On 26 October 2016 the Minister of Finance tabled the Rates and Monetary Amounts and Amendment of Revenue Laws Bill, Bill 19 of 2016 in Parliament when he introduced the so-called Mini Budget. This Bill contains the legislation regulating the Special Voluntary Disclosure Programme ("SVDP") which commenced on 1 October 2016 and which will come to an end on 30 June 2017. The Bill, as tabled confirms that the SVDP will run for nine months as opposed to the originally announced period of six months. Subsequently, on 22 November, the Finance Standing Committee proposed that the SVDP period should be extended by a further two months. The SVDP will now end on 31 August 2017 instead of 30 June 2017.
Under the SVDP, qualifying applicants must include in their 2015 tax income an amount equal to 40% of the highest amount of the rand value of the unauthorised foreign assets at the end of each year of assessment ending on or after 1 March 2010 but not ending on or after 1 March 2015. Thus, the Bill gives effect to Treasury's announcement in September that the inclusion rate has been reduced from 50% to 40%.
In addition, the Bill contains a provision whereby the base cost of the unauthorised foreign assets for which an application is lodged under the SVDP will be deemed to have been acquired on 28 February 2015. The cost will be equal to the highest market value, in foreign currency, of that asset as determined under clause 16 of the Bill. Clause 16 refers to the manner in which the amount to be included in the applicant's taxable income in 2015 is to be determined.
This is based on the market value of the unauthorised foreign assets in the relevant foreign currency, translated into South African rands at the spot rate on the last business day in South Africa at the end of each year of assessment in question, namely, 28 February 2011, 29 February 2012, 28 February 2013, 28 February 2014 and 28 February 2015. This is a concession to taxpayers in that the base cost of the foreign assets is effectively increased when determining the capital gain that will be liable to tax when the foreign assets are ultimately disposed of. Instead of relying on the historic cost of the foreign assets, taxpayers will be entitled to rely on the market value used to determine the tax payable on those foreign assets under clause 16 of the Bill.
It must be noted that if the proceeds received on the sale of the foreign assets is less than the adjusted base cost, the cost will be limited to the proceeds received. Thus no capital loss will be allowed to be carried forward to a future year in such cases.
Furthermore, the SVDP legislation makes it clear that where any amounts exempt from tax under the SVDP legislation were received or accrued by way of an inheritance or donation, that inheritance or donation must be exempt from estate duty under the Estate Duty Act or donations tax under the Income Tax Act in the hands of the estate or the donor. Where, for example, an applicant seeks relief under the SVDP in respect of unauthorised foreign assets held by a deceased relative on which estate duty was not paid, the estate duty that should have been paid by the deceased effectively falls away. Similarly, where an applicant donated assets to a foreign trust on which donations tax should have been paid, that donations tax is effectively waived where the donor makes the election available under the SVDP legislation to treat the assets owned by the foreign trust as belonging to them for income tax and estate duty purposes.
The SVDP legislation also deals with controlled foreign companies subject to the provisions of s9D of the Income Tax Act. Where, for example, an applicant transferred funds from South Africa, and invested them in a controlled foreign company in a low tax jurisdiction, the income derived by the controlled foreign company should have been declared as part of the income of the applicant. In such a case, the income that should have been attributed in favour of the applicant will not be liable to tax but the applicant can apply for SVDP relief on the basis that 40% of the highest market value of the controlled foreign company at the end of 2011 – 2015 tax years must be included in the applicant's income in the 2015 year of assessment.
It remains to be seen when the SVDP legislation will be promulgated in the Government Gazette, but this should not delay prospective applicants from collating the information required to apply for SVDP relief, and to start submitting applications to the South African Revenue Service on the basis that it is possible to submit applications for SVDP relief via the SARS e-filing system, both for tax and exchange control purposes.
Croome is a Tax Executive with ENSafrica.