The unintended consequences of the Trust Clawback Provision – Section 7C
Section 7C of the Income Tax Act has been in media limelight since its initial publication in the Taxation Laws Amendment Bill last year.
The final version of the provision as promulgated on 19 January 2017 in the Taxation Laws Amendment (Act No 15 of 2016) is less draconian that the first published version of the section.
The net economic effect of the section is, with effect from 1 March 2017, to subject interest free loans from a natural person or at the instance of a natural person to SA discretionary trusts in excess of R1,25 million to an annual donations tax of 1.6% of the loan, payable by the lender within 31 days of the end of the trust’s tax year.
But the application of Section 7C has a number of unintended consequences.
Proposed change to foreign earned employment income exemption announced.
One of the Budget 2017 tax proposals is to continue to afford relief to a South African resident employee who works outside South Africa, but only to the extent the employee has paid tax in the foreign country in which he or she is rendering the services.
There are a number of potential unintended consequences to the proposed change to the foreign earned employment income exemption which businesses will need to carefully consider.
Non-exec directors’ fees: Employees’ Tax and VAT Changes
In the past, the issue as to whether non-executive directors (NEDs) should be considered common law employees or deemed employees for employees’ tax purposes has been the subject of some debate between SARS and National Treasury. Another issue of concern related to this topic was whether the fees received by a NED should be subject to VAT.
In an effort to clarify the tax treatment of fees paid to NEDs, SARS issued Binding General Ruling 40 (Employees’ tax) and Binding General Ruling 41 (VAT) on 14 February 2017. The rulings apply from 1 June 2017.