Integrated Questions (learn the principles)

Question 1

What happens when a company becomes a non-resident?

Answer 1

Sections Idk
- it’s year of assessment ends on the day it ceases to be a resident
- the next one starts the following day
- it disposes of all it’s movable assets at Market Value and reaxqures them at market Value
- all immovable property is not disposed of
- the company has a deemed dividend in specie which has the value of MV of shares
- the dividend is deemed to be on the day before leaving
- CTC(ordinary share capital), dividends tax must be paid on that at 20%
- It must be paid by the end of following month in which the dividends tax was paid

Question 2

What information is relevant when we are trying to decide whether the sale of an asset is capital in nature or revenue in nature?

Answer 2

• is there anything that says it is capital in nature or revenue in nature?
• we need to look at the intention of the taxpayer at acquisition and the intention of the tax payer at disposal to see what is the dominant intention
• if there is a secondary independent intention, the dominant intention rule doesn’t apply according to case CIR VS Nussbaum
• assume revenue in nature if the secondady independent intention matches with Revenue in nature

Question 3

What are the tax implications of a capitalization issue?

Answer 3

Section 40C of ITA
- the shares received have a nil value

Section 1 of ITA
- this is not a dividend in terms of the ITA and no dividends tax is levied

Question 4

What are the tax implications of trading one share for another share?

Answer 4

Brummeria Renaissance principle
- this is a barter transaction and the shares received must be valued at the objective market value of the shares acquired
- we must determine whether the shares held by the trust are capital in nature or revenue in the nature by following the steps

Question 5

What are the tax implications of a Share buyback?

Answer 5

• if it is a general repurchase of listed shares, then it is not a dividend in specie as defined in section 1 and so no dividends Tax
• the person selling the shares back would have a disposal on their hands
• disposal might be capital or revenue
• if capital loss, then it can be carried forward or set off against future capital gains

Question 6

What are the tax implications of bequenthing a foreign share to your daughter? If you are both residents

Answer 6

Section 9HA
- when you die, you are deemed to dispose of all your assets at market Value

Section 25(2)(b) of EDA
- you will then deacquire those shares in the deceased estate at market Value

Section 25(3)(a) of EDA
- and dispose of them at that value to the person they were bequethed too

Section 25(3)(b)
- she will be deemed to acquire them for that value

Para 43(5)
- the proceeds will be denominated in foreign currency because the proceeds and the expenditure were in foreign currency

Para 43(1))
- then because the the proceeds and expenditure was in foreign currency, so will the gain or loss be, only if they are a natural person

Section Idk of EDA
- they will also Get an annual exclusion of 300000

Question 7

What are the tax implications of a company giving a interest free loan to a shareholder with a 25% interest holding?

Answer 7

VAT implications
- there are none