question must be displayed: Did the status of the project change from preferred to qualifying during the current year of assessment (s12i)? If Yes then the following new field Industrial policy projects (s12i) in the Recoupment of Allowances / Expenses previously claimed section of the Tax Computation for Small and Medium to Large Business must be mandatory for completion (value greater than R0 must be captured). If No, then the following new field Industrial policy projects (s12i) in the Recoupment of Allowances / Expenses previously claimed section of the Tax Computation for Small and Medium to Large Business must be greyed out. If No, the following sub-question must not be displayed: Did the status of the project change from preferred to qualifying during the current year of assessment (s12i)? Effective date: 2017 YOA 29

31 Section 36: Providing tax relief for mining companies spending on infrastructure for the benefit of mining communities Currently in terms of section 36 (11) the mining companies can only deduct capital expenditure if it relates directly to its employees, not the wider community. If a mining company builds a clinic for its employees the company is allowed a deduction for capital expenditure however if the company builds the clinic for the community it is denied the capital expenditure deduction. The law has now been amended to extend the current relief provided to mining companies for capital expenditure incurred in respect of infrastructure for the benefit of employees to capital expenditure incurred by mining companies on infrastructure for the benefit of the people living in mining communities. Update the mining schedule B with two new allowances pertaining to infrastructure expenses for the benefit of mining communities. Two line items to be added in Schedule B under Current year expenditure incurred : Section 36(11)(e) allowance Allow the mining company a deduction in respect of requirements on expenditure to be incurred in order to obtain a mining licence. Section 36(11)(f) allowance - The same as the benefits provided for in section 13sept, but the reason for a separate section is that mining has been kept separate because the deduction needs to be part of the capital expenditure rules associated with mining. 30

32 Section 12N: Deductions in respect of improvements not owned by taxpayer Section 12N allows for private parties to a PPP to claim deductions in respect of improvements effected on land or buildings owned by Government, even though the private party only has a right of use or occupation of the land. Form Change(s): In the Additional Assessment information container of the ITR14, the following new question must be added from 2017 YOA onwards: Is the company carrying on banking, financial services or insurance business? If the answer to the question above is Yes, then the field Improvements not owned by the company (s12n) must not be available in the dropdown list for Small and Medium to Large Business in the Tax Computation - Special Allowances Not Claimed in the Income Statement 31

33 Section 17A Where a lessee uses land for bona fide pastoral, agricultural or other farming operations which are carried on during any year of assessment, the lessor is entitled to the deduction of any expenditure incurred by him during such year in respect of the construction of soil erosion works. The amount deductible may not exceed the taxable income (before the deduction) from the letting of land on which such operations are carried on. The limitation in respect of expenditure incurred by a lessor of land let for farming purposes, in respect of soil erosion works must be catered for on the ITR14 for control and monitoring purposes. Add line item in Income Statement: Expenses section for Small Business and Medium to Large Business: Expenditure incurred by a lessor of land let for farming purposes in respect of soil erosion (s17a) Add line item in Tax Computation: Credit Adjustments: Non-Deductible Amounts Debited to the Income Statement for Small and medium to large companies: Limitation of expenditure incurred by a lessor of land let for farming purposes in respect of soil erosion (s17a) Add question in Tax Allowances / Limitations section: Confirm that a certificate was obtained by the company in terms of the Conservation of Agricultural Resources Act, 1983 (s17a)? 32

34 Section 17A If the company claims an expense in the Income Statement greater than R0 for the field Expenditure incurred by a lessor of land let for farming purposes in respect of soil erosion (s17a), then the field Confirm that a certificate was obtained by the company in terms of the Conservation of Agricultural Resources Act, 1983 (s17a)? in the Tax Allowances / Limitations section must become mandatory for completion. If the company representative answers No to this question, then the field Expenditure incurred by a lessor of land let for farming purposes in respect of soil erosion (s17a) in the Income Statement must be cleared and locked. Effective date: 2017 YOA 33

35 Section 23G Sales and leaseback arrangements This is an arrangement under which one person directly or indirectly disposes of an asset to a second person and then directly or indirectly hires that asset from the second person, or under which the first person s connected person. When the lessee s or the sub lessee's receipts or accruals do not constitute income, for example, it is an exempt institution such as a pension fund: The amount regarded as being derived by the lessor will be limited to the interest component of the actual amount the lessor derived but not if, during the tax year, the lessor is also a lessee under the same sale and lease-back arrangement. In addition, the lessor is debarred from claiming the following allowances on the asset: the ordinary depreciation allowance; the allowance for premiums paid on leasehold property; the allowance for patents and similar property; what remains of 50/30/20 depreciation; the 20% or 33,33% straight-line depreciation allowance; the allowance for rolling stock; the allowance on industrial or other qualifying buildings and the allowance for commercial buildings. When the lessor s receipts or accruals do not constitute income: The lessee s or sub lessee's deductions will be limited to the interest component of the actual amount the lessee or sub lessee paid. But when what is involved is a premium paid on leasehold property, the rules governing the allowance for such a premium take precedence. (The result intended is unclear). New line item to be added from 2017 YOA in Tax Computation for Small, Medium to Large Business - Non-Deductible Amounts Debited to the Income Statement in correct order (according to sections of the Income Tax Act): Amounts in respect of assets subject to a sale and leaseback arrangement (s23g) 34

36 Section 23I: Prohibition of deductions in respect of certain (tainted) intellectual property. Expenditure (typically royalties) paid for the use of certain intellectual property is not allowed as a deduction in certain circumstances. Broadly, the section seeks to disallow as a deduction expenditure incurred for the use of certain intellectual property, where: the intellectual property was previously owned by a South African entity and transferred to a non South African entity; or was developed in South Africa. New line item to be added from 2017 YOA in Tax Computation for Small, Medium to Large Business - Non-Deductible Amounts Debited to the Income Statement in correct order (according to sections of the Income Tax Act) : Amounts in respect of certain (tainted) intellectual property (s23i) 35

37 Section 24I Gains or losses on foreign exchange transactions Gains or losses on foreign exchange transactions: Inclusion in taxable income of gains or losses made in respect of "exchange items", whether realised or not, and whether capital or revenue in nature Form Change(s): In the Income Statement container for Medium to Large Business, remove the s24i reference from the fields Foreign exchange gain (income items) and Foreign exchange loss (expense items). The label change is for all years of assessment. Add new fields to the tax computation for small and medium to large business: Both debit and credit adjustments for all years for Original assessments. Non-taxable amounts credited to the Income Statement: Foreign exchange gain adjustment (S24I) Non-deductible amounts debited to the income statement: Foreign exchange loss adjustment (S24I) 36

38 Section 24K: Adjustments in respect of Interest Rate Agreements Incurral and accrual of amounts in respect of interest rate agreements: Amounts incurred by or accrued to a person i.t.o. interest rate agreement deemed to be incurred/accrued on a day to day basis during the period i.r.o which it is calculated. Form Change(s): Add debit and credit adjustments for s24k in the Tax Computation for Small, Medium to Large companies: Debit Adjustment: Special Allowances Not Claimed in the Income Statement: Incurral of amounts in respect of interest rate agreements (s24k) Credit Adjustment: Amounts not Credited to the Income Statement: Accrual of amounts in respect of interest rate agreements (s24k) Effective date: 2017 YOA 37

39 Section 24L: Incurral and accrual of amounts in respect of option contracts Incurral and accrual of amounts in respect of option contracts: Amounts incurred by or accrued to a person i.t.o an option contract deemed to be incurred / accrued on a day to day basis during the term of the option contract Form Change(s): Add debit and credit adjustments for s24l in the Tax Computation for Small, Medium to Large companies: Debit Adjustment: Special Allowances Not Claimed in the Income Statement: Incurral of amounts in respect of option contracts (s24l) Credit Adjustment: Amounts not Credited to the Income Statement: Accrual of amounts in respect of option contracts (s24l) Effective date: 2017 YOA 38

40 Section 24M: Incurral and accrual of amounts in respect of assets acquired or disposed of for unquantified amount Incurral and accrual of amounts in respect of assets acquired or disposed of for unquantified amount. Form Change(s): Add debit and credit adjustments for s24m in the Tax Computation for Small, Medium to Large companies: Debit Adjustment: Special Allowances Not Claimed in the Income Statement: Incurral of amounts in respect of assets acquired for unquantified amount (s24m) Credit Adjustment: Amounts not Credited to the Income Statement: Accrual of amounts in respect of assets disposed of for unquantified amount (s24m) Effective date: 2017 YOA 39

41 Section 24N: Incurral and accrual of amounts in respect of disposal or acquisition of equity shares Incurral and accrual of amounts in respect of disposal or acquisition of equity shares: Disposal of equity shares (under specified circumstances) for an amount which is quantified/quantifiable, but not yet due and payable: 1.) deemed not to have accrued to seller; 2.) subsequent year paid or becomes payable then deemed to have been incurred by seller. Form Change(s): Add debit and credit adjustments for s24n in the Tax Computation for Small, Medium to Large companies: Debit Adjustment: Special Allowances Not Claimed in the Income Statement: Incurral of amounts in respect of acquisition of equity shares (s24n) Credit Adjustment: Amounts not Credited to the Income Statement: Accrual of amounts in respect of disposal of equity shares (s24n) Effective date: 2017 YOA 40

42 Section 24P: Allowance in respect of future repairs to certain ships Allowance in respect of future repairs to certain ships: Repairs to a ship in future (5 years) Form Change(s): Add debit and credit adjustments for s24p in the Tax Computation for Small, Medium to Large companies: Debit Adjustment: Special Allowances Not Claimed in the Income Statement: Allowance in respect of future repairs to certain ships (s24p) Credit Adjustment: Allowances / Deductions Granted in Previous Years of Assessment and now Reversed: Allowance in respect of future repairs to certain ships (s24p) Effective date: 2017 YOA 41

43 Section 25D: Determination of taxable income in foreign currency Determination of taxable income in foreign currency: Where amounts are received/accrued or expenditure/loss is incurred in a currency other than Rands - translated into Rands at spot rate on day received/accrued/incurred. Add debit and credit adjustment in terms of s25d in the Tax Computation for Small, Medium to Large companies. Credit adjustments: Amounts not credited to the income statement Foreign currency translation adjustment (s25d) Debit adjustments: Non-Taxable Amounts credited to the Income Statement Foreign currency translation adjustment (s25d) Effective date: 2017 YOA 42

44 Section 26B: Taxation of oil and gas companies In terms of s26 of the Income Tax Act, No 58 of 1962 (Act) the taxable income of an oil and gas company must be determined in accordance with the provisions of the Act, but subject to the provisions of the Tenth Schedule to the Act (Tenth Schedule). In terms of paragraph 8 of the Tenth Schedule, the Minister of Finance may enter into a binding agreement (referred to as a 'fiscal stability agreement') with a company in respect of an oil and gas right held by it. The purpose and the effect of such an agreement are to guarantee that the provisions of the Tenth Schedule (as at the date on which the agreement was concluded) will apply in respect of that right as long as the right is held by the taxpayer. Put differently, in terms of such an agreement, the Minister and the company agree that the fiscus will not change the tax rates or rules of the Tenth Schedule for the duration of the agreement Form Change(s): Add a new question in the Additional Assessment Information container "Is the company an Oil and Gas Company as defined in the 10th schedule?" If Yes, add a question, Does a different tax rate apply to the Oil and Gas Company and or any right(s) held by that company? If Yes route for manual assessment on ITS, If No process as normal If No process as normal Effective date: 2017 YOA 43

45 Section 40C: Distribution of shares and issue of shares or options for no consideration Distribution of shares and issue of shares or options for no consideration: Share/option issued/distributed for no consideration - acquirer cannot claim expenses actually incurred to acquire Form Change(s): Add credit adjustment in terms of s40c in the Tax Computation for Small, Medium to Large companies. Credit adjustments: Non-Deductible Amounts Debited to the Income Statement Expenditure attributable to the issue of shares or granting of options or rights for no consideration (s40c) Effective date: 2017 YOA 44

46 Section 40CA: Acquisition of assets in exchange for shares or debt issue Where a company acquires an asset in exchange for the issue of shares/debt - deemed to have actually incurred an amount equal to market value of asset/debt. Form Change(s): Add debit adjustment in terms of s40ca in the Tax Computation for Small, Medium to Large companies. Debit adjustments: Special Allowances Not Claimed in the Income Statement Deduction for assets acquired in exchange for shares or debt issued (s40ca) Effective date: 2017 YOA 45

47 Legal Filling season 2017 requirements CGT codes for long-term insurance ITS must make provision for the following CGT codes to be captured effective from 2016 YOA onwards CAPITAL GAINS TAX - PROFIT (IPF) 4261 LOSS-CAPITAL GAINS TAX (IPF) 4262 CAPITAL GAINS TAX - PROFIT (UPF) 4263 LOSS-CAPITAL GAINS TAX (UPF) 4264 CAPITAL GAINS TAX - PROFIT (CPF) 4265 LOSS-CAPITAL GAINS TAX(CPF) 4266 CAPITAL GAINS TAX - PROFIT(CF) 4267 LOSS-CAPITAL GAINS TAX(CF) 4268 FOREIGN CAPITAL GAINS TAX - PROFIT (IPF) 4269 FOREIGN LOSS-CAPITAL GAINS TAX (IPF) 4270 FOREIGN CAPITAL GAINS TAX - PROFIT (UPF) 4271 FOREIGN LOSS-CAPITAL GAINS TAX (UPF) 4272 FOREIGN CAPITAL GAINS TAX - PROFIT (CPF) 4273 FOREIGN LOSS-CAPITAL GAINS TAX(CPF) 4274 FOREIGN CAPITAL GAINS TAX - PROFIT(CF) 4275 FOREIGN LOSS-CAPITAL GAINS TAX(CF) 4294 CAPITAL GAINS TAX PROFIT (RPF) 4295 CAPITAL GAINS TAX LOSS (RPF) 4296 FOREIGN CAPITAL GAINS TAX PROFIT (RPF) 4297 FOREIGN CAPITAL GAINS TAX LOSS (RPF) 46

48 Legal Filling season 2017 requirements Tax computation changes: Additional line items Mineral and Petroleum Resources Royalties The income statement on ITR14 provides for a line item for payments in respect of the Mineral and Petroleum Resources Royalties. In most cases this amount differs from the actual payments made in respect of the year of assessment. A tax adjustment needs to be made to bring the amount to be claimed for tax in line with the actual payments made for the particular year of assessment. Form Change(s): Add new fields to the tax computation for small and medium to large business: Both debit and credit adjustments. Non-taxable amounts credited to the Income Statement: Mineral and Petroleum Resources Royalty adjustment. Non-deductible amounts debited to the income statement: Mineral and Petroleum Resources Royalty adjustment. 47

49 Legal Filling season 2017 requirements New line items in tax computation A line to be added in the tax computation of the ITR14 under the heading Special Allowance not Claimed in the Income Statement, namely Redemption allowance (Mining operation) (s15(a)). A new line item to be added in the tax computation of the ITR14 under the heading, Recoupment of Allowances / Expenses Previously granted, namely Recoupment of Capital Expenditure (par (j) definition Gross income s1) Add a new line item in the tax computation for Small and Medium to Large business of the ITR14 under the heading Special Allowances Not claimed in the Income Statement, Cash Contributions to Rehabilitation Trust Fund (s37a). 48

50 Legal Filling season 2017 requirements Section 13quat Warning message for all YOA: On selection of Y to the question Did the company purchase the building or part thereof from a developer? in the container Urban Development Zone (s13quat), display the following warning message Please note that the developer and the company cannot both claim the s13quat allowance. The following fields must be reworded for YOA 2016 and prior in the debit adjustment (Special Allowances Not Claimed in the Income Statement) in the Tax Computation section for Small, Medium to Large companies. These 2 fields must not display from 2017 YOA onwards. UDZ (s13quat) - erection of a new building this year: Reword to UDZ (s13quat) - erection of new buildings and/or extensions or additions to any existing buildings UDZ (s13quat) - improvements this year: Reword to UDZ (s13quat) - Improvements to existing buildings From 2017 YOA onwards the following new fields must display in the Tax Computation section for Small, Medium to Large companies. Debit adjustments: Special Allowances Not Claimed in the Income Statement UDZ (s13quat) - erection of new buildings and/or extensions or additions to any existing buildings (excl. low cost residential units) UDZ (s13quat) improvements to existing buildings (excl. low cost residential units) UDZ (s13quat) - erection of new buildings and/or extensions or additions to any existing buildings (low cost residential units) UDZ (s13quat) improvements to existing buildings (low cost residential units) 49

51 Operational Requirements IRP5 Pre-pop and lock On the 2016 CIT filing release there were following requirements. Form: CSE: Where the number of prepopulated IRP5 is more than 19, the 20th IRP5 container must not be locked, even if it is prepopulated. CSE must limit the number of prepopulated IRP5 data to 19 certificates and consolidate the ones in excess on the 20th one. Currently in production the consolidated occurrence is also sorted with the rest of the PAYE credits and locked when it is not the last 20th one. Enhancement: The consolidated occurrence must not be sorted and must be last one. CSE must provide the pre-pop values of the PAYE Credits from highest to the lowest PAYE Credit Amount. 50

52 Operational Requirements PBO validation on the return PBO validation on the return The form auto calculates the amount on source code 4011 if less than 10 number of PBO captured on the Wizard and lock the field. When more than 10 PBOs is captured on the Wizard, the form should expect a value more than the total amount of the 10 pre-populated on the 4011 field. If the value is not more than the total amount of the 10 prepopulated, display a message Please make sure the Total amount on the 4011 field is greater than the sum of 10 PBO captured to user and the user must not be allowed to continue if not corrected. 51

53 Operational Requirements Number of Source Codes for Returns and Assessment ITS Returns and Assessment must be changed to cater for sufficient number (100) of Income, Allowances, Deductions and Tax credit source codes across all tax types. 52

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