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TAX OMBUD’S REPORT ON THE INVESTIGATION INTO ALLEGED DELAYED PAYMENT OF REFUNDS AS A SYSTEMIC AND EMERGING ISSUE

The following article is an excerpt from our September 2017 newsletter:

The office of the Tax Ombud provides you with a fair and simple way to seek a resolution of a service, procedure or administrative dispute you have already unsuccessfully tried to resolve through SARS. The Office of the Tax Ombud is independent of SARS.

Taxpayers have, over the years, been complaining that SARS unduly delays the payment of verified refunds. The complaints reached their pick in the period December 2016 to March 2017. Taxpayers identified certain mechanisms allegedly employed by SARS, in the implementation of the tax collection system, to cause the delay. They argued that, in this respect, the tax collection system was being implemented unfairly by SARS. This resulted in financial hardships to them and, in some instances, the near collapse of their businesses; in others, loss of jobs ensued.

The Tax Ombud carried out an extensive review including obtaining inputs from most professional bodies in South Africa. From this review, it became clear that the system allows for SARS to unduly delay the payment of verified refunds to taxpayers in certain circumstances. This has become a systemic issue. The system does not sufficiently protect taxpayers. The removal of the obstacles discussed in the Report, as well as any others, would go a long way towards addressing the problem.

SARS in its response to the Ombud’s findings says:
“It is unfortunate that the Tax Ombud has arrived at the conclusion
that the obstacles are systemic in their nature, as they are the
exception rather than the rule.”

Let’s hope that SARS takes heed and that such practices as reported by the Ombud are discontinued and the process of refunds is administered in a just and equitable fashion. If you are experiencing any problems with refunds please do not hesitate to contact us for professional assistance in this regard.
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WHAT IS ESTATE PLANNING?

The following article is an excerpt from our September 2017 newsletter:

“In the world, nothing can be said to be certain,
except for death and taxes”

Benjamin Franklin

So, with absolute certainty we know we can plan for this event! In today’s world planning for death is only part of this complex and dynamic process. Below is a brief outline of the estate planning process:
An ‘estate’ comprises the assets and liabilities that an estate planner accumulates during their lifetime, and which they leave behind at their death
‘Estate planning’ has been defined as the process of creating and managing a program that is designed to:
Preserve, increase and protect an estate planner’s assets during their lifetime;
Ensure the most effective and beneficial distribution thereof to succeeding generations on death, and in accordance with their wishes
A common misconception about estate planning is that it revolves solely around the making of a Last Will and Testament, or the structuring of an estate planner’s affairs to reduce estate duty
Estate planning is multidisciplinary in nature and should consider an individual estate planner’s financial, economic, social, and psychological needs in relation to their estate, self, family and their beneficiaries
It is not a once-and-for-all activity. The estate planner should regard it as a process, with built-in flexibility

It involves the estate planner entering into a strategic exercise, comprising the following steps:
1.     Determining a snapshot of net worth – including assets, liabilities, and income

2.     Setting goals and planning objectives – deciding in advance what to do with assets and liabilities

3.     Deciding on appropriate estate planning tools – once the objectives have been set, deciding on ‘how’ to do it

4.     Setting timeframes – deciding ‘when’ to do it

5.     Execution – deciding ‘who’ should do it, deciding on the team of professionals to assist with executing the plan

Once an estate plan has been created it should be reviewed on an annual basis or in the event of a material change in circumstances of the estate. Feel free to contact us for professional advice in this regard.

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THE IMPORTANCE OF ETHICS IN ORGANISATIONS

The following article is an excerpt from our August 2017 newsletter:

There has been much in the press as relates to the governance at State Owned Entities. So dire has governance been that in some instances the state may look to recover losses incurred from members of such boards. Unethical behaviour is rampant, what can we do to help address the issue.

In order to better understand the issue, we need to understand what ethics are. Ethics are the principles and values an individual uses to govern his activities and decisions. In an organisation, a code of ethics is a set of principles that guide the organisation in its programs, policies and decisions for the business. The ethical philosophy an organisation uses to conduct business can affect the reputation, productivity and bottom line of the business.

Leaders and employees adhering to a code of ethics create an ethical organisational culture. The leaders of a business may create an ethical culture by exhibiting the type of behaviour they’d like to see in employees. The organisation can reinforce ethical behaviour by rewarding employees who exhibit the values and integrity that coincides with the company code of ethics and disciplining those who make the wrong choices.

A positive and healthy corporate culture improves the morale among workers in the organisation, which may increase productivity and employee retention; this, in turn, has financial benefits for the organisation. Higher levels of productivity improve the efficiency in the company, while increasing employee retention reduces the cost of replacing employees.

Just as we see public interest groups around the country working hard to encourage members of public (and parliament!) to resist and speak out against unethical behaviour, so too can we as business leaders encourage ethical behaviour in our own organisations.

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TAX UPDATES

The following article is an excerpt from our August 2017 newsletter:

Special Voluntary Disclosure Program

The deadline for the Special Voluntary Disclosure Program (SVDP) is on 31 August 2017.  SVDP is a window period for individuals and companies to regularise undisclosed or unauthorized foreign assets and associated income. It came into effect on 01 October 2016.

In terms of the new global Common Reporting Standard for the automatic exchange of information between tax authorities, SARS will start receiving offshore third party financial data from other tax authorities on a regular basis from September 2017; hence the SVDP window period ends on 31 August 2017.

If you have not yet taken advantage of this voluntary disclosure program please do hesitate to contact our offices for assistance in this regard.

Provisional Tax

31 August 2017 marks the deadline for the submission of the 1st Provisional Tax Return (IRP6) for all provisional taxpayers with February 2018 year-ends and the submission of the 2nd IRP6 return for those with August 2017 year-ends.

To ensure compliance with legislation please contact our offices for professional assistance in this regard.

Repo Rate Reduced – Official rate of interest to change

The repo rate was reduced by the reserve bank governor in July 2017 to 6.75% which should see an effective reduction in the official rate of interest to 7.75 % with effect from 1 August 2017. This will affect all taxable fringe benefits that arise from the difference between the official rate and the rate charged by any employer on loans in excess of R3000.

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SME GUIDE TO BEATING THE RECESSION

The following article is an excerpt from our August 2017 newsletter:

South Africa is in a tight corner economically. Not only are we in an official recession, but we get bombarded daily with stories of political mischief, state capture and massive fraud. As business owners we are shell shocked, carrying on about our normal course of business with trepidation. The best action to take is know exactly where you stand at all times. Here are some key ways to assist beating the recession:

Understand your balance sheet

This may sound obvious, but many owners focus on their business’ trading accounts alone. It’s a potentially fatal mistake because healthy profits can mask an impending cash flow crisis. Trading accounts don’t usually contain the information required to make an adequate cash flow projection. For that, you’re going to need a structured balance sheet that includes all the influencing factors including current liabilities, current assets, inventory and so on. This is the basis for your cash flow projection which represents an “educated guess” at the likely incomings and outgoings over the period you have selected to map out.

Review and update cash flow budgets regularly

It’s your best insurance against potential cash shortages. If your business has a predictable cash flow, then cash flow budgeting on a quarterly basis is often enough. The rule of thumb is that the greater the cash flow uncertainty a business faces, the more often a new cash flow budget should be prepared.

Get payments in quickly

Master the art of debtor management. Let debtors know how much time remains before due dates. Stay in close touch with major debtors as payment deadlines approach. Offer small discounts for early payment as an incentive.

Pay your creditors strategically

Take advantage of credit terms and prioritise payments according to the consequences involved in going overdue. Wages, taxes and direct debits are at the top of the list for on-time payment; key suppliers may be prepared to wait a while to keep your business. Don’t pay early just to get a discounted price unless getting the discount is better than being without the cash.

Get finance products working to your benefit

Overdrafts, medium term loans, lease facilities and cash flow funding products can all be excellent tools to help match a business’ cash supply with planned outlays. Even the business credit card can be a good way to ease the squeeze as long as you are sure the debt can be paid before interest kicks in.

Review your fixed overhead

Go through your fixed overheads line by line and determine those costs you can do without.

While many of these tips are obvious, all too often we slip into a comfort zone and take our “eye off the ball.” Why not give us a call to setup a strategy to help improve your cash management.

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SARS PUBLISHES DRAFT TAX AMENDMENT BILLS

The following article is an excerpt from our August 2017 newsletter:

National Treasury and SARS have published, for public comment, various tax amendment bills.
Together with the 2017 Draft Rates, Monetary Amounts and Amendment of Revenues Laws Bill published on 22 February 2017, these three draft Bills give effect to the tax proposals announced in the Budget Review. The two draft Bills released include most of the more complex and administrative tax proposals but exclude the proposals dealt with in the 2017 Draft Rates Bill, such as: changes to the personal income tax brackets, rates and excise duties and the introduction of the Health Promotion Levy (the proposed sugary beverage tax).

Some of the key tax proposals contained in the 2017 Draft bills are:

  • A higher fringe benefit exemption for bursaries to learners with disabilities
  • Removing the foreign employment income tax exemption in respect of South African residents
  • Addressing the circumvention of anti-avoidance rules dealing with share buy backs, dividend stripping and contributed tax capital
  • Extending the application of controlled foreign company rules to interposed foreign trusts and foreign foundations
  • Assisting micro businesses transitioning into the small business corporation system
  • Employees’ tax and reimbursement of travel expenses
  • Application of the cap on deductible retirement fund contributions
  • Taxation of interest payable in respect of normal tax by SARS
  • Phased implementation of Tax Administration Act, 2011, interest rules by tax type

These proposals will go through a public participation process and will thereafter be finalised in all probability by the mid-term budget speech in October 2017. We will keep you informed of the final legislated laws in due course. Should you require additional information at this stage please do not hesitate to contact us for professional advice.

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Implementation of an automated Pay-As-You-Earn (PAYE) Dispute Management process

The following article is an excerpt from our July 2017 newsletter:

On 30 June 2017, SARS introduced an automated dispute management process for PAYE as part of their ongoing commitment to delivering a better service to taxpayers. The new automated system now enables employers to lodge disputes via eFiling and electronically at any SARS branch, manage their tax profiles better and have a consolidated view of all disputes lodged for Personal Income Tax, Corporate Income Tax, Value-Added Tax and now PAYE.

The new PAYE dispute management process has a wide range of benefits that will make managing tax affairs more efficient and these include:

  • It provides the ability to lodge disputes including Request for Remission (RFR), Notice of Objection (NOO) and Notice of Appeal (NOA)
  • The ability to Request for Reasons (RFRE)
  • The ability to Request suspension of payment
  • The ability to submit reasons for late submission of the Dispute
  • All dispute correspondence can be viewed at the click of a button, and where applicable, supporting documents can be uploaded
  • Employers will have a consolidated view of all disputes lodged for Personal Income Tax, Corporate Income Tax, Value-Added Tax and now PAYE.
  • Outcome letters for RFRs and NOOs, Request for late submission as well as Suspension of Payment are conveniently available on the taxpayer’s profile.
  • The process provides the ability to dispute multiple periods on one dispute form up to a maximum of 12 periods for VAT and PAYE.
  • The ability to submit disputes will be based on user submission rights.

Should you wish to have further clarification on the dispute management process please do not hesitate to contact our offices for professional advice.

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Public Interest entities – Rule on Mandatory Audit Firm Rotation

The following article is an excerpt from our July 2017 newsletter:

On 2nd June 2017, the CEO of the Independent Regulatory Board for Auditors, Bernard Agulhas, published the rule on Mandatory Audit Firm Rotation (MAFR) for auditors of all public interest entities, as defined in section 290.25 to 290.26 of the amended IRBA Code of Professional Conduct for Registered Auditors.

The key elements are as detailed below:

REQUIREMENTS

  • An audit firm, including a network firm as defined in the IRBA Code of Professional Conduct for Registered Auditors, shall not serve as the appointed auditor of a public interest entity for more than 10 consecutive financial years
  • Thereafter, the audit firm will only be eligible for reappointment as the auditor after the expiry of at least five financial years

EFFECTIVE DATE

  • The requirement is effective for financial years commencing on or after 1 April 2023. Therefore, if the audit firm has served as the appointed auditor of a public interest entity for 10 or more consecutive financial years before the financial year commencing on or after 1 April 2023, then the audit firm shall not accept re-appointment and will be required to rotate
  • When the auditor determines that an audit client becomes a public interest entity, the length of time the audit firm has served the audit client as the auditor before the client becomes a public interest entity shall be included in determining the timing of audit firm rotation

TRANSITIONAL PROVISIONS

  • If, at the effective date, the public interest entity has appointed joint auditors and both have had audit tenure of 10 years or more, then only one audit firm is required to rotate at the effective date and the remaining audit firm will be granted an additional two years before rotation is required
  • This provision will only be applicable at the effective date

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National Health Insurance (NHI) – Tax Credits to be forgone to fund?

The following article is an excerpt from our July 2017 newsletter:

Health Minister Aaron Motsolaedi recently announced that medical scheme members are likely to lose their tax credits to help pay for the first set of benefits to be rolled out under National Health Insurance. The recently gazetted white paper outlines the following funding scenarios as detailed in the table below:

Alternative tax scenarios in 2025/26 to fund a R71.9 billion (2010 prices) NHI funding shortfall

The most preferred option for revenue generation for NHI will be through Scenario B which is predominantly funded through general revenue allocations, supplemented by: (1) a payroll tax payable by employers and employees, and (2) a surcharge on individuals’ taxable income.

As the NHI evolves, the tax treatment of medical expenses and medical scheme contributions will be reviewed.  It is also expected that there will be a reduction in the need for medical scheme contributions and/or the level of coverage required. The resulting saving in tax expenditure could help to reduce to proposed tax increases. With the implementation of NHI, the role of medical schemes in the health system must change. A key step in leading to this change is that the State will have to identify all the funding for medical scheme contribution subsidies and tax credits paid to various medical schemes and reallocate these funds towards the funding required for NHI.

What this essentially means is that the current tax deductions, which have a current annual tax saving of approximately R20billion per annum, will be forfeited once the NHI is implemented to fund its implementation.

We will keep you informed as this policy evolves.

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TAX SEASON 2017 NOW OPEN

The following article is an excerpt from our July 2017 newsletter:

Tax Season 2017 officially opened on Saturday, 1 July 2017 for eFilers. To assist you we have prepared some helpful information below.

Not everyone needs to file an income tax return. Taxpayers do not have to submit an income tax return if:

  • Their total salary for the year before tax is not more than R350 000
  • They only receive employment income from one employer for the full year of assessment
  • They have no other form of income
  • They don’t have any additional allowable tax deductions to claim

Ensure that you have all your documents ready:

  • Proof of income such as:
    • IRP5/IT3(a) from your employer or pension fund
    • Tax certificates for investment income IT3(b)
    • Tax Free Investments certificate(s) IT3(s)
    • Financial statements (e.g. for business income), etc.
  • Proof of deductions such as:
    • Medical aid contribution certificates and receipts
    • Completed confirmation of diagnosis of disability form (ITR-DD) if you want to claim any   disability expenses
    • Retirement annuity contribution certificates
    • Information relating to foreign tax credits withheld
    • Travel logbook (if you receive a travel allowance or use a company car), etc.

Submission Deadlines:

  • eFiling
    • Non Provisional taxpayers  – 24th November 2017
    • Provisional taxpayers – 31 January 2018
  • Manual – 22 September 2017

Should you require professional assistance in completing your return please do not hesitate to contact our offices.

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