When interest is payable by SARS on amounts refundable the taxpayer is obliged to include the amount of interest in the taxpayer’s gross income. Where interest accrues over more than one year of assessment it gives rise to practical difficulties as technically assessments for previous years may have to be reopened to reflect the correct amount of interest that accrued to the taxpayer in respect of the relevant years of assessment.
In order to create certainty and simplify the taxation of interest payable by SARS, the Income Tax Act has been amended to provide that interest payable by SARS only accrues on the date of actual payment. This rule, which applies from 1 March 2018, overrides the general rule that an amount is included in a taxpayer’s gross income at the earlier of receipt or accrual. The effect of this rule is that interest payable by SARS is only included in the recipient’s gross income when the amount is actually paid and not when the taxpayer becomes entitled to it.
Although less material for individuals, this could lead to some differences in treatment for companies and potentially give rise to deferred tax.