My tax client invested R30000 in the names of each of his 2 minor children. I have declared the IT3s returns for both on his IT12 under tax free investment contributions. - This resulted in a tax penalty of R12000. Please advise how I should have declared
Important:
This answer is based on tax law for the tax year ending 28 February 2020.
Answer:
You didn’t indicate what grounds SARS gave for issuing the additional assessment, or original assessment, in this instance.
The 40% of the excess over the relevant annual contribution amount applies if during the year of assessment any person contributed in excess of the amount of R30 000 (2017) in respect of tax free investments. SARS obviously views the investment made by the parent.
The legislation doesn’t deal with this specifically. It appears that it is accepted in the market that these investments can in fact be made by minor children. We don’t comment on how this is to be made, but expect that it may involve a donation by the parent.
Section 7(3) of the Income Tax Act deals with the possible tax avoidance by the parent, but we are not sure that section 7(3) would be authority for raising the assessment. It may be necessary to obtain the reasons for the assessment, before an objection is made.