An investigation of the understanding and application of the principles of the Brummeria Renaissance case

Abstract

A recent ruling by the Supreme Court of Appeal in the case of Commissioner for the South African Revenue Services v Brummeria Renaissance (Pty) Ltd and others, held that the right of use of interest-free loans is a taxable benefit and must be included in gross income in the hands of the recipient. This case is the first case of its kind and has caused much confusion and concern among tax professionals. The purpose of this study is to determine whether audit firms in the Pretoria area are aware of the court case and also to determine whether the principles arising from the case are correctly understood and applied by the audit firms in practice. Should the audit firms not be aware of the Brummeria Renaissance case, or should the principles arising from the case not be clearly understood, the tax clients of the audit firms may be detrimentally influenced as a potential tax risk may not be recognised or, if recognised, may be incorrectly treated for tax purposes. The research was conducted by first obtaining and studying the court transcript of the Brummeria Renaissance case and identifying the principles arising from this case and the implications thereof. A literature study was conducted in order to determine the views and concerns of tax professionals with regards to the court ruling in this case. A questionnaire survey was conducted on a sample of small, medium and large audit firms in the Pretoria area. The sample was selected by making use of specifically stratified systematic sampling. The population was stratified into small, medium and large audit firms and five firms were selected from each sub-population. From the literature study conducted it is clear that the facts of the Brummeria Renaissance case are very specific and the principles arising from the ruling will only be applicable in the future, in cases where one form of goods or services is exchanged for another. An analysis of the results of the questionnaire survey indicates that a lack of knowledge does exist among audit firms in the Pretoria area. Although, the audit firms that are in fact aware of the case appear to understand and correctly apply the principles of the case in practice. Copyright