Where can I get the definition or what constitutes a sham transaction? My point about double deduction was this: The rental is a tax deductible expense in the Juristic Companies hands of which the lease agreement is constructed to include the internet and
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
The best source of information about a simulated or sham transaction can be found in three court cases. They are Sasol Oil v CSARS (923/2017) [2018] ZASCA 153 (9 November 2018); Commissioner SARS v Bosch (394/2013)[2014] ZASCA 171 (19 November 2014) and CSARS v NWK (27/10) [2010] ZASCA 168 (1 December 2010). You can also read Roshcon (Pty) Ltd v Anchor Auto Body Builders CC (49/13) [2014] ZASCA 40 (31 March 2014).
The “the lease agreement is constructed to include the internet and DSTV payments and covers the entire home where the whole family reside and is not restricted to just part of the home where the business operates from” part requires comment.
If the amount paid by the company is to settle the debt of the director or relatives, a taxable benefit will arise. We submit that the same will apply if the amount of the rent paid by the company, partly is to pay for these private and domestic services.
We dealt with private expenses, or the deduction available to the individuals, in our first response – section 23(b). The deduction will only be allowed, to the extent it meets the requirements of section 23(b). To the extent it relates to “domestic or private expenses … of any dwelling-house or domestic premises … in respect of such part as may be occupied for the purposes of trade …” The provides states that “… such part shall not be deemed to have been occupied for the purposes of trade, unless such part is specifically equipped for purposes of the taxpayer’s trade and regularly and exclusively used for such purposes…” – “such part” being the part of the domestic premises.
You must read the practice generally prevailing in this respect.
The amount of the rental received by the couple, to the extent it exceeds the deduction that may be made under section 23(b), will be included in the taxable income of the couple.
The rental loss, if there is one with respect to the trade part, may be ringfenced under section 20A.