Submit your 2017 Income Tax Return and avoid penalties

Posted on 28 of June, 2017 by in Tax

Annual Tax season is here, and Income Tax return submissions begin 1 July 2017. We’ve taken the liberty of answering frequently asked questions individuals may have. The South African Revenue Service (SARS) has allocated different submission deadlines dependant on the manner of the submission.

What are the submission deadlines for Income Tax Returns?

Please pay careful attention to the deadline applicable to you:

  • 22 September 2017 for manually submitted returns;
  • 24 November 2017 for returns submitted electronically at a SARS branch or via e-filling; or
  • 31 January 2018 for returns submitted by provisional taxpayers via e-filling.

Companies are exempt from the above-mentioned dates, as they are required to submit their returns within 12 month their financial year, via e-filing.

Who is required to submit, and who is exempt?

The threshold in respect of individuals required to submit a return is provided below:

  • Every individual who is a resident and had capital gains or losses that exceeded R40 000;
  • Individuals whose gross income exceeded
  1. R75 000 (if under 65 years),
  2. R116 150 (if older than 65 but under 75 years) or
  3. R129 850 (if older than 75)

A natural person, or a deceased’s estate is exempt from submission if their gross income consists solely of any one or more of the categories below;

  • Remuneration does not exceed R350 000 from a single source (including allowances);
  • They did not receive a car allowance or other income;
  • They received interest income from a source within South Africa that does not exceed:
  1. R23 800 (if you are younger than 65 years) or
  2. R34 500 (if you are 65 years and older);
  • They received dividends and were a non-resident during the 2017 year of assessment; and
  • received or accrued an amount from a tax-free investment.

What are the necessary supporting documents?

  • IRP5/IT3(a) certificate(s) from your employer or pension fund;
  • IT3(b) certificates for investment returns; such as interest and/or dividends
  • Financial statements (if applicable);
  • Medical aid contribution certificates and receipts for out-of-pocket medical expenses
  • ​Completed confirmation of diagnosis of disability form (ITR-DD) (if applicable)
  • Retirement fund certificates (pension, provident and retirement annuities);
  • Logbook and other documents in support of business travel expenses;
  • Bank account details; and
  • Any other relevant income and deduction information.

To curb penalties and interest related to late submission, we strongly recommend collating the respective documents in preparation for submission to SARS as soon as possible. Should you require assistance with your Income Tax return, please contact our offices.

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

Watch out for these cybercrimes

Posted on 20 of June, 2017 by in Other

We have all heard of phishing scams, online malware and the world of hacking. However, despite the fact that many people and companies have been unsuspectingly hit by online malware and have had data stolen, other scams often operate quietly and over a long period of time to steal more than just information. Here are some real-world scenarios of online scammers defrauding people of their money:

  1. Buying Online

Susan Parish shared her story on East Coast Radio regarding a scam she encountered. Her husband Russel had been doing some internet research into a buying French bulldog puppy. After exchanging many emails with the puppy owner, Chantel, who claimed to be based in the northern Cape, they agreed that he’d pay R2500 for the pup, via Pep voucher, and she’d fly the dog to Durban. Russel then left on a business trip, telling Susan to look out for an email from Chantel confirming the flight details. Instead she got an email from “EagleOne Courier”, saying they had the puppy, but the crate was not acceptable and the couple needed to pay R3000 for a temperature controlled one, R2950 of which would be refunded to them on its return. Susan paid that R3000, and then Chantel and her sidekick Robert disappeared.

  1. House Hunting

A couple who were buying their first home in Knysna had their R250,000 deposit stolen when a hacker scammed them into depositing the money into the wrong bank account. The scammer spoofed the e-mail address of the conveyancer and asked the buyer, Shandin Thompson, to deposit the money into their “trust account”. Not wanting to lose the deal on the home, Thompson and his wife arranged to pay the deposit a few days earlier than they had negotiated. Gmail didn’t flag the spoofed e-mails, and the banks didn’t flag the R250,000 transfer to the scammer’s account. The fact that the money had been paid into the wrong account wasn’t discovered for weeks.

  1. Cell phone Banking

A Durban businessman had more than R100 000 allegedly taken from his bank account when fraudsters were able to do a “SIM swop” on his SIM card in Johannesburg while he was at home in Glenwood. He claims fraudsters bypassed his online banking security features and accessed his account. The man, named Morris Smith, did not realise that someone pretending to be him had gone to a Vodacom store in Johannesburg, and was performing a SIM swop on his SIM card that enable a scam to access the funds in his online banking account. Later, Smith discovered that R107 480 had been stolen from his account, including R80 000 from his credit card account.

  1. Cloned Credit Card

A Knysna resident, Trent Read, had his bank card cloned by Sihle Dzingwa in Cape Town. Sihle’s intention was to make duplicate credit and debit cards using the information on Trent’s card. A cashier’s suspicions grew when the duplicated card that Sihle had attempted to purchase a laptop with had declined at a CNA in Brackenfell. Credit card cloning is done by illegally using a skimming device, which reads the information on the bank card strip, or by distractions at ATMs, where fraudsters are able to see your bank information during a withdrawal. 

  1. Intercepted Invoice

Amatola Water had contracted Malambo Construction to render services. But before the money could be paid out‚ Amatola Water received what looked like genuine correspondence from the service provider informing them of a change in banking details. Amatola Water then transferred an amount of R2.2 million into the newly provided bank account but were perplexed when representatives from Malambo Construction enquired about when their money would be paid. It was then discovered that someone fraudulently changed Malambo Construction’s banking details without their consent.

What to do if I am a victim?

  1. The first thing to do if you have been scammed through an online purchase is to report it to the classified site immediately. They will be able to collect information about the seller.
  2. Contact your bank’s fraud unit to lodge a claim, and if the transaction has not yet cleared, the funds will be frozen. Contact the scammers bank to retrieve the scammer’s particulars as linked to the account number.
  3. The first thing to do is to contact your service provider immediately. Measures will be taken to avoid further transactions with the use of your banking One-Time-Pin. Visit or contact your bank to notify them of the invalid transactions. Alternatively, you can change your Internet banking logon credentials online, and the changes will take effect within a few minutes. Call the Internet banking call centre to report the unauthorised sim swop.
  4. Contact your bank immediately to ensure that they cancel your card, and notify them of your cloned card incident.
  5. Once you have realised that you are a victim of invoice interception, contact both your bank and the receiving bank immediately notifying them of the transaction. Communicate with the original supplier, letting them know of the banking details you received on the intercepted invoice.
  6. In all instances where you have been a victim of cybercrime, report it at your nearest police station, and supply as much information as you can.

 Precautionary measures

  1. When making online purchases, ensure that the website is secured. The URL should have ‘https:’ and pay attention to the domain. The original may be .com, and the scammer may be staged as .co.za.
  2. When buying property, check the estate agent’s legitimacy by verifying their registration with the Estate Agents Affair Board (EAAB).
  3. Activate in-contact notifications linking your bank account to your cell phone number. Cell phone banking options allow you to check your balance frequently.
  4. Change your PIN often, and do not write it down on your card. If you must save it on your phone, disguise it in a phone number under a name you will remember. If your pin is 7532, an example of this would be: Harvey Spector – 082 333 7532.

If you receive new banking details from a usual supplier, contact the supplier to ensure that the changes are valid.

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

Interest free loans with companies

Posted on 17 of May, 2017 by in Tax

The latest annual nation budget presented in Parliament proposed the dividends tax rate to be increased with almost immediate effect from 15% to 20%. The increased rate brings into renewed focus what anti-avoidance measures exist in the Income Tax Act[1] that seeks to ensure that the dividends tax is not avoided.

Most commonly, the dividends tax is levied on dividends paid by a company to individuals or trusts that are shareholders of that company. To the extent that the shareholder is a South African tax resident company, no dividends tax is levied on payments to such shareholders.[2] In other words, non-corporate shareholders (such as trusts or individuals) may want to structure their affairs in such a manner so as to avoid the dividends tax being levied, yet still have access to the cash and profit reserves contained in the company for their own use.

Getting access to these funds by way of a dividend declaration will give rise to such dividends being taxed (now) at 20%. An alternative scenario would be for the shareholder to rather borrow the cash from the company on interest free loan account.  No interest accrues to the company on the loan account created (and which would have been taxable in the company) and the shareholder is able to access the cash of the company commercially. Moreover, since the shareholder is in a controlling position in relation to the company, it can ensure that the company will in future never call upon the loan to be repaid.

Treasury has for long been aware of the use of interest free loans to shareholders (or “connected persons”)[3] as a means first to avoid the erstwhile STC, and now the dividends tax. There exists anti-avoidance legislation; in place exactly to ensure that shareholders do not extract a company’s resources in the guise of something else (such as an interest free loan account) without incurring some tax cost as a result.

Section 64E(4) of the Income Tax Act provides that any loan provided by a company to a non-company tax resident that is:

  1. a connected person in relation to that company; or
  2. a connected person of the above person

“… will be deemed to have paid a dividend if that debt arises by virtue of any share held in that company by a person contemplated in subparagraph (i).” (own emphasis)

The amount of such a deemed dividend (that will be subject to dividends tax) is considered to be effectively equal to the amount of interest that would have been charged at prime less 2.5%, less so much of interest that has been actually charged on the loan account.

By taxing the interest component not charged, the very real possibility exists for the deemed dividend to arise annually, and for as long as the loan remains in place on an interest free basis.

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

[1] 58 of 1962

Interest free loans to directors

Posted on 24 of April, 2017 by in Tax

It is very often the case that a company extends an interest free or low interest loan to a director. This manifests either as a true incentive or benefit to that director (mostly the case in larger corporate environments) or in a small business environment in lieu of salaries paid. The latter is especially the case for example where a spouse or family trust would hold the shares in the company running the family business, but which business is conducted through the efforts of the individual to whom a loan is granted from time to time.

In terms of the Seventh Schedule to the Income Tax Act[1] a director of a company is also considered an “employee”.[2] This is significant, since directors can therefore also be bound by the fringe benefit tax regime applicable to employees generally.

Paragraph (i) of the definition of “gross income” in the Income Tax Act[3] specifically includes as an amount subject to income tax “the cash equivalent, as determined under the provisions of the Seventh Schedule, of the value during the year of assessment of any benefit … granted in respect of employment or to the holder of any office…”

Clearly, benefits received by a director of a company would therefore rank for taxation in terms of this provision. The question remains therefore whether loans provided to such directors by the companies where they serve in this capacity would amount to such a taxable benefit, and further how such benefit should be quantified.

Paragraph 2(f) of the Seventh Schedule is unequivocal in its approach that a taxable fringe benefit exists where “… a debt … has been incurred by the employee [read director], whether in favour of the employer or in favour of any other person by arrangement with the employer or any associated institution in relation to the employer, and either-

(i)            no interest is payable by the employee in respect of such debt; or

(ii)           interest is payable by the employee in respect thereof at a rate of lower than the official rate of interest…”

Paragraph 11 in turn seeks to quantify the amount of the taxable fringe benefit to be included in the gross income of the director. Essentially, the taxable fringe benefit would be equal to so much of interest that would have been payable on the loan at the prime interest rate less 2.5%, less any interest actually paid on the loan. The benefit therefore does not only arise on interest-free loans, but also on loans carrying interest at less than the prescribed interest rate.

It is necessary to note that a fringe benefit otherwise arising will not be a taxable benefit if the loan amount is less than R3,000, or if it is provided to the director to further his/her studies.

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

Practice Note 31 in the spotlight

Posted on 28 of March, 2017 by in Tax

The deductibility of interest for income tax purposes recently came under scrutiny in Mr X vs SARS,[1] and specifically the application of SARS’ Practice Note 31. As a general rule, expenditure would be deductible for income tax purposes if it meets all of the requirements in section 11(a) of the Income Tax Act, 58 of 1962:

“For the purpose of determining the taxable income derived by any person from carrying on any trade, there shall be allowed as deductions from the income of such person so derived … expenditure and losses actually incurred in the production of the income, provided such expenditure and losses are not of a capital nature…”

Of particular emphasis in the judgment referred to was whether interest in question was incurred:

  1. for the purposes of trade; and
  2. in the production of income.

The taxpayer, Mr X, was a director at a law firm since 2004 and advanced funds periodically to that firm to shore up its working capital reserves. On this loan account Mr X earned interest. At about the same time Mr X also purchased a house in Constantia and funded the purchase price by registering a mortgage bond over the property as security for a loan taken out with a local bank. This bank loan carried interest, and it is the deductibility of this interest that was in dispute.

The taxpayer sought to rely primarily on the provisions of Practice Note 31 to allow him to deduct the interest paid from the interest earned. Consensus existed between the parties that the Practice Note operates to deem interest paid to be for the purposes of trade, limited to the extent to which that the taxpayer in question would have earned interest income. Since Mr X limited the interest deductions claimed to the interest earned on his personal loan account, it appears to be undisputed that the interest paid on the home loan was to be treated as though it was incurred for purposes of trade in accordance with Practice Note 31 (even if technically speaking this was not the case).

What was in dispute though was whether the interest incurred towards the bank can be said to have been in the production of income, being the interest earned on the loan to Mr X’s employer. Mr X sought to put up various arguments why there was a sufficiently close link between the interest paid and the interest earned, primary among these being that had he not been required to advance loan funding to his employer he would have utilised such funds to repay part of his home loan and thus to reduce his interest expenditure.

In the end though and based on the facts, the court found against Mr X and thus held that the interest incurred was not in the production of the interest income on Mr X’s loan account, and therefore not deductible for income tax purposes. Of importance though is also the court’s finding that even though Practice Note 31 may very well deem interest paid to have been for the purposes of trade (to the extent that a comparative amount of interest is also earned), however this does not extend to the requirement that the interest be incurred in the production of income. Practice Note 31 does not address this requirement and taxpayers are still required to show a causal link between interest paid and interest earn to qualify it to be deducted for income tax purposes, even if a comparative amount of interest is also earned.

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

[1] As yet an unreported judgment, case number 13791 & 13792, 13 December 2016

Apportionment of VAT input claims

Posted on 20 of March, 2017 by in VAT

Generally speaking, the VAT portion of expenditure incurred by a VAT vendor in carrying on its enterprise may be claimed back from SARS when the VAT vendor submits is VAT returns on a periodical basis. Typically, these input tax claims are set off against the output tax liability that the VAT vendor may have. However, it is also often the case that the total input tax claims for a certain period may exceed the total output tax amount payable, resulting in a net refund amount due to the vendor for that particular period.

Section 17 of the VAT Act, 89 of 1991, governs the circumstances and the extent to which a registered VAT vendor may claim input tax to be set off against the output tax due to SARS. It specifically addresses those circumstances when goods or services are acquired partly for use as part of the VAT vendor’s enterprise, and partly for purposes of making VAT exempt or personal supplies. In such instances section 17(1) limits the amount of input tax to be claimed to “… an amount which bears to the full amount of such tax or amount, as the case may be, the same ratio (as determined by the Commissioner in accordance with a ruling …) as the intended use of such goods or services in the course of making taxable supplies bears to the total intended use of such goods or services”.

The ruling referred to in section 17(1) (Binding General Ruling 16, Issue 2) sets out the formula as:

y = a / (a + b + c) x 100

Where:

“y” =      the apportionment ratio/percentage;

“a” =      the value of all taxable supplies (including deemed taxable supplies) made during the period;

“b” =      the value of all exempt supplies made during the period; and

“c” =      the sum of any other amounts not included in “a” or “b” in the formula, which were received or which accrued during the period (whether in respect of a supply or not).

In other words, the calculation referred to aims to limit the input tax deduction to the extent that the expenditure item in question is incurred in the furtherance of the VAT enterprise only.

The calculation assumes that expenditure would be incurred by the VAT vendor generally proportionate to the total taxable supplies made by the enterprise vis-à-vis non-taxable supplies. It may very well be that that this assumption is inapplicable based on the facts of the VAT vendor. For example, where a company extends interest bearing loans to customers (thus exempt supplies) while also providing consulting services (a standard rate taxable supply), the above formula may very well be applicable to apportion the portion of input tax claimable on e.g. rent paid on offices and used both to earn interest and consulting income. However, where expenditure is incurred e.g. towards training for employees linked directly to the consulting business only, said expenditure would not be partly incurred for making taxable supplies and partly not, but wholly for the furtherance of the VAT enterprise and thus rank wholly as a claim for input tax.

BGR16 itself provides for an alternative basis of apportionment to be applied if a more appropriate basis exists. It should be borne in mind that section 17(1) also only comes into play if there is an apportionment to be made whatsoever.

We have noted that SARS is applying BGR16 strictly as part of VAT audits in recent months and even if it may be inappropriate to do so where it is to the disadvantage of taxpayers. Such instances should be monitored and pointed out to your tax advisors when applicable to take up with the SARS auditors timeously.

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

PAYE and directors’ (and members’) remuneration from 1 March 2017

Posted on 10 of March, 2017 by in Tax

Many would have noted reports in the national media that the Taxation Laws Amendment Act, 16 of 2016, was signed into law by President Zuma on 11 January 2017. One of the many changes that the Act brings into effect is the repeal of paragraph 11C of the Fourth Schedule to the Income Tax Act, 58 of 1962. The provision is repealed effective 28 February 2017, which means that a new regime is introduced for deducting PAYE from directors’ remuneration effective for the 2018 tax year commencing on 1 March 2017.

The repeal introduces a new dispensation for the calculation of employers’ liability to pay over PAYE on a monthly basis as relates to directors’ remuneration paid. (It bears reminding at this stage that members of close corporations are deemed to be directors for PAYE purposes too, so the same would apply to members’ remuneration paid from 1 March 2017.) Ironically, the “new” dispensation that now applies to directors’ remuneration is the same regime that has throughout applied to “regular” employees, and these regimes can now be said to be aligned.

The purpose of paragraph 11C was to provide for the unique circumstances presented in directors’ remuneration, whereby actual remuneration for directors would often be inconsistent and amount to ad hoc payments decided and approved from time to time.[1] Policy was therefore to have PAYE calculated on a notional amount calculated generally with reference to the actual directors’ remuneration paid out in the previous year of assessment.

However, with the introduction of section 7B (dealing with “variable remuneration”[2]) in the Income Tax Act itself in 2013, policy in this regard appears to have changed with National Treasury. If “regular” employees need to account for PAYE on an ongoing basis on variable remuneration (also inconsistent) received, the need to differentiate between employees and directors would fall away and no policy consideration would exist whereby there should be differentiated between the PAYE treatment of variable remuneration received by employees vis-à-vis directors’ remuneration.

The reference to section 7B is only relevant to explain the policy change. It is important to appreciate though that directors’ remuneration will likely not form part of “variable remuneration” as defined in section 7B, and therefore PAYE cannot be accounted for merely on an actual payment basis. PAYE should be calculated and paid over as and when remuneration accrues to an employee (with the exception of variable remuneration), and likewise to directors now too. This would be as and when the employee or director becomes entitled to the remuneration, and not only when the amounts are actually received subsequently (as would be the case for variable remuneration covered by section 7B).

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

[1] See the now archived SARS Interpretation Note 5 (Issue 2)

[2] A term defined in section 7B of the Income Tax Act

Crunching the numbers: Budget 2017

Posted on 8 of March, 2017 by in Tax

It is an astounding exercise to go through the numbers behind the annual national budget presented recently and to start to understand what it is that the various tax changes are aimed at achieving.

On 22 February 2017, Finance Minister Pravin Gordhan presented South Africa’s biggest budget yet, providing for budgeted Government expenditure over the 2017/2018 fiscal year of R1.6 trillion (or R1,563,300,000,000!) Of this, by far the most significant portion will be spent towards social services to be delivered in the form of education, healthcare, social protection (grants), and local development and infrastructure: R884bn, or 56.5%, to be exact. A further R198.7 billion is being allocated to defence and public safety, with agriculture and economic affairs receiving R241.6 bn. General administration (departments such as Treasury, Foreign Affairs and the various legislative organs) is to receive R70.7bn of the 2017 budget, while it is further notable that little over 10% is allocated to servicing Government debt.

On the income side, taxes remain Government’s primary source of revenue, and budgeted revenue in tax collections are estimated to be collected as follows:

Description ZAR bn %
Personal income tax 482.1 38.1
Corporate income tax 218.7 17.3
VAT 312.8 24.7
Customs and excise 96.1 7.6
Fuel levies 70.9 5.6
Other 84.9 6.7
Total 1,265.5 100

Direct income taxes, as have been the trend over the recent past, continues to be the major contributor to the Government purse at more than 55% and borne by those individuals economically active.

It was widely reported in the run-up to the budget speech that a shortfall in tax revenue of approximately R28bn would need to be provided for, and that the Minister would need to be creative in meeting this challenge and where he would raise taxes to cover this, especially considering that increased taxes inevitably acts as impediment to economic growth (estimated to reach 2.2% by 2019). The bulk of this additional R28bn to be collected will be received from the raising of the personal income tax and trust tax rate ceiling to 45% (R16.5bn), while the increased dividends tax rate raised from 15% to 20% is expected to raise a further R6.8bn.

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

Lenings aan Trusts

Posted on 10 of February, 2017 by in Trust

Nuwe belastingwetgewing, en spesifiek ‘n nuwe artikel 7C wat in die Inkomstebelastingwet ingevoeg is, het ‘n groot invloed op leningsrekenings wat deur ‘n trust aan ‘n verbonde persoon verskuldig is. Artikel 7C tree in werking op 1 Maart 2017 en is van toepassing op leningsrekenings wat ontstaan het voor of na 1 Maart 2017.

Hierdie artikel is van toepassing ten opsigte van enige lening, voorskot of krediet wat ‘n natuurlike persoon, of ‘n maatskappy of BK wat ‘n verbonde persoon is, direk of indirek aan die trust voorsien het indien —

  • die trust ‘n verbonde persoon met betrekking tot die leninggewer is, wat kortliks beteken dat daardie persoon of familielede van daardie persoon begunstigdes van die trust is; en
  • daardie lening geen rente dra nie of rente dra teen minder as die amptelike rentekoers van SARS, wat tans 8% per jaar beloop.

Kortliks kom dit daarop neer dat die rente wat deur die leninggewer verbeur word, beskou word as ‘n skenking. Die verskil tussen die bedrag bereken as 8% van die lening en die rente wat betaal word op die lening, word geag ‘n skenking te wees wat daardie persoon op die einde van elke belastingjaar, waartydens die lening bestaan, gemaak het en is onderhewig  aan skenkingsbelasting wat jaarliks betaal moet word. ‘n Persoon is geregtig om tot R100,000 per jaar te skenk sonder om aanspreeklik te wees vir skenkingsbelasting, en skenkingsbelasting van 20% is betaalbaar op enige skenkings wat daardie vrystelling te bowe gaan.

Veronderstel A het ‘n lening van R10 miljoen gemaak aan Trust waarop geen rente betaalbaar is nie en sodanige lening het vir die volle belastingjaar bestaan. Dit beteken dat A ‘n geagte skenking gemaak het van R800,000 (R10 miljoen x 8%) en na die jaarlikse vrystelling van R100,000 aanspreeklik is vir skenkingsbelasting op R700,000. Teen 20% beloop hierdie skenkingsbelasting R140,000.

Die skenkingsbelasting sal jaarliks betaalbaar wees vir solank as wat die betrokke lenings, waarop hierdie artikel van toepassing is, in die trust se boeke bestaan en dit is belangrik om daarop te let dat dit nie ‘n eenmalige skenkingsbelasting is nie.

Die bepalings van artikel 7C is nie van toepassing nie ten opsigte van sekere leningsrekenings verskuldig deur ‘n trust:

  • Lening aan ‘n trust wat kwalifiseer as ‘n openbare weldaadsorganisasie.
  • Lening aan ‘n trust waar al die begunstigdes gevestigde belange het wat toeskryfbaar is aan die begunstigde se bydrae tot die trust.
  • ‘n “Spesiale trust” soos gedefinieer, synde ‘n trust wat uitsluitlik opgerig is vir die voordeel van persone met sekere gestremdhede.
  • In die mate wat die betrokke lening deur die trust aangewend is vir die aankoop of bou van die primêre woonhuis van die leninggewer of sy/haar gade.
  • ‘n Internasionale transaksie waarop artikel 31(1) van toepassing is.
  • ‘n Lening ingevolge ‘n Sharia finansieringsreëling.
  • ‘n Lening deur ‘n maatskappy wat geag word ‘n dividend deur die maatskappy te wees.

Indien ‘n leningsrekening in die trust ontstaan het as gevolg van die toedeling van inkomste of kapitaal aan ‘n begunstigde, sal daardie bedrag ook vrygestel wees van artikel 7C, indien die trustees, in hulle diskresie, besluit het om sodanige distribusie op leningsrekening te krediteer, en die trustakte daarvoor voorsiening maak. Hierdie vrystelling sal egter nie van toepassing wees as daardie aksies plaasgevind het op versoek of by wyse van ooreenkoms met die begunstigde nie.

Die toepassing van hierdie artikel kan vermy word indien daar rente teen gemelde 8% op die leningsrekening betaalbaar is. Daar moet egter in gedagte gehou word dat hierdie rente-inkomste in die hande van die leninggewer is, en die rente in die trust slegs belastingaftrekbaar is indien bewys kan word dat hierdie rente aangegaan is in die voortbrenging van trustinkomste. Dit kan as voorbeeld van toepassing wees waar die trust ‘n huureiendom gekoop het, maar nie waar die trust die fondse aangewend het om in aandele te belê nie.

Dit word aanbeveel dat daar teruggegaan word in die geskiedenis ten einde ‘n behoorlike ontleding te doen van leningsrekenings in trusts, om te bepaal hoe sodanige leningsrekenings ontstaan het en hoe daardie fondse aangewend is. Terselfdertyd moet seker gemaak word of die betrokke trustakte daarvoor voorsiening maak dat die trustees in hulle diskresie mag besluit om toedelings wat gemaak is, nie onmiddellik uit te betaal nie.

Met behoorlike beplanning, tesame met professionele adviseurs, is dit in baie gevalle moontlik om in ‘n groot mate die negatiewe implikasies van hierdie nuwe wetgewing te vermy. Alle trustees van trusts en persone wat leningsrekenings in trusts het, word aangemoedig om professionele advies in die verband in te win.

Hierdie artikel is algemene inligtingsblad en moet nie as professionele advies beskou word nie. Geen verantwoordelikheid word aanvaar vir enige foute, verlies of skade wat ondervind word as gevolg  van die gebruik van enige inligting vervat in hierdie artikel nie. Kontak altyd finansiële raadgewer vir spesifieke en gedetailleerde advies. (E&OE)

Some pointers for planning your estate

Posted on 2 of February, 2017 by in Estate

The main aim of planning your estate is to ensure that as much of the accumulated wealth is utilised for your own benefit and for the maximum utilisation of dependents on your death.

“Estate planning” has been defined as the process of creating and managing a programme that is designed to:

  1. Preserve, increase and protect your assets during your lifetime;
  2. Ensure the most effective and beneficial distribution thereof to succeeding generations.

It is a common misconception that it revolves solely around the making of a Last Will and Testament, or the structuring of affairs so as to reduce estate duty.

Each person’s estate is unique and should be structured according to his/her own unique set of circumstances, goals and objectives.

The lack of liquidity on the date of death may cause for the deceased’s family members and dependents to suffer hardship, as certain assets might be sold by the executor to generate the cash needed.

Liquidity means that there should be enough cash funds to provide for:

  1. Paying estate duty;
  2. Settling estate liabilities and administration costs;
  3. Providing for other taxation liabilities that may arise at death, such as capital gains tax.

Technically the estate is frozen until such time as the Master of the High Court has issued Letters of Executorship.

Dying without executing a valid Last Will and Testament, your estate will be dealt with as an intestate estate, and the laws relating to intestate succession will apply. The Intestate Succession Act determines that the surviving spouse will inherit the greater of R250 000 or a child’s share. A child’s share is determined by dividing the total value of the estate by the number of the children and the surviving spouse. If the spouses were married in community of property, one half of the estate goes to the surviving spouse as a consequence of the marriage, and the other half devolves according to the rules of intestate succession. If there is no surviving spouse or dependents, the estate is divided between the parents and/or siblings. In the absence of parents or siblings, the estate is divided between the nearest blood relatives.

An executor is entitled to the following remuneration:

  1. Remuneration fixed by the deceased in the Last Will and Testament; or
  2. 3.5% of gross assets plus 6% of income accrued and collected from date of death.

Executor’s remuneration is subject to VAT where the executor is registered as a vendor.

Where the value of the estate exceed R3.5 million, estate duty will become payable on the balance in excess of R3.5 million, with the exception of the property bequeathed to a surviving spouse, which are exempt from estate duty and/or capital gains tax.

Section 3 of the Subdivision of Agricultural Land Act prevents the subdivision of agricultural land, and such land being registered in undivided shares in more than one person’s name is subject to Ministerial approval.

A minor child is a person under the age of 18 years of age, and any funds bequeathed to a minor child will be held by the Guardian’s Fund, which falls under the administration of the Master of the High Court. These funds are not freely accessible, and are usually invested at below market interest rates. It is thus advisable to provide for minors by means of a trust.

The Close Corporations Act provides that, subject to the association agreement, where an heir is to inherit a member’s interest (in terms of the deceased’s Will), the consent of the remaining members (if any) must be obtained. If no consent is given within 28 days after it was requested by the executor, then the executor is forced to sell the member’s interest.

Section 3(3)(d) of Estate Duty Act determines that where an asset is transferred to a trust during an estate planner’s lifetime, yet the estate planner, as trustee of the trust retains such power as would allow him to dispose of the trust asset(s) unilaterally for his own or his beneficiaries’ benefit during his lifetime, then such asset(s) may be deemed to be property of the estate planner and included in his estate for estate duty purposes.

Where the parties are married in community of property, the surviving spouse will have a claim for 50% of the value of the combined estate, thus reducing the actual value of the estate by 50%. The estate is divided after all the debts have been settled in a deceased estate (not including burial costs and estate duty, as these are the sole obligations of the deceased and not the joint estate). Only half of any assets can be bequeathed.

The proceeds from life insurance policies can be used to:

  1. Generate income to maintain dependents while the estate is dealt with;
  2. Pay estate expenses: funeral, income tax, estate administration, estate duty.

All proceeds of South African “domestic” policies taken out on the estate planner’s life, where there is no beneficiary nominated on the policy, will fall into his estate on his death.

Where a beneficiary is nominated on the policy, the proceeds will be deemed property for estate duty purposes, even and although they are paid directly to the beneficiary (subject to partial exemptions based on policy premiums).

Policies which are exempted from inclusion for estate duty purposes are buy and sell, key man policies, and those policies ceded to a spouse or child in terms of an antenuptial contract.

Certain assets in a deceased estate are excluded from capital gains tax:

  1. Assets for personal use (with certain exceptions);
  2. Assets that accrue to the surviving spouse;
  3. Assets bequeathed to approved public benefit organisations;
  4. The first R2 million in respect of a primary residence;
  5. Up to R1.8 million in respect of small business assets;
  6. Currency, excluding gold and platinum coins.

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