Commissioner, SARS v Brummeria Renaissance (Pty) Ltd and Others: Does the Judgement Benefit an Understanding of the Concept “Amount”?

• Jurisdiction: South Africa
• Pages: 34-50
• Citation: (2008) 19 Stell LR 34
• Published date: 27 May 2019
• Author: Enelia Jansen van Rensburg
• Date: 27 May 2019

34

COMMISSIONER, SOUTH AFRICAN REVENUE

SERVICE V BRUMMERIA RENAISSANCE (PTY)

LTD AND OTHERS: DOES THE JUDGEMENT

BENEFIT AN UNDERSTANDING OF THE

CONCEPT “AMOUNT”?

[Discussion of the judgement of Cloete JA in Commissioner, South

African Revenue Service v Brummeria Renaissance (Pty) Ltd and

Others 2007 6 SA 601 (SCA)]

Enelia Jansen van Rensburg

LLB LLM (in Taxation Law)

Lecturer, University of Melbourne and temporary lecturer, University of Stellenbosch

1  Introduction

It has been said that the decision by the Supreme Cou rt of Appeal (SCA)

in Commission er, South Af rican Revenue Ser vice v Brummeria Rena issance

(Pty) Ltd1 is the most important t ax case decided in the pa st 30 years.2 The

case has fa r-reaching conseq uences for the many retireme nt village develop-

ers who nanced the const ruction of units in retirement village s by obtaining

interest-free loans f rom retirees in ret urn for granting occupation rights in

respect of these un its. Questions have also been raised regard ing the possible

application of the decision to other int erest-free loans and even other areas of

taxation law.

The ca se deals with the question whet her a bor rower of money under an

interest-free loa n can be taxed on the “benet” of not havi ng to pay interest.

This paper argues th at this question should be answered in the negative, since

the borrower does not acquire prope rty and no am ount accord ingly accrues

to or is received by her, as requi red by the denition of “gross income”.

At the outset, a short summa ry of the facts in Brummeria will be provided,

followed by the denition of “gross income”. The meaning of a number of

concepts that are central to this de nition, namely “received by”, “accr ued

to” and “amou nt” will then be considered. It will be argued that the concept

“accrued to” requires an ac quisition of a rig ht by the ta xpayer. It will also

be a rgued that the concept of “amount” requires the existence of property.

Thereafter, regard will be had to the concept of “propert y”, and specically

1 Also c ited as [2007] SCA 99 (RSA); 69 SATC 205; [2007] 4 All SA 1338 (SCA). The judgement was

delivered by Cloet e JA. Scott and Van Heerden JJA an d Kgomo and Mhlantl a AJJA concurred.

2 For ex ample Vis ser “D uister Heers oor B elasbaarheid van Rentevrye Leni ngs” Sake24 (25/09/2007)

available at www.news24.com /Sake/Rubrieke /0,,6-103_2189846,00.html (acce ssed 26 Novem ber 2007)

and Vis ser “Sta at Moet Ingryp Teen dié Leningsta ks” Sake24 (17/09/2007) available at w ww.news24.

com/Sake/Algeme ne_nuus/0,,6 -1607_2185023,00.html (accessed 26 Novemb er 2007).

(2008) 19 Stell LR 34

© Juta and Company (Pty) Ltd

BRUMMERIA RENAISSANCE 35

those property rights that usually ow from a monetary loan. Finally, an

answer to the que stion whether the “right to reta in and use loan capital inter-

est-free” is property that accr ues to or is received b y the bor rower will be

sought.

2  Facts in Brummeria

The taxpayers were three companies, each conducting the business of devel-

oping retire ment villages. This entailed that the t axpayer companies entered

into wr itten contracts with potential o ccupants of units to be constr ucted in

the retirement villages. In terms of these contracts, a potential occupant would

make a monetary loan to a particul ar taxpayer company in order to nance the

construct ion of a unit in a retirement vi llage by that taxpayer company. The

relevant taxpayer company then is sued a debenture to the lender/retiree in

acknowledgement of the loan, endorsed the title deeds of the relevant unit and

registered a covering bond a s further security i n favour of the lender/retiree.

The loan did not bear interest.3 As counter-performance for the granting of the

loan, the taxpayer companies granted the right of lifelong occupation of the rel-

evant unit to the lender/retiree, but ownership remained with the relevant taxpayer

company. The taxpayer company was obliged to repay the loan to the lender/reti-

ree upon cancellation of the contract, or upon the lender/retiree’s death.4

The Commissioner included amounts representi ng the “benet of the rights

to i nterest-free loans” in the gross income of the taxpayer compan ies for a

number of years of assessment. These amounts were determined by apply-

ing the weighted pr ime overdraft rate for ban ks to the average amount of the

particula r interest-free loan in the relevant year of assessment.5

The taxpayer companies raised two grounds in their statement of grounds of

appeal. The only one relevant to this discussion6 is the argument that the inter-

3 It is questionable whether the l oans were, indeed , “inter est-free”, alt hough t his was not ra ised by the

taxpayers as a ground of ap peal and was t hus not addres sed by the Tax Cour t or SCA in thei r respective

judgements. On th e one ha nd the standard loan cont ract refer red to the loan as “r entevry”, b ut on t he

other hand it specifica lly indicated that the loan was made as a counter-perfo rmance for th e granting of

the life-long right to occupy the unit. See p ara 3 of ITC 1791 67 SATC 230 (“the Tax Cou rt judgement ”)

for abstrac ts of the term s of the standa rd loan contra ct. A possibilit y discussed by P rof Van Wyk during

a SAFA sem inar held at Centu ry City on 20 Novem ber 2007 is that the contra ct between the ta xpayer

companies an d the retirees was a pact um antichreseo s. Such a pactum gives a mortgage e (in this case the

retiree) the r ight to use the mor tgaged proper ty in lieu of inte rest on the loan ca pital. See “Mortg age and

Pledge” LAWSA XVI I para 477.

4 There is some unc ertainty as to wh ether the obligation to re pay the loan was uncondit ional. The stand ard

contract con cluded between the resp ective taxpayer compa nies and the lenders /retirees is not repro duced

in its entirety i n either t he Tax Court or SCA judge ment. Accordi ng to clause 8.4 of the contract (cite d

at para 3 of the Tax Court judgement) repaym ent of the loan w as subject to “ voorwaardes” contained in

another cl ause, the lat ter clause n ot being rep roduced in t he judgement. With no fu rther info rmation, it

must be assumed (as it apparent ly was by the Tax Cour t and t he SCA) that t he obligation to repay was

unconditio nal.

5 Paras 12 and 14 of the Commissioner’s s tatement of the ground s of assessm ent, quoted at para 5 of the

SCA judgement. The valuation method was never challe nged by the taxpayer companies and was accepted

by the SCA without con sideration. Si nce the Tax C ourt found in favour of the taxpa yers on the ground

that no amount was r eceived by or accrued t o the taxp ayer companie s, the valua tion method was never

considered by the Tax Court either. For criticism on the valuation method u sed by t he Commi ssioner,

see Cil liers “Brummer ia Renais sance: Th e Intere st Free Cat among the Borrower P igeons” 200 7 The

Taxpayer 184 186 – 187.

6 The other gr ound dealt with an a dministr ative issue.

© Juta and Company (Pty) Ltd