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Tax Season 2018 For Individuals

The following article is an excerpt from our July 2018 newsletter:

The 2018 Tax Season for Individuals opened on 1 July 2018. Deadlines are as follows:

Channel Deadline Type of Taxpayer
Manual – post or at SARS Branch 21 September 2018 Non-provisional and provisional
eFiling or electronic filing at SARS Branch 31 October
2018
Non-provisional
eFiling 31 January
2019
Provisional

Who is a Provisional Taxpayer?

Any person who receives income (or to whom income accrues) other than a salary, is a provisional taxpayer. Most salary earners are therefore non-provisional taxpayers, if they have no other sources of income. It is important to note that receiving exempt income, as follows, does not make you a provisional taxpayer:

  • If you receive interest of less than R23 800 if you are under 65 or;
  • If you receive interest of less than R34 500 if you are 65 and older or;
  • You have income in a tax-free savings account.

Don’t file if you don’t need to

You do not need to submit a return if ALL the criteria below apply to you:

  • Your total employment income / salary for the year (March 2017 to February 2018) before tax (gross income) was not more than R350 000; and
  • You only received employment income / salary for the full year of assessment (March 2017 to February 2018) from one employer; and
  • You have no car allowance/company car/ travel allowance or other income (e.g. interest or rental income); and
  • You are not claiming tax related deductions/rebates (e.g. medical expenses, retirement annuity contributions other
  • than pension contributions made by your employer, travel).

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National Health Insurance (NHI) – Can We Afford it?

The following article is an excerpt from our July 2018 newsletter:

The recently gazetted NHI Bill has caused much debate. While it cannot be disputed that as a society we need to ensure that all have access to quality healthcare , it has to be done on a successful economic basis. Last year, the Davis Tax Committee commented as follows:

“The proposed NHI, in its current format, is unlikely to be sustainable unless there is sustained economic growth.”

With negative growth for the first quarter we certainly are nowhere near sustained economic growth – the launching of the NHI in its current format is probably premature. We will keep you informed on future developments.

Some key points:

  • NHI is a health financing system that pools funds to provide access to quality health services for all South Africans based on their health needs and irrespective of their socio-economic status.
  • It will need a massive reorganisation of the current health system, both public and private
  • This cannot be achieved without creating a single common fund, which in itself will directly contribute towards:
    • a unified health system by improving equity in financing,
    • reducing fragmentation in funding pools across both the public and private sectors, and
    • making health care delivery more affordable and accessible for the population

Transitional Arrangements

Phase 1 was from 2012 to 2017.

Phase 2 will be for a period of five years from 2017 to 2022 and will:

  1. continue with the implementation health system strengthening initiatives, including the alignment of human resources with that which will be required under the Fund;
  2. include the development of National Health Insurance legislation and amendments to other legislation;
  3. include the undertaking of Initiatives which are aimed at establishing institutions that will be the foundation for a fully functional Fund

Phase 3 will be for a period of four years from 2022 to 2026 and will include—

  1. the continuation of Health systems strengthening activities on an ongoing basis;
  2. the mobilisation of additional resources as approved by Cabinet; and
  3. the selective contracting of healthcare services from private providers.

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Fourth Industrial Revolution

The following article is an excerpt from our July 2018 newsletter:

Industry Ministers from BRICS countries recently signed a declaration on the implementation of the Digital Industrial Revolution (DIR). South Africa’s Trade and Industry Minister Rob Davies said he and his counterparts had discussed issues of skills development and capacity building for the fourth industrial revolution or DIR.

“We adopted a declaration. The gist of it is that we have been talking about partnerships within BRICS to prepare us all for the fourth industrial revolution and to ensure that the benefits of this are widely defused and they outweigh the risks and downsides” 

The Fourth Industrial Revolution is the fourth major industrial era since the initial industrial revolution of the 18th century. It is characterized by a fusion of technologies that is blurring the lines between the physical, digital, and biological spheres. It is marked by emerging technology breakthroughs in a number of fields, including robotics, artificial intelligence, blockchain, nanotechnology, quantum computing, biotechnology, The Internet of Things, 3D printing and autonomous vehicles. It is disrupting almost every industry in every country. The breadth and depth of these changes herald the transformation of entire systems of production, management, and governance.

The fourth wave of the industrial revolution is expected to see the heavy implementation of several emerging technologies with a high potential of disruptive effects. If are a key decision maker in your business, it is imperative that you build forward looking strategies into your business plan that deal with potential disruption to your existing business model.

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CIPC Launches Digital Financial Reporting Solution

The following article is an excerpt from our July 2018 newsletter:

The ease of doing business and particularly reducing the regulatory burden for businesses received a boost with the launch of Companies and Intellectual Property Commission (CIPC’s) Extensible Business Reporting Language (XBRL), a Digital Financial Reporting Solution at the Johannesburg Stock Exchange (JSE) in Sandton. The system will allow companies to file Annual Financial Statements using this mechanism and the data could be shared across the regulatory spectrum for multiple purposes. Speaking at the launch of the XBRL, the Minister of Trade and Industry, Dr Rob Davies said while there are many challenges with the Fourth Industrial Revolution, it does offer the possibilities of improving governance.

According to Davies, the Extensible Business Reporting Language (XBRL) will align the submission of annual financial statements with that of the global reporting standards for businesses. The programme will also mitigate the administrative burden on businesses when reporting financial information to government for regulatory compliance.

The Companies and Intellectual Property Commission (CIPC), Advocate Rory Voller said XBRL will assist companies with filing annual financial statements to egress from PDF reporting format, to a structured format.

“By using XBRL, companies and other producers of financial data and business reports can automate the processes of data collection. This will ultimately reduce the burden of multiple submissions by different regulators. We are satisfied with the results and believe the system offers users long-term benefits, especially if they integrate it with their back-end systems,” said Voller. Voller noted that XBRL reporting applies to about 100 000 qualifying entities in South Africa.

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Economy Contracts in First Quarter 2018

The following article is an excerpt from our June 2018 newsletter:

Shock figures from STATS SA reveal that our economy has shrunk by 2,2% in q1 2018. The following extract from Stats SA paints the picture:

After growing by 3,1% in the fourth quarter of 2017, the South Africa economy wobbled in the first quarter of 2018, shrinking by 2,2% quarter-on-quarter (seasonally adjusted and annualised). Agriculture, mining and manufacturing were the main contributors to the slowdown, with the electricity, construction and trade industries also recording negative growth.

The 2,2% fall is the largest quarter-on-quarter decline since the first quarter of 2009. In that quarter, the economy contracted by 6,1%.

After recording four consecutive quarters of robust growth in 2017, the agriculture industry lost ground in the first quarter of 2018, contracting by 24,2%, the largest quarter-on-quarter fall since the second quarter of 2006.

Agriculture’s relatively strong performance in 2017 is one of the positive factors that helped keep the economy afloat in 2017. This momentum failed to carry through to 2018, with decreased production in field crops and horticultural products contributing to the decline in the first quarter.

Mining entered into recession with its second consecutive quarter of economic decline. Production was down 9,9% in the first quarter of 2018, following on from a decrease of 4,4% in the fourth quarter of 2017. Lower production in gold, platinum group metals and iron ore were the main contributors to falling performance.

Manufacturing also failed to make a positive contribution to economic growth, falling by 6,4%. The decline was driven largely by a fall in production of petroleum and chemical products, as well as basic iron and steel.

The trade, construction and electricity industries also recorded negative growth in the first quarter of 2018 compared with the fourth quarter of 2017. Trade activity fell by 3,1%, on the back of weaker wholesale, retail and motor trade sales and lower activity in catering and accommodation.

The construction industry continued to contract, experiencing its fifth consecutive quarter of decline. The industry has lost R1,7 billion in value since the fourth quarter of 2016, falling from R110 billion to R108 billion in the first quarter of 2018 (constant 2010 prices, annualised).

Economic activity in transport, finance, personal services and government increased in the first quarter of 2018. The 1,8% rise in general government was mostly related to increased employment numbers in the public sector.
Commentators are hoping that the influence of Ramaphosa succeeding Zuma will work its way into the next quarter’s results.

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Reckless Trading

The following article is an excerpt from our June 2018 newsletter:

The recent Steinhoff and Gupta debacle’s have highlighted a number of issues, least of all Directors Liability and other governance issues. But was the company itself trading recklessly?

A company must not carry on its business recklessly, with gross negligence with intent to defraud any person or for any fraudulent purpose. If the Companies and Intellectual Property Commission(CIPC) has reasonable grounds to believe that a company is engaging in reckless conduct or is unable to pay its debts as they become due and payable in the normal course of business, it may issue a notice to the company, to show cause why the company should be permitted to continue carrying on its business, or to trade, as the case may be.

The company is required to provide information to CIPC within 20 business days of having received the notice. If the company fails to satisfy CIPC that it is not engaging in prohibited conduct or that it is able to pay its debts as they become due and payable in the normal course of business, CIPC

may issue a compliance notice to the company requiring it to cease carrying on its business or trading. The Commission could also accept the information and confirm the company’s right to continue carrying on business.

If a person to whom a compliance notice has been issued fails to comply with the notice, CIPC or the Executive Director (in the case of the Take-over Regulation Panel), as the case may be, may either:

Apply to a court for the imposition of an administrative fine, or

Refer the matter to the National Prosecuting Authority for prosecution as an offence in terms of section 214(3), but may not do both in respect of any particular compliance notice.

A director could still be subject to significant civil liabilities for any loss, damage or cost suffered by the company as a result of a contravention of section 22.

Directors have a duty to initiate voluntarily Business Rescue Proceedings where it seems the company will become insolvent, so as to avoid the serious consequences contemplated in this section.

At the end of the day it is the Directors of a company that are ultimately responsible for the companies’ affairs. If you are a director of a company and would like to know more about your roles and responsibilities, please do not hesitate to contact us for professional advice in this regard.

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Trusts – Liability of Trustees

The following article is an excerpt from our June 2018 newsletter:

Trusts have recently come under the spotlight from a SARS perspective. With the recent amendments, it is important for a trustee to fully understand their role and responsibilities. Although a trustee may not act in the capacity of trustee until he/she has received a letter of appointment from the Master, he/she is still liable for any unlawful act committed in the handling of trust affairs prior to the issue of the letters.

Once a trustee has accepted the position and is authorised to act, the trustee must act at all times in the best interests of the trust’s beneficiaries and fulfil all duties in terms of the trust deed and the law. A trustee may not be negligent when performing their duties. A trust itself cannot be sued as it is not recognised as a legal person in South Africa (unless a statute defines it as such). It is the trustees in their official capacity who can be sued.

An indemnity clause in the trust deed which exempts trustees from liability for breach of trust is void and does not exempt a trustee from actions involving ordinary or gross negligence or intentional wrongdoing. Criminal liability may be imposed on a trustee who commits a crime in the course of the trust administration e.g. theft or fraud.

Trustees are jointly and severally liable for damages (delict). Beneficiaries or third parties (e.g. creditors) who have suffered a loss as a result of breach of trust are entitled to bring a damages claim against the trustees. Trustees can be sued for damages by beneficiaries if they act negligently (even if they act in good faith) and/or if they intentionally act wrongfully. A co-trustee who was not involved with a breach of trust may nevertheless be liable for any wrongful action of another trustee if the “innocent” trustee’s ignorance and/or inactivity is causally connected to the damage incurred. For example: where the “innocent trustee” is aware of a breach of trust by co-trustees but does not report it, or where the “innocent trustee” improperly allows trust funds to remain in the sole control of co-trustees.

Being a trustee is no light matter. If you are a trustee and would like to find out more about your roles and reasonability’s please feel free to contact us for professional advice in this regard.

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Estate Plan Review

The following article is an excerpt from our June 2018 newsletter:

While it makes sense to review one’s estate plan on annual basis there are some key events which should ring a bell for an estate planner to revise their estate plan immediately. The following are some key events:

Divorce

The Wills Act states that except where expressly otherwise provided, a bequest to a divorced spouse will be deemed revoked if the testator dies within three months of the divorce. This provision is to allow a divorced person a period of three months to amend their Will, after the trauma of a divorce. Should one fail to amend their Will within three months after divorce, the deemed revocation rule will fall away, and the divorced spouse will benefit as indicated in the Will. In addition, review beneficiary nominations on any policies, retirement annuities, and trust deed provisions (all subject to the divorce order).

Sale or donation of asset specifically mentioned in Last Will and Testament or Inter vivos trust

Marriage

Birth of a child or grandchildren:
If children are minors the estate planner needs to ensure that the assets they inherit are protected through the estate planners Will.

Estate planner acquires significant property

Downturn in estate planner’s financial position

New business ownership:
Provide for business succession planning in the partnership, shareholders or association agreement(s).

Change in legislation having an impact on the estate plan:
For example, annual Budget speech announcements and tax legislation amendments.

The estate planner will need to decide whether it is practical and viable to merely amend current documents or create entirely new documents to account for any changes. Estate planning is a complex matter and requires the input of various professionals in order to consider all relevant tax and legal implications. We strongly suggest you contact us for professional advice in this regard.

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Annual Employer Reconciliation for the period 1 March 2017 – 28 February 2018

The following article is an excerpt from our May 2018 newsletter:

Employers are required to submit their PAYE Employer Annual Reconciliations between 1 April and 31 May 2018 to SARS, confirming or correcting payroll tax amounts which were declared in respect of the 2017/2018 tax period.

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Davis Tax Committee final report on VAT

The following article is an excerpt from our May 2018 newsletter:

The terms of reference of the Davis Tax Committee (DTC) in general required the Committee “to inquire into the role of the tax system in the promotion of inclusive economic growth, employment creation, development and fiscal sustainability”, and in particular as it relates to value-added tax (“VAT”), to give specific attention to:

“…efficiency and equity. In this examination, the advisability and effectiveness of dual rates, zero rating and exemptions must be considered”

Brief summary of recommendations.

Taxpayer compliance: The VAT gap

Essentially the tax gap in the VAT environment is the difference between the tax that is due under the VAT law, and the amount of actual tax collected. The magnitude of the gap “can be seen as an indicator of the effectiveness of VAT enforcement and compliance measures, as it arises as a consequence of revenue loss through cases of fraud and evasion, tax avoidance, bankruptcies, financial insolvencies as well as miscalculations”.

The following observations and actions have been recommended to SARS:

  • continue to monitor the VAT compliance gap as a means of evaluating its performance, and to inform strategic decisions about tax;
  • take the opportunity of the release of the supply-use tables in February 2015 to update its estimate of the VAT gap, and its sectoral composition;
  • consider broadening its tax gap analysis to include other major taxes and;
  • further integrate its revenue and national compliance analyses, to support systemic compliance risk management. There is more scope for more detailed revenue analysis of revenues from individual industry sectors and taxpayer segments to support strategic risk analysis.

Zero-rating
The recommendation of the DTC is that no further zero-rated food items should be considered.

Dual (multiple) rates
The DTC recommends that multiple rates not be adopted.

Exemptions
This has been considered mainly from a financial services perspective and the DTC has suggested that the various approaches adopted in other jurisdictions should receive further urgent consideration by National Treasury and SARS.

Place of Supply Rules
Explicit place of supply rules have been adopted in most jurisdictions so as to fix the place in which supplies are to be taxed and accounted for. Given the magnitude of cross-border trade, in particular cross-border services, generally accepted place of supply rules are necessary to prevent double taxation and non-taxation. The OECD has issued the International VAT/GST Guidelines that seek to promote common place of supply rules.

The DTC recommends that the VAT Act be amended to ensure the inclusion of clearly stated ‘place of supply rules’, specifically rules that are in harmony with the OECD Guidelines and which are supported and adhered to by other VAT jurisdictions.

E-Commerce
The new frontier for VAT is its application in an electronic commerce (“e-commerce”) environment, where the supply of electronic services across jurisdictional boundaries has given rise to many compliance challenges for governments. A significant number of foreign jurisdictions have sought to address this conundrum by adopting place of supply rules that apply specifically to e-commerce.

The Committee recommends that a number of technical amendments be made to the South African rules as regards the definition of “electronic services”, while the Committee also recommends that a distinction be drawn between B2B and B2C supplies.

Macroeconomic impact of raising VAT
The recommendation was to not increase VAT, however if it was (as it now has been) the recommendation was that a range of compensatory mechanisms be considered for adversely affected consumers

Traditional Communities
The DTC recommends that the VAT Act be amended to place traditional communities who operate similarly to a municipality on the same footing as municipalities.

It is interesting that despite of the in depth analysis by the DTC, VAT was indeed raised to 15%. The most logical approach would be to close the “VAT Gap” by improving collections disclosure and the like. One can expect an increase in activity in this area as well.

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