In terms of the Tax Administration Act, the South African Revenue Service (“SARS”) can issue Binding General Rulings (“BGR“) on matters of general interest or importance and clarifies the Commissioner’s application or interpretation of the tax law relating to these matters. BGR55 (issued on 10 September 2020) clarifies the VAT consequences of the sale of fixed property consisting of dwellings, by a developer, pursuant to such dwellings being deemed to have been supplied by the developer under section 18(1) or 18B(3) of the VAT Act.

The issue

As a result of so-called “change in use adjustments” catered for in the VAT Act, property developers that applied their fixed property for letting as a result of adverse economic factors (thus, letting the properties as opposed to selling it) became liable for an output tax adjustment where input tax was previously deducted – since they will no longer sell the buildings, but will lease it for residential purposes, which is an exempt activity from a VAT perspective.

Previously, SARS provided some temporary relief where dwellings were constructed, extended or improved for the purpose of sale; and subsequently rather used for exempt supplies, namely, supplying accommodation in a dwelling under an agreement for the letting and hiring thereof on a temporary basis. The temporary relief was initially intended to expire on 1 January 2015. However, the relief period was extended until 31 December 2017. Any dwelling that is temporarily let for the first time from 1 January 2018 will not qualify for the relief. Developers that let dwellings for the first time, in terms of an agreement entered into on or after 1 January 2018, are required to account for the output tax adjustments.

The ruling

SARS have now confirmed, in BGR55, that developers that have not accounted for the aforementioned output tax adjustments in the relevant tax periods are liable to be assessed for VAT, penalties and interest. To ensure compliance, developers are encouraged to remedy their tax affairs by means of voluntary disclosure where they have failed to make the required VAT adjustment in past tax periods.

In the current challenging economic climate, this ruling is unfortunate, and developers would have likely wanted a reintroduction of the relief previously granted. Fortunately, there has been an increased level of response from the SARS VDP unit in recent times, and taxpayers will likely be able to sort out their affairs quicker than before.

Requests for reasons for an assessment can be made on the eFiling system under the dispute section, as part of a taxpayer’s profile. When there is even the slightest uncertainty as to the reasons for an assessment, taxpayers are strongly advised to request reasons to ensure that they provide themselves with the best possible chance of success in a dispute.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

In general, all registered companies must submit corporate income tax (“CIT”) returns within 12 months of the end of the company’s financial year-end. This is applicable to all companies that are resident in South Africa, that receive source income in South Africa, or that maintain a permanent establishment or a branch in South Africa.

On 29 November 2018, the South African Revenue Service (“SARS”) issued a media release confirming that SARS will soon start imposing administrative non-compliance penalties as provided for in Chapter 15 of the Tax Administration Act[1] for outstanding CIT returns. To date, these penalties were only imposed on individuals with outstanding income tax returns.

This announcement follows a media release earlier in November 2018 which stated that SARS is once again embarking on a nationwide awareness campaign to reinforce taxpayers’ obligations to submit outstanding tax returns, specifically targeting companies.

In this regard, the fixed amount penalties in terms of section 211 of the Tax Administration Act range from R250 (where the company is in an assessed loss position) to R16,000 (in instances where the company’s taxable income exceeds R50 million) for each outstanding return. Once the penalty has been imposed, the penalty will increase by the same amount for every month that the non-compliance continues.

In order to determine the amount of the penalty to be imposed, SARS will consider the year of assessment immediately prior to the year of assessment during which the penalty is assessed.

The penalties will furthermore be imposed by way of a penalty assessment. Any unpaid penalties will be recovered by means of the debt recovery steps.

According to the media release, the administrative non-compliance penalties will be imposed for outstanding CIT returns for years of assessment ending during the 2009 and subsequent calendar years. Please note that this will also apply to dormant companies with no receipts or assets.

SARS will, however, issue the relevant company with a final demand which will grant the company 21 business days from the date of the final demand to submit the outstanding returns before the penalties will be imposed.

Companies may request remittance of the penalties imposed from SARS and have the right to lodge an objection via eFiling should the request for remittance be unsuccessful.

The takeaway is that all companies with outstanding CIT returns (whether these companies have assessed losses for those outstanding years or not) should complete and submit these returns as soon as possible in order to avoid the administrative non-compliance penalties being imposed.

[1] No. 28 of 2011

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

The unfortunate timing of BGR55 for developers

Admin penalties for outstanding corporate income tax returns