Nelson Mandela Day

Wow …”spread the love” what a great way to spend your 67 minutes. We reached the target of 27 000 sandwiches in 67 minutes for Mandela Day. Thanks to the Newtons staff who assisted in making this an easy target and to Saints Bfn and Mizanne Connan for letting us be part of it.

SANBS blood drive 8 July 2016

Newtons employees rushed in to donate blood after receiving a heartfelt KFC breakfast.

 

 

 

The 2016 tax season is open

 As is the case every year, the Commissioner for SARS recently published the annual notice to officially ‘open’ the 2016 tax season. Individuals are now able to file their annual income tax returns for the 2016 year of assessment (which ended on 29 February 2016) from 1 July.

 In the recent Government Gazette No. 40041 (dated 3 June 2016) the persons required to file annual income tax returns for the 2016 year of assessment was announced. The following time frames will apply:

  • For a company, within 1 year of its year-end (for example, a company with a financial year-end of 31 March 2016 is required to submit its 2016 tax return by 31 March 2017).
  • For all other taxpayers (including natural persons and trusts), returns are to be submitted at the latest by:
    •  23 September 2016 for persons still making use of manual hardcopy returns;
    •  25 November 2016 for persons (excluding taxpayers registered for provisional tax) making use of SARS’ eFiling system; and
    • 31 January 2017 for all provisional taxpayers making use of SARS’ eFiling system.

As was the case in previous years, companies may only file returns using eFiling – manual returns are no longer allowed in terms of the above SARS notice.

Various criteria are listed which, if met, means that a person is obliged to submit a return to SARS. For example, all companies, whether incorporated in South Africa or not, are obliged to submit returns if South Africa is the place from which the company is effectively managed. Non-tax resident companies, but which were incorporated in South Africa, must also render returns, as well as non-tax resident companies incorporated outside of the Republic and earning income from a South African source.

Taxpayers (excluding companies) are required to submit returns if they carried on any trade in South Africa during the 2016 tax year. This does not include the mere earning of a salary. A variety of other factors are listed in terms of which non-company taxpayers are required to submit returns. The primary exemption from the requirement to submit a return for tax resident natural persons though is if the person earned only a salary from a single employer during the year which did not exceed R350,000, and income from interest for that person was also less than R23,800 (or R34,500 if the person is older than 65).

Quite a number of taxpayers are therefore potentially exempt from the requirement to submit an income tax return, even if registered for income tax purposes. However, even though it may in terms of the notice not be required to submit a tax return, it may still be beneficial to do so. Natural person taxpayers are often under the unfortunate impression that the completion of a return necessarily gives rise to the incidence of tax. This is of course not so and many may have suffered tax consequences during the year already by having amounts deducted from salaries in the form of pay-as-you-earn contributions deducted from their salaries. This of course amounts to a mere cash flow mechanism introduced to ensure a steady supply of cash to the fiscus and which contributions are set-off from the annual tax liability when the annual tax return submitted is assessed. However, the opportunity to negate this is presented through the completion of a tax return and claiming deductible expenses in the form of e.g. medical aid or pension fund contributions. The principle in this regard is that all income is taxable irrespective of whether a return is completed or not. However deductions can only be claimed by completing a tax return and natural persons specifically should jump at the opportunity to do so.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Tax rates announced in the budget

On 24 February 2016, Min. Pravin Gordhan tabled National Treasury’s annual budget. While it contained a few surprises (both for what it said and that which it did not), the focus in studying the budget has always been the new tax rates proposed.

Below we set out the new rates that will apply going forward. The two most significant changes are the increase in the capital gains tax inclusion rate, as well as the introduction of yet another transfer duty scale for properties purchased with a value in excess of R10 million.

It is important to note that although not approved by Parliament as yet, the below rates are unlikely to be changed.

Income tax rates for individuals for the 2016/2017 tax year:

Taxable income (R)

 

Rates of tax (R)

 

0 – 188 000

 

18% of each R1

 

188 001 – 293 600

 

33 840 26% of the amount above 188 000

 

293 601 – 406 400

 

61 296 31% of the amount above 293 600

 

406 401 – 550 100

 

96 264 36% of the amount above 406 400

 

550 101 – 701 300

 

147 996 39% of the amount above 550 100

 

701 301 and above

 

206 964 41% of the amount above 701 300

 

Interest Exemptions from Income Tax (unchanged):

 

2017

 

Person younger than 65

 

R23 800

 

Person 65 and older

 

R34 500

 

Medical credits available to be deducted against an income tax liability:

  Per month   2017

For the taxpayer who paid the medical scheme contributions   R286

For the first dependant   R286

For each additional dependant(s)   R192

 

The following rebates will apply for individuals against their tax liability calculated in accordance with the above:

Cumulative Rebates from Income Tax for Individuals:

Tax Rebate

 

Primary

 

R13 500

 

Secondary (65 and older) (unchanged)

 

R7 407

 

Tertiary (75 and older) (unchanged)

 

R2 466

 

Income Tax for companies is still levied at 28%, whilst the rate is retained at 41% for trusts.

Small Business Corporations are not taxed at a flat rate of 28%, but according to the below table for tax years ending between 1 April 2016 and 31 March 2017:

Taxable income (R)

 

Rate of tax (R)

 

0 – 75 000

 

0%

 

75 001 – 365 000

 

7% of the amount above 73 650

 

365 001 – 550 000

 

20 395 21% of the amount above 365 000

 

550 001 and above

 

59 150 28% of the amount above 550 000

 

Capital gains tax is calculated by including 40% (previously 33.3%) of an individual’s net capital gains (less R40,000) in their taxable income to be used for calculating their income tax liability (see table above). The inclusion rate for ordinary trusts and companies are increased to 80% (previously set at 66.6%).

The VAT rate has been retained at 14%. The same applies to donations tax and estate duty, both still levied at 20%.

Transfer duty applicable to individuals:

Value of the property (R)

 

Rate

 

0 – 750 000

 

0%

 

750 001 – 1 250 000

 

3% of the value above 750 000

 

1 250 001 – 1 750 000

 

15 000 6% of the value above 1 250 000

 

1 750 001 – 2 250 000

 

45 000 8% of the value above 1 750 000

 

2 250 001 – 10 000 000

 

85 000 11% of the value above 2 250 000

 

10 000 001 and above

 

R937,500 13% of the value exceeding R10 000 000

 

Turnover tax rates:

 Taxable turnover (R)

 

Rate of tax (R)

 

0 – 335 000

 

0%

 

335 001 – 500 000

 

1% of the amount above 335 000

 

500 001 – 750 000

 

1650 2% of the amount above 500 000

 

750 001 and above

 

6 650 3% of the amount above 750 000

 

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Threshold registration requirement for the skills development levy

We have recently become aware of an increased level of audits being conducted by the South African Revenue Service in relation to taxpayers’ obligations in terms of the Skills Development Levies Act, 9 of 1999 (SDL Act). The focus appears to be specifically on non-compliant taxpayers who fail to register as required in terms of section 5 of the SDL Act, and thus for these employers to pay the requisite levy over to SARS. The problem is perhaps amplified thereby that the skills development levy is often considered an ‘unimportant’ tax by taxpayers (primarily due to it being less costly compared to, for example, VAT or income tax). Compliance with the SDL Act is therefore not a top priority to taxpayers, with the effect that taxpayers are also not apprised of their rights and obligations in terms of this Act when confronted by SARS to register and settle an ostensible skills development levy obligation.

The skills development levy (or SDL) is a levy upon employers required to register for SDL (see registration requirement below). It is levied at 1% of remuneration paid to employees during any month (which include directors of a company). The levy is thus also applicable to directors’ remuneration.

Even though directors’ remuneration is also subject to the SDL, what should not be forgotten, though, (especially in the context of what appears to be the focus of SARS’ audits) is that directors’ remuneration is excluded in terms of section 3(5)(e) from determining whether the threshold amount of R500,000 has been reached and which requires registration for SDL purposes (see section 4(b)).

As above, even though the threshold limit for registering for SDL is R500,000 of remuneration paid (or reasonably expected to be paid to employees in the coming 12 months), the R500,000 threshold amount is determined for private companies without having regard to any directors’ remuneration paid. Therefore, although the directors’ remuneration will be subject to SDL once the company is registered, it is ignored for purposes of determining whether a taxpayer is liable, and thus required to register, for SDL.

This is particularly relevant for SME’s conducting business through a private company, especially where remuneration is comprised largely of directors’ salaries. To give an example in illustration: assume a private company pays salaries to non-directors of R400,000, and R1,000,000 to the two directors of the company collectively. On these facts, the company need not register and pay SDL as non-director salaries amount to less than R500,000. Were the company, however, to pay salaries to non-directors of R600,000, then irrespective of the directors’ remuneration, the company would need to register for SDL and pay 1% per month on the total remuneration paid to all employees (including directors).

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Reform on the taxation of pension funds

Some controversy surrounds one of the most significant amendments that would have been effected by the Taxation Laws Amendment Act, 25 of 2015, and the Tax Administration Laws Amendment Act, 23 of 2015, being how retirement type funds would have been taxed in future. This includes both the taxation of proceeds from funds, as well as the extent to which the amounts contributed to funds throughout will be deductible for income tax purposes.

Although the reform process has been the subject of consultation since 2012, certain key proposals have recently, due to lobbying from the trade union movement specifically, been postponed to 1 March 2018 to allow for further consultation.

What was proposed initially and has been enacted since:

It is important to distinguish upfront between 3 types of funds, being pension funds, provident funds and retirement annuity funds. Historically, in terms of the Income Tax Act, 58 of 1962 (the Income Tax Act), contributions made to pension funds were deductible, limited to 7.5% of the individual’s particular annual pensionable salary. Whereas pension funds are designed to allow for the accumulation of wealth of salaried individuals towards retirement, retirement annuity funds aim to provide for non-salary income to be saved towards retirement. To this end, 15% of non-pensionable income (e.g. income from an own business) contributed to a retirement annuity fund were previously allowed as income tax deductions.

Both retirement annuity and pension funds, however, had certain limitations imposed on them which restricted access to the capital accumulated in these funds only until after retirement, and even then not all capital would have been accessible as a lump sum withdrawal: realisation would generally take place through monthly annuities received from such funds. In this sense, provident funds differed and capital accumulated in such funds were accessible even before retirement. To discourage use of such funds, though (and to encourage a long term savings culture), no income tax deductions were historically allowed for provident fund contributions.

The new amendments now seek to harmonize the tax treatment of these 3 types of funds, and specifically as relates the differentiation on the tax treatment of contributions, as well as access to the fund capital together with the tax consequences of lump sum withdrawals. The single, encompassing provision now dealing with fund contributions is section 11(k) of the Income Tax Act. Section 11(k) now allows for a deduction of any fund contributions up to 27.5% of the higher of an individual’s i) remuneration received from an employer or ii) his or her taxable income for the year in question. The deduction is limited, though, to R350,000, meaning that individuals earning more than R1,272,727 will effectively have a lesser rate applied to them. (Note that the 27.5% will include contributions made by an employer on an employee’s behalf, which amount is also included as part of the individual’s remuneration for income tax purposes in the form of a fringe benefit.)

All of the above proposals have been left unchanged and were signed into law and have become effective.

Legislative reform that has been delayed:

The main concern raised by trade unions was access to the capital of specifically provident funds. It was proposed initially that all funds going forward would fall under the umbrella of what had up to now been the regime for pension funds, i.e. that a capital amount is available for withdrawal at retirement, but the major portion of accumulated wealth is annuitised and only receivable in the form of monthly annuities being paid out going forward. This specific ‘annuitisation requirement’ has drawn the ire of COSATU, especially of provident funds been built up by members which could have been drawn in one lump sum on resignation from an employer. What the effect of annuitisation would be effectively, therefore, is to ensure that not all savings may be withdrawn as one lump sum, but only a percentage thereof. From Treasury’s side, this is obviously to encourage saving for retirement. One also has sympathy for the counter-argument though, being that a savings product intentionally sought out by employees to allow them to access all capital on retirement (e.g. to start an own business at some stage) has now with one foul swoop of the legislative pen been prevented.

It remains to be seen in the coming months and years how this political hot potato will play itself out, especially in the context of looming elections with COSATU publicly reconsidering its support for the ruling party.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Financial assistance and the Companies Act

One of the more significant changes that the “new” Companies Act, 71 of 2008, brought about was that a company may now provide financial assistance to prospective shareholders to subscribe for shares in that company. In other words, it may lend persons money to enable them to subscribe for shares in the lender (although other forms of financial assistance is also contemplated – see below). Previously, in terms of section 38 of the now repealed Companies Act, 61 of 1973, this was not allowed.

In terms of section 44 of the “new” Companies Act, financial assistance by a company would include extending a loan, guarantee or the providing of security to enable a person to obtain funding for purposes of acquiring shares in that company. Section 44 seeks to regularise such instances of financial assistance however, and this would extend beyond the mere granting of a loan to a would-be shareholder. The wide definition of “financial assistance” makes it clear that the section covers various scenarios and also specifically where financial assistance by a company is provided to anyone not only for the purpose of enabling him or her to subscribe for shares in that company, but also if the assistance is to enable shares to be acquired in a related company.

The purpose of the provision is quite clearly to protect existing shareholders. For example: if a company were to lend money to a prospective shareholder who is subsequently unable to repay the assisting company, that company would have effectively diluted the shareholding interests of the existing shareholders (who would have paid cash for their shares), whilst the new shareholder who is unable to repay the company still has an interest left in the company (and indirectly therefore to the cash subscription proceeds of the other shareholders).

Notwithstanding the potential negative effect of allowing shares to be subscribed for in a company on loan account, it is foreseeable that such financial assistance may be required from time to time for genuine commercial purposes and transactions that would otherwise not have been feasible. B-BBEE transactions are an excellent example of this.

For a company to give financial assistance to a would-be shareholder, the directors of the company must be satisfied that the financial assistance is fair and reasonable to the company, and further that the company will be solvent and liquid thereafter. They must also ensure that this is not in contravention of the company’s Memorandum of Incorporation. If in breach of any of these conditions, the directors may potentially be held personally liable. Typically, the shareholders of the company must also approve thereof by way of a special resolution.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

How South African dividends are taxed

Dividends received by a South African taxpayer are generally exempt from income tax. The major exemption though being dividends received from so-called REITs (these being some of the major property owing companies listed on the JSE (such as for example Redefine Properties Ltd). Dividends received from REITs are not exempt from income tax, and will be subject to income tax in the hands of the recipient taxpayer. (Refer section 10(1)(k)(i) of the Income Tax Act, 58 of 1962.)

However, for ‘normal’ non-REIT dividends, merely since dividends are income tax exempt does not mean that dividends are not subject to any tax whatsoever. Dividends are still subject to the dividends tax, which is a tax levied at 15% of dividends received, and are taxed in the hands of the recipient taxpayer. The tax also operates as a withholding tax; in other words the tax is withheld by the company declaring the dividend and paid over by it directly to SARS on the taxpayer’s behalf. For example, imagine that a company declares a dividend of R100 to a shareholder. Of this amount, only R85 is paid over to the shareholder, with the remaining R15 being paid to SARS on the taxpayer’s behalf.

There are however numerous classes of persons which are exempt from the dividends tax, in which case dividends tax need not be withheld by the dividend declaring company if dividends are declared to these identified persons. The most commonly used of these exemptions is that used by South African companies: they are exempt from dividends tax. In other words, in the example above, if a South African company is the shareholder receiving a dividend, no dividends tax would need to be withheld and paid over to SARS. In addition, the dividend should not be subject to income tax either. The prerequisite for the exemption from dividends tax specifically to apply though is that the exempt entity, such as a company-type shareholder, must inform the investee (or dividend declaring) company that it is such an exempt entity. In other words, the assumption exists that a shareholder is not exempt from the dividends tax, until the declaring company is informed otherwise.

 As a result, it may be beneficial for non-exempt entities (such as trusts or individuals) to hold their share portfolios through a wholly-owned company. Beside the added benefits attaching themselves to using a privately owned company through which to hold a shares in companies (such as securing these from attachment by the individual/trust’s current or contingent creditors, or to ensure more efficient management of a portfolio of investments) a company also offers the opportunity to receive returns on investments in the form of dividends more tax efficiently. South African dividends received by a South African company will most likely not be subject to either income tax or dividends tax. Dividends tax considerations are of course not the only factor to take into consideration before such a decision is made, and professional advice should best be obtained from a professional to ensure that correct structuring decisions are made.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Passive income and SARS

Have you ever investigated passive income opportunities to earn extra money? Did you consider the effect that earning additional income might have on your current income tax liability? If your income increases, whether from a passive income source or otherwise, SARS will soon come to the party to claim its share of your profits. Do you know what the effect of earning passive income might be on your present tax situation? If not, do read the rest of this article.

What is passive income?

Passive income is money you earn now which you didn’t have to work for now. However, you did work for it when you set up your source of passive income in the past.

If you set up your passive income source correctly, it will continue to generate income with either a minimum or no presence from you as the business owner. That’s what makes passive income so attractive: there’s no direct link between the number of hours you work and/or must be present in the business, and the amount of money you can make.

Provisional tax considerations

A taxpayer will not be required to submit provisional tax returns if his/her only source of income is remuneration from their employer and the employer deducts PAYE on a monthly basis from such remuneration.

PAYE can only be deducted by an employer from remuneration paid to its employees. If you earn passive income which is not subject to PAYE, you will have to submit provisional tax returns. Provisional tax is calculated on the estimated taxable income for a specific tax year. Please consult your tax adviser for advice regarding any potential provisional tax obligations.

Income tax considerations

As with any type of business income, passive income will be subject to income tax. SARS will allow a taxpayer to deduct the expenses incurred in generating the passive income, provided that the expenses are tax deductible in terms of income tax legislation. A taxpayer earning passive income will thus be taxed on the resulting profit (passive income less expenses incurred to generate that passive income).

For an expense to be tax deductible against passive income, it must fulfil all the following requirements:

  • It must have been actually incurred (i.e. the expense must either have been paid already or be due and payable);
  • In the carrying on of any trade;
  • In the production of passive income (there must be a link between the expenditure and the passive income); and
  • Not be of a capital nature (i.e. the expense must not give rise to an enduring/long term benefit).

If you are not sure whether an expense will be tax deductible and/or at which amount, please consult your tax adviser for advice.

Dual-purpose expenses (i.e. expenses that were incurred both for business and private purposes at the same time) may be apportioned according to the ratio of the business-related portion to the total amount of the expense. Only the business-related portion of the total expense will be tax deductible.

The profit you earn as a result of your passive income venture will be added to your taxable income for a specific tax year. If you already earn income from another source (e.g. salary/wages), that income and the profit from passive income will be added together to determine your taxable income. Taxable income will thus increase, which might put you into a higher tax bracket with a higher tax percentage.

To avoid nasty surprises it is important to consider the income tax implications of a passive income opportunity before taking advantage of such an opportunity. Although the figures you use for the calculations will be estimates and might not be that accurate, it’s still better to do some semi-accurate calculations than no calculations at all.

This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

Reference List:

Accessed on 3 September 2015:

Accessed on 9 September 2015: