Category Archives: Tax legislation

Transactions required to be reported to SARS in terms of the Tax Administration Act

Tax1_bCertain transactions are required to be reported to the South African Revenue Service (‘SARS’) as and when entered into (section 37 of the Tax Administration Act, 28 of 2011 (‘the Admin Act’)). These are referred to as ‘reportable arrangements’, and qualify as such when an ‘arrangement’ (defined as including any transaction, agreement, scheme or understanding) either meets one of the criteria set out in section 35(1)(a) to (e), or if specifically listed in a public notice issued by the Commissioner for SARS. This article is concerned only with the former.

Failure to report a ‘reportable arrangement’ will result in a monthly penalty being levied against non-compliant taxpayers ranging from between R50,000 to R300,000 per month (section 212), for up to 12 months. The purpose for requiring taxpayers to report certain transactions is obvious: to allow SARS to monitor transactions on an ongoing basis which it considers to exhibit potential traits of tax avoidance.

Section 35(1) determines that arrangements which exhibit any one of the below criteria qualify as a reportable arrangement. These are arrangements which:

(a) contain provisions in terms of which the calculation of interest, finance costs, fees or any other charges is wholly or partly dependent on the tax treatment of that arrangement;

(b) have any of the characteristics contemplated in section 80C(2)(b) of the Income Tax Act, 58 of 1962, or substantially similar characteristics (which include round trip financing, involving an accommodating or tax indifferent party in the arrangement or if the arrangement contains elements which offset or cancel each other);

(c) give rise to an amount that is or will be disclosed by any participant as:

  1. a deduction for purposes of the Income Tax Act but not as an expense for accounting purposes; or
  2.  revenue for accounting purposes, but not as gross income for purposes of the Income Tax Act;

(d) do not result in a reasonable expectation of an accounting pre-tax profit for any participant; or

(e) result in a reasonable expectation of an accounting pre-tax profit for any participant, but which is less than the value of the tax benefit to that participant if both are discounted to present value at the end of the first year of assessment when the tax benefit is created.

Irrespective of the above, even if an arrangement would qualify as a reportable arrangement in terms of the above, section 36 of the Admin Act lists various criteria which, if met, would render an arrangement an ‘excluded arrangement’ whereby such transactions need not be reported to SARS. Moreover, in terms of the public notice issued by the Commissioner on 16 March 2015 in Government Gazette no. 38569 as Notice 212, a transaction would not be reportable in terms of the above criteria only if the tax benefit arising from the arrangement for all persons involved would not exceed R5 million.

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)

Transactions required to be reported to SARS in terms of government notice

Tax 2_bSection 37 of the Tax Administration Act, 28 of 2011 (‘the Admin Act’) requires taxpayers to report a transaction which would qualify as a ‘reportable arrangement’. Failure to do so will result in a monthly penalty being levied against non-compliant taxpayers ranging from between R50,000 to R300,000 per month (section 212), for up to 12 months. The purpose for requiring taxpayers to report certain transactions is obvious: to allow the South African Revenue Service (‘SARS’) to monitor transactions on an ongoing basis which it considers to exhibit potential traits of tax avoidance.

An ‘arrangement’ (defined as including any transaction, agreement, scheme or understanding) is considered to be a ‘reportable arrangement’ if either it meets one of the criteria set out in section 35(1)(a) to (e), or if it is specifically listed in a public notice issued by the Commissioner for SARS.

This article is concerned with only the latter, and such a public notice was issued by the Commissioner on 16 March 2015 in Government Gazette no. 38569 as Notice 212. It lists the following transactions, summarised below, that may constitute ‘reportable arrangements’ as listed in said Notice:

  • Certain hybrid equity instruments (typically convertible or redeemable preference shares) which are redeemable/convertible within 10 years of being issued;
  • Certain hybrid debt instruments (for example convertible debentures or subordinated loans), other than listed instruments. In the case of convertible debentures, these are only potentially reportable if conversion may take place within 10 years of the notes being issued;
  • Share buy-backs by companies amounting to more than R10 million, if accompanied by that company issuing new shares within a one year period from the buy-back having taken place;
  • Any contributions or payments made by South African tax residents to a non-resident trust in which the South African tax residents have, or will acquire, a beneficial interest which is reasonably expected to exceed R10 million;
  • Where one or more persons acquire a controlling interest in a company which has, or can be reasonably expected to have, an assessed tax loss exceeding R50 million;
  • An arrangement whereby a South African taxpayer pays an amount in excess of R5 million to a non-resident person which qualifies as an insurer in that country.

The obvious purpose for allowing the Commissioner to publish a list of arrangements such as the above is to grant SARS the ability to identify transactions and/or structures which are often used by taxpayers in tax avoidance schemes. The ability to publish a list, such as the above, allows SARS to adopt a flexible approach in identifying and monitoring tax schemes and to retain the capability to publish even further transactions that are required to be reported without having to undergo the lengthy legislative process to have these transactions listed in the Admin Act itself.

Other than containing a list of transactions that would per se qualify as reportable arrangements, the Notice also determines that for purposes of those arrangements mentioned in section 35(1)(a) to (e) referred to earlier (as opposed to those listed in the Notice itself), a transaction would not be reportable if the tax benefit arising from the arrangement for all persons involved would not exceed R5 million. This R5 million threshold does however not apply to the list of transactions referred to above and listed in the Notice itself.

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)

Ek het geld gesteel – Moet ek belasting daarop betaal?

A3Al ooit daarvan gehoor dat ‘n dief gesteelde geld verklaar vir inkomstebelastingdoeleindes? Dink u dat diewe gesteelde geld behoort te verklaar as deel van hul belasbare inkomste? Volgens verskeie hofsake in dié verband is gesteelde geld wat verkry is deur diefstal, verduistering of bedrog belasbaar in die hande van die dief. Nog ‘n vraag: Kan koste aangegaan vir die doel van diefstal en enige terugbetaling van die gesteelde geld afgetrek word van die gesteelde inkomste?

Daar is vier vereistes waaraan voldoen moet word vir gesteelde geld (ongeag of dit deur diefstal, verduistering, bedrog of op enige ander onwettige manier bekom is) om belasbaar te wees in die hande van ‘n dief:

  1. Die geld moet deur die dief “ontvang word of aan hom toegeval het”.

Die frase “ontvang deur” is deur die howe geïnterpreteer om te beteken dat die geld “deur/namens ‘n belastingbetaler ontvang is vir sy eie voordeel”, terwyl die woorde “aan hom toegeval” geïnterpreteer is om te beteken “waarop die belastingbetaler geregtig is”. Daar word nie vereis dat ‘n persoon ‘n bedrag geld moes ontvang het om daarop geregtig te wees nie, maar wel dat die persoon ‘n onvoorwaardelike reg het om dit te ontvang. Aangesien ‘n dief nie geregtig is op die geld wat hy steel nie, word daar nie aan die vereiste van “aan hom toegeval” voldoen nie. Aangesien die geld egter wel deur hom ontvang is, word aan die eerste vereiste voldoen en moet die gesteelde geld dus in die belasbare inkomste van die dief ingesluit word.

  1. Die geld deur die dief ontvang moet van ‘n “inkomste aard” wees (teenoor ‘n “kapitale aard”).

Aangesien die daad om geld te steel voorneme, aktiewe en doelgerigte beplanning en organisasie, sowel as uitvoering deur die dief vereis, is daar aktief gewerk vir die gesteelde geld en word dit dus beskou as van ‘n inkomste aard.

  1. Normaalweg word ‘n belastingbetaler belas op inkomste in die belastingjaar waarin hy/sy die inkomste ontvang het.

Daar is egter geen tydsbeperking op die periode waartydens die SAID ‘n aanslag mag uitreik indien hul sou bevind dat ‘n dief nagelaat het om gesteelde inkomste in die verlede vir belastingdoeleindes te verklaar nie.

  1. ‘n Bedrag/geldwaarde moet bepaal word waarteen die gesteelde geld in die belasbare inkomste van die dief ingesluit kan word.

Die metode waarvolgens ‘n bedrag bepaal word, hang af van die unieke omstandighede van elke geval. Twee van die metodes wat die SAID kan gebruik, is:

  • Om die bedrag van die geld wat in die dief se bankrekening inbetaal is, vas te stel.
  • Om die toename in netto batewaarde te vergelyk met die inkomste wat deur die dief verklaar is. Om ‘n netto batewaarde te bereken, neem die SAID die bedrae van inkomste, belasting-aftrekbare uitgawes, bates en laste in ag wat deur die dief verklaar is. Indien die verklaarde inkomste nie die groei in netto batewaarde regverdig nie, sal die SAID ‘n waarde aan die inkomste hertoewys wat volgens hulle wel die groei in netto batewaarde regverdig.

Die howe het bepaal dat uitgawes aangegaan deur ’n dief vir die doel om geld te steel of enige terugbetalings van gesteelde geld nie aftrekbaar is van die belasbare bedrag van die gesteelde “inkomste” wanneer die dief se aanspreeklikheid vir inkomstebelasting bereken word nie.

Is dit lonend om inkomste te verdien deur middel van diefstal? ‘n Dief het ‘n wetlike verpligting om “inkomste verdien” deur diefstal te verklaar en is verantwoordelik om inkomstebelasting te betaal op die volle gesteelde bedrag. Geen aftrekking vir koste aangegaan in die voortbring van gesteelde inkomste of vir enige terugbetaling van gesteelde bedrae word toegelaat as aftrekkings vir inkomstebelastingdoeleindes nie. Wanneer ander potensiële kostes soos regsfooie en stresmedikasie bygevoeg word, word die winsgewendheid van diefstal as bron van inkomste aansienlik minder aantreklik – indien die dief deur die SAID uitgevang word. Andersins mag diefstal moontlik steeds ‘n winsgewende beroepskeuse wees.

Verwysingslys:

Inligting verkry op 21 Junie 2015:

  • SARS Interpretasienota: Nr. 88, Afdeling 5

Hierdie artikel is ʼn algemene inligtingsblad en moet nie as professionele advies beskou word nie. Geen verantwoordelikheid word aanvaar vir enige foute, verlies of skade wat ondervind word as gevolg  van die gebruik van enige inligting vervat in hierdie artikel nie. Kontak altyd ʼn finansiële raadgewer vir spesifieke en gedetailleerde advies. (E&EO)

Capital Gains Tax and the sale of a property

A1Capital Gains Tax was introduced on 1 October 2001. Capital Gains Tax is payable on the profit a seller makes when disposing of his property.

What is meant by Capital Gain?

A person’s capital gain on an asset disposed of is the amount by which the proceeds exceed the base cost of that asset.

What is base cost?

The base cost of an asset is what you paid for it, plus the expenditure. The following can be included in calculating the base cost:

  1. The costs of acquiring the property, including the purchase price, transfer costs, transfer duty and professional fees e.g. attorney’s fees and fees paid to a surveyor and auctioneer.
  2. The cost of improvements, alterations and renovations which can be proved by invoices and/or receipts.
  3. The cost of disposing of the property, e.g. advertising costs, cost of obtaining a valuation for capital gains purposes, and estate agents’ commission.

How was base cost of assets held calculated before 1 October 2001?

If the property was acquired before 1 October 2001 you may use one of the following methods to value the property:

  1. 20% x (proceeds less expenditure incurred on or after 1 October 2001).
  2. The market value of the asset as at 1 October 2001, which valuation must have been obtained before 30 September 2004.
  3. Time-apportionment  base cost method. Original cost + (proceeds – original cost) x number of years held before 1 October 2001 divided by the number of years held before 1 October 2001 + number of years held after 1 October 2001). 

How is Capital Gains Tax paid?

Capital Gains Tax is not a separate tax from income tax. Part of a person’s capital gain is included in his taxable income. It is then subject to normal tax. A portion of the total of the taxpayer’s capital gain less capital losses for the year is included in the taxpayer’s taxable income and taxed in terms of normal tax tables.

How is Capital Gain calculated?

If you are an individual, the first R30 000 of your total capital gain will be disregarded. Then 33.3% of the capital gain made on disposal of the property must be included in the taxable income for the year of assessment in which the property is sold. When the property is owned by a company, a close corporation or an ordinary trust, 66.6% of the capital gain must be included in their taxable income.

Primary residence and Capital Gains Tax

As from 1 March 2012 the first R2 million of any capital gain on the sale of a primary residence is exempted from Capital Gains Tax. This exemption only applies where the property is registered in the name of an individual or in the name of a special trust. The property should furthermore not exceed 2 hectares. If the property is used partially for residential and partially for business purposes, an apportionment must be done.

If more than one person holds an interest in a primary residence, the exclusion will be in proportion to the interest held by each party. For example, if you and your spouse have an equal interest in the primary residence, you will each qualify for a primary residence exclusion of R1 million. You will also be entitled to the annual exclusion, currently R30 000.

This article is a general information sheet and should not be used or relied on 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. 

 

The link between CGT and Income Tax

A7The name “Capital Gains Tax” (CGT) can create the impression that CGT stands on its own as a seperate tax from the rest of the taxes but this is not the case. CGT forms part of the Income Tax system and capital gains and capital losses must be declared in the annual Income Tax return of a taxpayer.

If a taxpayer is not registered for Income Tax

If a natural person is not registered for Income Tax and his/her taxable income consists only of a taxable capital gain or a deductible capital loss, the amount of which is more than R30 000, the person will have to register as a taxpayer with SARS. In addition, the new taxpayer will have to submit an Income Tax return for that tax year.

If a taxpayer is already registered for Income Tax, they don’t have to register for CGT seperately as CGT forms part of Income Tax.

Tax treatment of capital gains in three steps

The first step is to calculate the capital gain according to the provisions of the CGT Act. A discussion of the formulas to calculate the amount of capital gains and capital losses fall outside the scope of this article.

The second step is to reduce the capital gain with any exclusions which might be applicable. Please contact your tax advisor to find out if you qualify for any CGT exclusions.

Step three will be to include the taxable amount of the capital gain in the taxable income of the taxpayer. There are different inclusion rates for the following categories of taxpayers:

  • For natural persons, deceased or insolvent estates, and special trusts the taxable inclusion rate is 33,3%. In other words, 33,3% of the capital gain will be added to the taxable income of the taxpayer and the taxpayer will have to pay more income tax.
  • Companies, close corporations and trusts (excluding special trusts) have a taxable inclusion rate of 66,6%. This means that 66,6% of the capital gain will be added to the taxable income and taxed at the normal income tax rate of the taxpayer.

As a taxable capital gain will be added to the taxable income of a taxpayer, it will have an effect on certain deductions in the income tax calculation while other deductions will not be affected.

The following tax deductions for individual taxpayers will not be affected by the inclusion of a taxable capital gain in the taxable income of the taxpayer:

  • Pension fund contributions
  • Retirement annuity fund contributions

Tax deductions that will be affected by the inclusion of a taxable capital gain in an income tax calculation are the following:

  • Medical expenses (only applicable to individual taxpayers)

If a taxpayer’s medical deduction is subject to the 7,5% of taxable income-limitation, the deductible amount for medical expenses will become smaller if a taxable capital gain is included in the taxable income.

  • Section 18(A) donations

A taxpayer can include the taxable capital gain in taxable income before calculating the 10%-limit for the tax deduction of Section 18(A) donations. The allowable tax deduction of these donations will then increase by 10% of the amount of the taxable capital gain.

Tax treatment of capital losses

Capital losses may not be deducted from taxable income but must be set off against current or future capital gains. If there is insufficient capital gains to offset the full capital loss in the current tax year, the unclaimed balance of the capital loss is carried forward to the next tax year(s) until it has been fully offset against future capital gains.

As a capital gain/loss can have a material effect on a taxpayer’s liability for Income Tax, it is crucial to calculate these amounts accurately and take advantage of all the exclusions that might be applicable to the taxpayer. For further assistance regarding any aspect of capital gains/losses, please contact your tax advisor.

Reference List:

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 ommissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice.

 

Waarom die SAID stawende dokumente aanvra

02Die meeste belastingbetalers ken daardie aaklige gevoel wanneer die SAID stawende dokumente aanvra. Watter stawende dokumente moet ek voorlê? Word ek nou geoudit? Het ek ‘n fout gemaak op my belastingopgawe? Gaan die SAID my tronk toe stuur?

Waarom het die SAID my gekies?

Die SAID is baie geheimsinnig oor die manier waarop hulle te werk gaan om belastingopgawes vir verifikasie en oudit te selekteer. Niemand is werklik seker hoe die SAID besluit van watter belastingbetalers hulle stawende dokumente sal versoek nie. Hulle het slegs laat deurskemer dat hulle gebruik maak van outomatiese stelsels wat lukraak belastingopgawes selekteer vir hersiening en/of ‘n risikotelling aan sekere belastingbetalers toeken gebaseer op hul belastingnakoming in die verlede en derdeparty data wat in besit van die SAID mag wees.

Word ek geoudit?

‘n Versoek om stawende dokumente beteken nie noodwendig dat ‘n belastingbetaler iets verkeed gedoen en nou deur die SAID geoudit word nie. Wanneer die SAID stawende dokumente aanvra, doen hulle gewoonlik ‘n verifiëring van die belastingbetaler se belastingopgawe om te bevestig dat die ingediende opgawe met die stawende dokumente ooreenstem. Na voltooiing van die verifiëringsproses mag die SAID besluit om ‘n belasting-oudit te doen. Die verifiëringsproses en ‘n oudit is twee verskillende prosesse.

Wanneer die belastingbetaler vir ‘n oudit geselekteer word, beteken dit nie dat hy/sy wel enige wette oortree het nie. Die SAID selekteer soms belastingbetalers vir ‘n belastingoudit wat nie noodwendig op die oog af enige wette oortree het nie, maar wie se gedrag aandui dat hy/sy moontlik een of meer belastingwette kon oortree het.

Watter belastingaftrekkings mag lei tot versoeke vanaf die SAID vir stawende dokumente?

Die SAID is geneig om stawende dokumente aan te vra vir sekere belastingaftrekbare uitgawes wat maklik is om kunsmatig te verhoog.

  • Herstelwerk en instandhouding geëis teen huurinkomste

Waar ‘n belastingbetaler herstelwerk- en instandhoudingsuitgawes teen huurinkomste eis, mag die SAID stawende dokumente vereis. Die SAID kan selfs so ver gaan as om perseelinspeksies van die huureiendom uit te voer om te bevestig dat die herstel- en instandhoudingswerk werklik aan die huureiendom gedoen is en nie aan die eiendom van die eienaar van die huureiendom nie.

  • Eise vir tuiskantoor uitgawes

Die SAID benodig bewyse van uitgawes wat geëis is, byvoorbeeld munisipale rekeninge, skoonmaakkoste en versekering. Die tuiskantoor en kantoortoerusting moet uitsluitlik vir besigheidsdoeleindes gebruik word voordat tuiskantoor uitgawes afgetrek kan word. Die SAID is bekend daarvoor dat hulle perseelinspeksies uitvoer om die uitsluitlike gebruik van ‘n tuiskantoor vir besigheidsdoeleindes te bevestig.

  • Aftrekkings teen byvoordele soos reistoelae en maatskappymotors

Die belastingbetaler moet ‘n logboek indien waarin die kilometers wat vir besigheidsdoeleindes gereis is, aangeteken is voordat die SAID enige aftrekking vir belastingdoeleindes sal toelaat.

  • Eise vir mediese uitgawes

Die SAID benodig bewyse van betaling van kwalifiserende mediese uitgawes wat uit die belastingbetaler se eie sak betaal is tydens die jaar van aanslag wat ondersoek word. ‘n Mediese faktuur moet ingedien word saam met een of ander betalingsbewys voordat die SAID die aftrekking sal goedkeur.

Wat gebeur as ek nie stawende dokumente kan voorlê wanneer die SAID dit versoek nie?

Indien ‘n belastingbetaler nie die relevante stawende dokumente kan voorlê nie, sal die SAID nie die eise op die belastingbetaler se belastingopgawe kan verifieer nie en die aftrekkings sal dus nie toegelaat word nie.

Wanneer mag die SAID besluit om my te oudit?

Redes waarom die SAID mag besluit om ‘n belastingbetaler se belastingsake te oudit, sluit in:

  • Die belastingbetaler se gedrag in die verlede rakende sy/haar belastingsake.
  • Die kompleksiteit van ‘n belastingbetaler se belastingsake.
  • Die SAID het wesenlike teenstrydighede en onreëlmatighede gevind terwyl hulle ‘n belastingopgawe met die stawende dokumente geverifieer het.

‘n Oudit is ‘n meer diepgaande proses as verifiëring en behels ‘n evaluering (teenoor verifiëring soos in die geval waar stawende dokumente versoek word) van die inligting wat in ‘n belastingopgawe ingedien is.

Om die SAID van stawende dokumente te voorsien wanneer dit vereis word, plaas ‘n addisionele administratiewe las op die belastingbetaler. Versoeke vanaf die SAID vir stawende dokumente beskerm egter die eerlike belastingbetaler deur te verseker dat meer belastingpligtiges hul deel bydra deur belasting te betaal.

Hierdie artikel bevat slegs algemene inligting en moenie gebruik of beskou word as professionele raad nie. Geen aanspreeklikheid word aanvaar vir enige foute of weglatings of vir enige verlies of skade weens vertroue op hierdie inligting nie. Raadpleeg altyd u finansiële raadgewer vir spesifieke  en gedetailleerde advies.

Verwysingslys:

Hierdie artikel is ‘n algemene inligtingstuk en moet nie gebruik of staatgemaak word op as professionele advies nie. Geen aanspreeklikheid kan aanvaar word vir enige foute of weglatings of vir enige verlies of skade wat voortspruit uit vertroue op enige inligting hierin nie. Kontak atyd jou finansiële adviseur vir spesifieke en gedetailleerde advies.

Why SARS requests supporting documents

02Most taxpayers know that sinking feeling when SARS requests supporting documents from them. Which supporting documents must I submit? Am I being audited? Did I make a mistake on my income tax return? Will SARS send me to jail?

Why did SARS choose me?

SARS remains secretive about the way they go about selecting tax returns for verification and auditing. Nobody is exactly sure how SARS determines from which taxpayers they will request supporting documents. SARS has only disclosed that they make use of automated systems which randomly selects tax returns for review and/or determines a risk score for taxpayers based on their tax compliance history and third party data that may be in SARS’s possession.

Am I being audited?

A request for supporting documents does not necessarily mean a taxpayer did something wrong and is being audited by SARS. When SARS requests supporting documentation, they usually do a verification of the taxpayer’s income tax return to confirm that the submitted return agrees with the supporting documents. After the verification process is complete, SARS may decide to do a tax audit. The verification process and an audit are two different processes.

Being selected for an audit does not mean that the taxpayer broke any tax laws. SARS will select taxpayers who have not contravened any tax laws but whose behaviour indicates that the taxpayer might perhaps have transgressed one or more tax laws.

Which tax deductions may trigger requests for supporting documents by SARS?

SARS tends to request supporting documents in certain areas where claimable tax deductions can easily be inflated.

  • Repairs and maintenance claimed against rental income

Where a taxpayer claims repairs and maintenance expenses against rental income, SARS may request supporting documents. SARS can go as far as doing site inspections at the rental property to confirm that the repair and maintenance work has indeed been done on the rental property and not on the house of the owner of the rental property.

  • Claim for home office expenses

SARS wants proof of expense items claimed, for example municipal accounts, cleaning expenses and insurance. To be able to deduct home office expenses, the home office and office equipment must be used exclusively for business purposes. SARS has been known to do site inspections to confirm the exclusive use of a home office for business activities.

  • Deductions against fringe benefits like travel allowances and company cars

In order for SARS to allow the travel deduction, the taxpayer must submit a travel logbook showing kilometres travelled for business purposes.

  • Claim for medical expenses

SARS is looking for proof of payment of qualifying medical expenses paid out of the taxpayer’s own pocket during the year of assessment under scrutiny. A medical invoice must be submitted together with some kind of proof of payment in order for SARS to allow the deduction.

What happens if I do not submit supporting documents when SARS requests them?

If a taxpayer cannot submit the relevant documents, SARS will not be able to verify claims on the taxpayer’s tax return and the deductions will not be allowed.

When might SARS decide to audit me?

Some of the reasons why SARS might decide to audit a taxpayer’s tax affairs are:

  • The taxpayer’s behaviour in the past regarding his/her tax affairs.
  • The complexity of a taxpayer’s tax affairs.
  • SARS found material inconsistencies or irregularities while verifying a tax return against supporting documents.

An audit is a more in-depth process than verification and involves an evaluation (as opposed to verification as in the case of a request for supporting documents) of the information that was submitted in a tax return.

Providing SARS with supporting documents when requested to do so places an additional administrative burden on the taxpayer. However, requests by SARS for supporting documents also protect the honest taxpayer by ensuring that more taxpayers pay their dues.

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.

Reference List:

This article is a general information sheet and should not be used or relied on 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.

Some pointers for planning your estate

01The main aim of planning your estate is to ensure that as much of the accumulated wealth is utilised for your own benefit and for the maximum utilisation of dependents on your death.

“Estate planning” has been defined as the process of creating and managing a programme that is designed to:

  1. Preserve, increase and protect your assets during your lifetime;
  2. Ensure the most effective and beneficial distribution thereof to succeeding generations.

It is a common misconception that it revolves solely around the making of a Last Will and Testament, or the structuring of affairs so as to reduce estate duty.

Each person’s estate is unique and should be structured according to his/her own unique set of circumstances, goals and objectives.

The lack of liquidity on the date of death may cause for the deceased’s family members and dependents to suffer hardship, as certain assets might be sold by the executor to generate the cash needed.

Liquidity means that there should be enough cash funds to provide for:

  1. Paying estate duty;
  2. Settling estate liabilities and administration costs;
  3. Providing for other taxation liabilities that may arise at death, such as capital gains tax.

Technically the estate is frozen until such time as the Master of the High Court has issued Letters of Executorship.

Dying without executing a valid Last Will and Testament, your estate will be dealt with as an intestate estate, and the laws relating to intestate succession will apply. The Intestate Succession Act determines that the surviving spouse will inherit the greater of R125 000 or a child’s share. A child’s share is determined by dividing the total value of the estate by the number of the children and the surviving spouse. If the spouses were married in community of property, one half of the estate goes to the surviving spouse as a consequence of the marriage, and the other half devolves according to the rules of intestate succession. If there is no surviving spouse or dependents, the estate is divided between the parents and/or siblings. In the absence of parents or siblings, the estate is divided between the nearest blood relatives.

An executor is entitled to the following remuneration:

  1. Remuneration fixed by the deceased in the Last Will and Testament; or
  2. 3.5% of gross assets; or
  3. 6% on income accrued and collected from date of death.

Executor’s remuneration is subject to VAT where the executor is registered as a vendor.

Where the value of the estate exceed R3.5 million, estate duty will become payable on the balance in excess of R3.5 million, with the exception of the property bequeathed to a surviving spouse, which are exempt from estate duty and/or capital gains tax.

Section 3 of the Subdivision of Agricultural Land Act prevents the subdivision of agricultural land, and such land being registered in undivided shares in more than one person’s name is subject to Ministerial approval.

A minor child is a person under the age of 18 years of age, and any funds bequeathed to a minor child will be held by the Guardian’s Fund, which falls under the administration of the Master of the High Court. These funds are not freely accessible, and are usually invested at below market interest rates. It is thus advisable to provide for minors by means of a trust.

The Close Corporations Act provides that, subject to the association agreement, where an heir is to inherit a member’s interest (in terms of the deceased’s Will), the consent of the remaining members (if any) must be obtained. If no consent is given within 28 days after it was requested by the executor, then the executor is forced to sell the member’s interest.

Section 3(3)(d) of Estate Duty Act determines that where an asset is transferred to a trust during an estate planner’s lifetime, yet the estate planner, as trustee of the trust retains such power as would allow him to dispose of the trust asset(s) unilaterally for his own or his beneficiaries’ benefit during his lifetime, then such asset(s) may be deemed to be property of the estate planner and included in his estate for estate duty purposes.

Where the parties are married in community of property, the surviving spouse will have a claim for 50% of the value of the combined estate, thus reducing the actual value of the estate by 50%. The estate is divided after all the debts have been settled in a deceased estate (not including burial costs and estate duty, as these are the sole obligations of the deceased and not the joint estate). Only half of any assets can be bequeathed.

The proceeds from life insurance policies can be used to:

  1. Generate income to maintain dependents while the estate is dealt with;
  2. Pay estate expenses: funeral, income tax, estate administration, estate duty.

All proceeds of South African “domestic” policies taken out on the estate planner’s life, where there is no beneficiary nominated on the policy, will fall into his estate on his death.

Where a beneficiary is nominated on the policy, the proceeds will be deemed property for estate duty purposes, even and although they are paid directly to the beneficiary (subject to partial exemptions based on policy premiums).

Policies which are exempted from inclusion for estate duty purposes are buy and sell, key man policies, and those policies ceded to a spouse or child in terms of an antenuptial contract.

Certain assets in a deceased estate are excluded from capital gains tax:

  1. Assets for personal use (with certain exceptions);
  2. Assets that accrue to the surviving spouse;
  3. Assets bequeathed to approved public benefit organisations;
  4. The proceeds from life assurance policies; interests in pension, provident or retirement annuity funds;
  5. The first R2 million in respect of a primary residence;
  6. The first R750 000 in respect of small business assets;
  7. Currency, excluding gold and platinum coins.

This article is a general information sheet and should not be used or relied on 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.

Donations

PIC4Whether you are thinking of helping your son financially to enable him to purchase his first property or donating money towards a worthy cause, there are some things to keep in mind. A donation is defined in the Income Tax Act No 58 of 1962 as “any gratuitous disposal of property including any gratuitous waiver or renunciation of a right.” The donor may therefore not receive anything in return from the donee, as this will constitute an exchange agreement.

There are two types of donation, viz. donatio inter vivos (donation between two persons who are both alive) and donatio mortis causa (a donation where the donee will only receive the donation on the death of the donor).

The requirements for both an inter vivos and a mortis causa donation are:

  1. The donor must make an offer to donate, which offer must be accepted by the donee;
  2. The donor must have the necessary legal capacity to make the donation and the donee must have the necessary legal capacity to accept the donation;
  3. Anything that a person can trade (in commercio), can be donated;
  4. A donation must be legal and feasible; and
  5. A donation must be identified or identifiable.

Donations can also be withdrawn. In the case of an inter vivos donation, the donor can at any time before the donee accepts the donation, withdraw such donation. After acceptance of the donation by the donee, a valid contract has been formed and the donor will only be able to withdraw the donation in the case of gross ingratitude on the part of the donee, e.g. if the donee threatens the donor’s life. A mortis causa donation can be repealed at any time before the donor’s death, as the donation will only be ratified on the death of the donor.

Finally, and probably of the most importance to some people, is the matter of donations tax payable to the Receiver of Revenue. Currently donations tax is calculated at 20% of the fair market value of the property donated.

In terms of article 59 of the Income Tax Act, the donor is liable for payment of donations tax within three months after the donation was made. If the donor fails to pay the tax timeously, the donor and the donee will be jointly and severally liable for the payment thereof. An individual can make a donation of R100 000 per annum, free of donations tax.

There are also a few exemptions in terms of section 56 of the Income Tax Act, which should be noted. They include the following:

  1. A donation in terms of a duly registered prenuptial or postnuptial contract to the spouse of the donor;
  2. A donation between spouses who are still married to each other;
  3. A donation in the form of donatio mortis causa (this donation occurs in terms of the donor’s will and is therefore not subject to donations tax);
  4. A donation that was cancelled within six months after it was made; and
  5. Donations to certain public benefit organisations.

If spouses are married in community of property they should pay attention to section 57A of the Income Tax Act. If any property, which forms part of the joint estate of both spouses, is donated by one of the spouses, such donation shall be deemed to have been made in equal shares by each spouse. However, if property that has been donated by one of the spouses belongs to only that spouse (the donor), the donation shall be deemed to have been made solely by the spouse who made the donation.

There are several factors to keep in mind when making a donation and it is therefore advisable to consult with an expert to discuss the tax and legal implications before a decision is made.

This article is a general information sheet and should not be used or relied on 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.

Zero Rated VAT: Exports and Services to Foreigners

PIC2It is often confusing to determine when to charge Value Added Tax (VAT) on goods or services at zero rate (0%) instead of the standard rate of 14%. Below are some basic examples to illustrate the charging of the correct rate by South African VAT vendors. These are general illustrations and it is prudent to contact your tax practitioner if there is any uncertainty in this regard.

1.    Direct Export of Goods – 0%

A direct export is the delivery of moveable goods to a recipient at an address outside of the Republic of South Africa (RSA) by a South African VAT vendor. The vendor must therefore physically deliver the goods to the recipient at the address outside the RSA or arrange for the delivery of the goods on behalf of the vendor with a cartage contractor (who must be a resident of the RSA as well as a registered VAT vendor). VAT at 0% may then be charged on these sales.

Strict documentation requirements are set by the South African Revenue Service (SARS) in order to charge 0% VAT, and the exports must take place through any of the 43 designated ports.

2.    Indirect Export of Goods – 14%

An indirect export is when the South African VAT vendor sells moveable goods to a foreign recipient, but the recipient will remove or arrange for the removal of the goods from the RSA to the foreign address. In such a case, the vendor will charge VAT at the standard rate of 14%.

However, the foreign recipient may be able to claim a VAT refund from the VAT Refund Administrator (Pty) Ltd (VRA) at the exit of the goods from the RSA at any of the 43 designated commercial ports. The foreign recipient must be a qualifying purchaser (as defined) and the goods must be exported within 90 days from the date of the tax invoice. Strict documentation requirements are set in order to claim the VAT refund.

The only exception to this is if the supply is made in terms of Part Two of the VAT Export Scheme. In that case, VAT may be charged at 0%.

3.    Local Services to Foreigners – 0%

Services delivered locally to non-residents by the South African VAT vendor will generally be subject to VAT at 0%. It is important to remember that the non-resident recipient of these services must not be physically present in the RSA at the time of the delivery of the service.

The exceptions to this (and therefore subject to 14% VAT) will be where the services are supplied:

  1. in respect of fixed property in the RSA,
  2. in respect of movable property in the RSA, unless the property is destined for export or forms part of a supply to a registered vendor, or
  3. to a recipient who is in the RSA when the services are rendered (unless it relates to a restraint of trade).

4. Services Delivered outside the RSA – 0%

Services that are physically delivered outside the RSA will carry VAT at 0%.

This article is a general information sheet and should not be used or relied on 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.