Document Type

Article

Publication Date

2009

Abstract

The title of this article draws on the sixteenth-century Irish proverb, 'a new broom sweeps clean'. It asks whether the recent judgment in Commissioner for the South African Revenue Service v Bruinmeria Renaissance Ltd sweeps clean in the sense of improving the income tax.

The taxpayer, Brummeria Renaissance Ltd, operated a retirement village. A resident of the village would provide a loan to the company interest-free, that is, with zero stated interest. In return, the company would provide the resident with the right to occupy housing in the retirement village. When the resident vacated the housing, the company was obligated to repay the loan, but without interest.

The issue is whether the company must report as taxable income the economic benefit of the interest-free loan. The Supreme Court of Appeal holds that the foregone interest, the amount of interest that the company would have had to pay at market rates, constitutes taxable income. The decision is controversial. An editorial in The Taxpayer criticized the Brummeria judgment as an 'economic disaster' imposing 'double taxation'.

Publication Citation

126 S. Afr. L.J. 489-504

Included in

Tax Law Commons

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