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If your company's insolvent, SARS will treat it like this

by , 13 November 2014
If your company's insolvent, there are tax consequences you need to know about. After all, just because you closed down, doesn't mean you don't still owe SARS.

To help you avoid any nasty surprises, we're revealing exactly how SARS treats insolvency...

 

Here's how SARS treats company insolvency

 
SARS used to regard insolvent companies as separate taxable entities, and the trustees became 'representative taxpayers'.
 
But at that time there wasn't any legislation that clearly said SARS could do this. As a result, the Supreme Court ruled against SRAS doing this in future.
 
This meant SARS had to find a new way to handle insolvent companies. As a result it soon closed any loopholes when it comes to insolvency and tax. This is exactly why Section 25C exists in the Income Tax Act – to close loopholes. 
 
This section states that in the case of insolvency, any income the company receives or accrues is subject to tax.
 
The effect of this amendment creates three separate taxable entities…
 
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Know the Law on Avoiding Tax: You Are Now Presumed GUILTY

 
Dealing with SARS and acing your SARS Audit
 
SARS has been dealt a better hand in dealing with you if you try to avoid tax. SARS knows where it stands. The question is: do you?
 
Do you plan on obtaining an 'innocent' tax benefit? If your main or only reason for entering into any arrangement is to receive a tax benefit, SARS will brand you guilty of avoiding tax and guess who has to prove their innocence… YOU!
 
 
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These are the three taxable insolvent entities 

 
1. The insolvent individual or corporate entity for the period prior to being declared insolvent;
 
2. The insolvent estate, which refers to the period in which the insolvent's assets went under administration for the purpose of being liquidated to satisfy creditors' claims; and
 
3. The insolvent individual or corporate entity for the period after declaring insolvency and winding up the insolvent estate's affairs.
 
This means SARS can still tax any income you make as an insolvent estate after your company officially becomes insolvent.
 
For more information on the tax consequences of insolvency, check out the Practical Tax Loose Leaf Service
 
Alternatively, you can ask the experts on the Accounting and Tax Club any questions you might have. 
 

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