Masters Degrees (School of Accountancy)

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Browsing Masters Degrees (School of Accountancy) by browse.metadata.advisor "Herron, Andrea"

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    Assessing the normal tax implications of a home swap for a resident owning property in South Africa
    (Stellenbosch : Stellenbosch University, 2017-12) Zietsman, Magdel Elizabeth; Herron, Andrea; Stellenbosch University. Faculty of Economic and Management Sciences. School of Accountancy.
    ENGLISH SUMMARY : The concept of home swapping dates to the 1960s and is therefore an established practice. Participating members exchange reciprocal rights, entitling such members to accommodation (in each other’s homes) at predetermined dates for a specific period. The rapid and prodigious strides made in technological advancement have eliminated traditional barriers to international trade. Consequently, the practice of home swaps has been highlighted as a core contributor to the sharing economy. The conventional concept of home swapping has been revised to exploit the upsurge in the current innovative business environment. Exchanges can be facilitated via points, rights or cash. The essence of such an exchange can be reduced to a short-term rental agreement, with distinction only being made to the recompense: an incorporeal non-cash benefit (points/rights) or cash. Such rights/points fall within the ambit of barter trade, which in turn finds itself within the realm of gross income. However, the South African Revenue Service does not explicitly address the normal tax treatment of the incorporeal non-cash benefit (points or a right) collected. Therefore, the average South African taxpayer, lacking tax expertise, might inadvertently contravene the Income Tax Act No. 58 of 1962 (hereafter referred to as the “ITA”). Contributing to the convolution of assessing the normal tax repercussions for home swaps is the time at which the benefits accrue, the valuation of such benefits, and the influence of cross-border transactions. The principal aim of this study was therefore to address the normal tax implications for a South African resident, in possession of property within South Africa, upon receipt or accrual of the benefit of a successful home swap. The gross income definition of the ITA, in conjunction with relevant South African case law and legislation, was evaluated to elucidate the recommended normal tax treatment for home swap transactions (hereafter referred to as “swaps”). In addition, the terms and conditions of the two most prominent international home swap programmes, Love Home Swap and Home Exchange, were analysed in the context of the aforementioned legislation and case law. The study concludes with an examination of Australian tax legislation and case law as a source of counsel from the perspective of the Australian Tax Office. Home swap benefits, regardless of the currency, were found to be indistinct items of gross income for which no exemption exists in the current ITA. The time at which a normal tax burden arises is dependent on the swap type, the order in which participants consume their benefits and the terms and conditions inherent to affiliation with specific home swap programmes. Valuation of non-cash benefits is more multifaceted than appraisal where compensation is in cash. Valuation is primarily contingent upon the time at which normal tax is levied and whether the recompense is in cash or kind. An explanatory memorandum or augmentation of the ITA with additional sections, is therefore proposed. Such an addition to the ITA will instruct taxpayers and reduce the forfeiture of tax revenues due to inadvertent non-compliance.
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    Value-added tax : a critical analysis of input tax in respect of share issue costs
    (Stellenbosch : Stellenbosch University, 2020-03) Beukes, Wilna; Herron, Andrea; Stellenbosch University. Faculty of Economic and Management Sciences. School of Accountancy.
    ENGLISH SUMMARY: The issue of shares is one of the main sources of finance used to start up or expand a business. Costs are incurred to facilitate the issue of shares in both the listed and private market. Value-added tax (VAT) is levied on the supply of these services when provided by VAT vendors, in terms of the Value-Added Tax Act (No. 89 of 1991) (hereafter referred to as the VAT Act). The South African Revenue Service’s (SARS) current policy is that input tax on share issue costs incurred is not deductible based on the judgment in Income Tax Case No. 1744 (2002) 65 SATC 154 (hereafter referred to as ITC 1744). Through reliance on earlier judgments in the Court of Justice of the European Union (CJEU), it was held in ITC 1744 that the absence of a direct and immediate link between share issue costs incurred and the making of taxable supplies precluded the taxpayer from claiming an input tax deduction. South African authors disagree on whether the direct and immediate link test relied on in ITC 1744 should be used to apply the provisions of the VAT Act. Furthermore, South African authors have suggested that there are grounds to argue that the issue of shares does not constitute a “supply” as defined in section 1(1) of the VAT Act. In terms of the New Zealand Goods and Services Tax Act, on which the VAT Act was modelled, the New Zealand Inland Revenue Department argued that input tax on share issue costs should be deductible to satisfy the broad taxation principles of neutrality, effectiveness and fairness. Despite international developments, SARS has not clarified its policy on the treatment of input tax on share issue costs incurred since ITC 1744 was heard in 2002. This research assignment therefore set out to determine whether input tax on share issue costs incurred should be deductible. A qualitative research approach was followed. Primary and secondary data were collected and analysed in the form of a desktop literature review to determine whether input tax on share issue costs incurred should be deductible. This research assignment found that the use of the direct and immediate link test relied on in ITC 1744 may not be appropriate in South Africa, and that only a direct functional link may be required by the phrase “in the course of making taxable supplies” in the input tax definition in section 1(1) of the VAT Act. It was further found that there are grounds to argue that the issue of shares does not constitute a “supply” in terms of section 1(1) of the VAT Act and that share issue costs incurred may accordingly form part of a business’ general overhead costs. Lastly, it was found that the current denial of input tax on share issue costs incurred detracts from the broad taxation principles of neutrality, effectiveness and fairness, which are fundamental to a good VAT system. The findings of this research assignment therefore suggest that input tax on share issue costs should be deductible.