Nkandla refund 'taxable'

2016-02-08 10:00
A file picture of a local resident walking past President Jacob Zuma's Inkandla home.

A file picture of a local resident walking past President Jacob Zuma's Inkandla home. (Ian Carbutt)

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Pietermaritzburg - The president’s offer to pay back the costs of non-security features incurred during the security upgrades to his Nkandla residence, will have tax implications.

This is according to tax specialist Eugene du Plessis, from accounting and consulting firm Grant Thornton.

Last week, President Jacob Zuma asked the Constitutional Court for an order that the auditor-general and finance minister must determine how much he should repay for those upgrades to his private Nkandla homestead not related to security.

The non-security features include the so-called fire pool, visitors’ centre, amphitheatre, cattle kraal and chicken run.

Du Plessis said the ministerial handbook does oblige the state to provide security at the president’s private residence(s), which probably forms the basis on which the security improvements are not subject to tax.

“On the basis that the arguments from the government thus far have been that the upgrades at Nkandla constitute security features and that Zuma did not personally benefit he has, presumably, not been taxed on any fringe benefit to date.

“His offer to now pay back amounts in respect of non-security features, suggests that some of the costs in fact are personal expenses that were paid on his behalf by the government and that the president did benefit personally therefrom.

“The implication for the president is that he should then have been subject to tax on such fringe benefits when the costs were incurred.”

Du Plessis said the refundable portion of personal benefits having been paid on behalf of Zuma, might be regarded as a loan granted to the president.

“In the absence of the transaction having been recognised on this basis, the likelihood is that no interest has been paid on the loan and so he would be subject to tax on the fringe benefit arising in this manner until the repayment is made.

“The actual costs paid would not represent a fringe benefit and repayment of the loan would also not have a tax consequence. Therefore, the fringe benefit will continue under this option until the president repays the money,” he said.

Du Plessis did not rule out the possibility of an argument that it was never the intention for the president to personally benefit from the improvements.

“He may argue that he never entered into any loan agreement that any money be spent on his behalf, or otherwise be incurred for his benefit,” he said.

Du Plessis said he is entitled to claim a deduction of any amount required to be refunded, as the tax legislation permits that.

“The issue would, however, be that he should have been taxed when the expenses were paid for his personal benefit and that he can only claim a deduction now when he repays any benefit.

“This could leave the president with a tax liability, and possibly penalties and interest for the unpaid tax, but the deduction that he will become entitled to will then shield his taxable income for some time to come.”

Read more on:    jacob zuma  |  pietermaritzburg  |  nkandla upgrade

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