High Court finds in favour of time-shares Jan 30, 2010 8:01 AM | By Tim Desmond

by Tim Desmond

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The taxpayer, Vacation Exchanges International (Pty) Ltd, trading as RCI, ran a time-share exchange business. Its members were able to "bank" time-share rights in exchange for points that they could then use to obtain time-share rights at other resorts. RCI granted several of these points to its employees, allowing them to use the resorts.

The SA Revenue Service raised an estimated employees' tax assessment against RCI, on the basis that the provision of points constituted a taxable benefit. SARS determined a market value for the points.

In the tax court, RCI contended that although the points constituted a deemed taxable benefit, they had no cash equivalent value and therefore were not subject to employees' tax. RCI also contended that SARS had used the wrong remedy in assessing it, rather than its employees directly. The court found in favour of SARS and dismissed RCI's appeal. RCI then appealed to the Western Cape High Court.

The High Court first considered the second of RCI's contentions, which had been added at the hearing before the tax court. This is because, if it were successful, it would determine the case in favour of RCI, without any need to consider the other contention.

The employees' tax legislation contains a remedy for SARS to re-determine the tax due, on the assessment of employees, if it believes that their employer did not correctly determine the cash equivalent of a taxable benefit. RCI contended that this was the only approach available to SARS in the present case. SARS argued that it was one of the approaches available to it, along with the option of assessing RCI (as employer) directly.

The court agreed with RCI, and found the specific remedy of re-determination on assessment of the employees was exclusive. SARS's approach of assessing RCI was then, in the circumstances, not permitted in terms of the legislation. The court set aside the estimated employees' tax assessment against RCI.

* - Desmond is director of tax and commercial departments at Garlicke & Bousfield Inc