Budget Speech Results: BDO's Tax Comments

With the announcement of the annual Budget Speech, our tax experts at BDO would like to comment on the following:

VAT and residential property developers

The Minister proposed an amendment to the VAT Act to reduce the amount of the VAT adjustment required when a residential property developer temporarily leased a property before selling it. The purpose of the proposed amendment is to give a more equitable outcome for the developer. We agree that this issue needed to be addressed.

With respect to the Minister though, the current legislation is adequate to deal with the issue. It is the manner in which the Commissioner applies the legislation in practice that needs to be addressed. The Commissioner merely needs to rule that he does not regard the temporary renting out of property as a change in purpose in dealing with the property on the part of the developer. This will negate the need for a legislative change and will give an equitable result for all concerned.

A change in legislation is likely to be complex and should be avoided.

Where is the VAT link?

The Minister of Finance proposed a number of income tax amendments. It would appear that the Minister may have overlooked possible VAT implications linked to the proposed amendments.

The Minister proposed an extension of the exemption from fringe benefits tax on professional membership fees paid on behalf of employees. As the supply is effectively and contractually made to the member, the eligibility of the employer to claim the VAT paid on the subscription is unclear. The Commissioner could clarify this issue be means of a general public ruling.

A further amendment proposed by the Minister of Finance allows a company restructured in terms of the restructuring rules in the income tax act, to claim a deduction of bad debts incurred on debts taken over. Whether the reorganized company is entitled to an income tax deduction, it does not necessarily follow that will be entitled to a VAT adjustment. This issue needs to be clarified by the Commissioner.