Our Blog

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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Naming Your Business

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

A well-chosen business name is simple, unique, search-friendly, memorable and easy to recognise.  Before deciding on a business name, it is wise to ensure that the name is not already in use.  Bearing in mind that you will probably want to set up a website, it is also worthwhile doing a search to make sure that the domain name is not already taken.

Prior to the Companies Act 71 of 2008 (Companies Act) and the Consumer Protection Act 68 of 2008 (CPA), many people simply bought a ‘shelf company’ or ‘close corporation’ with non-distinctive names and then traded under a different name. There were no requirements to register a trade name, and this often resulted in the infringement of third party trademarks.  This is no longer allowed.

Some important points to remember when registering a business name:

  • a business name may contain words in any language, certain symbols, any letters, numbers or punctuation either alone or in combination (certain restrictions apply)
  • any word, expression or symbol that constitutes propaganda for war, violence or hatred may not be used in a company name
  • the word “bank”, “deposit-taking institution” or “building society” in a business name is not allowed, unless the business is registered as a deposit-taking institution, or unless the business is incorporated under the Banks Act 94 of 1990 or any other relevant legislation
  • a business name must not falsely imply that the business is associated with other persons or entities, the state and its related bodies, or persons or bodies with an educational title
  • certain words must appear in/at the end of a business’s name
  • a business name must not be the same/confusingly like the name of another business entity or trademark

Also note that certain restrictions apply to the use of your business name in written communications.

If you need any help with naming or setting up your new business, please contact our offices.

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Financial Ratios

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

Every rand that you spend on your business should deliver returns so that you can grow your business, pay your employees and still make a profit.  Financial ratios are calculations based on the information provided in your financial statements which enable you to objectively measure the performance of your business.

Financial ratios can be used to:

  • evaluate profitability, efficiency and risk
  • assess liquidity
  • assess overall financial position (solvency)
  • determine capacity for growth
  • drive performance through informed business decisions
  • identify symptoms of underlying problems in a business

Financial ratios can also be used to compare the performance of your business against that of your competitors using industry benchmarks.

Here are just a few useful ratios:

Current ratio: Current assets / Current liabilities: indicates the surplus liquid funds that are available in your business, the higher the value the better

Quick ratio or acid test ratio: (Current assets – Inventory)/ Current Liabilities: shows the ability of your business to pay current liabilities out of assets which are either cash or quickly convertible into cash, the higher the value the better

Accounts receivable days: Accounts receivable x 365 / Yearly turnover: shows the average number of days it takes customers to pay their accounts, an increasing value indicates an inefficiency in collecting outstanding debt

Accounts payable days: Accounts payable x 365 / Yearly cost of sales: shows the average number of days it takes to pay suppliers, an increasing value indicates that it is taking longer to pay suppliers

Inventory days: Inventory x 365 / Yearly cost of sales: shows on average how many days an item is held in inventory prior to being sold, an increasing value suggests inefficient purchasing and / or too high inventory holding

Gross profit margin: Turnover – Cost of sales = Gross profit / Turnover: measures how efficiently a business uses its materials and labour to produce and sell products profitably

Should you require any further information about using financial ratios in your business, please contact our offices.

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Tax Clearance Certificates

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

A Tax Clearance Certificate is a document issued by the South African Revenue Service (SARS) which validates your status as taxpayer and confirms that your tax affairs are in order at the date of issue.

The TCC is required for:

  • applying for government tenders or advertised bids
  • listing as a supplier or service provider for large corporations / government institutions
  • verifying that someone is tax compliant (good standing)
  • transferring funds out of South Africa using the Foreign Investment Allowance (FIA)
  • emigration purposes

SARS will only issue a TCC if the following requirements are met:

  • taxpayer has registered for an Income Tax reference number and this number must be active and correct (all registered particulars must be up to date)
  • taxpayer has no outstanding tax returns
  • taxpayer has no outstanding tax debt (unless a payment arrangement or suspension of debt has been agreed) – this includes Secondary Tax on Companies (STC), Administrative Penalties and Employee Tax
  • taxpayer complies with all deferred tax arrangements
  • tax returns and/or declarations are to date or in the process of being assessed by SARS
  • the registration details on the TCC01 correspond with the information in the SARS system (if applicable)

The TCC has become very important for businesses and is generally required by suppliers when opening a new account.  For a company to receive a TCC, the tax affairs of all the directors must also be up to date.

In the case of a group of companies, all companies within the group are required to be tax compliant.  If any one of the sub-entities is non-complaint, the holding company will also be regarded as non-compliant and a TCC will not be issued.

Should you have any concerns about tax compliance certification, or need any further information, please contact our offices.

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Financial Intelligence Centre Amendment Bill Signed into Law

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

Following a long delay, President Zuma finally signed the Financial Intelligence Centre Amendment Bill into law at the end of April 2017. The bill is required for South Africa to meet its international commitments with the Financial Action Task Force (FATF).

The amendments to the Financial Intelligence Centre Act (FICA) 2001 are important because they allow for the Financial Intelligence Centre (FIC) to perform its watchdog role more efficiently and effectively.  The amendments enhance the FIC’s ability to generate quality financial intelligence which can then be shared with a wider range of government departments and agencies, in an effort to combat financial crimes (such as money laundering and terrorist financing).

The amendments are intended to make it more difficult for people involved in illegitimate activities or tax evasion to hide behind legal entities, such as shell companies and trusts.

The amendments also bring about improved scrutiny and ease of reporting by introducing a risk-based approach towards money laundering activities. Banks are now obliged to implement and apply significant procedures to ensure compliance with international standards. The amendments are intended to:

  • make banking activity easier for ordinary people with regular banking transactions
  • give banks greater oversight so that they can identify suspicious activity promptly and report this to the Financial Intelligence Centre
  • give banks greater oversight of bank accounts held by politically influential people as well as ‘high risk’ accounts with large balances and lots of banking transactions

South Africa had been given until June 2017 to enact the legislation.  The signing of the FICA Amendment Act is important for South Africa’s continued membership of the FATF.  It is now up to Finance Minister Malusi Gigaba to implement the bill.

If you need any further information on FICA and how it affects you, please contact our offices.

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Big Brother is Watching…

The following article is an excerpt from our October 2016 newsletter:

By now, you have probably already heard of the routine exchange of information that occurs between global tax authorities, but it is important to know a little bit more about this and how it could affect you.

With increased globalisation, it is becoming much easier for taxpayers to create, hold and manage investments through financial institutions outside of their country of residence.  As a result, offshore tax evasion is a major headache for authorities all over the world.

The Global Standard for Automatic Exchange of Financial Account Information has been developed by the Organisation for Economic Co-operation and Development (OECD), in conjunction with G20 countries and the EU. Under this global standard, information from financial institutions is reported to local tax authorities and is then automatically exchanged with global tax authorities on an annual basis.

The Common Reporting Standard (CRS), creates a globally co-ordinated and standardised approach to the disclosure of account holders’ financial information. The implementation of CRS has been successful because of the establishment of an international framework which is currently made up of more than one hundred tax jurisdictions.

CRS builds upon other information sharing legislation, such as FATCA (the US Foreign Account Tax Compliance Act) and the European Union (EU) Savings Directive.  CRS requires that tax authorities share information relating to accounts and investments.

Since July 2014, South Africa’s Financial Institutions have been required to collect and report on certain information which is exchanged with other countries under the agreement.  This information includes:

  • the name, address, tax identification number and date and place of birth
  • the account number
  • the name and identifying number of the reporting financial institution
  • the account balance or value at the end of the relevant reporting period
  • the total amount paid or credited to the account holder during the relevant reporting period (e.g. gross interest, gross dividends, gross other income)
  • in relation to closed account, the balance as at one day before the closure of the account.

As one of the early adopters of the CRS, South Africa is committed to commence the automatic exchange of information on a wider front from 2017.

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Special Voluntary Disclosure Programme (SVDP)

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

The window period for disclosing foreign assets and applying for relief through the Special Voluntary Disclosure Programme (SVDP) closes on 31 August 2017.

Who may apply for the SVDP?

  • Individuals and companies
  • Settlors, donors, deceased estates or beneficiaries of foreign discretionary trusts (if they elect to have the trust’s offshore assets and income deemed to be held by and accrued to them)
  • Taxpayers who disposed of any foreign assets prior to March 2010 (special deeming provisions apply)

Who may NOT apply for the SVDP?

  • Persons who have been given notice of the commencement of an audit or criminal investigation in respect of foreign assets or foreign taxes
  • Where SARS has obtained the information under the terms of any international exchange of information procedure
  • Disclosure where it is argued that all or part of the seed money/subsequent deposits/funding of foreign assets are not taxable in South Africa or have already been taxed in South Africa (the normal VDP channel can be used in these cases)
  • Trusts

Benefits of applying for the SVDP:

  • Only 40% of the highest value of the total of the aggregate of all assets outside South Africa derived from undeclared income and accumulated between or deemed to be between 1 March 2010 and 28 February 2015 will be included in the taxable income and subject to tax in South Africa
  • Undeclared income that originally gave rise to the assets mentioned above will be exempt from income tax, donations tax and estate duty liabilities arising in the past (future income will be fully taxed and assets declared will remain liable for donations tax and estate duty)
  • Interest on tax debts arising from the disclosure will commence only from the 2015 year of assessment
  • Investment income and other taxable events prior to 1 March 2015 will be exempt from tax (future investment income will be subject to tax)
  • No understatement penalties will be levied where an application under the SVDP is successful
    Other SARS administrative non-compliance penalty relief may apply
  • Where an application under the SVDP is successful, SARS will not pursue a criminal prosecution

Should you require any further information about SVDP, please contact our offices.

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It’s Time to Complete Your 2017 Employer Annual Reconciliation Declaration

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

Employers have from 18 April 2017 until 31 May 2017 to submit their Annual Reconciliation Declarations (EMP501) for the period 1 March 2016 to 28 February 2017.

The 4th Schedule to the Income Tax Act places the following obligations on all employers who are registered at SARS for Pay-as-you-earn (PAYE), Unemployment Insurance Fund (UIF) or Skills Development Levy (SDL):

Must issue employees with an IRP5/IT3(a) where remuneration is paid or has become payable
Must submit all reconciliation documents to SARS within the prescribed period
The Employer Annual Reconciliation Declaration is important because it is a way of making sure that the monthly declarations (EMP201’s) which have been submitted during the year are accurate and that they tie up to the payments made, as well as to the IRP5 / IT3(a) certificates issued and ETI (if applicable).

The Annual Reconciliation Declarations (EMP501) must show details of the total amount of:

  • Employees’ Tax [Pay-As-You-Earn (PAYE)]
  • Skills Development Levy (SDL)
  • Unemployment Insurance Fund (UIF)
  • Employment Tax Incentive (ETI) deducted or withheld
  • Details of Employee Tax certificates [IRP5/IT3(a)s] issued during the tax year

The Annual Reconciliation Declaration must be submitted electronically to SARS by the due date.  Penalties and interest will be charged on:

  • Non-submission of the Employer Annual Reconciliation (EMP501) on or before the due date
  • Non-submission of employee IRP5 / IT3(a) certificates
  • Submission of incorrect or inaccurate data relating to the IRP5 / IT3(a) certificates

Should you have any questions or need any help with your Employer Annual Reconciliation, please do not hesitate to contact us.

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Changes to South Africa’s National Treasury

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

Following President Zuma’s controversial cabinet reshuffle at the end of March 2017, Treasury has undergone some major changes:

Malusi Knowledge Nkanyezi Gigaba has replaced Pravin Gordhan as Minister of Finance
Sifiso Buthelezi has replaced Mcebisi Jonas as Deputy Finance Minister
Treasury is recruiting for a replacement for The Director General of National Treasury, Lungisa Fuzile, who has resigned.

Here are some facts about the new Minister of Finance (political head of Treasury):

  • Born in 1971 in KwaZulu Natal, Gigaba is the youngest finance minister in South Africa’s history
    SA’s fourth Finance Minister in two years
  • Formerly the Minister of Home Affairs
  • BA Degree in Education and a Master’s Degree in Social Policy
  • Former President of the African National Congress Youth League
  • Member of the African National Congress’ National Economic Committee (NEC)
  • Member of the National Working Committee of the ANC
  • Member of Trade and Industry Portfolio Committee

Whilst Minister of Home Affairs, Gigaba introduced some major changes such as the travel requirement that all minors produce (in addition to their passport) an Unabridged Birth Certificate for all international travel to and from South Africa.  He also addressed the high rates of immigrant employment in the country by introducing inspections to ensure that all businesses in South Africa have a workforce of at least 60 percent SA citizens.

The South African economy has been badly shaken by these recent events and the road to recovery is likely to be long and difficult.

It is ‘crunch time’ and Minister Gigaba has a colossal job ahead of him in re-establishing trust and the respect of the international markets.

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