Registration requirements

Accountancy SA,  Jun 2006  by Croome, Beric J

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Income Tax

The obligation to pay income tax arises under the provisions of section 5(1) of the Income Tax Act, Act 58 of 1962, as amended (the Act). That section to the extent that it is relevant states as follows:

"Levy of normal tax and rates thereof

5(1) Subject to the provisions of the Fourth Schedule there shall be paid annually for the benefit of the National Revenue Fund, an income tax (in this Act referred to as the normal tax) in respect of the taxable income received by or accrued to or in favour of -

(a) any person (other than a company) during the year of assessment ended the last day of February each year; and

(b) any company during every financial year of such company."

The Act in turn defines a taxpayer in section 1 of the Act as follows:

"means any person chargeable with any tax leviable under this Act and includes every person required by this Act to furnish any return;"

The Act also contains a definition of "person" which includes:

"an insolvent estate, the estate of a deceased person and any trust;"

Originally the term "person" was not defined in the Act. Thus, some taxpayers took issue with the Commissioner as to whether the estate of a deceased person and indeed a trust were required to register and submit tax returns for assessment. Thus, the definition of "person" was amended over the years to specifically include the categories of persons now mentioned therein. The definition of "person" in its normal sense automatically includes natural persons and legal persons as envisaged in the Interpretation Act and it is unnecessary to refer to close corporations or companies.

The obligation to register and submit a tax return to the Commissioner flows from the provisions of section 66 of the Act. That section currently provides as follows:

"Notice by Commissioner requiring returns

for assessment of taxes under this Act and manner of furnishing returns and interim returns

(1) The Commissioner must annually give public notice that all persons who are personally or in a representative capacity liable to taxation under this Act or who are required to furnish returns for the assessment of tax, must furnish returns within the period prescribed in that notice, or such longer period as the Commissioner may allow, for the purposes of assessments in respect of the years of assessment specified in that notice."

The Commissioner normally issues the annual notice for submission of tax returns during April and specifies those persons who in conformity with the notice issued under section 66 of the Act, are legally required to submit tax returns within the time specified in the notice.

It must be remembered that natural persons earning amounts other than remuneration are required to register for tax purposes and where the remuneration exceeds R60 000, that comprises an amount which is not only liable to SITE but also to the deduction of PAYE, are required to register for tax purposes. The obligation to register a natural person for tax purposes lies on the person personally and they cannot be registered by their employer or any other person.

In the first tax amnesty in South Africa a number of trainee accountants were required to apply for amnesty as they had failed to register and submit tax returns to the Commissioner as required. This was because of the fact that they had received travelling allowances. This was a concern as one would have thought that trainee accountants would have been aware of their obligations having completed their studies at university and written the board exam. It would appear that there is a level of ignorance in the minds of a number of people that, because they are earning a salary and are subject to the deduction of PAYE, they are not required to register for tax purposes. One still encounters cases today where persons in receipt of a salary have failed to register for tax purposes and SARS should increase the awareness of such persons by embarking upon a proper education process that ideally starts in the school system.

It must be remembered that in accordance with practice note 21, originally issued by the Commissioner: SARS on 1 June 1994, the trustees of a trust are legally required to register the trust for tax purposes. This practice note was withdrawn on 16 July 2004 because of new processes in place. It does not appear that SARS has publicised what the new process is. SARS does not automatically receive notices of registration of trusts from the Master of the High Court and it remains to be seen when this link will be put in place. Currently, it is therefore necessary for the trustees to remember that they are personally required to register the trust for tax purposes.

In the case of close corporations and companies the Commissioner: SARS should be advised of the creation of the company by the Companies and Intellectual Property Registration Office (CIPRO).

A number of charitable bodies have been identified that believe that they are exempt for tax purposes and have never registered and applied for tax exemption. The fact that an entity has been created for charitable purposes as an association of persons, a charitable trust or as a section 21 company does not remove the requirement to register the entity for tax purposes. Furthermore, it is necessary to apply for exemption from tax under the provisions contained in sections 10(1) and 30 of the Act. It must be remembered that tax-exempt bodies are required to apply for tax exemption within 12 months of commencement of their charitable activities.