Tax avoidance and assessed loss

Question 1

What legislation relating to assessed losses, came into power on 1 March 2023?

Answer 1

Section 20(1) of The ITA
- any assessed loss incurred in a previous year of assessment, may be set off against stuff in the following year of assessment but only to the extent that it doesn’t exceed the higher of
* R1000000
* 80% of taxable income before the application of this section
- this means that if there is more assessed loss after this, it will need to be carried forward to the following year of assessment
- it only applies to years of assessment ending on or after 1 March 2023

Question 2

What trades are considered suspect? And why is that relevant?

Answer 2

Section 20something of the ITA
- bunch of things man

Question 3

What are the requirements for an assessed loss to be ring fenced?

Answer 3

Section 20A of the ITA
- you must be carrying on a suspect trade
* sporting activities practiced by a taxpayer or a relative
* dealing in collectables
* the rental of residential accommodation (unless 80% is used by people who are not relatives for at least half the year of assessment)
* the rental of vehicles, aircraft or boats
* showing of animals in competitions
* farming or animal breeding unless done on a full time basis
* performing or creative arts practiced by the tax payer or any relative
* Gambling or betting practiced by the tax payer or any relative
* the Acquisition or disposal of any crypto currency

OR ALL OF THE FOLLOWING

• you must be a natural person
• your taxable income must equal or exceed the amount which warrants you to be taxed at the marginal tax rate
• 3 of the last 5 years you need to have made an assessed loss
• However there is an unless clause where the assessed loss will not be ring-fenced
• the onus is on the tax payer to prove
• the business must have a reasonable prospect of generating taxable income within a reasonable period and it must be other than capital gain
• even so the unless clause is not available if assessed losses have been incurred for 6 years in the last 10 year period

Question 4

What is Tax avoidance in comparison to Tax evasion?

Answer 4

Tax avoidance
- minimize your tax liability by the use of legal means

Tax evasion
- illegal means to reduce your taxable income

Question 5

Can you set off foreign assessed losses against local assessed losses?

Answer 5

According to section idk
- no

Question 6

Can you set off assessed losses against lump sum benefits?

Answer 6

Section idk
- no

Question 7

How does the handling of assessed losses differ between individuals and companies?

Answer 7

Section 20(2A) of ITA
- individuals
* assessed losses. May be set off against non-trade income
* assessed loss can be carried forward even if no trade under taken in any year of assessment
- companies
* if a company does not trade in a specific year of assessment, it losses the opportunity to carry its balance of assessed losses beyond that year of assessment

Question 8

What happens when a tax payer enters into an arrangement where they buy a company or some similiar arrangement, mainly for the purpose of utilizing the assessed loss?

Answer 8

Section 103 of the ITA
- the Comissioner will be able to treat such arrangements in a way that ignores the tax benefits they are receiving and adjust their taxable incomes to what it would have been in normal circumstances
- which means they will not be able to utilize the assessed loss
- however this can only be done if the following requirements are met
* any agreement affecting any company or trust or
* any change in the shareholding of a company or
* any change in the members interest of a close corporation or
* any change in the trustees or beneficiaries of any trust
* results in the company with the assessed loss accuring income
- the onus is on the people to disprove that they doing it mainly to use the assessed loss
- it applies to both income tax assessed losses and capital losses

Question 9

What are the requirements and consequences of entering into a tax avoidance scheme?

Answer 9

Section 80A-80L
* Requirements
- when an arangement arises that has a sole or main purpose to obtain a tax benefit (tax avoidance)
- in the context of business, outside business, any context

• Consequences
• the commisioner can do the following
  > disregard, combine, re-characterise any steps or parts of the arrangement
  > deem persons to be one and the same person
  > re-allocate income or expenditures amoung parties
  > re-characterise any income or expenditure
  > treat the arrangement as if it had not been entered into or carried out