Category: SARS (3)

currency_pexels-photo-315788.width-800Have you joined, or been tempted to join in, the “Bitcoin frenzy”? If so, read on.

Bitcoin and Ethereum are probably the best known of the cryptocurrencies, but (as at 10 April 2018) there were over 1,565 of them, and that number is growing.

Whether Bitcoin and its cousins are good investments is a matter for you and your financial advisers to puzzle over but let’s have a look at a few legal aspects –

Expect grey areas and big changes

Governments, Tax Authorities, and Central Banks around the world are struggling to get to grips with cryptocurrencies and how to treat them. Some countries allow them; some have banned or restricted them. Expect ongoing uncertainty and a lot of future change in these official positions, including attempts to regulate alternative currencies in general.

Are cryptocurrencies legal?

The short answer seems to be yes, there’s nothing to stop you buying, holding, using or selling them. The Reserve Bank’s official position is that they can be traded and used as “a medium of exchange, a unit of account and/or a store of value”, but they aren’t “legal tender” (“bank notes and coins in RSA which can be legally offered in payment of an obligation and that a creditor is obliged to accept”). What that means is that Joe Plumber is free to accept payment from you in Bitcoin if he wants to. He just can’t insist on it, nor can you.

SARS’ view (see “Income Tax and VAT” below) is probably going to be your greater area of concern for the moment.

What if you need help from a court?

The Reserve Bank warns that you acquire cryptocurrencies at your own risk and that you “have no recourse to South African authorities”.

What that means in practice remains to be seen (would SAPS really refuse to investigate a theft of Bitcoin?), and whilst there is no precedent to confirm that our courts will indeed help you if you have to sue over, for example, a Bitcoin transaction gone wrong, the majority view seems to be that they will.

Must you pay Income Tax and register for VAT?

From the horse’s mouth so to speak, this is some of what SARS says (all highlighting is ours) –

  • It will “continue to apply normal income tax rules to cryptocurrencies and will expect affected taxpayers to declare cryptocurrency gains or losses as part of their taxable income.”
  • “The onus is on taxpayers to declare all cryptocurrency-related taxable income in the tax year in which it is received or accrued. Failure to do so could result in interest and penalties.”
  • “…cryptocurrencies are not regarded by SARS as a currency for income tax purposes or Capital Gains Tax (CGT). Instead, cryptocurrencies are regarded by SARS as assets of an intangible nature.”
  • “Determination of whether an accrual or receipt is revenue or capital in nature is tested under existing jurisprudence (of which there is no shortage).”
  • “Taxpayers are also entitled to claim expenses associated with cryptocurrency accruals or receipts, provided such expenditure is incurred in the production of the taxpayer’s income and for purposes of trade. Base cost adjustments can also be made if falling within the CGT paradigm.”
  • “…VAT treatment of cryptocurrencies will be reviewed. Pending policy clarity in this regard, SARS will not require VAT registration as a vendor for purposes of the supply of cryptocurrencies.”

There’s more, and you don’t want to take any chances here, so consult an expert in need.

The Endgame: Leaving Bitcoin in your Will

Your cryptocurrency holdings are assets in your estate and you will want your heirs to get them. Your executor must deal with them together with all your other assets (both physical and digital).

Remember however that your holdings will be lost forever if your heirs/executors don’t know about them or can’t access your digital cryptocurrency wallet. They will need all your digital keys – both “public” (wallet address) and “private”.

In whatever manner you plan to leave your heirs/executor a record of these keys on your death, avoid disaster with these tips –

  1. Do it now – no one knows when they’ll die.
  2. Do it securely – anyone with your private key can clear your wallet out, and criminals know that.

This article is for general information purposes and should not be used or relied on as legal or other professional advice.

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The area of zero-rated VAT for a commercial property transaction can be confusing and must be properly understood if one wishes to avoid confusion and delays.

“Previously, it was common industry practice that a brief clause or addendum was utilised with the agreement of sale for a commercial property transaction in order to apply for the zero-rating of VAT,” says Jason Gregoriades, a member of the Rawson Property Group’s Commercial Business Development Team in Cape Town. These previously used methods are, however, no longer acceptable due to a more stringent set of requirements by SARS.

Misconceptions

Some misconceptions must first be dispelled, with regard to zero-rated VAT transactions, before looking at this subject in any depth. “The structuring of the sale of a commercial property with the VAT rated at 0%,” Gregoriades explains, “is a benefit offered by SARS to the seller and buyer of a specific property, should certain criteria be met to their satisfaction.”

First, it is often presumed that if VAT is applicable to a commercial property transaction, it will be simple to structure the Agreement of Sale in order to qualify for the VAT to be rated at zero percent. Sadly, this is not the case.

Second, there is the misconception that if one correctly structures the agreement of sale that the transaction qualifies for a zero-rating of VAT, that there are no additional costs relating to the transfer of the property. This is also most definitely not the case.

Facts

To begin with, a tax clearance certificate is required for the transfer of a property, thus problems and delays may arise in the event where either of the legal entities’ tax affairs are not up to date. Thereafter, SARS has a number of specific criteria which must be met in order for a commercial property transaction to be considered for a VAT rating of 0%. “The agreement of sale must be properly structured,” states Gregoriades, “containing all the necessary information and specifics.

Regarding the other costs applicable to the transfer of the property, such as the Deeds Office fee and the additional respective clearance certificates, these costs will still be applicable and payable should SARS permit the transaction to benefit from a zero-rating for VAT.

SARS Requirement

“SARS’ current requirements for the transaction of a commercial property sale to be considered for a zero VAT rating,are quite specific and important to know,”says Gregoriades.

These requirements include, but are not limited to the following:

All necessary information to be provided as part of the original agreement of sale and not as an addendum or annexure.
Both parties must be VAT vendors, thus, it is recommended that both parties include in the agreement their VAT registration numbers, a declaration that they are still registered for VAT and that their tax affairs are up to date.
The nature of the contract must take the form of a sale of business which includes the property, as opposed to the traditional sale of property only. Both parties must state their agreement that the enterprise will be sold as a going concern and that a zero rating of VAT will be applied. In this case, the business practice is the letting of space within the property and the business itself is often described as a rental enterprise.
The entire business, including any part of it which is capable of separate operation, must be disposed of as part of the transaction. In other words, the sale of the enterprise must include the property and all existing contracts must remain in place, such as the cleaning and security services.
The business must be an income generating enterprise at the time of sale, with a strong likelihood that this income generation will continue up to the date of transfer and beyond.
The Risk

Should the application for a zero VAT rating be deemed unsuccessful by SARS, they have the authority to effect that the full VAT amount be applicable to the sale. A clause to this end must be included in the agreement, stating that the purchase price will increase to cover the potential addition of VAT to the sale price. “Buyers and sellers must be aware of the implications of this possibility,” says Gregoriades, “should their submission be rejected by SARS for whatever reason.”

“One needs a well-constructed agreement of sale, making sure all the boxes are ticked,” suggests Gregoriades, “to take advantage of the zero-rated VAT benefit offered by SARS.” In order to ensure all the criteria are met, it is recommended that you enlist the aid of an experienced commercial agent.

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More savings for the middle property market, but no relief for top-end market.

The changes to transfer duties are likely to boost first-time homebuyers in the affordable property market, but not buyers in the top-end.

This follows the announcement by Finance Minister Nhlanhla Nene on Wednesday that the rates and brackets for transfer duties on the acquisition and sale of property will be adjusted from March 1.

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