Kirsten Van Tonder – Page 11

14 Apr

On 23 March 2020, President Ramaphosa announced certain tax relief measures to be made available to employers and employees to ease the financial strains which may be brought on by the Covid-19 virus and accompanying lockdown. These measures have been put to paper in the Draft Disaster Management Tax Relief Bill which was published by the National Treasury on 01 April 2020.

Following is a summary of the tax measures available with requirements setting out which employers and employees will qualify for these measures.

DEFERMENTS OF PAYE AND PROVISIONAL TAX PAYMENTS

There will also be relief in the form of deferments allowed on provisional tax and PAYE payments.

Provisional tax
The deferment of provisional tax payments will only apply to a Taxpayer if the Taxpayer is tax compliant and the gross income of the Taxpayer does not exceed R50 million annually. Furthermore, the Taxpayer’s year end must be between 01 October and 31 March. This relief is only applicable from 01 April 2020 up until and including 31 March 2021. The provisional taxes for both the first and second periods may be deferred. In terms of this relief, the Taxpayer is only required to pay 15% of its estimated taxable income in its first period and 65% of its taxable income in the second period. The remaining 20% may be paid as a third payment on or before the last business day of the sixth month after year end. These deferred payments will not be subject to penalties or interest. According to the explanatory notes on Covid-19 measures, measures in terms of individuals carrying on a business have yet to be finalised, but they may be eligible if their turnover is less than R5 million and 10 per cent or less of their turnover is derived from interest, local dividends, foreign dividends, rental from letting fixed property and any remuneration received from an employer.
PAYE
Employers will be able to defer their PAYE liabilities. Once again, the employer must be tax compliant. The relief will be available from 01 April 2020 up until 31 July 2020 and will only apply to small to medium sized businesses. An employer will be allowed to defer 20% of its PAYE liability for the months of April, May, June and July. Therefor you can defer from 7 May 2020. It is important to note that the employer will still need to pay the full amount of PAYE for the March period on 07 April 2020. The deferred amounts will be required to be paid in six equal monthly instalments, starting 7 September 2020. No penalties or interest will be levied on these deferred payments. It is important to note that understatements of PAYE within this relief period will lead to penalties and interest.

EMPLOYEE DRIVEN RELIEF MEASURES

The Unemployment Insurance Fund

R30 billion has been allocated to the National Disaster Benefit Fund, which will be utilized to pay qualifying Unemployment Insurance Fund (“UIF”) benefits for up to three months. In response to the Covid-19 pandemic, the UIF has two avenues through which to seek relief. The normal UIF benefits and TERS.

Normal UIF benefits
An employer may claim normal UIF in terms of “reduced or short time”, Illness benefits or Death Benefits. In order for the “reduced or short time” UIF benefits to be claimed, the following requirements must be met:

The company has ceased operations and closed or implemented reduced working hours;
Employees are being compensated partially according to hours worked;
The employer is registered for UIF.

If these requirements are met, benefits payable to the employee will be the difference between what the employer pays and normal UIF benefits payable. There will also be Illness Benefits available in terms of a quarantined employees and Death Benefits in terms of a deceased employees.

TERS
The Temporary Employer-Employee Relief Scheme (“TERS”) offers another avenue relief and the benefits in terms hereof are determined differently to normal UIF benefits. To qualify for TERS, the following requirements must be met:

The employer must be registered for UIF;
The employer must have ceased operations for three months or less;
Financial distress must have been suffered by the employer leaving it unable to compensate its employees;
An employee may only receive COVID-19 benefits in terms of TERS if the total of the benefit together with any additional payment by the employer in any period is not more than the remuneration that the employee would ordinarily have received for working during that period.
The latter three points must have been directly linked to the Covid-19 pandemic.

If this avenue is used, the employer cannot also claim normal UIF benefits. The benefit paid out by TERS will be capped at a maximum of R17,715 per month per employee and paid in terms of the income replacement sliding scale (38%-60%) as in the Unemployment Insurance Act 63 of 2001. TERS only applies to the cost of employee salaries during the closure of the business.

The Employment Tax Incentive
The Employment Tax Incentive (“ETI”) is an incentive aimed at encouraging employers to employ younger employees by providing certain rebates according to the number of qualifying employees which are employed. This measure will apply for the period 01 April 2020 to 31 July 2020. The employer must comply with the following requirements for application of relief

The employer must be a small and medium sized business;
The employer must be registered for PAYE as at 01 March 2020.

The table hereunder summarizes the additional relief made available during the qualifying period.

Requirement	Usual ETI reimbursement	Covid-19 additional relief
Employee age	18 – 29	18 – 65
Employee earnings	R6,499	R6,499
ETI available in the first 12 months	Maximum R1,000	Maximum R1,500
ETI available in the second 12 months	Maximum R500	Maximum R1,000
Monthly claim	Not available	R500/month
After employee ETI has been exhausted	No additional reimbursement available	R500/month

Other measures worth mentioning

Additional to the discussed measures above, there are also measures being developed to support the informal sector and grants from the South African Social Security Agency (“SASSA”) are being paid out early. The banking sector has also been provided some relief, such as lower capital requirements. The Compensation Fund will also be compensating employees who have contracted Covid-19 in their workplace. Relief is also being supplied to small and medium sized enterprises, who can apply at The Department of Small Business Development for debt relief if they are in financial distress.

Don’t hesitate to contact Zuydam Konsult if you require assistance in any of the relief measures as discussed above.

2 Apr

The Art of Staying positive

Kirsten Van Tonder

Uncategorised

Are you, like all other average business owners in South Africa, currently feeling like you must step up your game and Marvel Superhero just to ensure economic survival? You are not alone.

Measuring yourself against a ‘Superhero’ as the new normal can come at a big price. These comparisons may lead to feelings of inadequacy in life and in business. This can also easily spill over in the way you conduct yourself in your business as well as your family life.

The fact is that the SME entrepreneur is actually already a real-life Superhero. In my opinion you are much more than any of the Marvel Superheroes that you see on the big screen.

My advice to you Mr/Mrs Business Superhero; is to “keep on going against all odds!”.

Positive thinking is cultivated by several other positive elements in your life. To explain; at a recent sports evening where Rassie Erasmus was the main guest, he said that “winning does not create hope it creates moments of happiness”. I am, however, of the opinion that a series of these moments of happiness will in turn start creating positive thoughts about yourself. This will change the way in which you perceive new challenges in your business and personal life.

So how do you create these moments of happiness in your business? It all starts at an ‘end’ funny enough. It starts at looking at where you would like to end. What is your business goal and the dream? Then, you need to start mapping out the achievable steps in getting to your dream. Even if it is a long term dream you still need to make short term steps. As you achieve your short-term steps, make sure to take a moment to celebrate your small successes and to tick them off. This will motivate you to work towards the next small victory.

Life is too short to only cherish the big goals in life. Remember, by being an SME entrepreneur you have already made a Neil-Armstrong-leap-of-faith! You have already ticked a major box! Now it is time to celebrate the small victories on your road to long term success! Here is to all the Marvel Superheroes in business, here is to me and to you!

9 Mar

Deemed Disposals and Tax Residency

Kirsten Van Tonder

Finance News Resident, South African, Tax

Section 9H of the Income Tax Act deals with matters relating to the cessation of residency in South Africa.

This section essentially states that where a person that is a resident ceases to be a resident during any year of assessment, that person must be treated as having disposed of his assets on the date immediately prior to ceasing his residency, and re-acquiring the same assets on a date immediately thereafter. This is referred to as a “deemed disposal”. Similarly, the year of assessment will be deemed to have ended immediately prior to the cessation and to have started on the next day.

Such a “deemed disposal” does not relate to the immovable property that such a person may hold in South Africa.

As a result of his ceasing to be a South African tax resident (an event simply declared by ticking a box on the annual income tax return when submitted), a so-called “deemed disposal” (also sometimes referred to as an “exit charge”) will be activated in terms whereof all the individual’s assets will be deemed to have been disposed of, at market value, on the day before he ceased to be a South African tax resident.

This event, therefore, potentially gives rise to capital gains tax incurred on the deemed disposal. Excluded from this regime, as stated above, is South African immovable property, cash and (although not explicitly stated, though included on a very technical basis) accumulated retirement-related funds. Apart from these assets, all remaining South African and other worldwide assets are included in the “deemed disposal” regime.

Before a taxpayer decides on cessation of tax residency, an investigation should be done into possible tax treaty relief the individual may qualify for. SARS has stated that “an individual who is deemed to be exclusively a resident of another country for purposes of a tax treaty is excluded from the definition of “resident”. It follows that while an individual may qualify as a resident under the ordinarily resident or physical presence tests, that individual will not be regarded as a resident for South African tax purposes if that person is a resident of another country when applying for a tax treaty.”

Based on this, it is clear that section 9H of the Income Tax Act immediately becomes applicable to a taxpayer in the case of financial emigration or the cessation of tax residency, for whatever reason, and may increase tax liability in the current year of assessment in which the cessation of residency occurs. One must, however, always remember the exemptions described above, and in the event that emigration and/or ceasing to be a tax resident is considered, pre-emigration planning is of utmost importance to ensure that a smooth and fluid transition plan is formulated.

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)

9 Mar

Are my donations being taxed?

Kirsten Van Tonder

Tax Donations, Funders, Tax

BPR 338 deals with the tax treatment of payments made to a Public Benefit Organisation (PBO) at a fundraising event, under section 30 of the Income Tax Act. The ruling is essentially an interpretation of section 18A of the Act and seeks to clarify the situation for PBOs and funders.

In terms of the transaction, the Applicant (a resident company registered as a PBO) will host an event for the explicit purpose of fundraising, but this event will be managed by a third-party events management company.

As is commonplace, persons attending the events will make payments to participate in activities taking place at the event, as well as make donations. The events management company manages an electronic system that will enable funders and donors to make payments at the event. This system is accessible through various roaming electronic touchscreen devices, developed for the distinct purpose of distinguishing between donations and payments for activities.

By the end of the evening, each attendee is required to settle their required payments in respect of the relevant transactions they entered into, with one single card payment. The system then determines which attendee is entitled to a section 18A certificate, as well as the amount to be reflected on the receipt. Only donations made by attendees are reflected on the section 18A receipt.

One condition and assumption of this ruling is that the payment tracking system must, as closely as practicable, conform to the one proposed and its intended function, accounting for the donations of money separately from payments, must be easily verifiable.

The ruling made by SARS is that donations made and identified as such by the applicant’s payment tracking system at the fundraising event will constitute bona fide donations made to a PBO under section 18A of the Act, and as such, the applicant may issue the donors with section 18A receipts in respect thereof.

9 Mar

Section 7C of The Income Tax Act

Kirsten Van Tonder

Tax anti-avoidance, Section 7C, Tax

What is section 7C?
This section of the Income Tax Act is an anti-avoidance measure aimed at transactions between connected persons and trusts, where a trust is funded by low interest or interest-free loans. This is usually done to ensure that assets form part of the trust’s capital, and the funder (who is usually a trustee or founder of the trust) allows for the transfer of ownership of the assets, and the creation of a loan account in said person’s favour.

The sections allow for any loan, advance or credit by a connected person, directly or indirectly to a trust, and this loan, advance or credit incurs no interest, on the loan, advance or credit, or incurs interest at a rate lower than the official rate, an amount equal to the difference between the amount of interest incurred, and the amount it would have incurred had an acceptable interest rate (official rate) been used, will be deemed as a donation in the hands of the lender. For purposes of this section, the same principle applies where a company who is owned by trust loans on terms that are not regarded as commercial or market-related and no interest is charged.

What is the reasoning behind section 7C?
Trusts have traditionally been a very popular estate planning tool. In the past, the practice was to sell growth assets to a trust and to then extend an interest-free loan to the trust for that sale price. That would mean that the estate of the seller would be pegged at that value because the loan would not increase in value as time goes by while the assets would grow in the trust. Section 7C seeks to address this practice, as it is argued such a transaction should be seen as having no commercial sense, as only the trust benefits. The seller earns no interest on the loan and hence derives no value or benefit.

How does section 7C work?
Section 7C deems the interest that is not levied or charged on an interest-free loan, as a deemed donation on the last day of each tax year for a loan that was outstanding for any period during that preceding tax year.

The interest forgone is calculated by using the official interest rate in the 7th Schedule to the Income Tax Act, currently being 7.25%. This would be regarded as a deemed donation on the last day of the tax year and as a consequence donations tax would be levied on that donation.

Where there is a low interest-bearing agreement, the difference of the official interest rate and the lower interest rate will determine the deemed donation.

Trusts and loan accounts

Should I be charging interest on a loan, advance or credit to a Trust?

Making section 7C practical will require the use of a few examples to illustrate its effect.

Example 1

A loan in the amount of R10 million is advanced by an individual to a trust with no interest charged by the lender. The individual will choose to apply his annual donations tax exemption of R100,000.00 to the deemed donation.

The deemed donation will be R725,000 (R10 million x 7.25%). The individual then applies his annual exemption of R100,000.

The donations tax liability will be calculated as follows: R625,000 x 20% = R125,000 which the individual will be required to pay.

Example 2

A loan in the amount of R10 million is advanced by an individual to a trust with an annual interest charge of 5% by the lender. For this example, we will ignore the lenders annual donations tax exemption.

The deemed donation will be calculated as follows: R10 million less x 2.25% (the difference between interest levied and the official rate or 7.25% – 5%). The deemed donation will be R225,000.

The actual donations tax liability is then R225,000 x 20% = R55,000. The lender may now apply his annual R100,000 donations tax exemption.

It is clear that the non-charging of interest, or charging at a lower rate, may result in an increase in personal tax liability for the lender.

1 … 9 10 11 12 13 … 28