Monthly Archives: September 2016

1/4 Apple Awards

The 1/4 Apple Award for September went to two well deserving Newtons Gentleman namely Martinus de Beer and Siseko Tose. Lucha Greying presented them with the awards.

The 1/4 Apple Award for September went to two well deserving Newtons Gentleman namely Martinus de Beer and Siseko Tose. Lucha Greying presented them with the awards.

Congratulations to the following staff on their lucky draw win at the 1/4 Apple Awards : from L-R Thelma Crossman, Sane van der Watt, Martinus de Beer, Siseko Tose, Thembakazi Kojana, Lucha Greyling (Partner) Elrico Greyvenstein, Willie van der Merwe

Congratulations to the following staff on their lucky draw win at the 1/4 Apple Awards : from L-R Thelma Crossman, Sane van der Watt, Martinus de Beer, Siseko Tose, Thembakazi Kojana, Lucha Greyling (Partner) Elrico Greyvenstein, Willie van der Merwe

SANBS Blood Drive

Thank you to all the Staff that donated blood on the 9th September 2016

Bandanna Day for Sunflower Fund

Newtons Staff celebrating Sunflower Day 2016 !
Wear your “TUBE OF HOPE” TOPE

Duminque van Niekerk, Melanie van der Merwe, Jo-Mari Koorsen, Siseko Tose, Anette van Heerden

Duminque van Niekerk, Melanie van der Merwe, Jo-Mari Koorsen, Siseko Tose, Anette van Heerden

Siseko Tose, Icy Jooste, Danette Blom, Luzanne Harmse, Jo-Mari Koorsen, Melanie van der Merwe, Anette van Heerden, Helensha Cilliers, Thembakazi Kojana  Front: Duminque van Niekerk, Anze Pienaar, Thelma Crossman

Siseko Tose, Icy Jooste, Danette Blom, Luzanne Harmse, Jo-Mari Koorsen, Melanie van der Merwe, Anette van Heerden, Helensha Cilliers, Thembakazi Kojana
Front: Duminque van Niekerk, Anze Pienaar, Thelma Crossman

Melanie van der Merwe and Danie Saayman

Melanie van der Merwe and Danie Saayman

 

 

Personal service companies

Natural person taxpayers who earns a salary have very few items of expenditure available to them which they may deduct for income tax purposes (section 23(m) of the Income Tax Act, 58 of 1962). Generally, the deductions which salaried individuals may claim for income tax purposes are limited to amongst others contributions to retirement type funds, donations to approved public benefit organisations, medical aid contributions and expenditure linked to distances travelled which may be set off against a travel allowance earned.

To escape this restraint, employee taxpayers would arrange with employers not to be directly employed, but that a company (which would typically be owned by the taxpayer) will be contracted to provide the services which the employee taxpayer otherwise would have provided directly in an employment capacity. The employee will now perform these services as employee of the contracted company to the employer indirectly. In this manner, many other expense items also become potentially deductible by the taxpayer’s company which would not be limited by the provisions of section 23(m) since the company does not stand in an employment relationship with its client which would otherwise have been the natural person’s employer. A further potential advantage to be achieved by interposing a company in an employment relationship is that the income tax payable by high income earners is effectively capped at the corporate income tax rate of 28%.

To counter these instances of avoidance, the “personal service provider” regime was created. The deductions available to “personal service providers” for income tax purposes are similarly restricted as is the case for salaried individuals (section 23(k)). A “personal service provider” is defined as a company or trust on which behalf services are rendered to a client of the company or trust personally by an individual who is a connected person in relation to the company or trust, and any one of the following three criteria are also met:

• The individual would be regarded as an employee of the client if the services were rendered by the individual directly to the client;
• The duties linked to the services are required to be performed mainly at the premises of the client, or the individual, company or trust is subject to the control or supervision of the client as to the manner in which the duties to be performed; or
• More than 80% of the income of the company or trust during the tax year from services rendered consists of amounts received directly or indirectly from any one client of the company or trust.

(See paragraph 1 of the Fourth Schedule to the Income Tax Act.)

Considering what would normally be required by an employment relationship of an employee, it would be difficult to escape the above anti-avoidance provisions. One exception which exists though is if the company or trust employs at least 3 employees on a full time basis (and other than employees which are connected persons in relation to that company or trust).

The above anti-avoidance provision is important to take note of for individuals attempting to make use of companies to gain access to increased income tax deductions, or to limited their margin tax rate. It is however similarly applicable to small companies which operate in the services industry, as it may very well be that these companies too are also inadvertently caught by these anti-avoidance provisions.

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)

Dire provisional tax penalties on underestimation of income

Provisional taxpayers are generally those taxpayers who earn income from sources other than a salary. In other words, PAYE is not deducted from these other sources of income on a monthly basis and paid over to SARS. As is the case with PAYE, provisional tax presents a cash flow mechanism to National Treasury through which to gather prepayments of an ultimate tax liability throughout a tax year on income which is not subject to the PAYE regime and which would otherwise only have been paid some time later when an annual income tax return is ultimately submitted. This can be as much as a year later.

To this end, provisional taxpayers are required to submit an estimate of their annual taxable income on a six-monthly basis. In the case of natural persons, provisional tax estimates are required to be submitted to SARS by way of a provisional tax return at the end of August each year, and again by the end of February. Legal persons similarly are required to submit estimates of taxable income at the end of the first 6 months of their financial years and again on the final day of the financial year.

For the first sixth-month estimate to be submitted an estimate is required to be made by the taxpayer of the estimated amount of taxable income that will be earned for the full year of assessment: half the amount of tax due on that estimated amount is required to be paid over to SARS at that date already, albeit after taking into account any amounts of PAYE also already deducted, where salary income is also earned. For the second provisional tax return, an estimate should again be submitted, and the tax on such estimate again be paid over (after taking into account any amounts of PAYE already deducted during the year as well as the first provisional tax payment already made).

The potential for manipulation by taxpayers is obvious and a legislated remedy is required to ensure that provisional taxpayers do not simply always submit an estimate of Rnil, thereby delaying the payment of amounts to SARS until the tax return for the applicable year itself is ultimately submitted. To this end, the Fourth Schedule to the Income Tax Act, 58 of 1962, makes provision for penalties to be levied where it appears at ultimate assessment date that a taxpayer has underestimated its taxable income for provisional tax purposes. For taxpayers earning more than R1 million in taxable income, taxpayers are allowed some leeway in that an estimate should at least have been 80% of the actual taxable income ultimately determined. This recognises that taxpayers are unlikely at yearend to be able to accurately estimate their actual taxable income for the year already. However, if the estimated taxable income proves to be less than 80% of the actual taxable income, a 20% penalty is levied on the difference between the tax payable on 80% of the actual taxable income and the tax payable on the estimated amount returned by the taxpayer.

Similarly, taxpayers earning less than R1 million taxable income are subject to the same 20% penalty, but within a 90% margin of accuracy instead of 80%. These taxpayers are afforded additional relief though in that they are permitted to submit as an estimate a factor of their last assessed taxable income without running the risk of incurring a penalty, even if this amount ultimately is less than 90% of the actual taxable income determined.

Interestingly, no underestimation penalty exists for first provisional tax estimates, however SARS may query estimates submitted and require taxpayers to submit revised first provisional tax estimates. Where second provisional tax estimates are concerned though, taxpayers should take care in preparing estimated taxable incomes which are to be submitted for provisional tax purposes as failure to do so could lead to a significantly increased tax charge when the tax year is ultimately assessed by SARS.

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)

Registering for provisional tax

Many taxpayers file their tax returns on an annual basis unaware thereof that they may be regarded as provisional taxpayers in terms of the Income Tax Act, 58 of 1962, too. In its simplest form, provisional tax exists to provide for regular cash flows to the fiscus throughout the year. In this sense it exists for very much the same purpose as the PAYE system, with provisional tax applying though typically to non-salary type income.

The following persons are considered provisional taxpayers in terms of the Fourth Schedule to the Income Tax Act, and are thus required to file provisional tax returns and make the attendant payments of provisional tax over and above those annual obligations which exist as relates to their annual income tax returns:

• Every person (other than a company, but including a trust) who generally earns any income other than in the form of “remuneration” as defined;
• Every company; and
• Any person who is notified by the Commissioner for SARS that he or she is a provisional taxpayer.

The above however excludes:

• Any natural person who does not derive any income from carrying on a business, if the taxable income for that person does not exceed:
o the tax threshold (for 2016: R73,650 for individuals under 65, R114,800 for individuals under 75 and R128,500 for all other individuals); or
o R30,000 as relates to interest, dividends or rent received from letting immovable property;
• Deceased estates;
• Certain approved public benefit organisations;
• Body corporates; and
• Small Business Funding entities.

Many taxpayers may be completely unaware thereof that they are required to file returns as provisional taxpayers. This is especially true of typically individuals earning a salary but for example letting a second property which they may own to earn a second income stream.

These individuals will, based on the above prerequisites, have to ensure that they file bi-annual provisional tax returns and pay the requisite amount over to SARS in time (due by 31 August and 28/29 February each year). Failure to comply in this fashion will lead to significant penalties being incurred on late payment, or underestimation of the amount of provisional tax due: failure to submit a return when required is considered as the taxpayer having filed a return for Rnil.

As is the case for PAYE though, the provisional tax system does not operate as a tax per se but rather as the prepayment of a yet to be determined income tax liability. Therefore, once the ultimate amount of tax due for any given year of assessment has been determined after filing one’s annual income tax return, the resultant tax liability is reduced by provisional tax payments already made (and PAYE withheld) and the difference is then either due to SARS or to the taxpayer as a refund of the provisional tax paid too much.

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)