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SARS Issues Guide On Tax Deduction For Refunds

by Lorys Charalambous, Tax-News.com, Cyprus

24 February 2016


The South African Revenue Service (SARS) has issued an interpretation note to provide guidance on the tax implications of amounts that were included in a person's taxable income, and were subsequently refunded.

It is noted that a person may receive remuneration and other similar amounts that subsequently have to be refunded, often because of contractual obligations not having been fulfilled or due to an overpayment that was previously subject to tax. These amounts can include paid maternity or sick leave benefits, or retention bonuses, which are often refunded by the person in a subsequent year of assessment.

The amounts refunded may qualify for an income tax deduction in the hands of the person under section 11(nA), which was introduced into South African's Income Tax Act with effect from January 1, 2009.

Section 11(nA) applies where any amount (including any voluntary award), received or accrued in respect of services rendered or to be rendered, or by virtue of any employment or holding of any office, was included in the taxable income of that person, and is refunded by that person.

The deduction allowed is limited to amounts previously included in taxable income, and can only be claimed in the year in which it is actually refunded. It has the effect of reducing the person's taxable income on assessment, and can create or increase an assessed loss.

TAGS: individuals | South Africa | compliance | tax | tax compliance | employees | tax authority | individual income tax | services | Africa | Tax

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