Monthly Archives: November 2013

Red Socks Month!

The month of November was a busy Red Socks Month. Each Friday we selected a charity to benefit from the walks. We started with Movember, New Beginnings, Tjhabelang, BFN Child Welfare and the last one for the year will be on the 29th November and this will be for Kids Care Trust.

Contact Thelma Crossman on 051-4034100 for details on Red Socks Friday!

Red Socks Month!

The importance of the independent trustee

03_trusteeA well-known court case, Land Bank of South Africa vs. JL Parker and Two Others (the Parker case) irrevocably changed the requirements for independent trustees to be appointed and placed renewed focus on the duties and responsibilities of all trustees.

As a result of the Parker case, most Masters of the High Court now require an independent trustee to be appointed in addition to the trustees who are beneficiaries of the trust, and therefore will not issue a Letter of Appointment without at least one independent trustee being appointed. An independent trustee will be a person who is not related to the founder, the other trustees or the beneficiaries. This independent trustee does not necessarily have to be a professional person but it must be someone who fully realises the responsibilities he or she is accepting when agreeing to act as a trustee, and is qualified in the view of the Master of the High Court to act as a trustee.

All trustees (independent or not) are charged with the responsibility to ensure that the trust functions properly to the greatest benefit of the beneficiaries. These responsibilities include, but are not limited to:

  • ensuring compliance with the provisions of the trust deed
  • ensuring compliance with all statutory requirements
  • conducting of proper trustee meetings
  • recording of proper minutes of all meetings and decisions by the trustees
  • proper maintenance and safekeeping of minute books

It is clear that a person who is appointed as an independent trustee must have the necessary experience and expertise to properly execute these duties as well as to add value to the trust. In many cases, the trustees who are not independent do not have sufficient knowledge of and experience in the proper administration of trusts. Furthermore, they might also lack expertise in utilising the vehicle of the trust in order to maximise the benefit for the beneficiaries. This expertise includes negotiating and entering into business contracts, holistic tax and succession planning, and ensuring the optimal growth of the trust assets. It is in the best interest of the trust that this person also has sufficient knowledge of the impact of statutory requirements, such as compliance with relevant tax law and the effect of changes in legislation on the trust.

All trustees assume significant responsibility when accepting an appointment as a trustee and careful consideration must be given before accepting such an appointment. Any breach of fiduciary duties by any trustee, including the independent trustee, will result in significant exposure for the trustees. Furthermore, any action taken by the trustees on behalf of the trust while the proper number of trustees is not appointed by the Master of the High Court will be null and void.

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

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Whether 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.

References:

  1. Income Tax Act Nr. 58 of 1962
  2. Course for Notarial Practice
  3. www.sars.gov.za

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 impact of the new BBBEE codes of good practice on your business

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The Codes have been amended and the new Codes were gazetted on Friday 11 October 2013. These changes will have a significant effect on the BBBEE strategy of businesses and careful consideration will have to be given to adjustments in this area.Major changes to the previous Codes include:

  • The seven elements on the scorecard are reduced to five elements and the weighting of each element has been adjusted as follows:
    1. Ownership (25 points weighting)
    2. Management Control (15 points weighting)
    3. Skills Development (20 points weighting)
    4. Enterprise and Supplier Development (40 points weighting)
    5. Socio-Economic Development (5 points weighting)
  • The total score will now amount to 105 instead of the previous 100.
  • The elements Ownership, Skills Development and Enterprise and Supplier Development are now categorised as priority elements, which means that certain minimum requirements are set for these elements. Large enterprises are required to comply with all the priority elements, whereas Qualifying Small Enterprises (QSEs) have a choice to comply with Ownership and one of the remaining priority elements.
  • If the minimum requirements set for priority elements are not met, the actual level obtained will be discounted by one level.
  • The limits for Exempt Micro-Enterprises (EMEs) have been adjusted to enterprises with an annual turnover of between R0 and R10 million (unless a sector charter applies). EMEs will still be deemed to be level four contributors.
  • QSE limits have been adjusted to enterprises with an annual turnover of between R10 million and R50 million (unless a sector charter applies).
  • EMEs and QSEs with black ownership of more than 51% will automatically qualify as level two contributors.
  • EMEs and QSEs with black ownership of 100% will automatically qualify as level one contributors.
  • Start-up enterprises will still be measured as EMEs during the first year following the formation of the enterprise.

There will be a twelve-month period from 11 October 2013 to 10 October 2014 during which businesses may choose to have their scorecard compiled and verified under either the old Codes or the new Codes. The purpose of this is to give businesses a chance to align and implement their BBBEE strategy to comply with the new Codes. Sector charters also have to align to the new Codes, but it is unclear whether it will be possible or even required to do this during the twelve-month period.

It is crucial to seek expert advice when adjusting any entity’s BBBEE strategy in order to avoid costly mistakes and ensure maximum benefit for the business, while properly complying with the relevant BBBEE legislation. For instance, enterprises that previously relied on an annual Socio-Economic Development grant in order to obtain a required BBBEE level will have to significantly adjust this amount.

Only qualified verification agents accredited under IRBA or SANAS may conduct independent verifications and issue the applicable certificate.

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.