The 2020 Draft Taxation Laws Amendment Bill (TLAB) and 2020 Draft Tax Administration Laws Amendment Bill (TALAB) were published by the National Treasury and the South African Revenue Service (SARS) on 31 July 2020. These draft bills deal with the legislative amendments that were proposed on 26 February 2020 during the 2020 Budget Speech by the Minister of Finance.
In this article, we will briefly consider some of the proposed amendments in the Draft TLAB and TALAB which could have serious consequences for taxpayers.
Effective from 1 March 2021, the draft TLAB propose that if an employee is reimbursed for expenses incurred in respect of meals and other incidental costs while on a business day-trip away from the office, the reimbursement should not be taxed in the hands of the employee.
Employer provided bursaries
The Draft TLAB proposes, with effect from 1 March 2021, that employer provided bursaries to relatives of employees, may no longer be exempt from income tax unless:
Withdrawing retirement funds upon emigration
In current legislation, an individual taxpayer may withdraw their retirement funds prior to retirement upon emigration, where such emigration is recognized by the South African Reserve Bank. Since the concept of emigration will be phased out by the South African Reserve Bank, a new test is required for individuals wishing to withdraw their retirement funds when exiting South Africa.
In terms of the proposed Draft TLAB, a new test is proposed, namely, that withdrawal should only be allowed if the particular individual can prove that he or she is a tax non-resident for an uninterrupted period of three or more years. It is increasingly important that taxpayers should inform SARS of their tax residency status as the effective date thereof.
Anti-avoidance rules in respect to loans to trusts
Current tax legislation contains anti-avoidance measures to curb the tax-free transfer of assets to trusts, using low interest or interest free loans. The Draft TLAB proposes, with effect from 1 January 2021, that the subscription price of preference shares in a company owned by a trust, will be deemed to be a loan in the hands of the subscriber, which will also be subject to the current anti-avoidance rules. Additionally, it proposes that any dividends declared in respect of such preference shares, should be considered interest in respect to the deemed loan.
Anti-avoidance regarding change in residence by SA companies
In the Draft TLAB, anti-avoidance measures are also proposed to address transactions where a South African resident company changes its tax residency, followed by a share disposal by a South African tax resident: thereby abusing the participation exemption available to South African resident taxpayers disposing of shares in a foreign company under certain conditions.
The Draft TALAB also proposes that the burden of proof required by SARS to institute criminal prosecution for tax related offences be reduced by eliminating the requirement of intent from the taxpayer.
Furthermore, it proposes that SARS be allowed to issue estimate assessments where a taxpayer fails to submit relevant material after receiving more than one request from SARS.
The National Treasury and SARS allowed written comments on the Draft TLAB and TALAB until 31 August 2020, and therefore, we expect further amendments to the aforementioned proposals before the promulgation of the draft legislation.