ITR14 must-knows

Companies that are incorporated in the Republic and are tax residents are subject to income tax in South Africa on all their South African sourced and worldwide income. Non-resident foreign companies that have a permanent establishment or operate a business through a branch are subject to income tax in the Republic on all their South African sourced income.

This is normally referred to as corporate income tax and it forms part of the gross national tax revenue. According to "Chapter 4: Revenue trends and tax policy" from the Budget for 2018/2019, the corporate income tax accounts for 15.51% of the estimated 2018/2019 consolidated budget.

Corporate income tax was also the subject of a report issued in March 2018 by the Davis Tax Committee on the efficiency of the corporate tax system in South Africa. 

SARS is mandated to assess and to collect corporate income tax from corporate taxpayers, who must complete the ITR14 income tax return, which is specifically designated for companies. The ITR14 must be completed and submitted to SARS within 12 months after the financial year-end of a corporate entity.

Request the ITR14 return

SARS currently caters for corporate taxpayers to complete and to submit their ITR14 returns at a SARS branch, for those who are not registered eFilers, or via eFilling, for those who are registered eFilers. SARS encourages and promotes registration on eFiling for all taxpayers, as this enables faster and more efficient submission and processing of returns and respective payments. SARS no longer issues blank ITR14 returns.

We will review and discuss the ITR14 return in its electronic format, as issued on eFiling.

Maintenance of legal entity details

Once the company is registered on eFiling for the relevant tax type, such as corporate income tax, the ITR14 may be requested from the “Returns Issued” tab, after selecting the appropriate tax period for which the return is to be submitted. Once the return is generated, the eFiling user is routed to the Income Tax Work Page, where the return can be accessed and completed.

Before the ITR14 is opened, it is important to verify the legal entity details and to update, if necessary, any outdated information about the company. This may be done by eFiling users either by directly accessing the Registration Amendments and Verification (RAV01) form from the “Maintain SARS Registered Details” tab or, before capturing the ITR14, by selecting “Maintain Legal Entity Details” on the Income Tax Work Page.

It is very important that SARS has accurate company details, such as physical and postal addresses, contact numbers and email addresses, to ensure proper and timeous communication with and delivery of assessments to the taxpayer. As part of the Go Green Initiative to decrease the use of paper, SARS favours the use of electronic communications.

The details of public officers and the banking details of entities should always be maintained precisely, to guarantee that any tax refunds due by SARS are promptly reimbursed to the company. The provisions of section 252 of the Tax Administration Act clearly state how the delivery of documents to companies is executed.

Company type

Company type questions refer to the nature of the business of the legal entity, and specifically whether the company is a body corporate or a share block company. If the answer is “No” then the “Gross income” and the “Total assets” sections are displayed and need to be completed with the respective information. If the gross income specified in the relevant questions does not exceed
R1 million and the value of the total assets does not exceed R5 million, the company will be classified as a micro business. The classification takes place according to IT-GEN-04-G01 - Comprehensive guide to the ITR14 return for companies, published by SARS and available to download here. If the gross income is in excess of R1 million and the total assets are in excess of R5 million, then the company will not be classified as a micro business, and the “Wizard” page will display additional questions for customisation of the income tax return.

SARS elaborates on their website, on the  “Corporate income tax” page, that a customised ITR14 will be created according to the company type that you specify when completing your return.  The below table is an extract from the website and sets out descriptions of company types:

Type

Description

Dormant company

A dormant company is classified as a company that has not actively traded for the full year of assessment (i.e., if the company partially traded during the year of assessment, the company will not be regarded as a dormant company).

Share block

A share block company is defined in section 1 of the Share Blocks Control Act.

Body corporate

A body corporate is defined in section 1 of the Sectional Titles Act.

Micro business

A micro business is classified as a company with a gross income (sales / turnover plus other income) not exceeding R1 million and total assets (current and non-current) not exceeding R5 million, and that is not classified as a body corporate or a share block company.

Small business

A small business is classified as a company with a gross income (sales / turnover plus other income) not exceeding R14 million and total assets (current and non-current) not exceeding R10 million, which is not classified as a body corporate, a share block company or a micro business.

Note: A small business is not the same as a small business corporation as defined in section 12E of the Income Tax Act.

Medium to large business

If a company is not classified as a body corporate or share block company, micro business or small business, it will be classified as a medium to large business [i.e., gross income (sales / turnover plus other income) exceeding R14 million and/or total assets exceeding R10 million].

Completing the ITR14 return

Section 30 of the Companies Act requires all companies to prepare annual financial statements within six months after the end of their financial year. The annual financial statements form the basis for preparation of the corporate income tax return and must be submitted to SARS by small and medium to large businesses. They are therefore the primary source documents used for the completion of the ITR14 return.

Apart from the sections with general information, such as company and tax practitioner details, additional assessment information, contributed tax capital information and company structure, the ITR14 return essentially consists of:

  • Balance sheet
  • Income statement
  • Tax computation

It is important to note that, with regard to contributed tax capital, the balance of the contributed tax capital at the end of the year of assessment must reconcile to the total amount of share capital and share premiums, stated under “Capital and Reserves” in the Balance Sheet section of the ITR14 return.

Balance Sheet section

The Balance Sheet section of the ITR14 return follows the layout of the Statement of Financial Position in the annual financial statements and relevant notes, and its completion should be relatively simple. The total non-current and current assets should balance to the total reserves and total non-current and current liabilities.

Income Statement section

The Income Statement section is divided into the following segments:

Gross profit/loss

  • Income items (only credit amounts)
  • Expense items (only debit amounts)
  • Net profit/loss

The layout of the above is very similar to the detailed income statement, which usually forms part of the company ’s annual financial statements. It is, however, more complex, as it contains typical items, in the light of the Income Tax Act, rather than just a reflection of the accounting treatment in the Statement of Comprehensive Income in the annual financial statements.

The net profit amount is a calculated field and should reconcile to the net profit before tax in the Statement of Comprehensive Income reflected in the annual financial statements.

Tax Computation section

The Tax Computation section of the ITR14 return relates to the difference in the accounting and tax treatment of items during the tax period. This section is also closely related to the deferred tax computation in the annual financial statement, which prescribes the accounting treatment for income tax purposes, according to the International Accounting Standard IAS12 Income Taxes.

The Tax Computation section of the ITR14 relates to the tax adjustments of the accounting net profit before tax, as stated in the Statement of Comprehensive Income in the annual financial statements, in order to arrive at the taxable income of the entity. Normal tax is charged on that taxable income.

A common misconception is that the accounting treatment (as it appears in the annual financial statements) automatically aligns with the tax treatment, which is to be declared in the Tax Computation section of the ITR14. This misconception has recently been confirmed by the Supreme Court of Appeal in C:SARS v Volkswagen S A (Pty) Ltd (1028/2017) [2018] ZASCA 116 (19 September 2018).

How to correct a mistake in the ITR14 after submission

Where a taxpayer discovers that the information contained in the ITR14 is incorrect or incomplete, the Request for Correction (RFC) option is available on eFiling or at a SARS branch. However, the Request for Correction will not be available in certain instances, such as:

If there is a dispute in progress relating to the same source code

  • If an audit case has been finalised for the same year of assessment

If the RFC option is not available, or a taxpayer disagrees with an assessment issued by SARS, the taxpayer can still follow the objection process.

Conclusion

The discussion above is general and the compilation of the corporate income tax return ITR14 requires the specialised professional and practical tax expertise of a registered tax practitioner. Sound knowledge of the taxation laws will ensure that allowable tax deductions, limitations and non-deductible items are accurately disclosed in the ITR14 return.

This article was published first in TaxTalk Issue 74 January/February 2019.