The right to use loans interest-free is "gross income", which forms part of a company's taxable income, according to the Supreme Court of Appeal.
Ruling in favour of the SARS yesterday, the SCA held that the Receiver had correctly assessed the companies to tax on the basis that the right to use interest-free loans had a money value and formed part of taxable income.
In the case in question, notes Business Day, three companies, Renaissance, Palms Renaissance and Randpoort Renaissance, developed retirement villages. The companies obtained interest-free loans to build units in exchange for granting life occupation rights of the units to the lenders. SARS assessed the companies to tax, then revised the assessments and subsequently issued further revised assessments to the entities. It was the further revised assessments that were at issue in the matter.
The Appeal Court held that although a loan was not income, the value of the right to use a loan interest-free was. It also held that where the SARS Commissioner had raised an original assessment, and thereafter a revised assessment to which the taxpayer had successfully objected in full, the Commissioner could not raise a further assessment more than three years after the original assessment (absent fraud, misrepresentation or non-disclosure of material facts).
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