Please can you confirm that all interest reflected on an IT3(b) will fall under code 4201 whether reflected as such, on the certificate, or not? For example, interest on medical savings, interest earned on an investment and as reflected under 4201, inter
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
You are correct, the total amount received (or accrued) in respect of interest with a source in the RSA must be inserted next to source code 4201. Any interest received from SARS must be declared separately in the field provided.
In terms of section 24J(3), of the Income Tax Act, there is deemed to have accrued to a person and must be included in the gross income of that person during that year of assessment, an amount of interest which is equal to the sum of all accrual amounts in relation to all accrual periods falling, whether in part or in whole, within such year of assessment in respect of such income instrument. The person is the holder in relation to an income instrument and the amount is included in gross income whether or not that amount constitutes a receipt or accrual of a capital nature. This of course only applies if the holder of the instrument didn’t have, during the year of assessment in question, a right to require redemption of the instrument and the instrument does not provide for the payment of deferred interest.
You referred to “interest for late payment of retirement income” and it is accepted that it arose from a late payment of a lump sum benefit. In terms of binding general ruling 31 (Issue 2), “interest that arises as a result of late payment of the benefit and therefore in addition to the benefit liability must be reflected separately and an IT3(b) certificate must be issued and submitted to SARS as per the prescribed processes.”
The time of accrual of interest payable by SARS is specifically dealt with in section 7E of the Act. It provides that any amount of interest to which a person becomes entitled that is payable by SARS in terms of a tax Act is deemed to accrue to that person on the date on which that amount is paid to that person. This is the reason why this interest is not added to the other interest. Section 7F allows for any amount of interest paid by SARS to that person under a tax Act and deemed to have accrued to that person in terms of section 7E that has to be repaid by that person to SARS, to be deducted from that person’s taxable income in the year of assessment during which that amount is repaid to SARS. The ITR12 allows for this deduction to be made.