Tag Archive for: SARS

Andrew Stegmann
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12 Tax Law Changes That Have Recently Taken Place in South Africa

While the country was under lockdown, South African Revenue Service (SARS) and National Treasury have been hard at work, using this time to refine the law in SARS’ favour, says Roxanna Naidoo, admitted attorney at Tax Consulting South Africa. 

These changes do not refer to the Covid-19 tax relief changes, but are aimed at closing tax loopholes and to simply give SARS and the National Prosecuting Authority more teeth.

Ask your accountant or tax advisor to help you understand the amendments and their impact on your tax planning and tax compliance strategy, said Naidoo, alluding to a number of such amendments.

1. Raising of tax assessments by SARS simply using an estimate

SARS has had enough of taxpayers ducking and diving from their tax administration obligations. In terms of the new amendment, SARS has the power to raise an estimated assessment where the taxpayer does not respond to a request from SARS for relevant material, but this has been thought through carefully.

The law amendment also now ensures that taxpayers will be barred from lodging an objection if the taxpayer does not submit the material requested.

Should SARS have you on their radar or have questions subsequent to a lifestyle audit, ignoring a request for relevant material means SARS can raise an estimated assessment and impose penalties and interest.

Getting untangled from this, even where you are innocent, will become far more difficult. Make sure you take your accountant’s calls or respond to their emails, as adopting the ostrich approach will get you into deep trouble.

2. Employer provided bursaries

Are you an employer who has tax structured bursaries, including for relatives of your employees? Or perhaps an employee who has benefitted hereon in the past?

The law on this has been amended substantially and from 1 March 2021, using employer-provided bursaries as a mechanism to structure your remuneration from a tax perspective is no longer allowed.

These bursaries must be disclosed on your IRP certificate, and not doing so is a criminal offense. Thus, there is no place to hide hereon and this is truly something of the past. There are now very limited instances where this tax exemption can be utilised, as part of a tax optimal total reward strategy.

3. Withdrawal from retirement funds upon emigration

Have you emigrated or are you planning to emigrate from South Africa in the near future, with retirement funding in a pension preservation fund, provident preservation fund or retirement annuity fund?

You are on borrowed time if this is the case and you need to urgently finalise and file your financial emigration application, before 1 March 2021.

If you miss this deadline, your retirement funds will be locked-in for at least the next 3 years in South Africa.

We also expect more to come from the compulsory preservation of retirement funds, meaning the government may have the final say on how your retirement funds will be dealt with in future.

4. First good news item – unexpected tax relief for South Africans working abroad

Many expats were concerned that they would not make the 183-and-61 day tax exemption, as a result of the lockdown. SARS has kindly proposed to reduce, for a limited period, the 183 days requirement to 117 days.

This rule change creates interesting tax planning opportunities and requires a deeper look for anyone who was outside South Africa for more than 60 days continuously in 2019 or 2020.

5. Living Annuities and termination of trusts

The era of setting up personal trusts left right and centre has come to an end with the introduction of section 7C. There are still instances where old trusts make sense and limited instances where one’s objective is asset protection.

But if you think that creating a new trust will benefit you, perhaps you should get a second opinion from your accountant. You may sound important over dinner referring to your trust or even prevent your children from fighting over who gets the beach house, although inevitably they often still do.

But do not think for a second you will pay less tax, as the opposite is true. Where you have a trust with a living annuity, you need to be aware of the new law changes when considering the death of an annuitant.

6. Circumvention of the anti-avoidance rules for trusts

SARS has now amended the legislation in order to curb the abuse of the introduction of low interest or interest-free loans, advances or credits for trusts.

Just to rub salt in the wounds of those who still persist in thinking trust structures are tax-efficient, SARS has now shown that you need to stop listening to trust advisors who keep trying to find the next loophole. As SARS sees it, they will close it, leaving you with an overly complex trust structure that needs untangling.

7. Reimbursing employees for business travel

SARS has kindly relaxed their strict regulations when excluding business travel expenses. This is, however, subject to the employer’s policy provisions. Make sure your company travel policy is updated to utilise this tax relief.

This is very much part of the equal pay for equal work value methodology for responsible employers where employees were left with little recourse regarding these tax burdens due to an oversight or the employer’s failure to execute the instruction for reimbursement.

8. Roll over of amounts claimable under the employment tax incentive

Excesses of Employment Tax Incentive claims for non-compliant tax employers will now not be rolled over at the end of the PAYE reconciliation period. This is to protect taxpayers once they do become compliant.

9. Tax treatment of secured non IFRS 9 doubtful debt

If you own a business that has been negatively affected by Covid-19, you need to talk with your accountant regarding this change. SARS proposes to make provision for the amount of debt to be reduced, differentiating between taxpayers that apply IFRS9 and taxpayers that do not.

10. Potential tax avoidance caused by dividends deductions

Taxpayers were able to structure their investments in order to issue financial instruments to the investors that yield dividends, while it receives interest or other income on its financial assets, thus avoiding tax implications.

The new amendments now mean that taxpayers will no longer have the advantage of this loophole.

11. Refund need not be authorised where the matter is under criminal investigation

The proposed amendments further include that where you are subject to a criminal investigation in terms of the Tax Administration Act, any refund owed to you by SARS will be withheld pending the outcome of such investigation.

We can only hope this will not be abused by SARS officials, as we stand reminded by the fact that the Tax Ombud has found SARS guilty of delay tactics in paying refunds.

12. The most critical tax law change! Inclusion of the words  “Wilfully or negligently” in tax prosecution

Getting an admitted tax attorney involved on your taxes ensures legal privilege. SARS’ seemingly harmless inclusion of the words “willfully and negligently” when it comes to lesser tax offences increases liability for non-compliant taxpayers, with prosecution resulting in imprisonment or a hefty fine.

By not simply updating your details, forgetting to do something, or making an unintended error can now land you in real trouble.

Perhaps now is the time to take your tax administration and compliance extremely seriously, as SARS has just acquired its biggest ammunition yet to discourage non-compliance.

 

For information as to how Relocation Africa can help you with your Mobility, Immigration, Research, Remuneration, and Expat Tax needs, email info@relocationafrica.com, or call us on +27 21 763 4240.

Sources: [1], [2]. Image sources: [1], [2].

Andrew Stegmann
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Warning Over Government’s Plans to Change South Africa’s Emigration Finance Rules

A number of tax and financial groups have issued warnings over a new draft bill which will introduce changes for South Africans looking to take their retirement funds out of the country.

Under the current system, members of preservation funds and retirement annuity funds may withdraw from such funds if they formally emigrate from South Africa for exchange control purposes and their emigration is approved by the South African Reserve Bank

However, changes in the draft Taxation Laws Amendment Bill (TLAB) will effectively phase out the concept of emigration for exchange control purposes.

The amendment will mean that South Africans emigrating from the country will only be able to make a withdrawal when a retirement fund member has ceased to be an tax resident and has remained so for a consecutive period of at least three years.

The change has come under fire as the TLAB was the subject of public hearings in parliament on Wednesday (7 October).

Impractical and draconian

“The proposed requirement that an individual be non-resident for a period of three years prior to being entitled to access retirement funds is impractical, draconian and will present administrative difficulties for both SARS and taxpayers,” said professional services firm PwC in its submission.

The firm said that where an individual permanently departs from South Africa, the proposed rules could – depending on the particular circumstances of that individual – result in considerable financial hardship for an extended period of time before retirement funds are available.

“Under the current rules, a person who emigrates is entitled to withdraw their retirement funds immediately. Under the proposed rules, they would now need to wait for at least three years before being able to do so,” the firm said.

“Retirement funds are frequently required by emigrants to make emigration financially viable and the proposed rules will severely impact this.”

As an alternative, PwC recommended that the proposed three-year residence rule should be replaced with another ‘more practical rule’.

“For example, it could be linked to a person ceasing to be ordinarily resident in South Africa – as opposed to necessarily not tax resident,” it said.

The opposite of modern

In its submission,  Tax Consulting SA said that the amendment is at ‘cross purposes’ to its intended goal of a more ‘modern’ exchange control system.

It highlighted that under the new system , retirement benefits will effectively be locked in and will be inaccessible to the individual in question for a minimum period of three years, even after they have left South Africa permanently.

This restriction will only be lifted once the taxpayer in question is able to prove they have been non-resident for an uninterrupted period of at least three years.

“By any measure, this new test is the opposite of modernisation and a step back towards locking in retirement funds after becoming non-resident for tax and exchange control purposes,” it said.

“Furthermore, if the test is to be based on residency, it is not clear why withdrawal is subject to a period of three full years. If the taxpayer has ceased residency, why impose a punitive lock-in of this extent?,” the firm asked.

Tax Consulting SA that the proposed amendment will do away with a well-established process that allows emigrants to freely expatriate their retirement benefits with one that is far more restrictive and less transparent.

 

For information as to how Relocation Africa can help you with your Mobility, Immigration, Research, Remuneration, and Expat Tax needs, email info@relocationafrica.com, or call us on +27 21 763 4240.

Sources: [1], [2]. Image sources: [1], [2].

Andrew Stegmann

An Update on the 2019 Novel Coronavirus in Africa

With the rapid spread of the 2019 novel coronavirus (COVID-19) across the globe, we would like to inform all our clients and partners that we are closely monitoring the situation, in cooperation with our Consultants on the ground across Africa.

The virus

Health officials have determined that this novel strain of the coronavirus respiratory illness capable of spreading through human-to-human contact, droplets carried through sneezing and coughing, and germs left on inanimate objects. About one-fifth of all patients have been observed to become severely ill, ultimately leading to pneumonia and respiratory failure. Since symptoms take some time to show, health officials are also concerned that people with mild (or asymptomatic) symptoms may not be seeking medical care, and hence, all the cases are not being reported.

Avoiding those who have symptoms similar to those the virus causes, as well as washing your hands frequently (or using alcohol-based hand sanitizer if an alternative is needed) is recommended.

The current situation 

The virus has spread rapidly ever since it first appeared in the Chinese city of Wuhan in late December 2019. The World Health Organization has declared the disease a global health emergency.

More than 98% of all cases are coming from mainland China. It is also believed the actual number of 2019-nCoV cases in mainland China is likely much higher than that reported to date.

Apart from China, the virus has also been diagnosed in several other countries, including the United States, Canada, Hong Kong, Thailand, Macau, Australia, Japan, Malaysia, Singapore, Taiwan, France, South Korea, UAE, Vietnam, Cambodia, Germany, Belgium, Spain, Finland, Sweden, Ivory Coast, Sri Lanka, India, and Nepal.

Africa

Africa, along with South America, has recorded zero cases of the new disease despite its increasingly intimate links with China.

Ethiopian Airlines, Africa’s largest airline, is still running flights from China. As much as 1,500 passengers arrive from China each day – many of whom go on to travel to other African countries for business and tourism. Kenyan President Uhuru Kenyatta has urged Ethiopian airlines to cancel flights to China.

Ethiopian Airlines Chief Executive Officer Tewolde Gebremariam has defended the company’s decision to maintain flights to China, arguing that suspending flights to the country would not end the spread of the coronavirus outbreak.

“As WHO clearly stated that suspending flights to China would not end the coronavirus outbreak as victims of the virus are located in other countries,” Tewolde told The Reporter.

‘‘If we stop flying to China we can still bring passengers from Korea, the Philippines, Japan, Malaysia, Indonesia and Thailand and that originated from China. So the most important thing is to strengthen the passenger screening mechanism and follow the WHO procedures.’‘

Seventy percent of the Chinese passengers arriving Addis Ababa Bole International Airport transit to other African countries.

Tewolde says the airline has opted to follow the World Health Organisation’s (WHO) recommendations that emphasize screening, rather than travel restrictions.

We have received information from our Consultants in numerous countries in which we provide services, including Algeria, Angola, Cameroon, Ethiopia, Ghana, Ivory Coast, Kenya, Morocco, Mozambique, Namibia, Nigeria, Rwanda, Senegal, South Africa, Tanzania, Tunisia, Uganda, Zambia, and Zimbabwe. These countries are well-aware of the potential impact the virus could have locally, and many major airports have passenger screening systems set up. Many governments also have systems in place to provide information to citizens, to help them learn about the virus, and prevent its spread.

We have also been notified that the following number of cases have been recorded, but tested negative, thus far:

  • Ethiopia (4)
  • Ghana (9)
  • Namibia (1)
  • Botswana (1)
  • Zambia (1)

Morocco, Zimbabwe, Mozambique, Nigeria, Uganda, and Angola are among the African countries that have quarantine systems set up for those who may be carrying the virus.

South Africa

South Africans in the region had banded together, said Winslow Forbes, a South African who has been teaching in Wuhan since 2019. “The South African chat group compiled a list on Wednesday evening, and there were 78 of us in Wuhan. There may be more added now. “Many of my colleagues who went on vacation can’t travel back to Wuhan and they are stuck. The government hasn’t said anything about this coming to an end soon”.

South Africa’s National Institute of Communicable Diseases encourages the public to undertake measures to prevent the spread of respiratory infections. “People should adhere to avoiding close contact with people suffering from respiratory illness, wash their hands frequently, avoid markets where live animals are sold, and travelers with symptoms of acute respiratory infection should practice cough etiquette.”

Wuhan, China

Zhou Xianwang, the mayor of Wuhan, the Chinese city at the center of the coronavirus outbreak, has acknowledged criticism over his handling of the crisis, admitting that information was not released quickly enough.

Zhou wore a mask for protection as he told the Chinese state broadcaster CCTV: “We haven’t disclosed information in a timely manner and also did not use effective information to improve our work.”

There is anger among residents that the public were not informed earlier about the potential risks posed by the outbreak, which is thought to have begun in December, or told about what precautions to take.

Wuhan, home to 11 million people, remains under strict lock-down. Hospitals in the city are severely overstretched, running out of beds, testing kits and basic equipment. In response to the crisis, officials have built two designated hospitals to deal with an expected increase in cases.

Zhou stated in an interview with CCTV that 5 million residents left Wuhan before it went into lock-down. This includes people who traveled for the lunar new year festival, as well as those who fled to escape the virus and impending shutdown.

Experts have questioned whether the quarantine measures are helpful. The restrictions were announced hours before they were introduced, potentially encouraging cases to scatter across the country. Some fear severity of restrictions also risks creating anger towards health officials at a time when the public’s cooperation is desperately needed.

There are also doubts about the effectiveness of airport screening, following suggestions it is possible to be infected but not have any symptoms.

Chinese police censored doctor, and the government deleted online posts

The death of a whistleblowing Chinese doctor who was punished for trying to raise the alarm about coronavirus has sparked an explosion of anger, grief and demands for freedom of speech among ordinary Chinese.

Li Wenliang, 34, died in the early hours (local time) of Friday 7 February, after he was infected during the fight against the outbreak, said Wuhan central hospital, where he worked, in a statement.

Li warned colleagues on social media in late December about a mysterious virus that would become the coronavirus epidemic and was detained by police in Wuhan on 3 January for “spreading false rumors”. He was forced to sign a police document to admit he had breached the law and had “seriously disrupted social order.”

His death crystallized the outrage and frustration felt across China over the initial cover-up of the deadly virus. On Friday, China’s social media was awash with posts expressing immense anger and grief.

Li’s death became the top-read topic on China’s micro-blogging site Weibo overnight on Friday, with more than 1.5 billion views, and was also heavily discussed in private WeChat messaging groups, where people expressed outrage and sadness.

Even blog posts from state media outlets mourned his death and issued veiled attacks on the Wuhan authorities who censured him.

The strong public reaction appeared to have drawn the top leadership’s attention. The central commission for discipline inspection, the Communist party’s powerful internal anti-corruption body, and the national supervisory commission, the country’s highest anti-corruption agency, issued a one-sentence statement on their joint website that investigators will be sent to Wuhan to carry out “a comprehensive investigation into the problems reported by the public concerning Doctor Li Wenliang”.

Fearing that the uproar over Li’s death could spill over onto the streets, the authorities quickly deleted posts calling for action. A post forwarded on WeChat but now deleted said: “I hope one day we can stand on the street holding Li Wenliang’s picture.”

In Li’s last blog post on Weibo, China’s Twitter-like micro-blog, on 1 February, Li poignantly wrote: “The test results come out positive today. Everything is settled. It is confirmed.”

After his death, academics around China signed open letters addressing the Chinese government. 10 Wuhan professors signed one letter demanding the government enforce its own freedom of speech articles in the Constitution of the People’s Republic of China, along with apologizing to and compensating 8 coronavirus whistle-blowers.

Li was one of eight people who were detained for “spreading rumors” about the deadly disease’s outbreak – the fates of the other seven, also believed to be medical professionals, are not known.

Track the spread of the virus

In response to this ongoing public health emergency, researchers at Johns Hopkins University (JHU), in Baltimore, Maryland, USA, have created an online dashboard to track the spread of the virus across the world. You can bookmark this map to see live coronavirus updates.

 

For information as to how Relocation Africa can help you with your Mobility, Immigration, Research, Remuneration, and Expat Tax needs, email info@relocationafrica.com, or call us on +27 21 763 4240.

Sources: [1], [2], [3], [4], [5], [6], [7], [8]. Image sources: [1], [2].

Andrew Stegmann

South Africa Holds Tax Equalization Payments Taxable

This information is  courtesy of Pete Scott, via WERC

In a case decided 6 September 2019, the Supreme Court of Appeal of South Africa held that payments by an employer for consulting services to expatriate employees were taxable fringe benefits. The case is BMW South Africa v. Commissioner for the South African Revenue Service.

As is frequently done by companies with employees on expatriate assignments, BMW followed a tax equalization process designed to ensure that the employees are not tax disadvantaged from the assignment. In doing so, BMW hired big 4 consulting firms to assist the employees with tax matters, including registration as taxpayers, preparation and submission of income tax returns, review of annual income tax assessments, preparation and submission of provisional tax returns, and resolution of disputes with the tax authorities.

The South African Revenue Service (SARS) took the position that the payments made to the consultants were taxable fringe benefits to the employees. BMW argued that the services were in fact for its own benefit in order to ensure that South African taxes were neither overpaid nor underpaid and that employees did not run afoul of the tax authorities. It also argued that the employees did not receive a benefit because they had no choice but to accept the services, and that the employees were placed in a financially neutral position with respect to their taxes.

The court rejected these arguments, holding that ancillary benefit to the employer was not enough to remove a payment from treatment as a fringe benefit when the employees received services for which they would have had to pay significant amounts had BMW not provided them. Accordingly, the entire amount paid was taxable to the employees.

This position is similar to that taken by the United States Internal Revenue Service.

Employers with expatriate employees in South Africa must begin including in their incomes the value of tax equalization services provided to the employees, with consequent tax gross-up issues.

To view information about the case, click here.

 

For information as to how Relocation Africa can help you with your Mobility, Immigration, Research, Remuneration, and Expat Tax needs, email info@relocationafrica.com, or call us on +27 21 763 4240.

Sources: [1], [2]. Image sources: Ben Bezuidenhout [1], [2].