Page 105 - P6 Slide Taxation - Lecture Day 7 - Various Topics

Calculation of the rebate

The total rebate amount is subject to a number of limitations (s 6 quat (1B)). All foreign taxes are mixed
for purposes of the rebate, as opposed to being tested for the limitation on a country-bycountry or
income-by-income basis. The limitations, in the order that it has to be determined and applied, are the
following: l
• The foreign tax payable by a controlled foreign company in relation to proportionate amount of net
income that is included in the resident’s taxable income as a result of the application of the
diversionary rules (see 21.7.3.1) must be limited to the normal tax attributable to those
proportional amounts (proviso ( i A) of s 6 quat (1B)( a )). Any excess foreign tax cannot be carried
forward. l
• Capital gains are only partially subject to tax in South Africa due to the inclusion rate applied to the
net capital gain for inclusion into a taxpayer’s taxable income (see chapter 17). The gain may be
subject to tax to a greater extent in the other country (for example 100% of the gain could be
taxable). If the foreign country imposes foreign tax on a greater percentage of the capital gain than
the inclusion rate in South Africa, only the foreign tax on the portion of the capital gain actually
included in the resident’s taxable income (i.e. the inclusion rate) qualifies for a rebate. SARS refers
to this step as the comparative capital gains tax inclusion limitation in Interpretation Note No 18.
After having performed the comparative capital gains tax inclusion limitation, a further capital gains tax limitation
applies. The foreign tax payable (after application of the above limit) in respect of foreign sourced capital gains
must in aggregate be limited to the total normal tax attributable to the taxable capital gains (proviso ( I B) of s 6
quat (1B)( a )). This limitation does not apply to gains on assets attributable to any permanent establishment of
the resident outside South Africa. Any excess foreign tax in terms of either of the capital gains tax limitations
cannot be carried forward.

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