Lockdown Tips: Simple steps to take control of your finances

Finance News , ,

The COVID-19 pandemic has spread across the globe and left economic destruction in its path. Now, more than ever, it is of utmost importance to take control of and manage your finances so that you can enter this time of uncertainty with the peace of mind you deserve. Follow these simple steps to take back control of your finances:

1. Keep an eye on your credit score

Due to COVID-19 and the nationwide lockdown, many South Africans’ financial situations and financial security have changed. This change can influence your credit score, which is why you need to keep an eye on it.

Why? Because by protecting your credit score, your chances of being accepted for the best deals on credit products will increase. It comes as no surprise that many credit providers are tightening their belts and lending criteria during this time, so make sure to put yourself in the best possible situation when it comes to credit.

2. Apply for credit as soon as possible, if you need it

As mentioned above, many credit providers are tightening their belts and has withdrawn numerous products from the market. If you need to apply for credit, we advise you to do this as soon as possible to secure the right product and price for said product.

3. Cut back on expenditure

It’s important to take the time to look at your income and outcome, especially in preparation for the coming months. To reduce your expenditure, you can either reduce an outgoing payment or delay it. An example of reducing your outgoing expenditure is cancelling a subscription that you no longer use or don’t use as often.

If you want to delay your outgoing expenditure, you can choose to put your payments on hold by taking a payment holiday. Applying for a mortgage payment holiday can significantly soften your financial blow during this crisis and luckily, most lenders are now offering this option.

Whatever plans and measures you put in place to manage your finances during this crisis, make sure to stay calm, collected and safe.

This article is a general information sheet and should not be used or relied on as legal or other 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)

The taxing of capital gain

Tax , ,
Section 9HA of the Income Tax Act deals with deemed disposals by a deceased person. This section of the Act often causes some confusion, especially where there are heirs or legatees other than the surviving spouse. In terms of the provision, a deceased person is treated as having disposed of his or her assets at the date of death, for an amount received or accrued equal to the market value of those assets as at the date of death.This deeming provision does not apply to the following circumstances:

  • Assets of, or for the benefit of the deceased’s surviving spouse.
  • An interest in a resident pension, pension preservation, provident, provident preservation or retirement annuity fund; or a fund, arrangement or instrument outside of South Africa, which provides similar benefits to that in South Africa.
  • In respect of some long-term insurance policies of the deceased.

The position is, however, different if the surviving spouse of the deceased acquires the assets. In this instance, the deceased is deemed to have disposed of the assets at base cost on the date of the deceased’s death. The surviving spouse essentially steps into the deceased’s position.

In the situation where assets are acquired by heirs or legatee’s, assets acquired are treated as though they were disposed of on the day immediately before the deceased’s death, at the market value of those assets. In this instance, any capital gains are to be included in the deceased’s final tax return covering taxes up to date of death.

The consequence is that, if an heir or legatee acquires assets in this manner, the base cost for them is the market value of the assets on the date of death of the deceased.

The practicalities of death are that there are essentially three different taxpayers involved:

  • The deceased person is to file a return covering taxes up until the date of death.
  • Thereafter, the deceased estate is regarded as a “person” for purposes of tax and is required to file a tax return for income earned after death, for each year that the estate is active.
  • Then finally, any heir or legatee is the ultimate beneficial owner of the assets and acquires the assets, and these then form part of such heir or legatee’s estate from the date of distribution to said person.

Executors of estates should, therefore, exercise caution when dealing with the capital gains tax consequences of a person’s death, as the type of heir or legatee could determine the treatment.

This article is a general information sheet and should not be used or relied on as legal or other 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)

Tax relief amid COVID-19

Finance News , ,

While South Africa is currently in a state of lockdown during which a significant number of businesses have had to cease operations, some relief from a tax perspective has been announced by the government. Tax-compliant businesses with a turnover of less than R50 million will be allowed to defer (importantly, not have waived) 20% of their pay-as-you-earn liabilities over the next four months, and a portion of their provisional corporate income tax payments, without penalties or interest over the next six months.

There is, however, a legal and practical difficulty in the proposed relief.

Legal

While President Ramaphosa and his Cabinet have alluded to these relief mechanisms, they remain part of the Executive arm of Government. They cannot make law and amendments thereto; that is a function and privilege of the Legislature (Parliament). Without such relief mechanisms being legislated, SARS must impose penalties and interest on late- or short payments in line with existing legislation. It is highly unlikely that Parliament will be convened to make amendments to tax acts to accommodate for the relief. So, what can be done?

SARS can, through a so-called “practise generally prevailing” set-out their application of a tax act. Such a “practise generally prevailing” should be contained in an official SARS publication, which includes a Practise Note. It could, therefore, be considered that SARS issues a Practice Note to indicate how they will apply specific provisions which impose penalties and interest in certain instances. Although not yet tested in law, it is one of the options that could be considered to attach legal consequences to the relief mechanisms which have been proposed. It will be interesting to see what SARS decides to do in this case.

Practical

Persons who deal with compliance related matters will be well aware that penalties and interest are imposed automatically on statements of account when payments are submitted late, or short payments are made. Systems trigger these penalties and interest. Even though SARS’s eFiling system is one of the best electronic filing systems globally, it is unlikely that changes will be made thereto on such short notice.

Unless there is manual intervention from a SARS official, taxpayers who make use of the relief mechanisms, will automatically find themselves in a dispute process. Even though they are fully entitled to the relief (on the assumption that the relief gets properly legislated as indicated above), they will have to go through the process to have penalties and interest remitted.

We suggest, that before any of the relief mechanisms are utilised, taxpayers consult with advisors to ensure that firstly, the relief is legally available, and secondly, how they must manage the dispute process.

This article is a general information sheet and should not be used or relied on as legal or other 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)

When shares become assets

Finance News , ,
Many business transactions are concluded in terms of section 42 of the Income Tax Act. The section essentially allows a transfer of an asset by a person to a company, in exchange for equity shares in that company, allowing for tax neutral transaction.The South African Revenue Service has recently issued Binding Private Ruling 339, relating to a transaction in which listed shares are transferred to a collective investment scheme (CIS) in exchange for participatory interests in a collective investment scheme. The parties to the transaction are a resident discretionary investment family trust (herein referred to as the Applicant), and a resident CIS as defined in the Collective Investment Schemes Control Act (herein referred to as the Fund).

The facts

The Applicant holds assets which comprise of fixed properties and listed shares (amongst other things) which are held as long-term investments. In this instance, the current market value of the shares exceeds the base cost. Some shares have been held by the Applicant for more than three years, and some for less than three years. The settlor (also a trustee of the Applicant) of the trust has been managing the investments of the trust, while the administration and stockbroking have been attended to by a separate wealth management company. It has been decided by the trustees to transfer the share portfolio to a CIS to be professionally managed and administered. For this to happen, the Applicant will enter into an agreement to transfer shares to the CIS fund in exchange for a participatory interest in this fund.

Ruling

SARS has confirmed that the transaction in this instance would qualify as an asset-for-share transaction as per the definition in Section 42(1) of the Income Tax Act. It was further confirmed that:

  • Shares held for longer than three years would be regarded as capital assets, and that upon transfer, the participatory interests received in exchange for the shares would be deemed to have been acquired on the dates that the listed shares were acquired.
  • There would be no capital gains tax consequences from the disposal of the listed shares as the Applicant would be deemed to have disposed of the shares for proceeds equal to the base cost, and similarly, to have acquired the participatory interests in the CIS on the dates that the initial shares were acquired, for the same expenditure incurred that is allowable.
  • There would be an exemption on Share Transfer Tax for the proposed transaction.

Observation

If one ignores the potential application of the general anti-avoidance rules which apply to all arrangements, it is unclear why the participants to this arrangement approached SARS for a ruling, since the technical analysis is rather straightforward.

There has recently been an increase in such straightforward rulings issued by SARS. In general (and not suggesting that the parties in this ruling did so) one gets the sense that parties approach SARS for a ruling to avoid any attack on a transaction. SARS is however well within its rights to attack a transaction on anti-avoidance, despite a ruling having been obtained. Parties should, therefore, guard against applying for ruling on seemingly straightforward technical grounds, to avoid any attach on anti-avoidance. Such a strategy may end up being unsuccessful.

This article is a general information sheet and should not be used or relied on as legal or other 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)

Managing your startup capital

Business , ,

Becoming an entrepreneur is not as easy as waking up with an idea and having money thrown at you to turn it into a reality. Most successful entrepreneurs share the same sentiments – it takes many rejections and disappointments, and plenty of restarts. There are two things this article will explore; how to get startup capital, and how to manage it.

1. How to get the startup capital

Your drive to become an entrepreneur should not be derived from wanting to have exactly what another entrepreneur has achieved. By virtue of your business idea being different, an opportunity to succeed already exists. Think carefully and seriously about your creative ideas to assess which ones present the most viable options. When you know what will work, approach investors.

Investors are willing to consider investing startup capital to get your idea into the already competitive market and growing your customer base as quickly as possible. They want to see that their investment is going into the practical ways of making things happen.

2. How to manage it

Now that the capital for your business is available to you, your return on your idea’s marketing budget should now be approximated. Think realistically when it comes to overheads, advertising and personnel as these areas should not be where all your capital goes. The two important things that ensure that you appear more credible are the idea development and the launch thereof.

  • Ensure that you are able to track your expenditure so that your capital does not collapse.
  • Let your startup capital be for business purposes and don’t let personal problems dip into it
  • Learn to use a cloud accounting system to avoid possible accounting errors, and to balance your books

This article is a general information sheet and should not be used or relied on as legal or other 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)

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