Valerie Mmanthe Mampshika,[Bachelor of Arts in Psychology and English].
SARS is will be making two changes that taxpayers should be informed about.
The South African Revenue Service (SARS) has announced its intention to withdraw two practice notes, which carry implications for taxpayers.
The first withdrawal is for Practice Note 31(PN 31), is related to the interest paid on borrowed money.
In South African tax law, taxpayers are entitled to deductions in interest paid where that interest is incurred in the production of income through a venture or a trade. In simpler terms, lending money to conduct business and make money.
Through the PN31, SARS generally permits the deduction of expenditure incurred in the production of income,although the receipt or proof of the income does not constitute the continuation of trade.
Nonetheless, SARS has noted a rising trend of the first mentioned provision being abused to acquire and increase this deduction without the ‘profit-making’ part being visible in the taxpayer’s gross income.
SARS stated that there has been the concession provided for in PN31 has been overused and taxpayers latterly rely on the PN as a tool to structure transactions or undertake transactions in order for them to obtain the deduction of interest or the expenditure which occured, and that can only be permitted as a deduction under the Income Tax Act 58 of 1962.
As the tax legislation has grown over the years, it had resulted certain income streams to interest being reclassified,furthermore it has allowed taxpayers the deduction under the PN against the reclassified income.
If implemented, the withdrawal may impact taxpayers who rely, on the provisions of PN31 when claiming interest deductions.
The second change from SARS is the withdrawal is Practice Note 37(PN 37)of 1995, which is linked to the deduction of fees paid to accountants, bookkeepers and tax consultants for the completing of income tax returns.
Under this provision latterly, any taxpayer whose income comprises of remuneration or interest and dividends being entitled to a tax deduction for fees paid to accountants, bookkeepers, tax consultants and other professional companies or institutions for completing their tax returns as instructed by SARS.
In any way, because of changes to technology and the way the tax industry works, the note is not necessary.
Therefore, PN37, in its current form, does not incorporate the requirements of the Tax Administration Act.
Also,the attempt of modernising the e-filing system has also made the process of submitting tax returns much easier, and assistance is provided to taxpayers either in person or electronically by SARS.
As with PN31, the withdrawal of PN37 is expected to take place from March 2023. SARS has invited comment on the withdrawal through to 15 December 2022.