1. Taxation Laws Amendment Bills, 2010 Presented by Stiaan Klue

2. General comments
First Amendment Bill

3. General Extremely short notice to prepare comment
Written submission to Committee – 4 June 2010
Final written submission to Treasury – 7 June 2010

4. Specific comments

5. Para 13(2)(b); (bA) and (c) of the Seventh Schedule
Proposed amendment:
It is proposed that the exemption for professional dues be
adjusted to more closely reflect commercial reality. Under the
exemption as revised, professional dues paid by an employer
on behalf of an employee will remain non-taxable subject to two
criteria.
Employment must involve the practice of the profession
Pre-requisite for that person to practice within the relevant profession

6. Para 13(2)(b); (bA) and (c) of the Seventh Schedule
Problem statement:
Accountants and tax practitioners are unregulated, although their
professional affiliation may be a pre-requisite of employment and
Continuing professional development.
This proposal signals the message that Government does not
support professional affiliation and practices.
SA professionals plays a significant role in the economy and
growth of the country

7. Para 13(2)(b); (bA) and (c) of the Seventh Schedule
Proposed solution:
A list must be Gazetted by the C:SARS upon careful
consideration of the different professions to guide employers.

8. Section 6(1) (zA) – Severance benefit
Problem statement:
The tax tables taxes the severance benefit. The section 23(i) prohibition does not, AND SHOULD NOT, apply to the severance benefit. The gross amount (accrued or received) in respect of these benefits can be reduced by deductions, such as retirement fund contributions or medical expenses.

9. Section 6(1) (zA) – Severance benefit (cont…)
Proposed solution:
The table should only apply to the “taxable” portion of the severance benefit.

10. New Section 10C Proposal:
The interest exemption should only be applicable to savings that
flow into the general economy and all other forms of interest are to
be taxable at marginal rates.

11. New Section 10C Problem statement:
Acknowledge the fact that loans between closely held family
companies and other connected persons have created tax
planning opportunities and distortions.
- However, many small and medium sized organisations are funded
by way of loans from individuals, who do not necessarily have an
interest (or minority interest). The proposed amendments are
unnecessarily punitive towards these individuals and will limit
growth in this sector of the economy.

12. New Section 10C Proposed solution:
We recommend that the interest exemption be revisited and
expanded to accommodate the individuals who provided funding
to small and medium sized organisations who do not have an
interest or have a minority interest in such organisations.
A connected person test could be introduced or the list of exempt
entities could be expanded to accommodate these individuals.

13. Section 7 Problem statement:
The proviso excludes lump sums. The definition of lump sum does not include severance benefits. 13

14. Section 7 (cont…) Proposed solution:
The proviso excludes lump sums. The definition of lump sum does not include severance benefits.

15. General comments
Second Amendment Bill

16. Paragraph 3 of the Seventh Schedule to the ITA
Problem statement:
- This proposed amendment is wrong and totally unnecessary.
- Vacation Club case is totally misplaced and out of context.
The premise of the Income Tax Act (in the context of Fringe benefits) is that it is the recipient (the employee) who must bear the tax on the benefit. This was never at dispute and was confirmed by the court.

17. Para 3 of the Seventh Schedule to the ITA (cont..)
Proposed solution:
The current legislation contains sufficient provisions to allow
SARS to “effectively administer employees’ tax” – refer to
paragraph 7 of the Fourth Schedule and the existing paragraph 3
of the Seventh Schedule.
What is needed is that employers and employees alike must be
given an easier access to SARS to enable them to agree on the
value of benefits in dispute and the Act must not be amended.